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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1999
REGISTRATION NO. 333-65889
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EL CONQUISTADOR PARTNERSHIP L.P., S.E.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)
------------------------
EL CONQUISTADOR RESORT & COUNTRY CLUB
1000 EL CONQUISTADOR AVENUE
FAJARDO, PUERTO RICO 00738
(787) 863-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
NOEL VERA-RAMIREZ
WYNDHAM RESORTS
6063 EAST ISLA VERDE AVENUE
CAROLINA, PUERTO RICO 00979
(787) 791-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
JAIME E. SANTOS, ESQ. JULIO L. AGUIRRE, ESQ.
PIETRANTONI MENDEZ & ALVAREZ LLP FIDDLER GONZALEZ & RODRIGUEZ, LLP
BANCO POPULAR CENTER, SUITE 1901 254 MUNOZ RIVERA AVENUE
SAN JUAN, PUERTO RICO 00918 SAN JUAN, PUERTO RICO 00918
PAMELA E. FLAHERTY, ESQ. SAMUEL T. CESPEDES, JR., ESQ.
SHACK & SIEGEL, P.C. MCCONNELL VALDES
530 FIFTH AVENUE 270 MUNOZ RIVERA AVENUE
NEW YORK, NEW YORK 10036 SAN JUAN, PUERTO RICO 00918
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
[CAPTION]
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<S> <C> <C> <C> <C>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
AMOUNT BEING OFFERING PRICE OFFERING REGISTRATION
TITLE OF SECURITIES BEING REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE(2)
<S> <C> <C> <C> <C>
Undivided interests in the Loan Agreement between Puerto
Rico Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Authority
('AFICA') and Registrant relating to certain AFICA
tourism revenue bonds.................................. $105,200,000 $5,000 $105,200,000 $ 30,946
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) $29,500 of the registration fee was paid with the initial filing on October
20, 1998 at the rates then in effect. $1,112 of the registration fee was
paid with the filing of Amendment No. 1 to the Registration Statement on
December 31, 1998 and $334 of the registration fee was paid with the filing
of Amendment No. 2 to the Registration Statement on April 16, 1999 at the
rates presently in effect.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
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CROSS REFERENCE SHEET
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<CAPTION>
CAPTION IN OFFICIAL STATEMENT AND
ITEM AND CAPTION IN FORM S-11 PROSPECTUS
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<C> <S> <C>
1. Forepart of the Registration Statement and Outside Front Cover
Page of Prospectus........................................... Front Cover Page of Registration Statement
and Outside Front Cover Page of Official
Statement and Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus........ Inside Front Cover Page of Official
Statement and Prospectus and Outside
Back Cover Page of Official Statement
and Prospectus
3. Summary Information, Risk Factors and Ratio of Earnings to
Fixed Charges................................................ Summary, Risk Factors and Selected
Financial Data
4. Determination of Offering Price................................ Not applicable
5. Dilution....................................................... Not applicable
6. Selling Security Holders....................................... Not applicable
7. Plan of Distribution........................................... Underwriting
8. Use of Proceeds................................................ Use of Proceeds
9. Selected Financial Data........................................ Selected Financial Data
10. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................ Management's Discussion and Analysis of
Financial Condition and Results of
Operations
11. General Information as to Registrant........................... El Conquistador Resort & Country Club and
El Conquistador Partnership
12. Policy with Respect to Certain Activities...................... El Conquistador Resort & Country Club, El
Conquistador Partnership and Policy with
Respect to Certain Activities
13. Investment Policies of Registrant.............................. Investment Objectives and Policies
14. Description of Real Estate..................................... El Conquistador Resort & Country Club
15. Operating Data................................................. El Conquistador Resort & Country Club
16. Tax Treatment of Registrant and its Security Holders........... The Bonds and Tax Consequences
17. Market Price of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters.............................. Not applicable
18. Description of Registrant's Securities......................... The Bonds
19. Legal Proceedings.............................................. Legal Proceedings
20. Security Ownership of Certain Beneficial Owners and
Management................................................... Security Ownership of Certain Beneficial
Owners and Management
21. Directors and Executive Officers............................... Management of El Conquistador Partnership
22. Executive Compensation......................................... Management of El Conquistador Partnership
23. Certain Relationships and Related Transactions................. Certain Relationships and Related
Transactions and El Conquistador
Partnership
24. Selection, Management and Custody of Registrant's
Investments.................................................. El Conquistador Resort & Country Club and
El Conquistador Partnership
</TABLE>
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<CAPTION>
CAPTION IN OFFICIAL STATEMENT AND
ITEM AND CAPTION IN FORM S-11 PROSPECTUS
--------------------------------------------------------------- ------------------------------------------
25. Policies with Respect to Certain Transactions.................. El Conquistador Partnership and Policies
with Respect to Certain Transactions
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26. Limitations of Liability....................................... El Conquistador Partnership
27. Financial Statements and Information........................... Financial Statements
28. Interests of Named Experts and Counsel......................... Not applicable
29. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities................................... Management of El Conquistador Partnership
and Underwriting
30. Quantitative and Qualitative Disclosures about Market Risk..... Not applicable
</TABLE>
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THE INFORMATION IN THIS OFFICIAL STATEMENT AND PROSPECTUS IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
OFFICIAL STATEMENT AND PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE OR
JURISDICTION WHERE THE OFFER IS NOT PERMITTED.
PRELIMINARY OFFICIAL STATEMENT AND PROSPECTUS DATED MAY 12, 1999
SUBJECT TO COMPLETION AND AMENDMENT
$105,200,000*
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL, MEDICAL AND
ENVIRONMENTAL CONTROL FACILITIES FINANCING AUTHORITY
TOURISM REVENUE BONDS, 1999 SERIES A
EL CONQUISTADOR RESORT PROJECT
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TERMS OF SALE
The final pricing of the bonds is shown on the inside cover page of this
official statement and prospectus. AFICA will issue the bonds and lend the
proceeds to El Conquistador Partnership L.P., S.E. Payments of principal and
interest will be made by El Conquistador. While AFICA is the issuer of the
bonds, the bonds do not constitute debt of the government of Puerto Rico. The
offering has been structured this way so that, under most circumstances,
interest on the bonds will be tax free to residents of Puerto Rico. The proceeds
to El Conquistador from this offering will be $ , after paying the
underwriting fees and commissions of $ . The bonds:
Are rated 'Baa2' by Moody's Investors Service, Inc.
Earn or accrue interest at fixed rates or yields ranging from % to
%, depending on their maturity date
Earn interest payable monthly, except the capital appreciation bonds, on
the first day of each month, commencing , 1999
Accrue interest compounded monthly on the capital appreciation bonds from
their date of delivery
Are subject to mandatory and optional redemption
Will be secured by a lien on substantially all of El Conquistador's assets
Will be issued in denominations or maturity amounts which are multiples of
$5,000
TAX RAMIFICATIONS OF THE BONDS AND THE INTEREST ON THE BONDS
The bonds may be exempt from Puerto Rico tax and United States tax if the
purchaser meets the requirements set forth on page 79.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 13, INCLUDING:
Possible inability of El Conquistador to pay principal and interest on the
bonds
Lack of asset diversification
of El Conquistador
Current financial difficulties of Patriot/Wyndham, the owners of El
Conquistador
Dependence on the operator of the resort
Possible adverse affects of competition, inflation, changes in tourists
preferences, economic and other conditions.
A glossary of certain defined terms is set forth on page 83.
- --------------------------------------------------------------------------------
EL CONQUISTADOR AND AFICA DO NOT INTEND TO APPLY FOR LISTING OF THE BONDS
ON A SECURITIES EXCHANGE. THERE WILL LIKELY BE NO SECONDARY MARKET FOR THE
BONDS.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION, INCLUDING THE
COMMISSIONER OF FINANCIAL INSTITUTIONS OF PUERTO RICO, HAS APPROVED THE BONDS OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS OFFICIAL STATEMENT AND PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
CITICORP FINANCIAL SERVICES CORPORATION
, 1999
- ------------
<PAGE>
<PAGE>
* Preliminary, subject to change.
<PAGE>
<PAGE>
$105,200,000*
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL, MEDICAL AND
ENVIRONMENTAL CONTROL FACILITIES FINANCING AUTHORITY
TOURISM REVENUE BONDS, 1999 SERIES A
(EL CONQUISTADOR RESORT PROJECT)
$ Serial Bonds, Issued as Follows:
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<CAPTION>
PRINCIPAL INTEREST
AMOUNT RATE MATURITY DATE PRICE
- ---------- -------- --------------------------------- -----
<S> <C> <C> <C>
$ % , 2002 100.0%
$ % , 2003 100.0%
$ % , 2003 100.0%
$ % , 2004 100.0%
$ % , 2004 100.0%
$ % , 2005 100.0%
$ % , 2005 100.0%
$ % , 2006 100.0%
$ % , 2006 100.0%
$ % , 2007 100.0%
$ % , 2007 100.0%
$ % , 2008 100.0%
$ % , 2008 100.0%
$ % , 2009 100.0%
</TABLE>
$ Term Bonds, Issued as Follows:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST
AMOUNT RATE MATURITY DATE PRICE
- ---------- -------- --------------------------------- -----
<S> <C> <C> <C>
Term Bonds Due ,
$ % 2014 100.0%
Term Bonds Due ,
$ % 2019 100.0%
Term Bonds Due ,
$ % 2024 100.0%
Term Bonds Due ,
$ % 2029 100.0%
</TABLE>
$ Capital Appreciation Bonds, Issued as Follows:
<TABLE>
<CAPTION>
INITIAL
PRINCIPAL MATURITY
AMOUNT AMOUNT YIELD
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<S> <C> <C>
$ $ %
</TABLE>
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* Preliminary, subject to change.
<PAGE>
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SUMMARY........................................ 3
The Bonds................................. 3
Risk Factors.............................. 4
Tax Consequences.......................... 5
Rating.................................... 5
Underwriters.............................. 5
El Conquistador Partnership............... 5
El Conquistador Resort & Country Club..... 6
Management and Marketing of the Resort.... 6
Ownership Structure....................... 7
Continuing Disclosure..................... 8
Effect of Hurricane Georges............... 8
Summary Financial Information............. 9
Disclosure Regarding Forward-Looking
Statements.............................. 12
RISK FACTORS................................... 13
USE OF PROCEEDS................................ 23
EL CONQUISTADOR RESORT & COUNTRY CLUB.......... 24
General................................... 24
Access.................................... 26
Casino Credit Policy...................... 26
Government Regulation and Licensing....... 26
Seasonality............................... 26
Competition............................... 27
Employees................................. 27
Property.................................. 28
Management and Marketing of the Resort and
Las Casitas Village..................... 28
Golden Door'r' Spa........................ 31
Las Casitas Village Arrangements.......... 31
Further Development of Las Casitas
Village................................. 32
Available Information..................... 32
EL CONQUISTADOR PARTNERSHIP.................... 32
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
BENEFICIAL OWNERS............................ 34
MANAGEMENT OF EL CONQUISTADOR PARTNERSHIP...... 37
Executive Officers of El Conquistador..... 37
Officers and Directors of the Managing
General Partner......................... 39
Compensation of Executive Officers of El
Conquistador............................ 39
Limitations on the Liability of Affiliated
Persons................................. 39
SELECTED FINANCIAL DATA........................ 41
<CAPTION>
PAGE
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................... 44
General................................... 44
Results of Operations..................... 44
Financial Condition....................... 48
Taxes..................................... 52
Inflation................................. 52
Seasonality............................... 52
Effect of Hurricane Georges............... 52
Year 2000 Compliance...................... 53
LEGAL PROCEEDINGS.............................. 56
POLICY WITH RESPECT TO CERTAIN ACTIVITIES...... 57
INVESTMENT OBJECTIVES AND POLICIES............. 57
POLICIES WITH RESPECT TO CERTAIN
TRANSACTIONS................................. 58
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................. 58
THE BONDS...................................... 60
General................................... 60
Trustee................................... 60
Book-Entry Only System.................... 60
Redemption................................ 62
Sources of Payment and Security for the
Bonds................................... 65
SUMMARY OF THE LOAN AGREEMENT.................. 67
Bond Proceeds............................. 67
Maintenance and Operation of the Resort... 67
Disposition of Project; Assignment of Loan
Agreement; Merger or Consolidation of El
Conquistador............................ 67
Maintenance of Source of Income;
Additional Interest Upon Event of
Taxability.............................. 68
Covenants................................. 69
Events of Default and Remedies............ 70
Limitation on Partner's Liability......... 71
Amendments and Supplements to the Loan
Agreement and the Related Documents..... 71
SUMMARY OF THE TRUST AGREEMENT................. 72
Project Fund.............................. 72
Bond Fund................................. 72
Reserve Fund.............................. 72
Renewal and Replacement Fund.............. 73
Investment of Funds....................... 73
</TABLE>
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PAGE
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Events of Default......................... 74
Acceleration of Maturities................ 75
Enforcement of Remedies................... 75
Amendments and Supplements to the Trust
Agreement............................... 76
Defeasance................................ 76
AFICA.......................................... 77
General................................... 77
Governing Board........................... 77
Outstanding Revenue Bonds and Notes of
AFICA................................... 78
GOVERNMENT DEVELOPMENT BANK FOR PUERTO RICO.... 78
TAX CONSEQUENCES............................... 79
RATING......................................... 80
LEGAL INVESTMENT............................... 80
<CAPTION>
PAGE
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<S> <C>
UNDERWRITING................................... 80
LEGAL MATTERS.................................. 81
CONTINUING DISCLOSURE COVENANT................. 81
REPORTS OF EL CONQUISTADOR PARTNERSHIP......... 83
EXPERTS........................................ 83
GLOSSARY....................................... 83
MISCELLANEOUS.................................. 84
INDEX TO FINANCIAL STATEMENTS.................. F-1
FORM OF OPINION OF BOND COUNSEL................ A-1
ACCRETION TABLE FOR CAPITAL APPRECIATION
BONDS........................................ B-1
</TABLE>
<PAGE>
<PAGE>
SUMMARY
This Summary highlights selected information from this official statement
and prospectus. It may not contain all of the information that is important to
you. To understand the terms of the bonds, you should carefully read this
official statement and prospectus, including the financial statements and the
notes to the financial statements of El Conquistador Partnership L.P. S.E.,
formerly known as El Conquistador Partnership L.P. No person is authorized to
detach this Summary from this official statement and prospectus or otherwise to
use it without the entire official statement and prospectus.
El Conquistador changed its fiscal year-end to December 31 from March 31
effective for the fiscal year (nine months) ended December 31, 1997.
Additionally, financial data for the period March 1, 1998 through December 31,
1998 and the 3-month period ended March 31, 1999 is under a new basis as a
result of the acquisition of El Conquistador by Patriot/Wyndham. El Conquistador
has provided information for the 12-month periods ended December 31, 1998 and
1997 and the 3-month periods ended March 31, 1999 and 1998 throughout this
official statement and prospectus. El Conquistador believes that information for
a 12-month period ended December 31 is a more accurate reflection of its results
of operations and makes the information for the periods from January 1, 1998
through February 28, 1998 and from March 1, 1998 through December 31, 1998
comparable to a 12-month period. El Conquistador also believes that information
for a three month period ended March 31 is a more accurate reflection of its
results of operations and makes the information for the periods January 1, 1998
through February 28, 1998 and from March 1, 1998 through March 31, 1998
comparable to a 3-month period. These beliefs are based on the fact that the El
Conquistador's business is seasonal with the high season occurring primarily in
the fiscal quarter ended March 31.
Las Casitas Village is a condominium complex with 90 privately owned units.
Substantially all of the units are made available to the resort as guest rooms
through individual year-to-year rental agreements. For a complete discussion of
Las Casitas Village, see 'EL CONQUISTADOR RESORT & COUNTRY CLUB.' Except as
specifically noted, financial and other information contained in this official
statement and prospectus with respect to El Conquistador Resort & Country Club
does not include information with respect to Las Casitas Village other than the
inclusion in room revenue of net revenues retained by El Conquistador from the
rental agreements with the unit owners.
THE BONDS
TITLE OF SECURITY. $105,200,000* Puerto Rico Industrial, Tourist,
Educational, Medical and Environmental Control Facilities Financing Authority
Tourism Revenue Bonds, 1999 Series A (El Conquistador Resort Project).
THE ISSUER AND SOURCES OF PAYMENT. AFICA will issue the bonds and lend the
proceeds to El Conquistador under a loan agreement. The loan agreement obligates
El Conquistador to pay the principal and interest on the bonds. El Conquistador
will pay the bonds from cash it generates from the resort.
USE OF PROCEEDS. El Conquistador will use the loan proceeds to repay
Citicorp Real Estate, Inc. a $90,000,000 interim loan and related interest, to
fund certain reserves and to pay certain costs and expenses of issuing the
bonds. The proceeds of the interim loan were used to repay The Bank of
Tokyo-Mitsubishi, Ltd. for advances made by it to redeem outstanding bonds
issued by AFICA in 1991. The 1991 bonds were issued to finance the development
and construction of the El Conquistador Resort & Country Club.
INTEREST ON THE BONDS. Interest on the bonds, other than capital
appreciation bonds, will be paid to you monthly on the first day of each month,
commencing on , 1999. Interest will accrue on such bonds from
, 1999. Additionally, interest will be paid to you at maturity or
redemption. Interest on the capital appreciation bonds will be compounded
monthly on
- ------------
* Preliminary, subject to change.
3
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the first day of each month from their issuance until their maturity. Interest
on the capital appreciation bonds will be payable at their maturity or
redemption. Interest will be computed using a 360-day year of twelve 30-day
months.
DETAILS OF THE BONDS. The bonds will be issued in the total principal
amount of $105,200,000. $ of the bonds will be serial bonds maturing at
six-month intervals commencing 2002 as set forth on the inside front
cover page of this official statement and prospectus. $ of the bonds will be
term bonds maturing at five-year intervals commencing 2009 as set
forth on the inside front cover page of this official statement and prospectus.
$ of the bonds will be capital appreciation bonds maturing as set forth on
the inside front cover page of this official statement and prospectus.
The bonds will be issued under a trust agreement between AFICA and Banco
Santander Puerto Rico, as trustee. The bonds will be issued in registered form,
without coupons, in denominations or maturity amounts which are multiples of
$5,000. The bonds will be registered under The Depository Trust Company
book-entry only system. This means that you will not receive a certificate for
any bonds you purchase. Your ownership interest in the bonds will be recorded in
the Depository's book-entry only system.
SECURITY FOR THE BONDS. The bonds will be secured by a lien on
substantially all the assets of El Conquistador as well as a reserve fund of
$9,100,000.
MANDATORY REDEMPTION OF BONDS. Some or all of the bonds may be required to
be redeemed if all or a portion of the resort is condemned or damaged. Some or
all of the bonds are required to be redeemed if the resort stops operating or if
there is a second occurrence of an Event of Taxability.
In addition, the term bonds are periodically subject to mandatory
redemption in part. For a schedule of term bond redemptions, see 'THE
BONDS -- Redemption -- Mandatory Redemption Other Than Upon Event of
Taxability.'
OPTIONAL REDEMPTION OF BONDS. El Conquistador has the right to redeem all
or part of the bonds, on and after , 2009. The redemption prices
are set forth below. The redemption prices are expressed as a percentage of the
outstanding principal amount of such bonds, and do not include interest.
<TABLE>
<CAPTION>
REDEMPTION
REDEMPTION PERIOD PRICE
- --------------------------------------------------------------------------------- ----------
<S> <C>
, 2009 - , 2010.................................... 102.0%
, 2010 - , 2011.................................... 101.0%
, 2011 and thereafter............................................. 100.0%
</TABLE>
BONDS ARE LIMITED OBLIGATIONS OF AFICA. The bonds are limited obligations
of AFICA payable solely out of payments made by El Conquistador under the loan
agreement. The bonds do not constitute an indebtedness of the government of
Puerto Rico or any of its political subdivisions. Neither the government of
Puerto Rico nor any of its subdivisions will be liable for payment of the bonds,
except as provided above. AFICA is the issuer of the bonds and acts as a
pass-through entity so that under most circumstances, interest on the bonds will
be tax free to Puerto Rico residents.
RISK FACTORS
The bonds are subject to certain risks that could affect the ability of El
Conquistador to pay the principal of and interest on the bonds. You should
review the section entitled 'RISK FACTORS' for a discussion of certain risks
associated with an investment in the bonds. Some of these risks are:
All of El Conquistador's income is generated from a single asset -- the
resort. El Conquistador's ability to make payments on the bonds is
dependent solely on the performance of the resort.
4
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<PAGE>
The operations and revenues of the resort are affected by a number of
factors that are outside of the control of El Conquistador, including
competition, seasonality of the hotel industry, potential overbuilding in
the industry, general economic conditions, weather conditions, droughts
and water shortages, hurricanes and other natural disasters, and the cost
and availability of labor, insurance and utilities.
Properties like the resort are relatively difficult to sell, which may
affect the ability of bondholders to foreclose on and sell El
Conquistador's property in the event such actions were necessary to pay
the bonds.
There will likely be no secondary market for the bonds.
Each of Williams Hospitality Group Inc., Wyndham Management Corporation
and Grand Bay Management Company is an affiliate of El Conquistador.
Williams Hospitality and Wyndham Management also operate other hotel and
resort properties in Puerto Rico and the Caribbean and, therefore, there
is a potential for conflicts of interest to arise.
TAX CONSEQUENCES
Provided El Conquistador complies with the source of income covenants in
the loan agreement, it is the opinion of Fiddler Gonzalez & Rodriguez, LLP, bond
counsel, that the bonds and the interest on the bonds are exempt from or not
subject to:
(1) Puerto Rico income taxes and municipal property and license taxes,
(2) under certain circumstances, Puerto Rico gift and estate taxes,
and
(3) United States income tax when received by:
(a) individuals who are bona fide residents of Puerto Rico during
the entire taxable year in which such interest is received, or
(b) foreign corporations, including Puerto Rico corporations, and
such interest is not effectively connected with the conduct of
trade or business in the United States.
If you are a person or entity described in (3)(a) or (b) above and you have
to pay United States income tax on the interest paid on the bonds because El
Conquistador fails to comply with the source of income provisions of the loan
agreement, El Conquistador will be required to pay you additional interest. The
actual interest paid to you on the bonds plus any additional interest will not
exceed 12% of the outstanding principal amount of the bonds which you own during
any taxable year of El Conquistador. The additional interest that El
Conquistador may be required to pay to you if the interest on the bonds becomes
taxable in the United States may not be enough for you to have as much income
after payment of taxes as you would have had if interest on the bonds remained
tax free.
RATING
The bonds will initially be rated 'Baa2' by Moody's Investors Service, Inc.
There is no assurance that such rating will remain in effect for any given
period of time or that it will not be revised downward or withdrawn entirely by
Moody's if, in its sole judgment, circumstances so warrant.
UNDERWRITERS
The underwriters of the bonds are Citicorp Financial Services Corporation.
The underwriters have agreed to purchase the bonds at an aggregate discount of
$ from the initial offering price of the bonds shown or derived from
information shown on the inside front cover page of this official statement and
prospectus.
EL CONQUISTADOR PARTNERSHIP
The resort is owned by El Conquistador. El Conquistador owns no assets
other than the resort. El Conquistador's sole business is the ownership of the
resort and entering into a management agreement for the operation of the resort.
5
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<PAGE>
El Conquistador is a Delaware limited partnership organized on January 16,
1990 under the Delaware Revised Uniform Limited Partnership Act. El
Conquistador's mailing address in Puerto Rico is 1000 El Conquistador Avenue,
Fajardo, Puerto Rico 00738. El Conquistador's telephone number at this location
is (787) 863-1000. The managing general partner of El Conquistador is WKA El Con
Associates.
El Conquistador is beneficially owned approximately 77% by Patriot American
Hospitality, Inc. and approximately 23% by Wyndham International, Inc. Patriot
is a real estate investment trust specializing in the ownership of hotels.
Wyndham owns and operates hotels under several brand names including Wyndham
Resorts'r' and Grand Bay'r'. On March 1, 1999, Patriot/Wyndham announced that
Patriot will be merged into and become a subsidiary of Wyndham. As a result of
the merger, Wyndham will beneficially own substantially all of El Conquistador.
The merger is expected to be completed by June 30, 1999.
EL CONQUISTADOR RESORT & COUNTRY CLUB
El Conquistador Resort & Country Club is a world class destination resort
complex. The resort consists of 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 10,000 square
foot casino, 25 retail shops, a fitness center and five pool areas, situated on
a bluff overlooking the convergence of the Atlantic Ocean and the Caribbean Sea
in Fajardo, Puerto Rico. The resort also features a secluded beach located on a
private island three miles offshore known as Palominos Island.
The resort also generally has available 90 condominium units known as Las
Casitas Village, which provides up to another 167 rooms to the inventory of
luxury rooms available to the resort. Las Casitas Village condominium units are
owned by third parties substantially all of whom make the units available to the
resort through individual year-to-year rental agreements. Las Casitas Village
also features a Golden Door'r' spa which is available to all guests of the
resort.
The resort's average occupancy and average room rate for certain periods
were as follows:
<TABLE>
<CAPTION>
AVERAGE
AVERAGE DAILY
PERIOD OCCUPANCY RATE REVPAR(1)
- --------------------------------------------------- --------- ------- ---------
<S> <C> <C> <C>
3-months ended 03/31/99............................ 84.5% $326.60(2) $275.98(2)
3-months ended 03/31/98............................ 83.0% $322.17(2) $267.40(2)
12-months ended 12/31/98........................... 72.3% $213.39 $154.28
12-months ended 12/31/97........................... 73.3% $202.77 $148.63
</TABLE>
- ------------
(1) RevPAR is equal to average daily rate multiplied by average occupancy.
(2) As a result of a change in accounting policy effective as of January 1,
1999, certain revenue that was historically classified as other income
is now classified as room revenue. For comparative purposes, the data
for the three months ended March 31, 1998 has been adjusted to reflect
such reclassification.
MANAGEMENT AND MARKETING OF THE RESORT
The resort has historically been managed by Williams Hospitality, an
affiliate of El Conquistador. As of January 16, 1998, Wyndham, the owner of the
Wyndham Resorts'r' and Grand Bay'r' brands, acquired the majority interest in
Williams Hospitality and in March 1998 acquired the remaining interests. El
Conquistador has entered into an amended and restated management agreement with
Williams Hospitality. At the same time, Williams Hospitality entered into an
agreement with Wyndham Management with respect to the management of the resort
and Las Casitas Village. Under this agreement, the resort will be marketed as a
Wyndham Resort'r'. Additionally, Williams Hospitality entered into a marketing
agreement with Grand Bay Management Company providing for the marketing of Las
Casitas Village as a Grand Bay'r' hotel and the use of the Grand Bay reservation
system for Las Casitas Village. All of the management and marketing agreements
became effective as of January 1, 1999.
6
<PAGE>
<PAGE>
OWNERSHIP STRUCTURE
As a condition to this offering, immediately prior to this offering the
ownership structure of El Conquistador will change. The new ownership structure
of El Conquistador, and its relationship to Williams Hospitality and Wyndham
Management will be as follows:
[GRAPHIC OMITTED]
<PAGE>
<PAGE>
El Conquistador has no current relationship with AFICA. In 1991, El
Conquistador raised $120,000,000 through an AFICA financing the proceeds of
which were used for the purchase and development of the resort. The 1991 AFICA
financing was repaid in August 1998.
CONTINUING DISCLOSURE
El Conquistador will enter into an undertaking for the benefit of the
bondholders and the beneficial owners of the bonds to file financial information
and operating data, including audited financial statements, on an annual basis.
El Conquistador will also provide notice of certain events, including defaults,
draws on reserves, bond calls and rating changes. Such filings and notices will
be provided to nationally recognized municipal securities information
repositories and any Puerto Rico state information depository. Such filings will
be made pursuant to Rule 15c2-12 promulgated by the SEC under the Securities
Exchange Act of 1934.
EFFECT OF HURRICANE GEORGES
Hurricane Georges passed through Puerto Rico on September 21 and 22, 1998.
The Hurricane caused approximately $32,000,000 of property related damage to the
resort. As a result of the damage, the resort was closed during the period
September 22, 1998 through October 2, 1998. All of the physical damage and
business interruption suffered by El Conquistador, except $180,000, is covered
by insurance. As of April 30, 1999, El Conquistador has received approximately
$28,000,000 of insurance proceeds to repair physical damage at the resort.
8
<PAGE>
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth selected income data and balance sheet data
of El Conquistador. The selected income data and balance sheet data are derived
from the financial statements of El Conquistador for the period from March 1,
1998 to December 31, 1998 (successor partnership) and for the period from
January 1, 1998 to February 28, 1998, and the fiscal years ended December 31,
1997 (9 months) and March 31, 1997 (predecessor partnership), which have been
audited. The financial statements and notes thereto as of December 31, 1998 and
December 31, 1997 and for the period from March 1, 1998 to December 31, 1998
(successor partnership) and the period from January 1, 1998 to February 28,
1998, and the fiscal years ended December 31, 1997 (9 months) and March 31, 1997
(predecessor partnership) are included in this official statement and
prospectus, and include an explanatory paragraph which describes an uncertainty
about El Conquistador's ability to continue as a going-concern if the offering
of the bonds is not completed. The financial data for the period from March 1,
1998 to December 31, 1998 is under a new basis as a result of the acquisition of
El Conquistador by Patriot/Wyndham.
The pro forma operating information for the 12-month period ended December
31, 1998 and the 3-month period ended March 31, 1999 are intended to give you an
idea of what El Conquistador's business might have looked like if the following
transactions had occurred on January 1, 1998 and 1999, respectively:
this offering of $105,200,000 of bonds with an assumed blended interest
rate of 6.215%;
repayment of the $90,000,000 interim loan made by Citicorp Real Estate;
the effective date of the amended and restated management agreement;
the effective date of the acquisition of El Conquistador by
Patriot/Wyndham;
a $15,000,000 capital contribution to El Conquistador by Conquistador
Holding, Inc.; and
repayment of the long-term debt of $25,000,000 owed to the Government
Development Bank for Puerto Rico by El Conquistador.
The pro forma balance sheet assumes such transactions had occurred as of
the pro forma balance sheet date.
The pro forma data is unaudited.
The data below should be read in conjunction with the financial statements,
related notes and other financial information included in this official
statement and prospectus.
EBITDA represents earnings (loss) before interest expense, income taxes,
depreciation and amortization. El Conquistador believes that EBITDA is a useful
measure of operating performance because (A) it is industry practice to evaluate
hotel companies based on operating income (loss) before interest, depreciation
and amortization and minority interests, which is generally equivalent to
EBITDA, and (B) EBITDA is unaffected by the debt and equity structure of the
entity. EBITDA:
does not represent cash flow from operations as defined by generally
accepted accounting principles;
is not necessarily indicative of cash available to fund all cash flow
needs;
should not be considered as an alternative to net income under generally
accepted accounting principles for purposes of evaluating El
Conquistador's results of operations; and
may not be comparable to other similarly titled measures used by other
companies.
9
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR TWELVE
(NINE TWELVE MONTHS
MONTHS) MONTHS JANUARY 1 MARCH 1 ENDED
FISCAL YEAR ENDED MARCH 31, ENDED ENDED TO TO DECEMBER 31,
------------------------------- DECEMBER 31, DECEMBER 31, FEBRUARY 28, DECEMBER 31, 1998
1995 1996 1997 1997 1997 1998 1998 PRO FORMA
-------- -------- --------- ------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT ROOM AND OCCUPANCY DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Selected Statement
of Income Data:
Revenues:
Rooms......... $ 37,943 $ 38,817 $ 40,025 $ 25,130 $ 40,734 $ 10,756 $ 31,535 $ 42,291
Food and
beverage.... 27,298 26,189 26,235 17,429 26,030 6,475 22,370 28,845
Casino........ 6,055 6,179 6,005 3,554 5,548 932 4,127 5,058
Other
income...... 14,652 19,166 21,959 14,472 23,478 6,749 19,490 26,240
-------- -------- --------- ------------ ------------ ------------ ------------ ------------
85,948 90,351 94,224 60,585 95,790 24,912 77,522 102,434
Less casino
promotional
allowance... (1,205) (1,137) (1,266) (458) (875) (159) (620) (778)
-------- -------- --------- ------------ ------------ ------------ ------------ ------------
Total
revenues... $ 84,743 $ 89,214 $ 92,958 $ 60,127 $ 94,915 $ 24,753 $ 76,902 $101,656
-------- -------- --------- ------------ ------------ ------------ ------------ ------------
Costs and
expenses:
Rooms......... $ 14,755 $ 12,853 $ 12,378 $ 9,603 $ 13,738 $ 3,109 $ 11,512 $ 14,621
Food and
beverage.... 20,797 17,638 17,602 12,315 17,106 3,523 14,573 18,096
Casino........ 3,924 3,687 3,849 2,384 3,468 740 2,398 3,138
Selling,
general and
administrative... 18,115 12,993 14,657 11,997 16,158 2,634 12,447 15,081
Management and
incentive
management
fees........ 3,704 5,395 5,680 2,985 5,696 1,944 4,638 2,956
Property
operation,
maintenance
and energy
costs....... 14,408 12,396 12,383 9,095 12,088 2,039 8,047 10,086
Depreciation
and
amortization... 11,124 10,499 9,147 6,887 9,224 1,556 7,590 8,326(1)
Other
expenses.... 9,723 9,201 9,702 6,874 9,632 1,837 7,931 9,770
-------- -------- --------- ------------ ------------ ------------ ------------ ------------
Total costs
and
expenses... $ 96,551 $ 84,662 $ 85,398 $ 62,140 $ 87,110 $ 17,382 $ 69,136 $ 82,074
-------- -------- --------- ------------ ------------ ------------ ------------ ------------
Income (loss)
from
operations
(EBIT)........ (11,808) 4,552 7,560 (2,013) 7,805 7,371 7,766 19,582
Interest
income........ 468 229 199 128 188 43 202 245
Interest
expense....... (16,137) (17,022) (17,162) (13,157) (17,627) (3,301) (12,341) (11,200)
-------- -------- --------- ------------ ------------ ------------ ------------ ------------
Extraordinary
loss from
early
extinguishment
of debt....... -- -- -- -- -- -- (1,677) --
Net income
(loss).... $(27,477) $(12,241) $ (9,403) $(15,042) $ (9,634) $ 4,113 $ (6,051) $ 8,627
-------- -------- --------- ------------ ------------ ------------ ------------ ------------
-------- -------- --------- ------------ ------------ ------------ ------------ ------------
(Deficiency in)
partners'
capital
beginning of
period........ $ 36,191 $ 8,716 $ (3,525) $(12,928) $(18,337) $(27,971) $(23,858) $(27,971)
Partner capital
contributions... 2 -- -- -- -- -- 81,672 85,844
(Deficiency in)
partners'
capital end of
period........ 8,716 (3,525) (12,928) (27,971) (27,971) $(23,858) 51,763 66,500
Ratio of
earnings to
fixed
charges....... (27,241) (12,004) (9,166) (14,864) (9,397) 2.2x (5,853) 1.8x
Ratio of EBITDA
to fixed
charges....... (17,799) (2,948) (1,434) (9,017) (1,576) 2.6x 1.2x 2.5x
Other Financial
Data:
Available
rooms(#)...... 751 751 751 751 751 751 751 751
Occupancy....... 73.3% 71.0% 72.0% 69.3% 73.3% 83.8% 70.0% 72.3%
Average rate.... $ 188.87 $ 198.99 $ 202.86 $ 175.59 $ 202.77 $ 289.66 $ 195.81 $ 213.39
RevPAR(2)....... 138.42 141.22 146.01 121.68 148.60 242.74 137.06 154.28
Revenue per
available
room.......... 112,840 118,794 123,779 80,062 126,385 32,960 102,400 135,360
Cash flow from
operating
activities.... (4,712) 1,906 5,855 (1,415) 5,373 4,755 4,644
Cash flow from
investing
activities.... (3,002) (864) (1,428) (1,890) (2,298) (323) (7,062)
Cash flow from
financing
activities.... 7,294 (1,063) (2,903) 2,053 2,995 (2,388) 804
EBITDA.......... (684) 15,051 16,707 4,874 17,029 8,927 15,356 27,908
Selected Balance
Sheet Data:
Current
assets........ $ 15,316 $ 11,823 $ 13,618 $ 13,953 $ 13,953 $ 13,803 $ 27,052 $ 26,651
Land, building
and equipment,
net........... 194,557 188,994 183,960 181,127 181,127 180,312 229,858 229,858
Total assets.... 225,191 211,691 205,430 200,422 200,422 199,047 262,368 266,704
Long-term debt,
including
current
maturities.... 193,034 197,154 199,709 204,624 204,624 203,740 152,035 142,235
Total
liabilities
and
(deficiency
in) partners'
capital....... 225,191 211,691 205,430 200,422 200,422 199,047 262,368 266,704
</TABLE>
- ------------
(1) Reflects an adjustment for amortization of offering costs, estimated at $5.0
million, amortized on the straight-line method over the 30-year term of the
bonds at a rate of $166,667 per year, and the effect of the acquisition of
El Conquistador by Patriot/Wyndham related to depreciation and deferred cost
amortization.
(2) RevPAR is equal to the average rate multiplied by occupancy percentage.
10
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
THREE
THREE MONTHS
JANUARY 1 MARCH 1 MONTHS ENDED
TO TO ENDED MARCH 31,
FEBRUARY 28, MARCH 31, MARCH 31, 1999
1998 1998 1999 PRO FORMA
------------ --------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT ROOM AND OCCUPANCY DATA)
<S> <C> <C> <C> <C>
Selected Statement
of Income Data:
Revenues:
Rooms......... $ 10,756 $ 5,469 $ 18,663 (1) $ 18,663 (1)
Food and
beverage.... 6,475 3,116 11,572 11,572
Casino........ 932 446 1,648 1,648
Other
income...... 6,749 3,193 7,643 (1) 7,643 (1)
------------ --------- --------- ---------
24,912 12,224 39,526 39,526
Less casino
promotional
allowance... (159) (57 ) (218 ) (218 )
------------ --------- --------- ---------
Total
revenues... $ 24,753 $ 12,168 $ 39,308 $ 39,308
------------ --------- --------- ---------
Costs and
expenses:
Rooms......... $ 3,109 $ 1,562 $ 4,184 $ 4,184
Food and
beverage.... 3,523 1,733 6,710 6,710
Casino........ 740 55 891 891
Selling,
general and
administrative... 2,634 1,469 4,347 4,347
Management and
incentive
management
fees........ 1,944 954 1,158 1,158
Property
operation,
maintenance
and energy
costs....... 2,039 899 2,349 2,349
Depreciation
and
amortization... 1,556 778 2,959 2,739 (2)
Other
expenses.... 1,837 958 2,855 2,855
------------ --------- --------- ---------
Total costs
and
expenses... $ 17,383 $ 8,408 $ 25,453 $ 25,233
------------ --------- --------- ---------
Income (loss)
from
operations
(EBIT)........ 7,371 3,759 13,855 14,076
Interest
income........ 43 1 91 91
Interest
expense....... (3,301) (1,260 ) (3,119 ) (2,682 )
------------ --------- --------- ---------
Net income
(loss).... $ 4,113 $ 2,498 $ 10,827 $ 11,485
------------ --------- --------- ---------
------------ --------- --------- ---------
(Deficiency in)
partners'
capital
beginning of
period........ $(27,971) $(23,858 ) $ 51,763 $ 51,763
Partner capital
contributions... -- 71,977 -- 14,342
(Deficiency in)
partners'
capital end of
period........ (23,858) 50,617 62,590 77,590
Ratio of
earnings to
fixed
charges....... 2.2x 2.9 x 4.2 x 5.2 x
Ratio of EBITDA
to fixed
charges....... 2.6x 3.4 x 5.0 x 6.2 x
Other Financial
Data:
Available
rooms(#)...... 751 751 751 751
Occupancy....... 83.8% 81.6 % 84.5 % 84.5 %
Average rate.... $ 289.66 $ 287.95 $ 326.60 (1) $ 326.60 (1)
RevPAR(3)....... 242.74 234.97 275.98 (1) 275.98 (1)
Revenue per
available
room.......... 32,960 16,202 52,341 (1) 52,341 (1)
Cash flow from
operating
activities.... 4,755 1,021 6,294
Cash flow from
investing
activities.... (323) (325 ) (1,693 )
Cash flow from
financing
activities.... (2,388) (2,211 ) --
EBITDA.......... 8,927 4,535 16,814 16,814
Selected Balance
Sheet Data:
Current
assets........ $ 13,803 $ 15,658 $ 34,865 $ 34,106
Land, building
and equipment,
net........... 180,312 228,816 229,440 229,440
Total assets.... 199,047 248,206 269,074 273,315
Long-term debt,
including
current
maturities.... 203,740 179,001 185,593 175,793
Total
liabilities
and
(deficiency
in) partners'
capital....... 199,047 248,206 269,074 273,315
</TABLE>
- ------------
(1) As a result of a change in accounting policy, certain revenue that was
historically classified as other income is now classified as room revenue.
(2) Reflects an adjustment for amortization of offering costs, estimated at $5.0
million, amortized on the straight-line method over the 30-year term of the
bonds at a rate of $41,667 per quarter, and the effect of the acquisition of
El Conquistador by Patriot/Wyndham related to depreciation and deferred cost
amortization.
(3) RevPAR is equal to the average rate multiplied by occupancy percentage.
11
<PAGE>
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This official statement and prospectus includes certain 'forward-looking
statements' that are subject to risks and uncertainties. Forward-looking
statements include information regarding El Conquistador's future financial
position, business strategy, budgets, projected costs and plans and objectives
for future operations. Forward-looking statements generally are preceded by,
followed by or include the words 'may,' 'will,' 'expect,' 'intend,' 'estimate,'
'anticipate,' 'believe,' or 'continue' or similar expressions. You are cautioned
that any such forward-looking statements reflect El Conquistador's good faith
beliefs. They are not guarantees of future performance. They involve known and
unknown risks, and actual results may differ materially from those in the
forward-looking statements as a result of various factors. Certain factors that
might cause such a difference include:
competition for guests from other hotels;
dependence upon group and leisure travelers and tourism;
adverse weather conditions and occurrences;
the seasonality of the hotel industry; and
general economic conditions, including prevailing interest rates and the
availability of debt and equity financing.
Important factors that could cause actual results to differ materially from El
Conquistador's expectations are disclosed under 'Risk Factors' and elsewhere in
this official statement and prospectus, including in conjunction with the
forward-looking statements included in this official statement and prospectus.
12
<PAGE>
<PAGE>
RISK FACTORS
IN CONSIDERING WHETHER TO PURCHASE THE BONDS, YOU SHOULD CONSIDER CAREFULLY
THE MATTERS DISCUSSED IN THIS SECTION IN ADDITION TO THE OTHER INFORMATION IN
THIS OFFICIAL STATEMENT AND PROSPECTUS.
POSSIBLE INABILITY TO MAKE PAYMENTS ON THE BONDS
EL CONQUISTADOR'S ABILITY TO SERVICE ITS DEBT IS DEPENDENT ON THE
GENERATION OF SUFFICIENT CASH FLOW FROM OPERATIONS. At March 31, 1999, after
making pro forma adjustments to the actual balance sheet of El Conquistador to
give effect to this offering, the repayment of the interim loan to Citicorp Real
Estate and certain related transactions, total short-term and long-term
indebtedness of El Conquistador was $175,792,615 consisting of the following:
$105,200,000 of the bonds, which are secured by substantially all of the
assets of El Conquistador;
$33,668,885 owed to Posadas de Puerto Rico Associates, Incorporated, an
affiliate of El Conquistador and the Hotel Operator;
$15,739,625 of loans and accrued interest owed to the partners of El
Conquistador;
$231,321 owed to Posadas de San Juan Associates, an affiliate of El
Conquistador and the Hotel Operator;
$1,158,001 of management fees owed to Williams Hospitality;
$9,388,207 of incentive management fees owed to Williams Hospitality;
$1,505,689 of interest on the incentive management fees owed to Williams
Hospitality;
$2,515,600 of loans and accrued interest owed to Williams Hospitality; and
$6,385,287 owed to Patriot.
The aggregate annual interest costs and expenses in respect of such
indebtedness is approximately $10,997,000, of which approximately $6,538,700 is
paid on a current basis and the balance of $4,458,300 is deferred. All of the
amounts set forth above other than with respect to the bonds are subordinate to
the bonds. That means that current interest and principal on the bonds must be
paid first and if El Conquistador defaults on its obligations to pay the bonds,
interest and principal on the bonds must be paid first. The principal of and
interest on the bonds are payable at the times set forth on the inside front
cover page of this official statement and prospectus. We cannot promise that at
the time such payments become due El Conquistador will have the funds necessary
to make such payments. If El Conquistador is unable to generate sufficient cash
flow from operations, El Conquistador may be required to obtain additional
equity contributions or refinance its outstanding debt or obtain additional
financing. We cannot promise that any such equity contributions or refinancing
would be possible or that any additional financing, if available, could be
obtained on terms that would be favorable or acceptable to El Conquistador.
RESTRICTIVE PROVISIONS IN THE LOAN AGREEMENT AND RELATED COLLATERAL
DOCUMENTS COULD LIMIT EL CONQUISTADOR'S ABILITY TO RESPOND TO CHANGING MARKET
CONDITIONS. The loan agreement and the related collateral documents restrict in
certain circumstances incurrence of additional indebtedness, 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 El Conquistador to respond to changing market and economic
conditions and provide for capital expenditures or additional financing. As a
result, operations of the resort may be adversely affected, and cash flow from
operations may be insufficient to pay principal and interest on the bonds.
THE FULL PAYMENT OF ADDITIONAL INTEREST MAY BE LIMITED UPON AN EVENT OF
TAXABILITY. The additional amount that El Conquistador may be required to pay to
you if the interest on the bonds becomes subject to U.S. income taxes may not be
enough for you to have as much income after payment of such taxes as you would
have had if the interest remained tax free. We cannot
13
<PAGE>
<PAGE>
promise that El Conquistador, if required, will have the necessary cash to make
any such additional payments.
THE ENFORCEMENT OF REMEDIES AGAINST EL CONQUISTADOR MAY BE LIMITED BY
BANKRUPTCY AND OTHER LAWS. In the case of an event of default under the trust
agreement, the trustee may proceed to enforce any remedies under the trust
agreement, the loan agreement, or the related collateral documents. However, any
foreclosure or other proceeding is dependent, in many respects, upon judicial
action which is subject to discretion or delay. Under existing laws and judicial
decisions, including the United States Bankruptcy Code, the remedies for your
benefit specified under the trust agreement, the loan agreement and the related
collateral documents may not be readily available or may be limited. In
addition, we cannot promise that the proceeds of any sale of El Conquistador's
assets upon a foreclosure will be sufficient to pay principal of and interest on
the bonds.
EL CONQUISTADOR MAY NOT HAVE SUFFICIENT FUNDS TO PAY THE BONDS IF THE
PAYMENT DATE IS ACCELERATED DUE TO A DEFAULT. The bonds may be required to be
prepaid following an acceleration upon the occurrence of certain events of
default under the loan agreement and the trust agreement. In the event the bonds
must be prepaid, we cannot promise that El Conquistador will have the funds
necessary to make such prepayments.
HOTEL INDUSTRY RISKS
EL CONQUISTADOR'S REVENUES MAY BE ADVERSELY AFFECTED BY INCREASED
COMPETITION, INFLATION, CHANGES IN TOURIST PREFERENCES, ECONOMIC AND OTHER
CONDITIONS. The sole business of El Conquistador is the ownership and operation,
through a manager, of the resort. El Conquistador's ability to generate
sufficient revenues from operations to pay expenses of operation and El
Conquistador's debt service obligations, including the bonds, has certain risks.
These risks include, among other things:
competition for guests from other hotels, a number of which may have
greater marketing and financial resources and experience than El
Conquistador or the Hotel Operator;
increases in operating costs due to inflation and other factors which may
not be offset in the future by increased room rates;
dependence on business and leisure travelers and tourism, which may
fluctuate and is seasonal;
increases in costs of travel, which may deter travelers from coming to the
resort;
adverse effects of general and local economic conditions; and
dependence on the Hotel Operator for the marketing and management of the
resort.
These factors could adversely affect the ability of the resort to generate
revenues and, therefore, El Conquistador's ability to make payments with respect
to the bonds.
THE RESORT'S ABILITY TO MAKE NECESSARY EXPENDITURES FOR RENOVATING AND
UPGRADING IS DEPENDENT ON THE GENERATION OF SUFFICIENT CASH FLOW FROM
OPERATIONS. The resort requires substantial ongoing expenditures to replace
furniture and equipment and redecorate or upgrade the resort in order to
continue to provide first-class facilities to its guests. Capital expenditures
at the resort in the past have been as follows:
<TABLE>
<S> <C>
Fiscal year ended March 31, 1997................................................ $1,428,000
Fiscal year ended March 31, 1996................................................ $ 864,000
Fiscal year (9 months) ended December 31, 1997.................................. $1,890,000
Nine months ended December 31, 1996............................................. $1,623,000
Twelve months ended December 31, 1998........................................... $7,385,000
Twelve months ended December 31, 1997........................................... $2,298,000
</TABLE>
Capital expenditures at the resort in fiscal 1996 were low due to the
newness of the facility. Capital expenditures at the resort are budgeted at
$4,000,000 for the fiscal year ending December 31, 1999.
14
<PAGE>
<PAGE>
For the 12 months ended December 31, 1998, El Conquistador spent $7,385,000
for capital expenditures. Capital expenditures for the 12 months ended December
31, 1998 included $4,900,000 for the construction of the new spa at the resort.
As of March 31, 1999, $1,693,000 of this year's capital expenditure budget had
been spent. We cannot promise that cash provided from operations will be
sufficient to meet the resort's future capital expenditure requirements.
Additionally, as a result of Hurricane Georges, approximately $32,000,000
was required to make repairs and replacements at the resort. All but
approximately $180,000 of such amount is covered by insurance. For a complete
description of the damage caused by Hurricane Georges at the resort, see
' -- Hurricanes, strikes and other events not within the control of El
Conquistador may adversely affect the resort.'
Under the terms of the loan agreement, El Conquistador is obligated to
establish a reserve to pay the cost of capital expenditures at the resort and
pay for periodic repair, replacement or refurbishment of furniture, fixtures and
equipment. If capital expenditures exceed El Conquistador's expectations,
additional costs could have an adverse effect on El Conquistador's cash
available for payment of the bonds. If El Conquistador is unable to generate
sufficient cash flow to fund the cost of capital expenditures in the future, the
loan agreement permits El Conquistador to borrow for such purposes. However, we
cannot promise that El Conquistador will be able to obtain such financing if
required for future capital expenditures.
THE SEASONALITY OF TOURISM IN PUERTO RICO RESULTS IN UNEVEN OCCUPANCY
LEVELS AND ROOM RATES. Tourism in Puerto Rico is at its peak during the months
of December through April. Occupancy levels and room rates are lower during the
balance of the year. Successful operation of the resort is dependent in large
part to a successful high season, the ability of the resort to attract guests
during the off-season months and careful management of costs throughout the
year. Efforts are made by the Hotel Operator to actively market during
off-season months so as to minimize the effects of seasonality. We cannot
promise that such efforts will be successful. If such efforts are not
successful, El Conquistador may be unable to generate sufficient cash for
payment of the bonds.
HURRICANES, STRIKES AND OTHER EVENTS NOT WITHIN THE CONTROL OF EL CONQUISTADOR
MAY ADVERSELY AFFECT THE RESORT.
Hurricanes and other natural disasters, airline strikes, droughts and water
shortages, civil unrest, acts of war, and other uncontrollable events may
adversely affect occupancy levels at the resort. Such events could adversely
affect cash flows of El Conquistador and its ability to make payments on the
bonds. The resort is particularly vulnerable to these types of events because of
its high debt service requirements. El Conquistador cannot predict the effect an
uncontrollable event may have on the resort or El Conquistador's financial
condition.
Hurricane Georges passed through Puerto Rico on September 21 and 22, 1998.
Hurricane Georges caused approximately $32,000,000 of property related damage at
the resort, all but $180,000 of which is covered by insurance. The resort lost
at least 2,500 room nights during the 10-day period September 20-30, 1998 as a
result of Hurricane Georges. El Conquistador believes such room night losses
will be covered by its business interruption insurance. As a result of Hurricane
Georges, the resort was closed during the period September 22, 1998 through
October 2, 1998. Additionally, the majority of condominium units of Las Casitas
Village were damaged and were not available to the resort until December 10,
1998. Puerto Rico itself and other hotel properties on the island also suffered
extensive damage from Hurricane Georges. As of April 30, 1999, El Conquistador
has received approximately $28,000,000 of insurance proceeds to repair physical
damage at the resort, and the resort is fully operational. El Conquistador
cannot predict the effect that Hurricane Georges will have on its future
bookings. To the extent that additional group and leisure travelers with
reservations cancel their plans to come to the resort or additional travelers do
not make reservations as a result of Hurricane Georges, such lost bookings could
have a material adverse effect on El Conquistador's financial condition and
results of operations.
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REAL ESTATE INVESTMENT RISKS RELATED TO THE RESORT
FUTURE CHANGES IN ECONOMIC CONDITIONS AND LAWS MAY ADVERSELY AFFECT THE
RESORT. El Conquistador's investment in the resort is subject to varying degrees
of risk generally incident to the ownership of real property. The underlying
value of El Conquistador's investment in the resort and its income and ability
to make payments on the bonds will depend on the ability of the Hotel Operator
to operate the resort in a manner sufficient to maintain or increase revenues
and to generate sufficient income in excess of operating expenses for payment of
the bonds. Income from the resort may be adversely affected by events beyond the
control of El Conquistador, including:
changes in national economic conditions
changes in local market conditions due to changes in general or local
economic conditions
the ongoing need for capital improvements, changes in real estate tax
rates and other operating expenses for the resort
adverse changes in governmental rules and fiscal policies
adverse changes in zoning laws
other events which may result in uninsured losses.
PROPERTY TAXES MAY INCREASE. The resort is subject to real property taxes.
The real property taxes on the resort may increase or decrease as property tax
rates change and/or if the value of the property is reassessed by taxing
authorities. If property taxes increase as a result of such reassessments, El
Conquistador's ability to make payments on the bonds could be adversely
affected. El Conquistador recently completed negotiations with the Municipal
Revenue Collection Center in Fajardo, Puerto Rico concerning the valuation
method used by the Municipal Revenue Collection Center to assess real property
taxes for the resort. In February and March 1999, El Conquistador paid an
aggregate of approximately $1.3 million with respect to real property taxes for
the fiscal years ended March 31, 1995, 1996 and 1997, December 31, 1997 (9
months) and December 31, 1998, and the period ending June 30, 1999. El
Conquistador cannot promise that real property taxes will not increase in the
future.
FUTURE COSTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS MAY ADVERSELY AFFECT THE
RESORT. The operating costs of El Conquistador may be affected by the obligation
to pay for the cost of complying with existing environmental laws, ordinances
and regulations, as well as the cost of complying with future legislation. Under
various federal and Puerto Rico environmental laws, ordinances and regulations,
a current or previous owner or operator of the resort may be liable for the
costs of removal or remediation of hazardous or toxic substances on, under, or
in the property. Such laws may impose liability whether or not El Conquistador
or the Hotel Operator knew of, or was responsible for, the presence of such
hazardous or toxic substances.
The resort maintains certain facilities at which hazardous or toxic
substances are utilized. Petroleum residues from the operation of golf carts at
the resort are present at the service area for such carts. Periodically, El
Conquistador arranges for the removal of these petroleum residues. Additionally,
there are several diesel fuel storage tanks at the resort's marina. This diesel
fuel is used by the ferryboats shuttling guests to and from Palominos Island. As
persons who arrange for the transportation, disposal or treatment of hazardous
or toxic substances, El Conquistador or the Hotel Operator may also be liable
for the costs of removal or remediation of such substances. Certain
environmental laws and common law principles could be used to impose liability
for releases of hazardous materials into the environment, and third parties may
seek recovery from El Conquistador or the Hotel Operator for personal injury
associated with exposure to released hazardous materials. The cost of defending
against claims of liability or remediating contaminated property and the cost of
complying with environmental laws could materially adversely affect El
Conquistador's results of operations and financial condition. Such costs could
have an adverse effect on El Conquistador's ability to make payments on the
bonds. El Conquistador is not aware of any potential environmental liability or
compliance concerns that it believes would have a material adverse effect on its
business, assets, results of operations or liquidity.
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FUTURE COSTS OF COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT MAY
ADVERSELY AFFECT THE RESORT. Under the Americans with Disabilities Act, all
public accommodations are required to meet certain federal requirements related
to access and use by disabled persons. A determination that the resort is not in
compliance with the Act could result in the imposition of fines or an award of
damages to private litigants. If El Conquistador were required to make material
modifications to the resort to comply with the Act, the ability of El
Conquistador to make payments on the bonds could be adversely affected. El
Conquistador has not been notified, and it has no other knowledge of, any
material non-compliance, liability or claim under the Act with respect to the
resort.
IF THE RESORT IS UNABLE TO MAINTAIN ADEQUATE AMOUNTS OF INSURANCE, FUTURE
LOSSES MAY NOT BE FULLY COVERED. The loan agreement will specify comprehensive
insurance to be maintained on the resort, including liability, fire, windstorm
and extended coverage. El Conquistador believes that its insurance is adequate
for its business. However, there are certain types of losses, generally of a
catastrophic nature, such as earthquakes, hurricanes and floods, that may be
uninsurable or not economically insurable. El Conquistador currently has
hurricane insurance and is in the process of making claims for property damages
of approximately $32,000,000 as a result of Hurricane Georges. Additionally, El
Conquistador has made an initial claim under its business interruption insurance
policy as a result of the loss of business caused by Hurricane Georges. El
Conquistador believes that after all claims related to Hurricane Georges are
made it will continue to be covered for damages and business interruptions as a
result of future hurricanes. However, we cannot promise that such insurance will
continue to be available or affordable. This may result in insurance coverage
that, in the event of a substantial loss, would not be sufficient to pay the
full current market value or current replacement cost of the loss. Inflation,
changes in building codes and ordinances, environmental considerations, and
other factors also might make it infeasible to use insurance proceeds to replace
the property after such property has been damaged or destroyed. Under such
circumstances, the insurance proceeds received by El Conquistador might not be
adequate to restore its economic position with respect to the resort.
Additionally, in the event the resort is damaged or destroyed to the extent
that a mandatory prepayment of the bonds is required pursuant to the loan
agreement, the insurance proceeds received by El Conquistador together with
other funds available to it might not be sufficient to repay the principal of
and interest on the bonds to the extent so required.
IN THE EVENT OF A DEFAULT, THE LIMITED ALTERNATIVE USES OF THE RESORT MAY
ADVERSELY AFFECT THE AMOUNT OF PROCEEDS FROM A FORECLOSURE SALE. The resort may
not be suitable for purposes other than a vacation and convention resort. As a
result, in the event of a default, acceleration of the bonds and any resulting
foreclosure sale of the resort, the trustee's remedies and the number of
entities which could purchase the resort would be limited, and the sales price
generated thereby might be adversely affected. The sale of the resort under such
circumstances might not provide proceeds sufficient to repay the bonds.
THE DEVELOPMENT OF VACANT LAND ADJACENT TO THE RESORT MAY HAVE AN ADVERSE
AFFECT ON THE RESORT. There are approximately 192 acres of land located adjacent
to the resort which are owned by affiliates of El Conquistador. Approximately 42
acres of such property are used by the resort for various purposes including
employee parking facilities. The additional 150 acres adjacent to the resort
owned by an affiliate are vacant. This 150 acre property may be developed into a
time share and/or hotel. It may also be developed into a golf course or have
another use which would be an additional amenity to the resort. El Conquistador
believes that any such development would be beneficial to the resort. However,
El Conquistador cannot promise that such development would not have an adverse
effect on its financial condition or results of operations, including its
ability to make payments on the bonds.
THE CURRENT FINANCIAL DIFFICULTIES OF PATRIOT AND WYNDHAM MAY AFFECT THEIR
ABILITY OR WILLINGNESS TO PROVIDE FINANCIAL SUPPORT TO THE RESORT IF NEEDED.
Patriot/Wyndham has substantial debt and debt service requirements and may
not have enough available funds to meet its near-term debt service requirements.
Patriot/Wyndham is evaluating ways to improve its liquidity and its ability to
meet its debt service obligations. On March 1, 1999,
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Patriot/Wyndham announced it had entered into a definitive agreement with a
group of investors to make a $1 billion preferred equity investment in
Patriot/Wyndham. Patriot/Wyndham also announced that the two companies will be
combined into a single entity and convert from a paired-share real estate
investment trust structure to a C corporation. The equity infusion and C
corporation conversion are subject to Patriot/Wyndham stockholder approval and
both are expected to be completed by June 30, 1999. The equity infusion is also
subject to antitrust clearance and certain other conditions and consents.
Patriot/Wyndham will use the $1 billion in proceeds to reduce its bank debt
and settle its forward equity obligations. In addition, Patriot/Wyndham
announced it has definitive financing commitments for $2.45 billion, consisting
of $1.8 billion of senior bank facilities and $650 million of five-year senior
secured loans. The proceeds from the commitments will be used to refinance the
balance of Patriot/Wyndham's bank debt and provide additional revolver capacity.
To the extent Patriot/Wyndham is unable to successfully complete the
refinancing of its indebtedness, it may not be able to pay its debts as they
come due without selling some or all of its assets, restructuring its debt or
substantially revising its operations. Additionally, Patriot/Wyndham's inability
to close the $1 billion proposed investment, or in the alternative secure
additional capital in the future, could have a material adverse effect on its
financial condition and results of operations.
Although Patriot and Wyndham together own substantially all of the
interests in El Conquistador, neither Patriot nor Wyndham will be liable with
respect to the bonds. Additionally, neither will be obligated to make additional
loans or capital contributions to El Conquistador. However, Patriot/Wyndham's
financial condition could have a material adverse effect on the resort. The
resort relies on Patriot/Wyndham for many aspects of its operations, including
management and marketing of the facilities, centralized purchasing and
centralized reservations. Additionally, effective January 1, 1999, the resort
was branded a Wyndham Resort'r' and Las Casitas Village was branded a Grand
Bay'r' hotel.
If Patriot/Wyndham is unable to improve its financial condition and avoid
defaulting on its obligations, such defaults could have a negative effect on the
financial condition and results of operations of El Conquistador. As a result,
El Conquistador's ability to make payments on the bonds could be adversely
affected. We cannot promise that Patriot/Wyndham will be able to improve its
financial condition in the future.
THE RESORT DEPENDS ON THE HOTEL OPERATOR TO MANAGE THE RESORT.
El Conquistador depends solely on the Hotel Operator to manage and operate
the resort. The management agreement expires in January 2014, prior to the
maturity date for a majority of the bonds. If the management agreement is
terminated as a result of a default or other reason, or if the Hotel Operator
decides not to renew the management agreement, the Hotel Operator would have to
be replaced. There is a possibility that a new hotel manager would be obtained
on terms not as favorable to El Conquistador as those set forth in the
management agreement. Conquistador Holding (SPE), Inc., which will be the sole
general partner of El Conquistador at the time of this offering, will have the
responsibility for obtaining the services of a manager. However, the general
partner is not itself obligated to manage the resort. Additionally, no affiliate
of the general partner, other than the Hotel Operator, is legally responsible
for the performance of the obligations of Williams Hospitality under the
management agreement or Wyndham Management and Grand Bay under their
arrangements with Williams Hospitality. Termination or non-renewal of the
management agreement could have an adverse effect on El Conquistador's financial
condition and results of operations. As a result, El Conquistador's cash flow
from operations in the future may be insufficient to make payments on the bonds.
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THE MANAGEMENT OF MULTIPLE HOTEL PROPERTIES BY THE HOTEL OPERATOR MAY RESULT IN
A CONFLICT OF INTERESTS.
El Conquistador is subject to various conflicts of interest arising out of
its relationship with the managing general partner and the Hotel Operator, and
their respective affiliates. Each of Williams Hospitality and Wyndham Management
manage other hotel and resort properties in Puerto Rico and the Caribbean.
Wyndham Management and Grand Bay also manage other resort destinations. The
management of multiple hotel and resort properties could result in conflicts
with respect to:
the direction of guests to properties other than the resort;
the desire to maximize overall results of the Hotel Operator and its
affiliates rather than the results of the resort; and
the availability to the resort of personnel employed by the Hotel Operator
best suited to manage the resort.
Additionally, the terms and provisions of the management agreement were not
negotiated on an arm's-length basis. Such terms and conditions were set by
Conquistador Holding, Inc. and the Hotel Operator, both of which are controlled
by Wyndham. Accordingly, the terms, provisions and compensation contained in the
management agreement may not reflect the fair market value of the services
rendered by the Hotel Operator. Such conflicts and arrangements could result in
certain actions or decisions that could have an adverse effect on El
Conquistador's cash flow and its ability to make payments on the bonds.
THE RESORT'S AND LAS CASITAS VILLAGE'S NEW BRAND AFFILIATIONS MAY NOT BE
RECEIVED FAVORABLY BY GUESTS AND THE FUTURE LOSS OF ESTABLISHED BRANDS COULD
ADVERSELY AFFECT THE RESORT.
On January 1, 1999, the resort began operating under the Wyndham Resorts'r'
brand name and Las Casitas Village began operating under the Grand Bay'r' brand
name. The continued use of a brand is generally contingent upon the continuation
of the management arrangements related to the property with the branded manager.
If a brand affiliation is terminated, El Conquistador may seek to obtain a
suitable replacement brand affiliation, or to operate the resort and/or Las
Casitas Village independent of a brand affiliation. The loss of a brand
affiliation could have a material adverse effect upon the operations or the
underlying value of the property covered by the brand affiliation because of the
loss of associated name recognition, marketing support and centralized
reservation systems provided by the brand owner. Currently, El Conquistador and
the Hotel Operator are controlled by Wyndham and it is unlikely that the brand
affiliation will be terminated. Such common control will continue under
Patriot/Wyndham's C corporation structure scheduled to be implemented in June
1999. However, if El Conquistador and the Hotel Operator are not commonly
controlled in the future, the brand affiliation could be terminated. Such a
termination could have an adverse effect on El Conquistador's financial
condition and its ability to make payments on the bonds.
Operating under a brand name is different from operating more or less
independently as the resort has done in the past. The reputation and customer
perception of the resort will be influenced by customers' experiences at other
hotels having the same brand. We cannot promise that the branding of the resort
and Las Casitas Village will have a positive affect on the resort's operations
or that the results of operations in the past are necessarily indicative of
future results of operations. In fact, such branding could have a negative
effect on El Conquistador and its results of operations. If this were so, El
Conquistador's cash flow may be insufficient to make payments on the bonds.
THE FUTURE LOSS OF THE TOURISM TAX EXEMPTION WOULD ADVERSELY AFFECT THE RESORT.
The resort enjoys certain tax exemptions under the Puerto Rico Tourism
Incentive Acts. The grants provided under such acts accord tax exemptions to the
grantees for 10 years, which may be extended for an additional 10 years. El
Conquistador was granted a tax exemption under the
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provisions of the Puerto Rico Tourism Incentives Act of 1993. The exemptions do
not apply to casino revenues. The grants are conditioned upon continued
compliance with various terms and conditions set forth in the grants. Failure of
El Conquistador to comply with these requirements could result in the revocation
of the grant resulting in the elimination of the exemptions. We cannot promise
that these exemptions will continue to be available, and if changed, what effect
a change would have on El Conquistador's financial condition or results of
operations. In the event the exemptions are eliminated, El Conquistador could be
required to pay increased taxes. As a result, El Conquistador's cash flow may be
insufficient to pay the bonds.
FAILURE TO COMPLY WITH CASINO GAMING REGULATIONS COULD RESULT IN A LOSS OF THE
CASINO FRANCHISE AND ADVERSELY AFFECT THE RESORT.
The ownership and operation of casinos in Puerto Rico is heavily regulated.
Williams Hospitality was granted a casino franchise as an operator of the casino
at the resort. Williams Hospitality operates the casino on behalf of El
Conquistador as part of its management function at the resort. Additionally,
certain of the individuals employed at the resort are licensed to work in the
casino. The casino is required to renew its casino franchise quarterly. Unless a
change of ownership of a franchisee has occurred or regulators have reason to
believe that reinvestigation of a franchisee is necessary, renewal is generally
automatic. Although El Conquistador and Williams Hospitality have no reason to
believe that the current casino franchise will not be renewed, there can be no
assurance of such renewal. Non-renewal of the casino franchise may have an
adverse effect on the financial condition of El Conquistador. As a result, El
Conquistador may not have sufficient cash to make payments on the bonds.
THE RESORT IS DEPENDENT ON HIGHLY-SKILLED PERSONNEL.
The success of the resort depends to a significant extent upon the
performance of the Hotel Operator and its ability to continue to attract,
motivate and retain highly-qualified employees. The resort's highly-skilled
employees include senior management and engineers. The loss of services of the
Hotel Operator or a significant number of employees could have a material
adverse effect on El Conquistador. 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.
We cannot promise that the Hotel Operator will be successful in attracting and
retaining such personnel. Specifically, El Conquistador may experience increased
costs in order to attract and retain skilled employees.
THERE IS SUBSTANTIAL COMPETITION WITHIN THE HOTEL AND CASINO BUSINESS.
The hotel and casino business in the Caribbean region is highly
competitive. The resort competes with numerous hotels and resorts on the island
of Puerto Rico, including 18 with casinos, and on other Caribbean and Bahamian
islands as well as those in the southeastern United States, Hawaii and Mexico.
The resort competes with such chains as Hyatt, Marriott, Hilton and Westin as
well as numerous other hotel and resort chains and independent hotel and motel
operators. Las Casitas Village competes with such chains as The Four Seasons
Resorts and the Ritz Carlton. During the past three years, five new hotels and
casinos have opened in Puerto Rico alone and an additional hotel and casino is
expected to open in Puerto Rico during 1999.
The resort is a large destination resort and competes for much of its group
business with other destination resorts located in Puerto Rico, the Caribbean,
the continental United States and Hawaii. The ability of the resort to
effectively compete in this market depends on a number of factors including:
high quality service
aggressive marketing
competitive rates
varied facilities and accommodations
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Continuous capital improvement programs are essential to stay current with
industry trends and maintain the resort's market share. Many hotels with which
the resort competes are owned or managed by hotel chains possessing
substantially greater financial and marketing resources than those of El
Conquistador and the Hotel Operator. We cannot promise that the resort will
effectively compete in the future or maintain cash flows sufficient to make
payments on the bonds.
THE RESORT'S RELIANCE ON A SINGLE MARKET MAKES THE RESORT VULNERABLE TO EVENTS
AFFECTING THAT MARKET.
The resort is located in Fajardo, Puerto Rico. Any adverse events such as
hurricanes and other natural disasters, droughts and water shortages, labor
strikes and the like which may affect Puerto Rico generally will adversely
affect the resort's entire business. Additionally, Puerto Rico is served by a
small number of major 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 El Conquistador's business, financial
condition and its ability to make payments on the bonds.
El Conquistador lacks asset diversification since the resort is, and will
remain, its only property. The ability of El Conquistador to comply with its
obligations under the loan agreement and the trust agreement, including its
obligation to pay principal and interest on the bonds, depends primarily upon
the future operating revenues and expenses of the resort. El Conquistador's
financial condition may be affected by factors such as:
competition from other resort hotels
seasonality of the hotel industry
potential over-building in the hotel industry
inflation and other economic conditions
the existence of favorable and economical air travel services
the cost and availability of labor
the cost and availability of utilities
the cost and availability of adequate insurance for risks such as property
damage and general liability
other events beyond El Conquistador's control
THE COMMON OWNERSHIP OF CITICORP FINANCIAL SERVICES AND CITICORP REAL ESTATE MAY
HAVE ADVERSELY AFFECTED THE TERMS OF THE UNDERWRITING OF THE BONDS.
Citicorp Financial Services Corporation is the lead underwriter for the
bonds. Citicorp Real Estate, Inc. made a $90,000,000 interim loan to El
Conquistador on August 3, 1998. The proceeds from the sale of the bonds will be
used to repay $90,000,000 to Citicorp Real Estate. Citicorp Financial Services
and Citicorp Real Estate are affiliated entities. Before entering into the
interim loan, El Conquistador recognized that Citicorp Financial Services could
act as its financial advisor for the sale of the bonds. El Conquistador decided,
after considering the possible engagement of a variety of other financial
advisors for this and other financing alternatives, that Citicorp Financial
Services would be its exclusive financial advisor for the sale of the bonds. El
Conquistador agreed to pay Citicorp Financial Services an underwriting fee and
structuring/management fee with respect to the issuance of the bonds. Although
it is possible that El Conquistador could have negotiated better terms with an
underwriter that was not affiliated with Citicorp Real Estate, El Conquistador
selected Citicorp Financial Services as the exclusive financial advisor for the
sale of the bonds after reviewing indications of interest from a variety of
other firms for this and other financing alternatives. El Conquistador's
selection of Citicorp Financial Services as its exclusive financial advisor for
the sale of the bonds was independent from its decision to enter into the
interim loan with Citicorp Real Estate and El Conquistador has represented and
confirmed that neither agreement was conditioned upon the other. In the event of
any default by El Conquistador with
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respect to the interim loan, Citicorp Real Estate would be free to exercise any
and all of its remedies at law, in equity or otherwise without any restriction,
notwithstanding the engagement of Citicorp Financial Services as the lead
underwriter for the bonds.
EL CONQUISTADOR CANNOT RECOVER FROM ITS GENERAL PARTNER, CONQUISTADOR HOLDING,
INC., FOR LOSSES SUFFERED BY EL CONQUISTADOR UNLESS CAUSED BY GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT OF THE GENERAL PARTNER.
The partnership agreement under which El Conquistador was formed provides
that no general partner and none of its officers, directors, partners, employees
or agents will have any liability to El Conquistador except for gross negligence
or willful misconduct. The partnership agreement also provides that El
Conquistador will indemnify the general partner and its stockholders, officers,
directors, employees and affiliates from all liabilities for acts taken on
behalf of El Conquistador other than gross negilgence or willful misconduct. The
amended and restated partnership agreement to be in effect at the time of this
offering will contain similar provisions. Accordingly, El Conquistador will not
be able to recover from the general partner for losses suffered by El
Conquistador due to the general partner's simple negligence.
THE FUTURE VALUE OF THE BONDS MAY BE ADVERSELY AFFECTED BY THE ABSENCE OF A
SECONDARY MARKET FOR THE BONDS AND THE POSSIBLITY OF A CHANGE IN THE RATING FOR
THE BONDS.
El Conquistador and AFICA do not intend to apply for listing of the bonds
on a securities exchange. There is currently no secondary market for the bonds.
There will likely be no secondary market for the bonds. If such a market were to
exist, the bonds could trade at prices that may be lower than the initial market
values thereof depending on many factors, including prevailing interest rates
and the markets for similar securities.
The liquidity of the bonds also may be adversely affected by general
declines in the market for similar securities. Such a decline may adversely
affect such liquidity independent of the financial performance of, and prospects
for, El Conquistador.
The investment rating initially assigned to the bonds may be downgraded or
withdrawn. Such a rating change could adversely affect the value of and market
for the bonds.
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USE OF PROCEEDS
The bonds will be issued to provide for the repayment of the interim loan,
including interest thereon, provided by Citicorp Real Estate to El Conquistador
on August 3, 1998, funding certain reserves and paying certain costs and
expenses of issuing the bonds. The proceeds of the interim loan were used to
repay The Bank of Tokyo-Mitsubishi, Ltd. for advances it made to El Conquistador
to redeem a portion of AFICA's Tourism Revenue Bonds, 1991 Series A and 1991
Series C (El Conquistador Resort Project), in the aggregate outstanding
principal amount of $120,000,000 and to pay fees and expenses in connection with
the interim loan. The 1991 AFICA bonds would have matured on March 9, 1999 and
bore interest at floating rates. The 1991 AFICA bonds were secured by, among
other things, a letter of credit issued by The Bank of Tokyo-Mitsubishi, Ltd.
The 1991 AFICA bonds were subject to mandatory redemption on the interest
payment date preceding the expiration date of the letter of credit. The letter
of credit was scheduled to expire September 9, 1998 and the 1991 AFICA bonds
were therefore redeemed on August 3, 1998.
The interim loan bears interest at a floating rate which is currently
7.70%. The interim loan had an original maturity date of November 3, 1998. Due
to the damage to the resort from Hurricane Georges, the offering of the bonds
was delayed. El Conquistador and Citicorp Real Estate have agreed on an
extension of the maturity date of the interim loan until June 30 , 1999.
El Conquistador is indebted to the Government Development Bank for Puerto
Rico in the aggregate principal amount of $25,000,000 pursuant to a term loan.
It is a condition to this offering that such indebtedness be repaid in full. El
Conquistador intends to repay such indebtedness concurrently with the issuance
of the bonds. El Conquistador will use $10,000,000 in cash generated from
operating activities and a $15,000,000 capital contribution to the partnership
by Conquistador Holding to make such repayment. Conquistador Holding will make
the aforementioned capital contribution with the proceeds of a $15,000,000 loan
made to it by the Government Development Bank. The loan by the Government
Development Bank to Conquistador Holding and the capital contribution by
Conquistador Holding to El Conquistador are subject to and conditions to
completion of this offering. Conquistador Holding's obligation to the Government
Development Bank will be secured by, among other things, the indirect ownership
interests of Patriot/Wyndham in El Conquistador and a guaranty by Patriot.
Set forth below are the estimated sources and uses of proceeds with respect
to the sale of the bonds:
<TABLE>
<S> <C> <C>
Source
Gross bond proceeds.............................................................. $105,200,000
------------
Total sources............................................................... $105,200,000
------------
------------
Uses
Repayment of the interim loan.................................................... $ 90,000,000
Reimbursement for interest previously paid on the interim loan...................
Reserve fund..................................................................... 9,100,000
Cost of issuance of the bonds:
SEC registration fee........................................... $ 30,946
Printing expenses.............................................. 350,000
Accounting fees and expenses................................... 300,000
Legal fees and expenses........................................ 1,000,000
Trustee fees................................................... 30,000
Mortgage recording fees........................................ 631,000
Miscellaneous expenses.........................................
----------
Subtotal..........................................................
AFICA fee........................................................................ 526,000
Underwriters' discount...........................................................
Underwriters' structuring/management fee.........................................
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Total uses.................................................................. $105,200,000
------------
------------
</TABLE>
El Conquistador will use a portion of the amount it is reimbursed for
interest previously paid on the interim loan to pay fees and expenses relating
to the transaction which are in excess of the amount of proceeds permitted to be
used for such purposes by the regulations governing AFICA transactions.
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EL CONQUISTADOR RESORT & COUNTRY CLUB
GENERAL
El Conquistador Resort & Country Club, a world class destination resort
complex, is one of the leading hotel and casino properties in Puerto Rico. 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 10,000 square foot casino, 25 retail
shops, a fitness center and five pool areas, situated on a bluff overlooking the
convergence of the Atlantic Ocean and the Caribbean Sea in Fajardo, Puerto Rico.
The resort also features a secluded beach located on a private island three
miles offshore commonly known as Palominos Island.
In addition, the resort generally has available 90 condominium units known
as Las Casitas Village. Almost all of the owners of these condominiums have
entered into rental arrangements with El Conquistador pursuant to which the
units are made available as additional guest rooms of the resort. Each unit
consists of one, two or three bedroom(s) and bathroom(s). Each multiple room
unit can be divided into two or more separate one bedroom guest rooms or can be
sold as a multi-room unit depending on guests' preferences. The units can be
divided into a maximum of 167 separate guest rooms which are made available to
the inventory of luxury rooms at the resort. Guests at Las Casitas Village are
able to enjoy all the facilities of the resort.
The resort offers group and conference facilities for groups of up to 2,000
participants and also attracts the individual upscale leisure traveler. The
upscale leisure traveler is attracted to the resort by the Caribbean climate and
resort amenities including the casino, swimming pools, whirlpools, tennis, golf
and water sports facilities, a health club and entertainment lounges. 'Blue
Chip' corporate and incentive groups comprise a significant portion of the
resort's clientele due to its convention and meeting facilities as well as the
other resort amenities.
The resort has received the Gold Key Award by Meetings & Conventions
Magazine and the Paragon Award by Corporate Meetings & Incentives Magazine for
excellence in meetings and conventions. It has been awarded the American
Automobile Association 'Four Diamond' rating for each of its five years of
operation. Las Casitas Village was awarded a 'Five Diamond' rating (the highest
rating) by the American Automobile Association commencing in the fourth quarter
of 1997.
Commencing with the 1998-99 winter season, the resort was marketed as a
Wyndham Resort'r'. As a Wyndham Resort'r', the property is included in Wyndham's
national and worldwide marketing campaigns as well as the Wyndham reservation
system. Also commencing with the 1998-99 winter season, Las Casitas Village was
marketed as a Grand Bay'r' hotel and is likewise included in Grand Bay's
national and worldwide marketing campaigns. Wyndham Management and Grand Bay
have substantially greater marketing resources than were available to the resort
in the past.
The PricewaterhouseCoopers Lodging Research Network has independently
ranked more than 40 U.S. hotel brands owned by publicly-traded companies by
growth in revenue per available room for the second quarter of 1998 vs. the
year-earlier period. The Wyndham Resorts'r' brand was the top-performing upper
upscale hotel brand with revenues per available room growth of 37.5% in the
second quarter of 1998 versus the second quarter of 1997. The Grand Bay'r' brand
was the second-best performing upper upscale brand, with revenues per available
room growth of 12.3% for the second quarter of 1998 compared to the
corresponding period in 1997.
During the 3-month period ended March 31, 1999, the resort had an average
occupancy of 84.5% and gross revenues of $39,526,000 compared to an average
occupancy of 83.0% and gross revenues of $37,136,000 in the 3-month period ended
March 31, 1998. During the 12-month period ended December 31, 1998, the resort
had an average occupancy of 72.3% and gross revenues of $102,434,000 compared to
an average occupancy of 73.3% and gross revenues of $95,790,000 during the
corresponding 12-month period ended December 31, 1997. During the fiscal year (9
months) ended December 31, 1997, the resort had an average occupancy of 69.3%
and gross revenues of $60,585,000 compared to an average occupancy of 67.6% and
gross revenues of $59,019,000 during the corresponding 9-month period ended
December 31, 1996. The resort finished its third full fiscal year ended March
31, 1997 with an average occupancy of 72.0% and gross revenues of $94,224,000.
This compares to an average occupancy of 71.0% and gross revenues of $90,351,000
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for the fiscal year ended March 31, 1996 and 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 rates at the resort during the 3-month periods ended
March 31, 1999 and 1998 were $326.60 and $322.17, respectively. As a result of a
change in accounting policy, certain revenue that was historically classified as
other income is now classified as room revenue. For comparative purposes, the
average daily rate information set forth above for the three months ended
March 31, 1998 has been adjusted to reflect such reclassification. During the
12-month periods ended December 31, 1998 and 1997, average daily room rates at
the resort were $213.39 and $202.77, respectively. The average daily room rates
at the resort during the fiscal year (9 months) ended December 31, 1997 and the
9-month period ended December 31, 1996 were $175.59 and $175.01, respectively.
During the fiscal years ended March 31, 1997, 1996 and 1995, average daily room
rates at the resort were $202.86, $198.99 and $188.87, respectively.
During the 3-month periods ended March 31, 1999 and 1998, capital
expenditures for the purchase of property and equipment were $1,693,000 and
$648,000, respectively. During the 12-month periods ended December 31, 1998 and
1997, capital expenditures for the purchase of property and equipment were
$7,385,000 and $2,298,000, respectively. During the fiscal year (9 months) ended
December 31, 1997 and the 9-month period ended December 31, 1996, the resort's
capital expenditures for the purchase of property and equipment were $1,890,000
and $1,623,000, respectively. During the fiscal years ended March 31, 1997, 1996
and 1995, the resort's capital expenditures for the purchase of property and
equipment were $1,428,000, $864,000 and $3,002,000, respectively.
The resort has historically been managed by Williams Hospitality, an
affiliate of El Conquistador. Williams Hospitality's sole business was the
operation of the resort and two other Puerto Rico hotel properties owned by
affiliates of El Conquistador. As of January 16, 1998, Wyndham acquired the
majority interest in Williams Hospitality and in March 1998 acquired the
remaining interests. El Conquistador entered into an amended and restated
management agreement with Williams Hospitality which became effective January 1,
1999. Williams Hospitality simultaneously entered into an agreement with Wyndham
Management with respect to the management of the resort and Las Casitas Village
and the marketing of the resort as a Wyndham Resort'r'. Williams Hospitality
also entered into a marketing agreement with Grand Bay with respect to the
marketing of Las Casitas Village as a Grand Bay'r' hotel.
Set forth below is a chart which contains certain historical and financial
information concerning the resort:
<TABLE>
<CAPTION>
ROOM REVENUE
AVERAGE AVERAGE PER RENOVATION
PERIOD OCCUPANCY DAILY RATE REVPAR(1) AVAILABLE ROOM EXPENDITURES
- ---------------------------------------- --------- ---------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C>
January 1, 1999 - March 31, 1999........ 84.5% $ 326.60(2) $275.98(2) $ 24,851(2) $1,693,000
January 1, 1998 - March 31, 1998........ 83.0% $ 322.17(2) $267.40(2) $ 24,078(2) $ 648,000
January 1, 1998 - December 31, 1998..... 72.3% $ 213.39 $154.28 $ 56,312 $7,385,000(3)
January 1, 1997 - December 31, 1997..... 73.3% $ 202.77 $148.63 $ 54,239 $2,298,000
April 1, 1997 - December 31, 1997....... 69.3% $ 175.59 $121.68 $ 33,461 $1,890,000
April 1, 1996 - December 31, 1996....... 67.6% $ 175.01 $118.31 $ 32,516 $1,623,000
April 1, 1996 - March 31, 1997.......... 72.0% $ 202.86 $146.01 $ 53,294 $1,428,000
April 1, 1995 - March 31, 1996.......... 71.0% $ 198.99 $141.22 $ 51,687 $ 864,000
April 1, 1994 - March 31, 1995.......... 73.3% $ 188.87 $138.42 $ 50,523 $3,002,000
</TABLE>
- ------------
(1) RevPAR is equal to the average daily rate multiplied by average occupancy.
(2) As a result of a change in accounting policy, certain revenue that was
historically classified as other income is now classified as room revenue.
For comparative purposes, the data for the three months ended March 31,
1998 has been adjusted to reflect such reclassification.
(3) Amount includes approximately $4,900,000 with respect to the Golden Door'r'
spa.
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ACCESS
The resort is located on the northeast coast of Puerto Rico, approximately
35 miles east of the Luis Munoz Marin International Airport. Access from San
Juan and the Luis Munoz Marin International Airport to the resort is provided by
Puerto Rico Highway 3, a four lane thoroughfare. The Luis Munoz Marin
International Airport is currently served by approximately 30 United States and
international airlines, including American Airlines, which uses San Juan as a
hub for its intra-Caribbean service. Frequent, scheduled passenger air service
connects Puerto Rico to the mainland United States, 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. At present, according to the Official Airline
Guide, a recognized travel industry source, there is daily non-stop service
between San Juan and 17 United States cities, including, New York, Chicago,
Dallas, Miami, Atlanta, Boston and numerous others. There is also regularly
scheduled service between Puerto Rico and other Caribbean islands and major
Latin American and European cities. El Conquistador believes that the abundance
of non-stop flights to San Juan provides a major competitive advantage for
resorts in Puerto Rico over those elsewhere in the Caribbean. However, airline
service for Puerto Rico is wholly outside the control of El Conquistador and
such service may change at any time.
CASINO CREDIT POLICY
The resort's casino extends 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 resort has not been
significant since its opening in November 1993 and credit losses have been
immaterial. Gaming debts are enforceable in Puerto Rico and the majority of
states in the United States. Those states that do not enforce gaming debts will
nonetheless generally allow enforcement of a judgment obtained in a jurisdiction
such as Puerto Rico. Due to the unenforceability generally of gaming debts in
Latin America, procedures have been established to obtain promissory notes from
most Latin American credit casino clients.
GOVERNMENT REGULATION AND LICENSING
Puerto Rico legalized gambling by the adoption of Law No. 221 on May 15,
1948. The Office of the Commissioner of Financial Institutions of Puerto Rico is
responsible for investigating and licensing casino owners and the Gaming
Division of the Tourism Company of Puerto Rico 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 operation of the casino.
The casino at the resort is subject to strict internal controls imposed by El
Conquistador and the Hotel Operator over all facets of its operations, including
the handling of cash and security measures. Each casino pays the government of
Puerto Rico a casino franchise fee depending on total play or drop in the
casino, which fee ranges from $50,000 to $200,000. Williams Hospitality was
granted a casino franchise as an operator of the casino at the resort. Williams
Hospitality operates the casino on behalf of El Conquistador as part of its
management function at the resort. The resort pays an annual casino franchise
fee of $150,000 in equal quarterly installments. Williams Hospitality is
required to renew its casino 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 resort is also subject to various local laws and regulations affecting
its business, including provisions relating to fire safety, sanitation, health
and the sale of alcoholic beverages.
SEASONALITY
Tourism in Puerto Rico is at its peak during the months of December through
April. Most hotels, despite reducing their room rates during the off-season
months, experience decreased occupancy and lower revenues. The resort expects
that group business developed during the off-season and the shoulder-season will
reduce the effect of seasonality on its operations.
During the 3-month periods ended March 31, 1999 and 1998, the resort's
occupancy ranged from 82.7% to 85.8% and 81.6% to 83.9%, respectively, with an
average occupancy of 84.5% and
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83.0%, respectively. During the 12-monh periods ended December 31, 1998 and
1997, the resort's occupancy ranged from 46.5% to 86.9% and 54.7% to 88.2%,
respectively, with an average occupancy of 72.3% and 73.3%, respectively. During
the fiscal year (9 months) ended December 31, 1997, the resort's monthly
occupancy ranged from 54.7% to 85.0% with an average occupancy of 69.3% compared
to monthly occupancy ranging from 47.1% to 84.2% and an average occupancy of
67.6% for the 9-month period ended December 31, 1996. During the fiscal years
ended March 31, 1997 and 1996, the resort's monthly occupancy ranged from 47.1%
to 85.5% and 50.1% to 88.8%, respectively, with an average occupancy of 72.0%
and 71.0%, respectively. The in-season average occupancy for December 1998 to
April 1999 was 80.4% compared to 78.5%, 79.8% and 77.1% for the corresponding
periods ending in April 1998, April 1997 and April 1996, respectively.
COMPETITION
The hotel and casino business in the Caribbean region is highly
competitive. The resort competes with other hotels and resorts on the island of
Puerto Rico and on other Caribbean and Bahamian islands and in the southeastern
United States, Hawaii and Mexico. The resort competes with such chains as Hyatt,
Marriott, Hilton and Westin as well as numerous other hotel and resort chains
and independent hotel and motel operators. Las Casitas Village competes with
such chains as The Four Seasons Resorts and the Ritz Carlton. Some of these
competing properties are owned or managed by hotel companies possessing
substantially greater financial and marketing resources than those of El
Conquistador and the Hotel Operator.
El Conquistador believes that Puerto Rico offers many advantages over
geographical areas in which competing properties are located. Unlike most other
Caribbean islands, Puerto Rico is served by many direct air flights from the
continental United States and has a highly developed economy and a well-educated
population. Moreover, Puerto Rico is a Commonwealth of the United States,
freeing mainland visitors from concerns about foreign currencies or customs and
immigration laws. Unlike resort areas in the southeastern United States, Puerto
Rico enjoys a mild subtropical climate throughout the year and offers legalized
gambling.
The resort hotels in Puerto Rico that most directly compete with the resort
are the Hyatt Regency Cerromar Beach Resort & Casino with, according to the
Official Hotel Guide, 506 rooms, the Hyatt Dorado Beach Resort & Casino with,
according to the Official Hotel Guide, 298 rooms, and the Westin Rio Mar Beach
Resort & Country Club, which is also located in the northeastern section of
Puerto Rico with, according to the Official Hotel Guide, 600 rooms. All of these
other resort hotels offer services, meeting space and recreational facilities
comparable to those offered by the resort. The Caribe Hilton Hotel located in
San Juan, Puerto Rico has recently closed for significant renovation and
expansion to position it to compete with the resort for group business. All of
these hotels are beach and, with the exception of the Caribe Hilton Hotel, golf
resorts and have an experienced hotel operator that has available to it major
hotel chain resources. The resort competes with the foregoing resort hotels, as
well as those in other destination resort locations, on the basis of price,
service, the extent and quality of facilities, ease of access, and its ability
to promote the resort to travel agents, meeting planners and directly to the
public. In this regard, El Conquistador expects to benefit from the marketing
programs and reservation services of Wyndham Management and Grand Bay.
EMPLOYEES
Approximately 1,490 persons are employed at the resort, of whom 120 are
casino employees. None of the employees at the resort is represented by a labor
union. The number of persons employed at the resort varies from season to season
and is at its highest during the high season of December through April when
occupancy is at its highest. Under the management agreement, all of the persons
employed at the resort will become employees of the Hotel Operator, not El
Conquistador. El Conquistador will continue to bear all costs with respect to
employees at the resort. Such costs are considered reimbursable expenses and are
in addition to the management
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fees paid to the Hotel Operator. El Conquistador considers the current
relationships between the resort and its employees to be satisfactory.
PROPERTY
The resort is situated on approximately 220 acres of land in Fajardo,
Puerto Rico. Additionally, an affiliate of El Conquistador owns approximately 42
additional acres of land in the vicinity of the resort which has various uses
including employee parking facilities for the resort. The following table sets
forth the material properties which constitute the resort as of the date hereof.
El Conquistador believes that the properties listed in the following table are
in good repair and are adequate for their respective purposes. El Conquistador
owns substantially all of the machinery, equipment, furnishings, goods and
fixtures used in its business, all of which are well maintained and satisfactory
for the purposes intended. El Conquistador believes that its properties are
adequately covered by insurance.
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION PRINCIPAL USE SIZE INTEREST ENCUMBRANCES
- ------------------------------ --------------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C>
Fajardo, PR................... Hotel and casino 854,000 sq. ft.(1) Fee simple $105,200,000(2)
Palominos Island
Fajardo, PR................. Beach and watersports 90 acres Leasehold(3) $ 2,000,000(4)
</TABLE>
- ------------
(1) The approximate size represents the square footage size of the structures,
which constitute the resort. The resort includes 751 guest rooms.
(2) Assuming completion of this offering, will be subject to a first mortgage
lien securing a mortgage note in the principal amount of $105,200,000
securing the bonds. There will not be a second mortgage on the property
during the term of the bonds.
(3) Leased by El Conquistador pursuant to a Deed of Lease dated December 15,
1990. The term of the Deed of Lease is for 32 years, expiring November 30,
2022, with two options to extend the term for additional five-year periods.
Annual rent for Palominos Island was $210,000 for the 12-month period ended
November 30, 1998, which annual rent increases $30,000 every five years
thereafter commencing December 1, 2002, including during extensions of the
original term.
(4) Assuming completion of this offering, the Deed of Lease will be subject to a
first leasehold mortgage lien securing a mortgage note in the principal
amount of $2,000,000 securing the bonds.
MANAGEMENT AND MARKETING OF THE RESORT AND LAS CASITAS VILLAGE
El Conquistador was a party to a management agreement with Williams
Hospitality which was terminated effective December 31, 1998. The previous
management agreement required El Conquistador to pay to Williams Hospitality a
base management fee equal to 3.5% of the resort's and Las Casitas Village's
gross revenues and an incentive management fee equal to 10% of the resort's and
Las Casitas Village's gross operating profit. Gross operating profit means
income after deduction of the base management fee and before insurance, interest
and rent expenses, depreciation and amortization, and payment of property taxes.
Payment of the incentive management fees are subordinate to all obligations of
El Conquistador to third parties as well as certain obligations to its partners.
To date, payment of all incentive management fees has been deferred. Prior to
the acquisition of Williams Hospitality by Wyndham, Williams Hospitality's sole
business was primarily to manage three hotels in Puerto Rico: the resort, the El
San Juan Hotel & Casino and the Condado Plaza Hotel & Casino. Following
Wyndham's acquisition of Williams Hospitality during 1998, the employees of
Williams Hospitality became employees of Wyndham and in many cases their
responsibilities have increased to include other properties operated by Wyndham.
The following table sets forth the basic management fees paid and the
incentive management fees earned by Williams Hospitality during the periods set
forth. Such fees do not include amounts Williams Hospitality was reimbursed for
certain administrative expenses incurred in connection with
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its management of the resort and Las Casitas Village which are set forth
separately in the following table.
<TABLE>
<CAPTION>
REIMBURSED
TOTAL ADMINISTRATIVE
BASIC INCENTIVE FEES EXPENSES OF
MANAGEMENT MANAGEMENT PAID AND WILLIAMS
FEES PAID FEES EARNED EARNED HOSPITALITY
---------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
12-month period ended December 31, 1998...................... $3,596,000 $2,986,000 $6,582,000 $1,800,000
12-month period ended December 31, 1997...................... 3,360,000 2,336,000 5,696,000 3,286,000
Fiscal year ended March 31, 1997............................. $3,305,000 $2,376,000 $5,681,000 $3,258,000
Fiscal year ended March 31, 1996............................. 3,170,000 2,224,000 5,395,000 2,728,000
Fiscal year (9 months) ended December 31, 1997............... $2,125,000 $ 860,000 $2,985,000 $2,497,000
9-month period ended December 31, 1996....................... 2,071,000 899,000 2,970,000 2,082,000
</TABLE>
El Conquistador has entered into an amended and restated management
agreement with Williams Hospitality for the management and marketing of the
resort and Las Casitas Village. The management agreement became effective
January 1, 1999 and expires in January 2014. Simultaneously, Williams
Hospitality entered into an agreement with Wyndham Management with respect to
the management of the resort and Las Casitas Village and the marketing of the
resort as a Wyndham Resort'r'. The term of the agreement between Williams
Hospitality and Wyndham Management coincides with the term of the management
agreement between El Conquistador and Williams Hospitality. El Conquistador
structured the new management arrangements to keep Williams Hospitality involved
to ensure employees were able to preserve their 401(k) plans. Williams
Hospitality will continue to provide administrative services with respect to
employees of the resort. It is intended that all employees of the resort become
employees of Williams Hospitality in the future. Williams Hospitality also
entered into a marketing agreement with Grand Bay with respect to the marketing
of Las Casitas Village as a Grand Bay'r' hotel. The agreement between Williams
Hospitality and Grand Bay is for a term of one year and is renewable on a yearly
basis if both Williams Hospitality and Grand Bay consent to such renewal.
Under the management agreement, El Conquistador is required to pay to
Williams Hospitality a base management fee of 2.5% of the gross revenues of the
resort and 3.0% of the gross room revenues of Las Casitas Village. El
Conquistador is also required to pay a trade name fee of 0.5% of gross room
revenues of the resort, and marketing fees of 1.5% of gross room revenues of the
resort and 1.0% of the gross room revenues of Las Casitas Village. In addition,
El Conquistador is solely responsible for all of the expenses incurred by the
Hotel Operator in connection with managing and operating the resort and Las
Casitas Village and is solely responsible for its allocable share of the cost of
the Hotel Operator's national sales office efforts.
The fees payable under the management agreement differ from those under the
old management agreement as follows:
the base management fee was reduced from 3.5% to 2.5% of gross revenues of
the resort
the base management fee was reduced from 3.5% to 3.0% of gross room
revenues of Las Casitas Village
the 10.0% incentive fee under the previous agreement was eliminated
there is a new trade name fee of 0.5% of gross room revenues of the resort
there are new marketing fees of 1.5% of gross room revenues of the resort
and 1.0% of gross room revenues of Las Casitas Village
The following table sets forth the fees paid to Williams Hospitality during
the quarter ended March 31, 1999 and the fees that would have been payable to
Williams Hospitality for the other periods shown if the management agreement had
been in effect during such periods.
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<TABLE>
<CAPTION>
1.0%
3.0% BASE 0.5% MARKETING
2.5% BASE MANAGEMENT TRADE 1.5% FEE FOR
MANAGEMENT FEE FOR NAME MARKETING LAS TOTAL
FEE LAS CASITAS FEE FEE CASITAS FEES
---------- ----------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
3-month period ended March 31,
1999............................ $ 966,646 $ 98,041 $ 93,314 $ 279,942 $32,753 $1,470,696
12-month period ended December 31,
1998 (pro forma)................ 2,509,230 235,116 211,453 634,359 78,372 3,658,531
Fiscal year (9 months) ended
December 31, 1997 (pro forma)... 1,487,553 140,463 125,648 376,944 46,821 2,177,430
</TABLE>
The management agreement provides that Williams Hospitality has exclusive
supervision, control and discretion in the management, maintenance and operation
of the resort and limited management responsibilities with respect to Las
Casitas Village. The Hotel Operator has sole responsibility and total discretion
on all matters with respect to the employees of the resort and in the future all
such employees will become employees of the Hotel Operator or its affiliates,
and will not be employed by El Conquistador. All leases and concession
agreements relating to the resort require the approval of each of the Hotel
Operator and El Conquistador. The Hotel Operator is responsible for providing
repairs to and maintenance of the resort at certain quality levels, the payment
for which is reimbursed by El Conquistador. The Hotel Operator will notify El
Conquistador of the need for all capital improvements of the resort. However,
completion of such capital improvements is the responsibility of El
Conquistador. The Hotel Operator may use its affiliates to furnish goods or
services to the resort, but the terms of such arrangements must be no less
favorable than those reasonably obtainable from an unrelated party.
The Hotel Operator's business strategy is to maximize the economic
potential of the resort and Las Casitas Village. The Hotel Operator is
constantly seeking new ways to reduce operating costs as well as upgrade or add
amenities to the resort and Las Casitas Village to enhance the overall
experience of its guests. One new restaurant and five new retail shops were
recently opened at the resort. Additionally, the resort has been enhanced by a
Golden Door'r' spa which opened in December 1998.
El Conquistador believes that the resort will benefit significantly from
the use of the Wyndham Resorts'r' and Grand Bay'r' trade names in the marketing
of the resort and Las Casitas Village. The Hotel Operator promotes the multiple
products of Wyndham under a series of unified marketing programs and a
proprietary reservation system. As a result, Wyndham hotels enjoy a large market
presence significant enough to yield cost savings by centralizing functions such
as sales, marketing, reservations and advertising. According to industry
studies, the Wyndham Resorts'r' brand was the top performing upper upscale hotel
brand with respect to revenue per available room growth of 37.5% in the second
quarter of 1998 versus the second quarter of 1997. With respect to the luxury
Grand Bay'r' hotels, the Hotel Operator's aim is to consistently deliver
excellent and personalized service and 'seek opportunities to create memories.'
To better position the Grand Bay'r' brand and to develop a unified luxury
concept and brand, the Hotel Operator developed and is currently implementing a
unified marketing program designed to position this brand as a collection of
distinctive, luxury hotels and resorts competing with other high-end products.
The Hotel Operator initiated a multi-million dollar advertising campaign
during January 1999. The advertising campaign predominately features the resort
as the flagship of the Wyndham Resorts'r'. The resort's portion of the cost of
the advertising campaign will be funded by the marketing fees paid by El
Conquistador to the Hotel Operator. The Hotel Operator expects that the
advertising campaign will increase the exposure and awareness of the resort and
its amenities and, as a result, will increase the occupancy rate and revenues of
the resort. We cannot promise, however, that the advertising campaign will be a
success with respect to either Wyndham Resorts'r' as a whole or the resort
specifically.
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The advertising campaign features other Wyndham Resorts'r' that compete
directly or indirectly with the resort such as the Wyndham Aruba Beach Resort &
Casino in Palm Beach, Aruba, the Wyndham Rose Hall Golf & Beach Resort in
Montego Bay, Jamaica, the El San Juan Hotel & Casino in San Juan, Puerto Rico
and the Buena Vista Palace in Orlando, Florida. We cannot promise that the
advertising campaign will not result in a loss of resort guests to other Wyndham
Resorts'r' hotels.
Effective January 1, 1999, Las Casitas Village was branded as a Grand
Bay'r' hotel and, like other Grand Bay'r' hotels, is marketed to the upper
upscale traveler. All Grand Bay'r' hotels intend to install Golden Door'r' spas
on the hotel premises. An aggressive marketing campaign for Grand Bay'r' hotels
was launched in early 1999 promoting Las Casitas Village as well as other Grand
Bay'r' hotels such as the Grand Bay Hotel in Miami, Florida, the Peaks in
Telluride, Colorado, the Boulders in Boulder, Colorado, the Grand Bay Hotel in
Scottsdale, Arizona and La Paloma in Tucson, Arizona. This campaign will be part
of Wyndham's strategy to consolidate the marketing of the properties acquired by
Patriot/Wyndham during the past two years and enhance the Grand Bay'r' brand.
The Las Casitas Village portion of the campaign will be funded by the marketing
fees paid to the Hotel Operator with respect to Las Casitas Village.
The resort and Las Casitas Village will now have available the resources of
the extensive sales and marketing networks of Wyndham Resorts'r' and Grand
Bay'r'. Prior to 1998, the resort and Las Casitas Village had an in-house
marketing staff of approximately 8 employees, a U.S. mainland exclusive
marketing service with 40 employees located primarily in Miami, Florida and New
York, New York and sales agents in South America and Europe.
El Conquistador has agreed to indemnify and hold harmless the Hotel
Operator and its shareholders and affiliates and their respective partners,
shareholders, directors, officers, employees and agents from and against any and
all liabilities relating to the operation of the resort and Las Casitas Village
except for the gross negligence or willful misconduct of the Hotel Operator's
executive employees.
GOLDEN DOOR'r' SPA
The Hotel Operator has determined that each Grand Bay'r' hotel will contain
a Golden Door'r' spa. A Golden Door'r' spa was opened at the resort in December
1998. The spa is marketed as an amenity to Las Casitas Village but is also
available to all guests of the resort. El Conquistador owns the spa and the
Hotel Operator manages and markets the spa. The cost of construction of the spa
was approximately $4.9 million, which cost was borne by El Conquistador. El
Conquistador will pay Grand Bay a management fee of 6% of the gross revenues of
the spa and an incentive fee of 25% of the operating income of the spa.
LAS CASITAS VILLAGE ARRANGEMENTS
El Conquistador has entered into separate, year-to-year agreements with the
owners of almost all of the condominium units of Las Casitas Village with
respect to the management and marketing of the condominium units. El
Conquistador has full discretion in fixing room rates for each unit in Las
Casitas Village. Each unit must be made available to El Conquistador for at
least 11 months per calendar year and 23 of 25 weeks during the resort's high
season. Additionally, the owner of each condominium must maintain the unit,
including its furnishings and equipment, at a par with quality standards
established for the resort. El Conquistador receives 50% of the net rental
income of each condominium unit, which is equal to the gross rental income of
each condominium unit less certain administrative, marketing, maintenance,
operational and other costs associated with the condominium units individually
and Las Casitas Village as a whole. During the 3-month periods ended March 31,
1999 and 1998, El Conquistador's net revenue from the operations of Las Casitas
Village was approximately $958,000 and $1,115,000, respectively. During the
12-month period ended December 31, 1998 and the fiscal year (9 months) ended
December 31, 1997, El Conquistador's net revenue from the operation of Las
Casitas Village was approximately $2,065,000 and $1,083,000, respectively. None
of the unit owners is an affiliate of El Conquistador.
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We cannot promise that the arrangements with each individual unit owner will be
renewed in the future. However, El Conquistador believes that the condominium
units will continue to generally be made available to it based on the tax
incentives available to the owners of such units from such arrangements.
The condominium units were developed and sold by Las Casitas Development
Company I, S en C (S.E.), which is owned 50% by WKA El Con Associates and 50% by
an unaffiliated third party. At the time of such development and sale, WKA El
Con owned 50% of El Conquistador.
FURTHER DEVELOPMENT OF LAS CASITAS VILLAGE
Immediately prior to the issuance of the bonds, El Conquistador will make a
distribution of approximately 15 acres of vacant land located within its main
parcel and adjacent to Las Casitas Village to a newly-formed affiliated entity.
As part of the corporate restructuring for this offering, the common stock of
the new entity will be issued to WHG El Con Corp. and Conquistador Holding, Inc.
It is contemplated that this land will be developed for an expansion of Las
Casitas Village. El Conquistador anticipates entering into management and
marketing arrangements with the owners of the new development similar to the
arrangements with the owners of Las Casitas Village.
AVAILABLE INFORMATION
El Conquistador has filed a registration statement on Form S-11 under the
Securities Act of 1933 with the SEC with respect to this offering of the
undivided interests in the loan agreement between AFICA and El Conquistador
relating to the bonds. This official statement and prospectus does not contain
all of the information set forth in the registration statement and the exhibits
and schedules thereto, certain parts of which have been omitted in accordance
with the rules and regulations of the SEC. Reference is hereby made to the
registration statement, including the exhibits and schedules thereto, for
further information with respect to the bonds. Summaries and other statements
contained herein concerning the provisions of any document are not necessarily
complete, and in each instance reference is hereby made to the copy of the
document included in this official statement and prospectus or filed as an
exhibit to the registration statement.
The registration statement and the exhibits and schedules thereto can be
inspected and copied at the public reference facilities maintained by the SEC in
Washington, DC, Chicago, IL and New York, NY. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Such
material may also be accessed electronically by means of the SEC's home page on
the Internet at http://www.sec.gov.
Following consummation of this offering, El Conquistador will be subject to
the informational reporting requirements of the Securities Exchange Act of 1934
during the current fiscal year by reason of the public offering and the issuance
of the bonds. In accordance with the Exchange Act, El Conquistador will file
with the SEC the reports and other information required to be filed under the
Exchange Act. El Conquistador anticipates, however, that it will not be subject
to the reporting requirements of the Exchange Act in future fiscal years
pursuant to Section 15(d) of the Exchange Act; however, El Conquistador will
continue to file copies of its annual reports and certain other information,
documents and reports specified in Rule 15c2-12 promulgated under the Exchange
Act so long as the bonds are outstanding.
EL CONQUISTADOR PARTNERSHIP
El Conquistador is a Delaware limited partnership organized on January 16,
1990 under the Delaware Revised Uniform Limited Partnership Act. El Conquistador
has elected special partnership treatment under the laws of Puerto Rico. El
Conquistador's mailing address in Puerto Rico is 1000 El Conquistador Avenue,
Fajardo, Puerto Rico 00738. El Conquistador's registered office in the State of
Delaware is c/o Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware 19801.
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<PAGE>
The general partners and limited partners of El Conquistador are WKA El Con
Associates, a New York general partnership, and Conquistador Holding, Inc., a
Delaware corporation. Each of WKA El Con and Conquistador Holding owns a 35%
limited partnership interest and a 15% general partnership interest in El
Conquistador. WKA El Con is the managing general partner of El Conquistador.
Conquistador Holding is a general partner of El Conquistador and under the
partnership agreement it has the authority to make major decisions on behalf of
El Conquistador without the consent of WKA El Con. As of the date of issuance of
the bonds, El Conquistador will be governed by an amended and restated agreement
of limited partnership.
Immediately prior to the issuance of the bonds:
(1) WKA El Con will be dissolved;
(2) WKA El Con's general partnership interest in El Conquistador will be
distributed to Conquistador Holding and converted to a limited
partnership interest;
(3) a portion of WKA El Con's limited partnership interest in El
Conquistador representing an 11.73% ownership interest in El
Conquistador will be distributed to Conquistador Holding;
(4) a portion of WKA El Con's limited partnership interest in El
Conquistador representing a 23.27% ownership interest in El
Conquistador will be distributed to WHG El Con Corp.;
(5) Conquistador Holding will transfer its general and limited partnership
interests in El Conquistador to Conquistador Holding (SPE), Inc., its
newly-formed, wholly-owned, single-purpose subsidiary; and
(6) Conquistador Holding (SPE) will become the sole general partner of El
Conquistador at the time of the transfer referred to in (5) above.
After the restructuring discussed above:
WHG El Con Corp. will own a 23.27% limited partnership interest in El
Conquistador
Conquistador Holding (SPE) will own a 61.73% limited partnership interest
in El Conquistador
Conquistador Holding (SPE) will own a 15% general partnership interest in
El Conquistador
Conquistador Holding (SPE) will be the sole general partner of El
Conquistador
In connection with this offering, the term of El Conquistador will be
extended and continue until March 31, 2035, provided that El Conquistador may be
dissolved prior to such date upon (1) mutual agreement of all the partners of El
Conquistador; (2) the sale or abandonment of all or substantially all of the
resort; or (3) the bankruptcy of the general partner unless the remaining
partners agree in writing to continue the business of El Conquistador and to
replace the bankrupt general partner.
No regular meetings of the partners of El Conquistador are required under
the El Conquistador partnership agreement. However, the partners meet once per
year to review and approve the forthcoming year's budget for the resort as
prepared and presented by the Hotel Operator. The partners also meet from
time-to-time as required to discuss various matters pertaining to El
Conquistador.
In 1990, WHG Resorts & Casinos Inc., together with certain other
individuals, caused the formation of WKA El Con. El Conquistador was formed by
WKA El Con and Kumagai Caribbean, Inc., 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 resort. El
Conquistador was originally owned 50% by WKA El Con and 50% by Kumagai
Caribbean. The resort was originally built as a 388 room hotel in 1962. In
January 1990, Williams Hospitality entered into an agreement with El
Conquistador for the management of the resort. The resort was substantially
renovated and expanded during 1991 and 1992 with Kumagai Caribbean acting as
construction manager and rendering technical development services during the
construction phase and Williams Hospitality rendering management services in
preparation of opening of the resort. The resort opened for business in November
1993.
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<PAGE>
In April 1993, WKA El Con 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 Village. The project was substantially
completed in or about January 1995. Las Casitas Development is an affiliate of
El Conquistador. However, Las Casitas Development currently conducts no business
and it will not conduct any further business in the future.
On January 16, 1998, WHG Resorts & Casinos Inc. was acquired by a
wholly-owned subsidiary of Wyndham. Williams Hospitality was owned by WHG
Resorts and certain other individuals. Wyndham acquired WHG Resort's interest in
Williams Hospitality concurrently with its acquisition of WHG Resorts.
On March 31, 1998, Patriot acquired the interests of certain of the other
individual owners in WKA El Con and Kumagai Caribbean in El Conquistador.
Simultaneously, Wyndham acquired the remaining interests in Williams
Hospitality. On July 13, 1998, Patriot acquired the balance of the other
individual owner's interests in WKA El Con. Subsequently, Patriot transferred
its ownership interest in WKA El Con and El Conquistador to Conquistador
Holding. WKA El Con is currently beneficially owned 46.54% by Wyndham and 53.46%
by Conquistador Holding. Patriot beneficially owns approximately 77% of El
Conquistador by reason of its 99% equity ownership interest in Conquistador
Holding. Wyndham beneficially owns approximately 23% of El Conquistador by
reason of its equity ownership in WKA El Con. Williams Hospitality is wholly
owned by Wyndham.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
El Conquistador's partnership interests are currently comprised of 30%
general partnership interests and 70% limited partnership interests. The
beneficial ownership of El Conquistador as of April 30, 1999 is set forth below:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------------- ---------------------------------------- ----------------
<S> <C> <C>
WKA El Con Associates 50.00% General Partnership Interest (1) 50.00%
1000 El Conquistador Avenue
Fajardo, PR 00738
Conquistador Holding, Inc. 76.73% General Partnership Interest (2) 76.73%
1000 El Conquistador Avenue
Fajardo, PR 00738
WKA El Con Associates 50.00% Limited Partnership Interest (3) 50.00%
1000 El Conquistador Avenue
Fajardo, PR 00738
Conquistador Holding, Inc. 76.73% Limited Partnership Interest (4) 76.73%
1000 El Conquistador Avenue
Fajardo, PR 00738
</TABLE>
- ------------
(1) WKA El Con directly owns 50% of the general partnership interests of El
Conquistador which is equal to 15% of the total partnership interests of El
Conquistador. WKA El Con is 46.54% indirectly owned by Wyndham and 53.46%
owned by Conquistador Holding.
(2) Conquistador Holding directly owns 50% of the general partnership interests
of El Conquistador and indirectly owns 26.73% of the general partnership
interests of El Conquistador by reason of its 53.46% ownership of WKA El
Con, resulting in direct and indirect ownership of 76.73% of the general
partnership interests in El Conquistador which is equal to 23.02% of the
total partnership interests of El Conquistador. Wyndham International
Operating Partnership, L.P. owns 100% of the Class A voting stock of
Conquistador Holding, which represents 1% of the equity of Conquistador
Holding, and Patriot owns 100% of the Class B non-voting stock of
Conquistador Holding, which represents 99% of the equity of Conquistador
Holding. Wyndham owns an 80% limited partnership interest and 1% general
partnership interest in Wyndham International Operating Partnership, L.P.
(footnotes continued on next page)
34
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<PAGE>
(footnotes continued from previous page)
(3) WKA El Con directly owns 50% of the limited partnership interests of El
Conquistador which is equal to 35% of the total partnership interests of El
Conquistador.
(4) Conquistador Holding directly owns 50% of the limited partnership interests
of El Conquistador and indirectly owns 26.73% of the limited partnership
interests of El Conquistador by reason of its 53.46% ownership of WKA El
Con, resulting in direct and indirect ownership of 76.73% of the limited
partnership interests in El Conquistador which is equal to 53.71% of the
total partnership interests of El Conquistador.
Patriot/Wyndham owns substantially all of El Conquistador by reason of its
beneficial ownership of WKA El Con and Conquistador Holding. Patriot
beneficially owns approximately 77% of El Conquistador. Wyndham owns
approximately 23% of El Conquistador.
As of the date of this official statement and prospectus, the ownership
structure of El Conquistador is as follows:
[GRAPHIC OMITTED]
Prior to consummation of this offering, the partners of El Conquistador
will enter into an amended and restated partnership agreement which will:
(1) restrict El Conquistador's activities to the ownership and operation of
the resort;
(2) prohibit El Conquistador from acquiring any other property which will
not become part of the resort;
(3) prohibit the incurrence of obligations not related to the resort; and
(4) limit El Conquistador's ability to file bankruptcy.
Conquistador Holding (SPE), Inc., the newly-formed, single-purpose entity
which will become the sole general partner of El Conquistador immediately prior
to consummation of this offering, will be similarly restricted. Additionally,
Conquistador Holding (SPE), Inc. will be required to have
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<PAGE>
two independent directors whose approval will be required for it or El
Conquistador to file bankruptcy.
Concurrently with the offering of the bonds, Conquistador Holding, Inc.
will borrow $15,000,000 from the Government Development Bank for Puerto Rico
which will be collateralized by, among other things, the indirect ownership
interests of Patriot/Wyndham in El Conquistador. See 'MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Financial
Condition' for a description of this transaction. Currently, the outstanding
shares of common stock of Patriot are 'paired' with the outstanding shares of
common stock of Wyndham so that they are transferable and tradable only in
combination as units, each unit consisting of one share of Patriot common stock
and one share of Wyndham common stock.
Patriot, through its wholly-owned subsidiaries PAH GP, Inc. and PAH LP,
Inc., is the sole general partner of Patriot American Hospitality Partnership,
L.P. In addition, Patriot is the holder of a 88.0% economic interest in the
Patriot Partnership as of March 29, 1999. The Patriot Partnership was formed in
connection with the initial public offering on October 2, 1995 of Patriot's
predecessor. Patriot's predecessor contributed its assets to the Patriot
Partnership in exchange for units of limited partnership interests of the
Patriot Partnership.
Wyndham was the holder of an 86.8% economic interest in Wyndham Hospitality
Operating Partnership, L.P. (formerly known as Patriot American Hospitality
Operating Partnership, L.P.) as of March 29, 1999.
As of May 6, 1999, there were outstanding: 239,838,771 paired shares of
Patriot/Wyndham common stock; 4,860,876 shares of series A preferred stock of
Patriot and 558,656 shares of series B preferred stock of Patriot; 1,781,173
shares of series A preferred stock of Wyndham; 1,781,181 shares of series B
preferred stock of Wyndham; 7,717,601 options to purchase a like number of
paired shares of Patriot/Wyndham; 655,892 preferred A partnership units of
Wyndham; 1,324,804 preferred B paired partnership units; and 586,814 preferred C
partnership units of Wyndham.
The beneficial ownership of the executive officers of El Conquistador in
paired shares of Patriot/Wyndham as of May 6, 1999 is set forth below:
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS(1)
- --------------------------------------------------------------------------- ---------------------- -----------
<S> <C> <C>
Karim Alibhai.............................................................. 5,347,240(2) 2.18%
Karim Alibhai.............................................................. 171,200(3)** 4.81%**
James D. Carreker.......................................................... 2,028,661(4) *
Stanley M. Koonce, Jr...................................................... 613,438(5) *
William W. Evans, III...................................................... 773,637(6) *
Thomas W. Lattin........................................................... 386,663(7) *
Lawrence S. Jones.......................................................... 15,711(8) *
Carla S. Moreland.......................................................... 70,879(9) *
Brian R. Gamache........................................................... 9,810(10) *
Executive officers and directors as a group (8 persons).................... 9,417,239(11) 3.90%
</TABLE>
- ------------
* Less than 1%.
** Wyndham series A preferred stock and Wyndham series B preferred stock.
(1) Assumes that all partnership units and shares of preferred stock of Patriot
held by each person are redeemed for a paired share of Patriot/Wyndham. The
total number of shares outstanding in calculating the percentage assumes
that none of the partnership units or shares of preferred stock of Patriot
held by other persons are redeemed for paired shares of Patriot/Wyndham.
Also assumes that all vested options to purchase paired shares of
Patriot/Wyndham are exercised. The total number of shares outstanding used
in calculating the percentage assumes that no other vested or unvested
options held by other persons are exercised.
(2) Includes options to purchase 300,531 paired shares of Patriot/Wyndham
issued to Mr. Alibhai, all of which are currently exercisable. The number
of shares beneficially held by Mr. Alibhai includes an aggregate of 441,059
partnership units beneficially owned by Gencom Interest, Inc.,
(footnotes continued on next page)
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<PAGE>
(footnotes continued from previous page)
a family corporation for which he serves as Vice President and of which he
owns 30% of the outstanding capital stock. Mr. Alibhai disclaims beneficial
ownership of the partnership units referred to above, except to the extent
of his 30% ownership interest in such corporation.
(3) Shares of Wyndham series A preferred stock and shares of Wyndham series B
preferred stock.
(4) Includes options to purchase 78,088 paired shares of Patriot/Wyndham issued
to Mr. Carreker, all of which are currently exercisable.
(5) Includes options to purchase 33,303 paired shares of Patriot/Wyndham issued
to Mr. Koonce, all of which are currently exercisable.
(6) Includes options to purchase 601,074 paired shares of Patriot/Wyndham
issued to Mr. Evans, all of which are currently exercisable.
(7) Includes options to purchase 185,392 paired shares of Patriot/Wyndham
issued to Mr. Lattin, all of which are currently exercisable.
(8) Includes options to purchase 6,011 paired shares of Patriot/Wyndham issued
to Mr. Jones, all of which are currently exercisable.
(9) Includes options to purchase 56,788 paired shares of Patriot/Wyndham issued
to Ms. Moreland, all of which are currently exercisable.
(10) Includes options to purchase 620 paired shares of Patriot/Wyndham issued to
Mr. Gamache, all of which are currently exercisable.
(11) Includes options to purchase 1,261,807 paired shares of Patriot/Wyndham, an
aggregate of 441,059 partnership units and an aggregate of 171,200 shares
of Wyndham series A preferred stock and Wyndham series B preferred stock.
MANAGEMENT OF EL CONQUISTADOR PARTNERSHIP
EXECUTIVE OFFICERS OF EL CONQUISTADOR
The following table sets forth the names, ages and principal occupations of
each of El Conquistador's executive officers and the year in which each was
elected an officer.
<TABLE>
<CAPTION>
NAME AGE TITLE OFFICER SINCE
- ----------------------------------------- --- ----------------------------------------- -------------
<S> <C> <C> <C>
James D. Carreker........................ 51 Chief Executive Officer 1998
Brian R. Gamache......................... 42 President 1995
Lawrence S. Jones........................ 53 Executive Vice President and Treasurer 1998
Karim Alibhai............................ 35 Executive Vice President 1998
William W. Evans, III.................... 47 Executive Vice President 1998
Stanley M. Koonce, Jr.................... 50 Executive Vice President 1998
Thomas W. Lattin......................... 54 Executive Vice President and Director 1998
Carla S. Moreland........................ 39 Secretary 1998
</TABLE>
JAMES D. CARREKER has served as the Chief Executive Officer of El
Conquistador since 1998. In February 1999, Mr. Carreker was named Chief
Executive Officer of Patriot. Mr. Carreker also has served as the Chairman of
the Board of Directors and Chief Executive Officer of Wyndham as well as a
director of Patriot since January 1998. He has also served as the Chief
Executive Officer and as a director of Conquistador Holding since 1998. Prior to
January 1998, he had served as President and Chief Executive Officer and as a
director of Wyndham Hotel Corporation, the predecessor corporation to Wyndham.
He also served as Chief Executive Officer of Trammell Crow Company, a national
real estate company, from August 1994 to December 1995. Earlier in his career,
Mr. Carreker was President of Burdines, the Miami based division of Federated
Department Stores, and Senior Vice President and Chief Financial Officer of
Sanger Harris. Mr. Carreker currently serves as a director of Trammel Crow
Company and of Carreker-Antinori, Inc., a computer service company that
completed its initial public offering in May 1998. Mr. Carreker is 51 years old.
Mr. Carreker holds a B.S. and a Master of Business Administration from Oklahoma
State University.
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<PAGE>
BRIAN R. GAMACHE became the President of El Conquistador and Conquistador
Holding in 1998. Mr. Gamache was President of the resort from May 1995 until
November 1997. He was also President and Chief Operating Officer of WHG Resorts
& Casino Inc. from April 1997 until January 1998. Mr. Gamache has been President
of Williams Hospitality since March 1996 and he was Chief Operating Officer of
Williams Hospitality from March 1996 until January 1998. Prior to such time, Mr.
Gamache served as the Vice President -- Sales and Marketing of Williams
Hospitality from September 1990 until May 1995. Prior to joining Williams
Hospitality, Mr. Gamache held various positions for Hyatt Hotels Corp. from 1983
until 1990, including Corporate Director of Sales and Marketing -- Resorts from
1987 until 1990 and he held various positions at Marriott Hotels Corporation
from 1980 until 1983, including Director of Sales at the Marriott Camelback
Resort and Country Club in Scottsdale, Arizona. Mr. Gamache is 42 years old.
LAWRENCE S. JONES became the Executive Vice President and Treasurer of El
Conquistador and Conquistador Holding in 1998. Mr. Jones also became the
Executive Vice President and Treasurer of each of Patriot and Wyndham in March
1998. Prior to such time, Mr. Jones joined Coopers & Lybrand in 1972 and
continued there as a partner until March 1998 where he served as Chairman of the
firm's REIT industry practice. Mr. Jones is 53 years old. Mr. Jones holds a B.S.
from the University of California, Berkeley and an M.S. from UCLA. Mr. Jones is
a certified public accountant.
KARIM ALIBHAI became an Executive Vice President of El Conquistador and
Conquistador Holding in 1998. Mr. Alibhai has been the President and the Chief
Operating Officer and a director of Wyndham since October 1997. For the prior 11
years, Mr. Alibhai was a principal of the Gencom Group, an affiliated group of
companies that acquired, developed, renovated, leased and managed hotel
properties in the United States and Canada through Gencom American Hospitality.
Prior to October 1997, Mr. Alibhai was the President and Chief Executive Officer
of the Gencom Group. Mr. Alibhai is 35 years old. He holds a B.A. from Rice
University.
WILLIAM W. EVANS, III became an Executive Vice President of El Conquistador
and Conquistador Holding in 1998. Mr. Evans also serves as Executive Vice
President of Wyndham and President and Chief Operating Officer of Patriot since
1998. Mr. Evans has been an executive officer of each of Patriot and Wyndham
since March 1997, and a director since July 1997. Previously, Mr. Evans was a
Managing Director in PaineWebber's Real Estate Group with responsibility
principally for the organization and structuring of principal transactions. He
joined PaineWebber as a result of the firm's acquisition of Kidder, Peabody &
Co. Incorporated in December 1994. Prior to joining Kidder, Peabody in 1992, Mr.
Evans was a First Vice President and head of the Real Estate Financing Division
of Swiss Bank Corporation. Mr. Evans is 47 years old. Mr. Evans is a graduate of
the University of Virginia.
STANLEY M. KOONCE, JR. became an Executive Vice President of El
Conquistador and Conquistador Holding in 1998. Mr. Koonce also has been the
Executive Vice President -- Marketing and Strategic Planning of Wyndham since
January 1998. Prior to such time, he served as Executive Vice
President -- Marketing, Planning and Technical Services of Wyndham Hotel
Corporation, the predecessor to Wyndham, since October 1994, was elected a
director of Wyndham Hotel Corporation in January 1997 and served as Senior Vice
President of Sales and Marketing of Wyndham Hotel Corporation from October 1989
until October 1994. Mr. Koonce served as President of CUC Travel Services, a
division of CUC International, in Stamford, Connecticut from 1986 to 1989, as
Vice President of the Marketing Department with American Express from 1979 to
1986 and as a Director of Finance and Planning for American Airlines from 1976
to 1979. Mr. Koonce is 50 years old. Mr. Koonce holds a B.S. in Mathematics and
an M.B.A. from the University of North Carolina.
THOMAS W. LATTIN became an Executive Vice President of El Conquistador and
Executive Vice President and a director of Conquistador Holding in 1998. Mr.
Lattin also has been an Executive Vice President of Wyndham Hotel Corporation,
the predecessor corporation to Wyndham, since October 1997. Prior to such time,
he became President and Chief Operating Officer of the predecessor of Patriot in
April 1995 and continues in such capacity for Patriot American Hospitality
Operating Company. From 1987 through 1994, he served as the National
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<PAGE>
Partner of the hospitality industry consulting practice of Laventhol & Horwarth
and subsequently as a partner in the national hospitality consulting group of
Coopers & Lybrand L.L.P. In 1994, he joined the Hospitality Group of Kidder,
Peabody & Co. Incorporated as a Senior Vice President and later served as a
Senior Vice President with PaineWebber Incorporated. Mr. Lattin is 54 years old.
Mr. Lattin holds a B.S. and an M.S. in Hotel Management from the Cornell School
of Hotel Administration. He is a certified public accountant.
CARLA S. MORELAND became Secretary of El Conquistador and Senior Vice
President and Secretary of Conquistador Holding in 1998. Ms. Moreland also has
been Senior Vice President, General Counsel and Secretary of Wyndham since 1998.
Ms. Moreland was Vice President, General Counsel and Secretary of Wyndham Hotel
Corporation from 1994 until 1998. From 1988 until 1994, Ms. Moreland was an
attorney at Weil Gotshal & Manges. Ms. Moreland is 39 years old.
OFFICERS AND DIRECTORS OF THE MANAGING GENERAL PARTNER
Certain information is set forth below concerning the directors and
principal executive officers of Conquistador Holding, each of whom has been
elected or appointed to serve until his or her successor is duly elected and
qualified.
<TABLE>
<CAPTION>
POSITION(S)
NAME AGE POSITION(S) HELD SINCE
- ---------------------------------------------- --- ---------------------------------------------- ----------
<S> <C> <C> <C>
James D. Carreker............................. 51 Chief Executive Officer and Director 1998
Brian R. Gamache.............................. 42 President 1998
Lawrence S. Jones............................. 53 Executive Vice President and Treasurer 1998
Karim Alibhai................................. 35 Executive Vice President 1998
William W. Evans, III......................... 47 Executive Vice President 1998
Stanley M. Koonce, Jr......................... 50 Executive Vice President 1998
Thomas W. Lattin.............................. 54 Executive Vice President and Director 1998
Carla S. Moreland............................. 39 Senior Vice President and Secretary 1998
</TABLE>
For biographical information with respect to the individuals listed above,
see ' -- Executive Officers of El Conquistador' above. The individuals set forth
above will also serve as the directors and principal executive officers of
Conquistador Holding (SPE), Inc. at the time of this offering.
Conquistador Holding (SPE), Inc. intends to designate two additional
directors after completion of this offering. The individuals who will serve as
the two additional directors will not become executive officers of El
Conquistador or Conquistador Holding (SPE), Inc. As of the date of this official
statement and prospectus, it has not been determined who will serve as the
additional directors.
COMPENSATION OF EXECUTIVE OFFICERS OF EL CONQUISTADOR
The executive officers of El Conquistador received no compensation from the
partnership during the 3-month period ended March 31, 1999, the 12-month period
ended December 31, 1998, or the fiscal years ended December 31, 1997 (9 months)
or March 31, 1997.
LIMITATIONS ON THE LIABILITY OF AFFILIATED PERSONS
Section 17-403 of the Delaware Revised Uniform Limited Partnership Act
provides that unless modified by the partnership agreement, a general partner of
a limited partnership owes a fiduciary duty and will be liable for a breach of
such duty to the partnership and to other partners of the partnership. However,
the new partnership agreement of El Conquistador will provide that no general
partner and none of its officers, directors, partners, employees or agents,
whether acting as a general partner or otherwise, will have any liability to El
Conquistador or any other partner for any acts performed by such general
partner, officer, director, partner, employee or agent, by or on behalf of El
Conquistador in its capacity as such except for gross negligence or willful
misconduct. The new partnership agreement will also provide that the liability
of each limited partner is limited to its capital contribution and that no
limited partner as such has any other liability to
39
<PAGE>
<PAGE>
contribute money to, or in respect of the liabilities or obligations of, El
Conquistador, nor is any limited partner as such personally liable for any
obligations of El Conquistador except as otherwise provided by law. The
partnership agreement also provides that El Conquistador will indemnify the
general partner and its stockholders, officers, directors, employees and
affiliates from all liabilities arising from any act taken on behalf of or
reasonably believed to be taken on behalf of the partnership other than willful
misconduct or gross negligence. The general partner is required to indemnify the
partnership from any liabilities arising from the gross negligence or willful
misconduct of the general partner or its agents, employees or other
representatives. The partnership agreement also provides that the obligation to
indemnify the general partner is subordinate to El Conquistador's obligations to
pay the bonds and that no claim against El Conquistador can be made for
indemnification if El Conquistador's cash flow is insufficient to pay its
obligations on the bonds.
There may be instances where indemnification for violations of certain
federal statutes is deemed to be against public policy and, therefore,
unenforceable. For example, in the opinion of the SEC, indemnification for
liabilities arising under the Securities Act of 1933 is against public policy
and, therefore, unenforceable. A successful indemnification of the general
partner or an affiliate could deplete the assets of El Conquistador, unless El
Conquistador's indemnification obligation is covered by insurance. El
Conquistador does not anticipate obtaining such insurance.
The management agreement provides that El Conquistador will indemnify and
hold harmless Williams Hospitality and its stockholders and affiliates and their
respective partners, stockholders, directors, officers, employees and agents
from and against any and all liabilities, including those caused by the simple
negligence of the indemnitee and those as to which the indemnitee may be
strictly liable, (1) arising out of or incurred in connection with the
construction, renovation, management or operation of the resort or Las Casitas
Village or (2) arising out of or resulting from the environmental condition of
the resort or Las Casitas Village or the applicability of any legal requirements
relating to hazardous materials, except, in the case of both (1) and (2) above,
those liabilities caused by the gross negligence or willful misconduct of
executive personnel.
40
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected income data and balance sheet data
of El Conquistador. The selected income data and balance sheet data are derived
from the financial statements of El Conquistador for the period from March 1,
1998 to December 31, 1998 (successor partnership) and for the period from
January 1, 1998 to February 28, 1998, and the fiscal years ended December 31,
1997 (9 months) and March 31, 1997 (predecessor partnership), which have been
audited. The financial statements and notes thereto as of December 31, 1998 and
December 31, 1997 and for the period from March 1, 1998 to December 31, 1998
(successor partnership) and the period from January 1, 1998 to February 28,
1998, and the fiscal year ended December 31, 1997 (9 months) and March 31, 1997
(predecessor partnership) are included in this official statement and
prospectus, and include an explanatory paragraph which describes an uncertainty
about El Conquistador's ability to continue as a going-concern if the offering
of the bonds is not completed. The financial data for the period from March 1,
1998 to December 31 1998 is under a new basis as a result of the acquisition of
El Conquistador by Patriot/Wyndham.
The pro forma operating information for the 12-month period ended December
31, 1998 and the 3-month period ended March 31, 1999 are intended to give you an
idea of what El Conquistador's business might have looked like if the following
transactions had occurred on January 1, 1998 and 1999, respectively:
this offering of $105,200,000 of bonds with an assumed blended interest
rate of 6.215%;
repayment of the $90,000,000 interim loan made by Citicorp Real Estate;
the effective date of the amended and restated management agreement;
the effective date of the acquisition of El Conquistador by
Patriot/Wyndham;
a $15,000,000 capital contribution to El Conquistador by Conquistador
Holding, Inc.; and
repayment of the long-term debt of $25,000,000 owed to the Government
Development Bank for Puerto Rico by El Conquistador.
The pro forma balance sheet assumes such transactions had occurred as of
the pro forma balance sheet date.
The pro forma data is unaudited.
The data below should be read in conjunction with the financial statements,
related notes and other financial information included in this official
statement and prospectus.
EBITDA represents earnings (loss) before interest expense, income taxes,
depreciation and amortization. El Conquistador believes that EBITDA is a useful
measure of operating performance because (A) it is industry practice to evaluate
hotel companies based on operating income (loss) before interest, depreciation
and amortization and minority interests, which is generally equivalent to
EBITDA, and (B) EBITDA is unaffected by the debt and equity structure of the
entity. EBITDA:
does not represent cash flow from operations as defined by generally
accepted accounting principles;
is not necessarily indicative of cash available to fund all cash flow
needs;
should not be considered as an alternative to net income under generally
accepted accounting principles for purposes of evaluating El
Conquistador's results of operations; and
may not be comparable to other similarly titled measures used by other
companies.
41
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR
(NINE TWELVE MONTHS
MONTHS) TWELVE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, ENDED ENDED JANUARY 1, MARCH 1 TO DECEMBER 31,
--------------------------------- DECEMBER 31, DECEMBER 31, TO FEBRUARY DECEMBER 31, 1998
1995 1996 1997 1997 1997 28, 1998 1998 PRO FORMA
-------- -------- --------- ------------ -------------- ------------ ------------ -------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT ROOM AND OCCUPANCY DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Selected Statement
of Income Data:
Revenues:
Rooms......... $ 37,943 $ 38,817 $ 40,025 $ 25,130 $ 40,734 $ 10,756 $ 31,535 $ 42,291
Food and
beverage.... 27,298 26,189 26,235 17,429 26,030 6,475 22,370 28,845
Casino........ 6,055 6,179 6,005 3,554 5,548 932 4,127 5,058
Other
income...... 14,652 19,166 21,959 14,472 23,478 6,749 19,490 26,240
-------- -------- --------- ------------ -------------- ------------ ------------ -------------
85,948 90,351 94,224 60,585 95,790 24,912 77,522 102,434
Less casino
promotional
allowance... (1,205) (1,137) (1,266) (458) (875) (159) (620) (778)
-------- -------- --------- ------------ -------------- ------------ ------------ -------------
Total
revenues... $ 84,743 $ 89,214 $ 92,958 $ 60,127 $ 94,915 $ 24,753 $ 76,902 $ 101,656
-------- -------- --------- ------------ -------------- ------------ ------------ -------------
Costs and
expenses:
Rooms......... $ 14,755 $ 12,853 $ 12,378 $ 9,603 $ 13,738 $ 3,109 $ 11,512 $ 14,621
Food and
beverage.... 20,797 17,638 17,602 12,315 17,106 3,523 14,573 18,096
Casino........ 3,924 3,687 3,849 2,384 3,468 740 2,398 3,138
Selling,
general and
administrative... 18,115 12,993 14,657 11,997 16,158 2,634 12,447 15,081
Management and
incentive
management
fees........ 3,704 5,395 5,680 2,985 5,696 1,944 4,638 2,956
Property
operation,
maintenance
and energy
costs....... 14,408 12,396 12,383 9,095 12,088 2,039 8,047 10,086
Depreciation
and
amortization... 11,124 10,499 9,147 6,887 9,224 1,556 7,590 8,326(1)
Other
expenses.... 9,723 9,201 9,702 6,874 9,632 1,837 7,931 9,770
-------- -------- --------- ------------ -------------- ------------ ------------ -------------
Total costs
and
expenses... $ 96,551 $ 84,662 $ 85,398 $ 62,140 87,110 $ 17,382 $ 69,136 $ 82,074
-------- -------- --------- ------------ -------------- ------------ ------------ -------------
Income (loss)
from
operations
(EBIT)........ (11,808) 4,552 7,560 (2,013) 7,805 7,371 7,766 19,582
Interest
income........ 468 229 199 128 188 43 202 245
Interest
expense....... (16,137) (17,022) (17,162) (13,157) (17,627) (3,301) (12,341) (11,200)
-------- -------- --------- ------------ -------------- ------------ ------------ -------------
Extraordinary
loss from
early
extinguishment
of debt....... -- -- -- -- -- -- (1,677) --
Net income
(loss).... $(27,477) $(12,241) $ (9,403) $(15,042) $ (9,634) $ 4,113 $ (6,051) $ 8,627
-------- -------- --------- ------------ -------------- ------------ ------------ -------------
-------- -------- --------- ------------ -------------- ------------ ------------ -------------
(Deficiency in)
partners'
capital
beginning of
period........ $ 36,191 $ 8,716 $ (3,525) $(12,928) $(18,337) $(27,971) $(23,858) $ (27,971)
Partner capital
contributions... 2 -- -- -- -- -- 81,672 85,844
(Deficiency in)
partners'
capital end of
period........ 8,716 (3,525) (12,928) (27,971) (27,971) (23,858) 51,763 66,500
Ratio of
earnings to
fixed
charges....... (27,241) (12,004) (9,166) (14,864) (9,397) 2.2x (5,853) 1.8x
Ratio of EBITDA
to fixed
charges....... (17,799) (2,948) (1,434) (9,017) (1,576) 2.6x 1.2x 2.5x
Other Financial
Data:
Available
rooms(#)...... 751 751 751 751 751 751 751 751
Occupancy....... 73.3% 71.0% 72.0% 69.3% 73.3% 83.8% 70.0% 72.3%%
Average rate.... $ 188.87 $ 198.99 $ 202.86 $ 175.59 $ 202.77 $ 289.66 $ 195.81 $ 213.39
RevPAR(2)....... 138.42 141.22 146.01 121.68 148.60 242.74 137.06 154.28
Revenue per
available
room.......... 112,840 118,794 123,779 80,062 126,385 32,960 102,400 135,360
Cash flow from
operating
activities.... (4,712) 1,906 5,855 (1,415) 5,373 4,755 4,644
Cash flow from
investing
activities.... (3,002) (864) (1,428) (1,890) (2,298) (323) (7,062)
Cash flow from
financing
activities.... 7,294 (1,063) (2,903) 2,053 2,995 (2,388) 804
EBITDA.......... (684) 15,051 16,707 4,874 17,029 8,927 15,356 27,908
Selected Balance
Sheet Data:
Current
assets........ $ 15,316 $ 11,823 $ 13,618 $ 13,953 $ 13,953 $ 13,803 $ 27,052 $ 26,651
Land, building
and equipment,
net........... 194,557 188,994 183,960 181,127 181,127 180,312 229,858 229,858
Total assets.... 225,191 211,691 205,430 200,422 200,422 199,047 262,368 266,704
Long-term debt,
including
current
maturities.... 193,034 197,154 199,709 204,624 204,624 203,740 152,035 142,235
Total
liabilities
and
(deficiency
in) partners'
capital....... 225,191 211,691 205,430 200,422 200,422 199,047 262,368 266,704
</TABLE>
- ------------
(1) Reflects an adjustment for amortization of offering costs, estimated at $5.0
million, amortized on the straight-line method over the 30-year term of the
bonds at a rate of $166,667 per year, and the effect of the acquisition of
El Conquistador by Patriot/Wyndham related to depreciation and deferred cost
amortization.
(2) RevPAR is equal to the average rate multiplied by occupancy percentage.
42
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
THREE
THREE MONTHS
JANUARY 1 MARCH 1 MONTHS ENDED
TO TO ENDED MARCH 31,
FEBRUARY 28, MARCH 31, MARCH 31, 1999
1998 1998 1999 PRO FORMA
------------ --------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT ROOM AND OCCUPANCY DATA)
<S> <C> <C> <C> <C>
Selected Statement
of Income Data:
Revenues:
Rooms......... $ 10,756 $ 5,469 $ 18,663 (1) $ 18,663 (1)
Food and
beverage.... 6,475 3,116 11,572 11,572
Casino........ 932 446 1,648 1,648
Other
income...... 6,749 3,193 7,643 (1) 7,643 (1)
------------ --------- --------- ---------
24,912 12,224 39,526 39,526
Less casino
promotional
allowance... (159) (57 ) (218 ) (218 )
------------ --------- --------- ---------
Total
revenues... $ 24,753 $ 12,168 $ 39,308 $ 39,308
------------ --------- --------- ---------
Costs and
expenses:
Rooms......... $ 3,109 $ 1,562 $ 4,184 $ 4,184
Food and
beverage.... 3,523 1,733 6,710 6,710
Casino........ 740 55 891 891
Selling,
general and
administrative... 2,634 1,469 4,347 4,347
Management and
incentive
management
fees........ 1,944 954 1,158 1,158
Property
operation,
maintenance
and energy
costs....... 2,039 899 2,349 2,349
Depreciation
and
amortization... $ 1,556 $ 778 $ 2,959 $ 2,739 (2)
Other
expenses.... 1,837 958 2,855 2,855
------------ --------- --------- ---------
Total costs
and
expenses... $ 17,383 $ 8,408 $ 25,453 $ 25,233
------------ --------- --------- ---------
Income (loss)
from
operations
(EBIT)........ 7,371 3,759 13,855 14,076
Interest
income........ 43 1 91 91
Interest
expense....... (3,301) (1,260 ) (3,119 ) (2,682 )
------------ --------- --------- ---------
Net income
(loss).... $ 4,113 $ 2,498 $ 10,827 $ 11,485
------------ --------- --------- ---------
------------ --------- --------- ---------
(Deficiency in)
partners'
capital
beginning of
period........ $(27,971) $(23,858 ) $ 51,763 $ 51,763
Partner capital
contributions... -- 71,977 -- 14,342
(Deficiency in)
partners'
capital end of
period........ (23,858) 51,112 62,590 77,590
Ratio of
earnings to
fixed
charges....... 2.2x 2.9 x 4.2 x 5.2 x
Ratio of EBITDA
to fixed
charges....... 2.6x 3.4 x 5.0 x 6.2 x
Other Financial
Data:
Available
rooms(#)...... 751 751 751 751
Occupancy....... 83.8% 81.6 % 84.5 % 84.5 %
Average rate.... $ 289.66 $ 287.95 $ 326.60 (1) $ 326.60 (1)
RevPAR(3)....... 242.74 234.97 275.98 (1) 275.98 (1)
Revenue per
available
room.......... 32,960 16,202 52,341 (1) 52,341 (1)
Cash flow from
operating
activities.... 4,755 1,021 6,294
Cash flow from
investing
activities.... (323) (325 ) (1,693 )
Cash flow from
financing
activities.... (2,388) (2,211 ) --
EBITDA.......... 8,927 4,535 16,814 16,814
Selected Balance
Sheet Data:
Current
assets........ $ 13,803 $ 15,658 $ 34,865 $ 34,106
Land, building
and equipment,
net........... 180,312 228,816 229,440 229,440
Total assets.... 199,047 248,206 269,074 273,315
Long-term debt,
including
current
maturities.... 203,740 179,001 185,593 175,793
Total
liabilities
and
(deficiency
in) partners'
capital....... 199,047 248,206 269,074 273,315
</TABLE>
- ------------
(1) As a result of a change in accounting policy, certain revenue that was
historically classified as other income is now classified as room revenue.
(2) Reflects an adjustment for amortization of offering costs, estimated at $5.0
million, amortized on the straight-line method over the 30-year term of the
bonds at a rate of $41,667 per quarter, and the effect of the acquisition of
El Conquistador by Patriot/Wyndham related to depreciation and deferred cost
amortization.
(3) RevPAR is equal to the average rate multiplied by occupancy percentage.
43
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
El Conquistador'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 to actively market the resort in order to
minimize the adverse effects of seasonality. 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 negatively affected by
circumstances beyond El Conquistador's control such as hurricanes, airline
strikes, droughts and water shortages, and the like. The impact of such events,
if any, will depend, in part, upon the time of year when such events occur.
El Conquistador and the Hotel Operator have taken steps to improve the
operating performance of the resort. El Conquistador has strengthened management
at the resort by increased supervision of hiring practices, providing increased
benefits to employees and providing comprehensive training to new and existing
employees. El Conquistador has also reduced operating costs at the resort
primarily through the implementation of cost controls and more efficient
staffing. Generally, such cost savings are attributable to reduced staffing
levels, food and beverage operating hours and transportation services during the
low-season months. Additionally, commencing in January 1999, the resort began
utilizing the procurement program, Parker FIRST'TM', pursuant to arrangements
between Patriot/Wyndham and Hospitality Worldwide Services, Inc. The program
enables the resort to order operating supplies and equipment online or by
telephone in conjunction with Patriot/Wyndham's purchasing groups. It is
anticipated that use of the program will result in savings of approximately
three to five percent. In addition to savings, El Conquistador believes the
program will enable it to better monitor its purchasing patterns.
RESULTS OF OPERATIONS
PERIOD OF MARCH 1, 1999 THROUGH MARCH 31, 1999 (UNAUDITED) COMPARED WITH PERIOD
OF MARCH 1, 1998 THROUGH MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 1 TO MARCH 1 TO
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Hotel and casino revenues, net.......................... $ 13,829 $ 12,168
Operating expenses...................................... 9,372 8,410
-------------- --------------
Operating income................................... 4,457 3,757
Interest income.................................... -- 1
Interest expense................................... (1,254) (1,260)
-------------- --------------
Net income.................................... $ 3,203 $ 2,498
-------------- --------------
-------------- --------------
</TABLE>
Hotel and casino revenues increased $1,661,000 or 13.6% in the period of
March 1, 1999 to March 31, 1999 to $13,829,000 from $12,168,000 in the
corresponding period of 1998. Revenues primarily increased due to a higher
percentage of occupancy in the transient sector which generated higher average
rates and additional room revenue. During the period of March 1, 1999 through
March 31, 1999, room prices increased an aggregate of $120,000 accounting for
29.0% of the change in room revenue while the value of rooms sold increased an
aggregate of $293,000 accounting for 71.0% of the change in room revenue
compared to the corresponding period in 1998.
Operating income increased $700,000 or 18.6% to $4,457,000 for the period
of March 1, 1999 through March 31, 1999 compared to $3,757,000 in the
corresponding period in 1998. These results were achieved by increased sales of
$1,661,000 offset by increases in administrative expense, sales and marketing
expense, and depreciation.
44
<PAGE>
<PAGE>
During the period of March 1, 1999 through March 31, 1999, El Conquistador
had net income of $3,203,000 compared to net income of $2,498,000 during the
corresponding period in 1998. This improvement is directly related to the
improvement in operating income during the period of March 1, 1999 through March
31, 1999 compared to the corresponding period in 1998.
PERIOD OF JANUARY 1, 1999 THROUGH FEBRUARY 28, 1999 (UNAUDITED) COMPARED WITH
PERIOD OF JANUARY 1, 1998 THROUGH FEBRUARY 28, 1998
<TABLE>
<CAPTION>
JANUARY 1 TO JANUARY 1 TO
FEBRUARY 28, 1999 FEBRUARY 28, 1998
----------------- -----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Hotel and casino revenues, net..................... $25,479 $24,753
Operating expenses................................. 16,081 17,383
----------------- -----------------
Operating income.............................. 9,398 7,371
Interest income............................... 91 43
Interest expense.............................. (1,865) (3,301)
----------------- -----------------
Net income............................... $ 7,624 $ 4,113
----------------- -----------------
----------------- -----------------
</TABLE>
Hotel and casino revenues increased $726,000 or 2.9% in the period of
January 1, 1999 to February 28, 1999 to $25,479,000 from $24,753,000 in the
corresponding period of 1998. Revenues primarily increased due to a higher
percentage of occupancy in the group sector which generated higher average rates
and additional room revenue as well as additional banquet, food and beverage
revenues. During the period of January 1, 1999 through February 28, 1999, room
prices increased an aggregate of $129,000 accounting for 96.4% of the change in
room revenue while the value of rooms sold increased an aggregate of $5,000
accounting for 3.6% of the change in room revenue compared to the corresponding
period in 1998.
Operating income increased $2,027,000 or 27.5% to $9,398,000 for the period
of January 1, 1999 through February 28, 1999 compared to $7,371,000 in the
corresponding period in 1998. These results were achieved by the combination of
reduced expenses of overhead departments and the new management fee structure
for the period of January 1, 1999 through February 28, 1999 compared to the
corresponding period in 1998.
During the period of January 1, 1999 through February 28, 1999, El
Conquistador had net income of $7,624,000 compared to net income of $4,113,000
during the corresponding period in 1998. This improvement is directly related to
increased group revenues, the new management fee structure and a reduction in
interest expense on partners' loans and lower rates on outstanding debt during
the period of January 1, 1999 through February 28, 1999 compared to the
corresponding period in 1998.
PERIOD OF MARCH 1, 1998 TO DECEMBER 31, 1998 COMPARED WITH PERIOD OF MARCH 1,
1997 TO DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 1 TO MARCH 1 TO
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Hotel and casino revenues, net............................. $ 76,902 $ 72,502
Operating expenses......................................... 69,137 70,931
------------ ------------
Operating income...................................... 7,766 1,571
Interest income....................................... 202 141
Interest expense...................................... (12,341) (14,826)
------------ ------------
Loss before extraordinary item........................ (4,374) (13,113)
Loss from early extinguishment of debt................ (1,677) --
------------ ------------
Net loss......................................... $ (6,051) $ (13,113)
------------ ------------
------------ ------------
</TABLE>
Hotel and casino revenues increased $4,401,000 or 6.1% in the period of
March 1, 1998 to December 31, 1998 to $76,902,000 from $72,502,000 in the
corresponding period of 1997,
45
<PAGE>
<PAGE>
notwithstanding the fact that the resort was closed during the period
September 22, 1998 through October 2, 1998 as a result of Hurricane Georges.
El Conquistador has estimated its loss of revenues due to the hurricane at
approximately $2,500,000. El Conquistador believes its business interruption
insurance will cover lost net income resulting from the aforementioned loss of
revenues. Revenues primarily increased due to a higher percentage of occupancy
in the group sector which generated higher average rates and additional room
revenue as well as additional banquet, food and beverage revenues. During the
period of March 1, 1998 through December 31, 1998, room prices increased an
aggregate of $1,501,000 accounting for 147.9% of the change in room revenue
while the value of rooms sold decreased an aggregate of $(486,000) accounting
for (47.9%) of the change in room revenue compared to the corresponding period
in 1997. Additional revenues were also generated from transportation and golf
greens fee price increases implemented on January 1, 1998.
Operating income increased $6,195,000 or 394.3% to $7,766,000 for the
period of March 1, 1998 through December 31, 1998 compared to $1,571,000 in the
corresponding period in 1997. These results were achieved by the combination of
operating departments producing higher margins on improved sales and expenses of
overhead departments remaining constant or being reduced for the period of March
1, 1998 through December 31, 1998 compared to the corresponding period in 1997.
During the period of March 1, 1998 through December 31, 1998, El
Conquistador had a loss of $4,374,000 before extraordinary items compared to a
loss before extraordinary items of $13,113,000 during the corresponding period
in 1997. This improvement was generated from higher revenues in the period of
March 1, 1998 through December 31, 1998 while maintaining operating expense
levels at the same rate during the corresponding period of the prior year. In
the third quarter of 1998, El Conquistador expensed as an extraordinary item the
remaining $1,677,000 of deferred financing fees relating to its 1991
$120,000,000 AFICA bond transaction. The extraordinary item expense was due to
the replacement of the 1991 AFICA bonds with an interim loan in August 1998, and
represents full amortization of the property's original financing costs.
Amortization expenses decreased as the unamortized portion of the five-year
pre-opening marketing expenses amounting to approximately $1,087,000 were
eliminated in March 1998 as a result of the acquisition of control of El
Conquistador by Patriot/Wyndham and the resulting new basis of accounting.
Net loss for the period of March 1, 1998 through December 31, 1998
decreased by $7,062,000 to $6,051,000 versus $13,113,000 for the corresponding
period in 1997. This improvement is directly related to increased group
revenues, improved operating efficiencies and a $1,000,000 reduction in interest
expense associated with the buyout of certain loans made by Kumagai Caribbean to
El Conquistador together with lower capital lease interest expenses during the
period of March 1, 1998 through December 31, 1998 compared to the corresponding
period in 1997.
PERIOD OF JANUARY 1, 1998 THROUGH FEBRUARY 28, 1998 COMPARED WITH PERIOD JANUARY
1, 1997 THROUGH FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 1 TO JANUARY 1 TO
FEBRUARY 28, 1998 FEBRUARY 28, 1997
----------------- -----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Hotel and casino revenues, net..................... $24,753 $22,413
Operating expenses................................. 17,383 16,179
----------------- -----------------
Operating income.............................. 7,371 6,234
Interest income............................... 43 47
Interest expense.............................. (3,301) (2,801)
----------------- -----------------
Net income.................................... $ 4,113 $ 3,479
----------------- -----------------
----------------- -----------------
</TABLE>
Hotel and casino revenues increased $2,340,000 or 10.4%% in the period of
January 1, 1998 to February 28, 1998 to $24,753,000 from $22,413,000 in the
corresponding period of 1997.
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Revenues primarily increased due to a higher percentage of occupancy in the
group sector which generated higher average rates and additional room revenue
as well as additional banquet, food and beverage revenues. During the period
of January 1, 1998 through February 28, 1998, room prices increased an aggregate
of $567,000 accounting for 104.8% of the change in room revenue while the
value of rooms sold decreased an aggregate of $(26,000) accounting for (4.8%)
of the change in room revenue compared to the corresponding period in 1997.
Operating income increased $1,137,000 or 18.2% to $7,371,000 for the period
of January 1, 1998 through February 28, 1998 compared to $6,234,000 in the
corresponding period in 1997. These results were achieved by the combination of
operating departments producing higher margins on improved sales and expenses of
overhead departments remaining constant for the period of January 1, 1998
through February 28, 1998 compared to the corresponding period in 1997.
During the period of January 1, 1998 through February 28, 1998, El
Conquistador had net income of $4,113,000 compared to net income of $3,479,000
during the corresponding period in 1997. This improvement is directly related to
increased group revenues and improved operating efficiencies offset by an
increase in interest expense associated with the acquisition of El Conquistador
by Patriot/Wyndham during the period of January 1, 1998 through February 28,
1998 compared to the corresponding period in 1997.
FISCAL YEAR (NINE MONTHS) ENDED DECEMBER 31, 1997 COMPARED WITH NINE MONTHS
ENDED
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
-------------------------
1997 1996
-------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Hotel and casino revenues, net............................. $ 60,127 $ 58,169
Operating expenses......................................... 62,140 60,428
-------- --------
Operating loss........................................ (2,013) (2,259)
Interest income....................................... 128 139
Interest expense...................................... (13,157) (12,691)
-------- --------
Net loss......................................... $(15,042) $(14,811)
-------- --------
-------- --------
</TABLE>
Hotel and casino revenues increased by $1,958,000 or 3.4% in the nine
months ended December 31, 1997 to $60,127,000 from $58,169,000 in the nine
months ended December 31, 1996. Despite this increase, the additional travel
agent commissions paid and greater sales and marketing expenses to attract
summer business negated this revenue gain. The resort extended additional
discounts and marketing promotional monies to stimulate demand in other markets.
During the period ended December 31, 1997, room prices increased an aggregate of
$627,417 accounting for 11.6% of the change in room revenue and the value of
rooms sold increased an aggregate of $709,872 accounting for 88.4% of the change
in room revenue compared to the corresponding period in 1996.
For the nine primarily off-season months of April 1, 1997 to December 31,
1997, operating loss was $2,013,000 as compared to a loss of $2,259,000 for
April 1, 1996 to December 31, 1996. Operating loss decreased $246,000
notwithstanding the slow summer convention season and higher marketing expenses
for the nine months ended December 31, 1997 as compared to the same nine months
ended December 31, 1996.
The net loss in the nine months ended December 31, 1997 was $15,042,000
compared to a net loss of $14,811,000 in the nine months ended December 31,
1996. The net loss increased due to increased travel agent commissions and
higher marketing expenses along with increased interest charges for the deferred
Williams Hospitality management fees and the $120,000,000 1991 AFICA bonds.
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FISCAL YEAR ENDED MARCH 31, 1997 COMPARED WITH FISCAL YEAR ENDED
MARCH 31, 1996
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
MARCH 31,
-------------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Hotel and casino revenues, net............................. $ 92,958 $ 89,214
Operating expenses......................................... 85,398 84,662
-------- --------
Operating income...................................... 7,560 4,552
Interest income....................................... 199 229
Interest expense...................................... (17,162) (17,022)
-------- --------
Net loss......................................... $ (9,403) $(12,241)
-------- --------
-------- --------
</TABLE>
Hotel and casino revenues were $92,958,000 in the fiscal year ended March
31, 1997 compared to $89,214,000 for the fiscal year ended March 31, 1996, an
increase of $3,744,000 or 4.2%.
Combined 1997 fiscal year revenues increased by $3,744,000 or 4.2% over
fiscal 1996 as the resort was able to pass on higher room rates as well as
increasing occupancy by 1% in fiscal 1997. In addition, transportation price
increases as well as increased concession rents contributed to the revenue
increase for fiscal 1997 over fiscal 1996. During the period ended March 31,
1997, room prices increased an aggregate of $762,195 accounting for 63.2% of the
change in room revenue and the value of rooms sold increased an aggregate of
$444,548 accounting for 36.8% of the change in room revenue compared to the
corresponding period in the prior year.
Operating income increased by $3,008,000 or 66.0% for the fiscal year ended
March 31, 1997 as management continued to improve the operating efficiency and
profit margins in the rooms, food and beverage departments. Undistributed
expenses increased in sales and marketing due to increased advertising and
promotions necessary to stimulate summer demand. Depreciation and amortization
expenses declined for the fiscal year ended March 31, 1997 versus March 31, 1996
by $1,352,000 as the 24-month pre-opening expenses became fully amortized at the
end of fiscal 1996.
Net loss for the fiscal year ended March 31, 1997 was $9,403,000 compared
to a net loss of $12,241,000 for the fiscal year ended March 31, 1996. This
$2,838,000 or 23.2% reduction can be attributed to increased volume and pricing
as well as the decrease in amortization in fiscal 1997 of certain pre-opening
marketing expenses.
FINANCIAL CONDITION
The resort's cash needs during the high-season months of December through
April are provided from cash generated at the resort. The resort's cash needs
during the off-season months of May through November have historically been
provided from cash generated at the resort and by the Hotel Operator, and from a
revolving credit facility. The revolving credit facility was terminated in May
1998. Additionally, during the fiscal year ended December 31, 1998, a portion of
the resort's cash needs were funded from short-term borrowings from Patriot.
Such borrowings are payable on demand and interest accrues at a rate of 8.00%
per annum. Such borrowings were necessary to fund a portion of the interest and
real property tax reserves and certain costs and expenses related to the
extension of the $90,000,000 interim loan provided by Citicorp Real Estate. El
Conquistador believes that after completion of this offering its cash needs
throughout the year will be provided by cash generated at the resort.
At March 31, 1999, total short-term and long-term indebtedness of El
Conquistador was approximately $185,592,615 consisting of the following:
$90,000,000 interim loan provided by Citicorp Real Estate;
$33,668,885 owed to Posadas de Puerto Rico Associates, Incorporated, an
affiliate of El Conquistador and the Hotel Operator;
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$25,000,000 owed to the Government Development Bank for Puerto Rico;
$15,739,625 of loans and accrued interest owed to the partners of El
Conquistador;
$231,321 owed to Posadas de San Juan Associates, an affiliate of El
Conquistador and the Hotel Operator;
$1,158,001 of management fees owed to Williams Hospitality;
$9,388,207 of incentive management fees owed to Williams Hospitality;
$1,505,689 of interest on the incentive management fees owed to Williams
Hospitality;
$2,515,600 of loans and accrued interest owed to Williams Hospitality; and
$6,385,287 owed to Patriot.
The first mortgage lien in the amount of $90,000,000 in favor of Citicorp
Real Estate requires monthly payments of interest and matures June 30, 1999,
unless extended or refinanced. The obligation is non-recourse to the partners of
El Conquistador payable solely from assets of the partnership. Patriot has
guaranteed up to $22,500,000 of the amount owed to Citicorp Real Estate. The
$90,000,000 indebtedness will be repaid in full with the proceeds from this
offering. El Conquistador has been advised by its auditors that if this offering
is not completed it raises substantial doubt as to El Conquistador's ability to
continue as a going-concern.
The second mortgage lien on the El Conquistador is in the principal amount
of $25,000,000 in favor of the Government Development Bank for Puerto Rico. The
loan is non-recourse to the partners of El Conquistador and is the subject of a
subordination and standstill agreement with Citicorp Real Estate, the holder of
the first mortgage lien. The $25,000,000 loan becomes due in February 2006. It
is a condition to this offering that such indebtedness be repaid in full. El
Conquistador intends to repay such indebtedness concurrently with the issuance
of the bonds. El Conquistador will use $10,000,000 in cash generated from
operating activities and a $15,000,000 capital contribution to the partnership
by Conquistador Holding to make such repayment. Conquistador Holding will make
the aforementioned capital contribution with the proceeds of a $15,000,000 loan
made to it by the Government Development Bank. The loan by the Government
Development Bank to Conquistador Holding and the capital contribution by
Conquistador Holding to El Conquistador are subject to and conditions to
completion of this offering. Conquistador Holding's obligation to the Government
Development Bank will be secured by, among other things, the indirect ownership
interests of Patriot/Wyndham in El Conquistador and a guaranty by Patriot.
On August 3, 1998, El Conquistador borrowed $32,021,172 from Posadas de
Puerto Rico Associates, Incorporated, the proceeds of which were used, together
with the $90,000,000 advance
from Citicorp Real Estate, to repay the $120,000,000 1991 AFICA bonds. As of
March 31, 1999, the amount of such indebtedness together with accrued interest
totaled $33,668,885. The loan is payable on demand but is subordinate in all
respects to El Conquistador's obligations to Citicorp Real Estate with respect
to the $90,000,000 advance. This loan will be subordinate to the bonds.
All the amounts owed to the partners of El Conquistador and to Williams
Hospitality will be subordinate to the bonds.
Upon completion of this offering, El Conquistador believes that cash flow
from operations of the resort will be adequate to pay its long-term obligations
with respect to the bonds as they become due.
Annual capital expenditures are provided for each year as part of the
resort's annual budgeting process. Capital expenditures are incurred taking into
account available cash and available financing, if necessary. The loan agreement
will permit El Conquistador to borrow funds for capital expenditures subject to
satisfaction of certain conditions. For a complete description of the covenants
in the loan agreement with respect to additional indebtedness, see 'SUMMARY OF
THE LOAN AGREEMENT -- Covenants.'
The management agreement provides for reduced fees on an overall basis as
compared to the prior management agreement which was in effect through December
31, 1998. The base fee was
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reduced by 1.0%, from 3.5% to 2.5%, of gross revenue of the resort. There is a
new trade name fee of 0.5% of gross revenue of the resort. The incentive fee of
10.0% of the resort's and Las Casitas Village's gross operating profit was
eliminated. Although there is a new marketing fee of 1.5% of gross room revenues
of the resort as well as 1.0% of gross room revenues of Las Casitas Village,
El Conquistador believes that such fees will not increase the overall marketing
expense of the resort and Las Casitas Village. Prior to the effective date of
the current marketing arrangements, El Conquistador incurred marketing expenses
internally at approximately the same rate as provided for under the management
agreement. As the marketing function has been outsourced to Wyndham Management
and Grand Bay, through their arrangements with Williams Hospitality, El
Conquistador believes that the resort's and Las Casitas Village's future
marketing costs will be substantially the same as their historical marketing
expenses.
Period of March 1, 1999 Through March 31, 1999 (unaudited) Compared With
Period of March 1, 1998 through March 31, 1998 (unaudited). Cash flows from the
operating, investing and financing activities of the property for the period
March 1, 1999 through March 31, 1999 resulted in net cash provided of $2,395,000
compared with net cash used of $1,516,000 for the corresponding period in 1998.
Cash provided by operating activities was $3,399,000 during the period of
March 1, 1999 through March 31, 1999 versus $1,021,000 during the corresponding
period in 1998. The increase was primarily due to the improvement in net income
of $704,000 and increased advance deposits in the period of March 1, 1999
through March 31, 1999.
Cash used by investing activities was $1,003,000 for the period of March 1,
1999 through March 31, 1999 versus $325,000 for the corresponding period in
1998. Cash used for the purchase of property and equipment was $1,003,000 in the
period of March 1, 1999 through March 31, 1999 versus $203,000 in the
corresponding period in 1998. No cash was used for the purchase of operating
equipment in the period of March 1, 1999 through March 31, 1999 compared to
$122,000 during the corresponding period in 1998.
Cash used in financing activities during the period of March 1, 1999
through March 31, 1999 was $0 versus $2,211,000 during the corresponding period
in 1998.
Period of January 1, 1999 Through February 28, 1999 (unaudited) Compared
With Period of January 1, 1998 through February 28, 1998. Cash flows from the
operating, investing and financing activities of the property for the period
January 1, 1999 through February 28, 1999 resulted in net cash provided of
$2,206,000 compared with net cash provided of $2,044,000 for the corresponding
period in 1998.
Cash provided by operating activities was $2,896,000 during the period of
January 1, 1999 through February 28, 1999 versus $4,755,000 during the
corresponding period in 1998. The decrease was primarily due to the requirement
to transfer cash into a restricted cash account under El Conquistador's interim
financing with Citicorp Real Estate in the period of January 1, 1999 through
February 28, 1999.
Cash used by investing activities was $689,000 for the period of January 1,
1999 through February 28, 1999 versus $323,000 for the corresponding period in
1998. Cash used for the purchase of property and equipment was $689,000 in the
period of January 1, 1999 through February 28, 1999 versus $273,000 in the
corresponding period in 1998. No cash was used for the purchase of operating
equipment in the period of January 1, 1999 through February 28, 1999 compared to
$50,000 during the corresponding period in 1998.
Cash used in financing activities during the period of January 1, 1999
through February 28, 1999 was $0 versus $2,388,000 during the corresponding
period in 1998.
Period of March 1, 1998 Through December 31, 1998 Compared With Period of
March 1, 1997 through December 31, 1997 (unaudited). Cash flows from the
operating, investing and financing activities of the property for the period
March 1, 1998 through December 31, 1998 resulted in net cash used of $1,614,000
compared with net cash used of $1,221,000 for the corresponding period in 1997.
50
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Cash provided by operating activities was $4,644,000 during the period of
March 1, 1998 through December 31, 1998 versus $3,644,000 during the
corresponding period in 1997. The increase was primarily due to the improvement
in net loss of $7,066,000 in the period of March 1, 1998 through December 31,
1998.
Cash used by investing activities was $7,062,000 for the period of March 1,
1998 through December 31, 1998 versus $2,143,000 for the corresponding period in
1997. Cash used for the purchase of property and equipment, including for major
renovations related to the Golden Door'r' Spa, was $7,062,000 in the period of
March 1, 1998 through December 31, 1998 versus $2,104,000 in the corresponding
period in 1997. No cash was used for the purchase of operating equipment in the
period of March 1, 1998 through December 31, 1998 compared to $39,000 during the
corresponding period in 1997.
Cash provided by financing activities during the period of March 1, 1998
through December 31, 1998 was $804,000 versus cash used of $2,721,713 during the
corresponding period in 1997. During the period of March 1, 1998 through
December 31, 1998, El Conquistador (1) borrowed $32,021,172 from Posadas de
Puerto Rico, (2) borrowed $90,000,000 from Citicorp Real Estate on an interim
basis and (3) received $4,988,000 of partners' capital contributions. The
proceeds from (1), (2) and (3) above were used to repay the $120,000,000
originally borrowed in 1991 through an AFICA bond financing, to repay a
$6,000,000 revolving credit line with the Government Development Bank and to
fund certain reserves with respect to the Citicorp Real Estate borrowing.
$700,324 of debt issuance expenses were recorded in August 1998 which were
associated with the interim loan provided by Citicorp Real Estate.
Period of January 1, 1998 Through February 28, 1998 Compared With Period of
January 1, 1997 through February 28, 1997 (unaudited). Cash flows from the
operating, investing and financing activities of the property for the period
January 1, 1998 through February 28, 1998 resulted in net cash provided of
$2,044,000 compared with net cash provided of $1,301,000 for the corresponding
period in 1997.
Cash provided by operating activities was $4,755,000 during the period of
January 1, 1998 through February 28, 1998 versus $1,729,000 during the
corresponding period in 1997. The increase was primarily due to the improvement
in net income of $631,000 and the improvement of receivable collections in the
period of January 1, 1998 through February 28, 1998.
Cash used by investing activities was $323,000 for the period of January 1,
1998 through February 28, 1998 versus $155,000 for the corresponding period in
1997. Cash used for the purchase of property and equipment was $273,000 in the
period of January 1, 1998 through February 28, 1998 versus $173,000 in the
corresponding period in 1997. Cash used for the
purchase of operating equipment in the period of January 1, 1998 through
February 28, 1998 was $50,000 compared to cash provided of $18,000 during the
corresponding period in 1997.
Cash used in financing activities during the period of January 1, 1998
through February 28, 1998 was $2,388,000 versus $273,000 during the
corresponding period in 1997.
Fiscal Year (Nine Months) Ended December 31, 1997 Compared With Nine Months
Ended December 31, 1996 (unaudited). Cash flows from the operating, investing
and financing activities of the property for the nine months ended December 31,
1997 resulted in net cash used of $1,252,000 compared with net cash provided of
$191,000 for the nine months ended December 31, 1996.
Cash used by operating activities was $1,415,000 for the nine months ended
December 31, 1997 as compared to $13,000 provided by operations during the nine
months ended December 31, 1996. The increase of cash used was due to accounts
receivable and prepaid expense increases along with the reduction of balances
due to affiliates.
Cash used by investing activities was $1,890,000 for the nine months ended
December 31, 1997 versus $1,623,000 for the period ended December 31, 1996. Cash
used for the purchase of property and equipment was $1,994,000 in the nine
months ended December 31, 1997 versus $1,625,000 for the nine months ended
December 31, 1996. Cash provided in the reduction of operating equipment was
$104,000 in the nine month ended December 31, 1997 versus $2,000 in the nine
month period ended December 31, 1996.
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Cash provided by financing activities during the nine months ended December
31, 1997 was $2,053,000 versus $1,802,000 for the period ended December 31,
1996. Cash used for the payment of long term chattel mortgages and capital lease
obligations totaled $2,447,000 and $1,698,000 in the periods ended December 31,
1997 and December 31, 1996, respectively. Net cash proceeds provided from bank
notes totaled $4,500,000 in the nine month period ended December 31, 1997
compared to $3,500,000 for the nine month period ended December 31, 1996.
TAXES
As El Conquistador is not a taxable entity for Puerto Rico income tax
purposes. Instead, each partner reports its distributive share of profits and
losses in its respective income tax return and, therefore, no provision for
income taxes has been made in El Conquistador's financial statements.
INFLATION
During the past three fiscal years, the level of inflation affecting the
resort has been relatively low. The ability of the resort 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 resort's services in the market place.
SEASONALITY
The hotel and casino business in Puerto Rico is highly seasonal. From
December through April the occupancies of the resort and Las Casitas Village 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 first
calendar quarter. During the calendar quarter of July 1 through September 30 El
Conquistador normally has a net loss.
EFFECT OF HURRICANE GEORGES
Hurricane Georges passed through Puerto Rico on September 21 and 22, 1998.
Hurricane Georges caused approximately $32,000,000 of property related damage at
the resort, all of which is covered by insurance, subject to an approximately
$180,000 deductible. Since the hurricane, El Conquistador has had numerous
meetings and contacts with its insurance providers. To date, all of El
Conquistador's insurance claims for physical damage caused by Hurricane Georges
have been paid by the insurers. As of April 30, 1999, the aggregate amount paid
to El Conquistador for insurance claims for physical damage was approximately
$28,000,000. These payments include funds for: construction repairs completed to
date; materials; equipment rentals; furniture, fixture and equipment
replacements; and related associated expenses. Additional claims will be made by
El Conquistador on an on-going basis until all repairs are completed. It is
contemplated that permanent repair of certain roof areas and the heating/air
conditioning system will not be made until after the current high season ends in
April 1999. The aggregate cost of repairs to be delayed until after the high
season will be approximately $4,000,000, all of which should be covered by
insurance. The roof and heating/air conditioning system have been repaired
temporarily and are fully operational at this time.
The resort lost at least 2,500 room nights during the 10-day period
September 20-30, 1998 as a direct result of Hurricane Georges. El Conquistador
believes such room night losses will be covered by its business interruption
insurance. As of April 30, 1999, El Conquistador has received $2,130,000 under
its business interruption insurance. As a result of Hurricane Georges, the
resort was closed during the period September 22, 1998 through October 2, 1998.
Additionally, the majority of condominium units of Las Casitas Village were
damaged and were not available to the resort until December 10, 1998. Puerto
Rico itself and other hotel properties on the island also suffered extensive
damage from Hurricane Georges. El Conquistador cannot predict the effect that
Hurricane Georges will have on its future bookings. To the extent that
additional group and leisure travelers with reservations cancel their plans to
come to the resort or additional travelers
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do not make reservations as a result of Hurricane Georges, such lost bookings
could have a material adverse effect on El Conquistador's financial condition
and results of operations.
The Puerto Rico Tourism Company launched a $1.7 million advertising
campaign to negate the negative perception created by media images of Hurricane
Georges. The campaign was entitled 'Puerto Rico Now' and included three new 30
second commercials and a 20 minute video. The campaign commenced on October 14,
1998 with the airing of television commercials in key media markets in the
Northeastern United States during early prime time programming periods. The
video was shown at tourism industry trade shows and was distributed to
approximately 2,000 travel agents around the United States. El Conquistador
believes that the Wyndham advertising campaign together with the 'Puerto Rico
Now' campaign has limited the adverse effects of the perception of damage caused
by Hurricane Georges.
YEAR 2000 COMPLIANCE
Many computer systems were not designed to interpret any dates beyond 1999,
which could lead to business disruptions in the United States and
internationally. This technological problem is commonly referred to as the Year
2000 issue. El Conquistador recognizes the importance of minimizing the number
and seriousness of any disruptions that may occur as a result of Year 2000 and
has adopted an extensive compliance program. El Conquistador's compliance
program involves three major program areas:
corporate information technology infrastructure and reservation systems
other electronic assets (such as, but not limited to, automated time
clocks, point-of-sale systems, non-information technology systems,
including embedded technologies that operate fire-life safety systems,
phone systems, energy management systems and other similar systems)
third parties with whom El Conquistador conducts business
El Conquistador is applying a three phase approach to each program area:
Inventory Phase (identify systems and third parties that may be affected
by Year 2000 issues)
Assessment Phase (prioritize the inventoried systems and third parties,
assess their Year 2000 readiness, plan corrective actions)
Remediation Phase (implement corrective actions, verify implementation,
formulate contingency plans)
El Conquistador engaged a consulting firm to conduct the inventory and
assessment phases of the compliance program. The inventory and assessment phases
have been completed with respect to the resort's corporate information
technology infrastructure and reservation system. The inventory and assessment
phases have also been completed with respect to the resort's information
technology and other electronic assets. Based on the assessment, El Conquistador
has determined, together with its consultants, which systems are not Year 2000
compliant and the scope of the non-compliance.
El Conquistador will modify or replace a portion of its software so that
its information technology will function properly with respect to dates in the
year 2000 and thereafter. El Conquistador now estimates that its Year 2000
project cost will be approximately $750,000, which includes approximately
$700,000 for the purchase of new hardware and software that will be capitalized
and approximately $50,000 that will be expensed as incurred. To date, El
Conquistador has incurred approximately $20,000 for assessment of the Year 2000
issue. El Conquistador's non-information technology assets require a limited
amount of modifications with respect to the Year 2000 issue. El Conquistador is
currently completing such modifications and it does not believe that such
modifications will be significant.
El Conquistador is surveying its significant vendors and service providers
to determine the extent to which the resort's interface systems are vulnerable
to those third parties' failure to
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remediate their own Year 2000 issues. El Conquistador now expects to complete
its vendor and service provider surveys in the second quarter of 1999, but
cannot guarantee that all vendors or service providers will comply with
El Conquistador's surveys. To date, no significant vendors or service providers
have responded to the surveys. More importantly, El Conquistador must rely on
the information provided by third parties and will not be able to test the third
parties' compliance. As a result, El Conquistador will not be able to ensure
Year 2000 compliance of these vendors or service providers. During the second
quarter of 1999, El Conquistador intends to determine the extent to which it
will be able to replace vendors and service providers that are expected to be
non-compliant. Due to the lack of an alternative source, there may be instances
in which El Conquistador will have no alternative but to remain with non-
compliant vendors and service providers. As El Conquistador identifies the
non-compliant vendors and service providers, it will then determine appropriate
contingency plans.
The costs of the project and the date on which El Conquistador believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
The project is estimated to be completed not later than November 1999. El
Conquistador believes that with the modifications to existing software and
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its computer system. However, if such modifications and
conversions are not made, or are not completed in a timely manner, the Year 2000
issue could have a material impact on the operations of the resort. Because of
the importance of addressing the Year 2000 issue, El Conquistador expects to
develop contingency plans if it determines that the remediation phase of its
compliance plan will not be fully implemented by June 30, 1999. El Conquistador
believes that the time frames set forth above will provide adequate time to test
and correct, if necessary, any remaining Year 2000 problems or to implement a
contingency plan, if necessary.
The resort also utilizes certain computer systems and programs of
Patriot/Wyndham and its subsidiaries. Patriot/Wyndham has reported that its Year
2000 compliance involves the three major program areas discussed above.
Patriot/Wyndham is also applying the three phase approach set forth above.
Patriot/Wyndham has further reported the following on the Year 2000 issue:
Patriot/Wyndham engaged a consulting firm to conduct the inventory and
assessment phases of its compliance program. Patriot/Wyndham has completed
inventory and assessment phases with respect to its corporate information
technology infrastructure and reservation systems. Patriot/Wyndham has
also completed the inventory and assessment phases with respect to the
information technology and other electronic assets that are located in
Patriot/Wyndham hotels, other than some hotels which are either managed by
Wyndham but not owned by Patriot or owned by Patriot but not leased or
operated by Wyndham. Based on those assessments, Patriot/Wyndham, working
with its consultants, determined which systems were not Year 2000 compliant
and developed appropriate remediation plans.
Patriot/Wyndham has begun the necessary work to remediate those
systems at its owned and leased hotels, and at March 31, 1999 had completed
ten percent of that work. Patriot/Wyndham previously engaged a consulting
firm to provide the support and additional skills to effect the necessary
remediation in sufficient time for testing and any necessary modifications.
Of the 93 Patriot/Wyndham hotels either managed by Wyndham but not
owned by Patriot or owned by Patriot but not leased or operated by Wyndham
that were not acquired in the merger with Interstate Hotels, at March 31,
1999, 66 of these hotels have been assessed as part of Patriot/Wyndham's
compliance program and Patriot/Wyndham has begun to implement remediation
plans at 21 of these hotels. At March 31, 1999, the owners of the other 45
hotels that were assessed have neither taken any action to effect the
necessary remediation identified
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in the assessment nor authorized Patriot/Wyndham to effect the remediation
on behalf of the owners. While none of the remaining 27 hotels have been
assessed by Patriot/Wyndham, Patriot/Wyndham has been informed by four of
the owners that they have completed their own assessments. Patriot/Wyndham
is continuing to monitor the status of these hotels and has reminded the
owners of the importance of making these hotels Year 2000 compliant in
sufficient time to permit adequate testing. Patriot/Wyndham has begun
surveying the Year 2000 compliance of the owners of the hotels that are
franchised under the Wyndham brand but not managed by Wyndham, and has
informed these owners of the appropriate standards to make the equipment
operating Wyndham's systems Year 2000 compliant. However, as the systems at
the hotels which are either managed by Wyndham but not owned by Patriot or
owned by Patriot but not leased or operated by Wyndham and franchised
hotels are not under Patriot/Wyndham's control, Patriot/Wyndham will be
required to rely on the information provided by those owners or managers/
operators and will not be able to test the assessment or remediation
effected by third parties at these hotels or the franchised hotels.
Patriot/Wyndham presently expects to expend approximately $34 million
in connection with Year 2000 issues. At March 31, 1999, Patriot/Wyndham had
incurred $1.75 million in connection with the inventory and assessment
phases of its compliance program and $4.6 million to remediate its systems.
However, Patriot/Wyndham anticipates expenditures may increase as it
effects the remediation plans.
As part of the settlement of litigation arising out of the
Patriot/Wyndham merger with Interstate Hotels, Patriot/Wyndham agreed to
contribute to a new company management of the hotels acquired in the merger
and either managed by Wyndham but not owned by Patriot or owned by Patriot
but not leased or operated by Wyndham, and then dispose of substantially
all of that new company's stock by means of a spin-off to the stockholders
of Patriot/Wyndham or otherwise. As the hotels in the Interstate merger
whose management will be contributed to the new company are owned by third
parties, Patriot/Wyndham expects those owners to bear all costs related to
the inventory, assessment and remediation of those hotels.
Patriot/Wyndham had identified 5,100 vendors and service providers
that provide critical goods and services to Patriot/Wyndham and has
requested those parties to provide information concerning Year 2000
compliance and remediation efforts. At March 31, 1999, 48% of those parties
had provided written responses to Patriot/Wyndham and of those responding
parties, Patriot/Wyndham sought clarifying information from less than one
percent. None of the respondents indicated that Year 2000 was an issue that
would materially disrupt its operations, and most indicated that they are
or will become Year 2000 compliant. Patriot/Wyndham was not provided, and
did not seek, detailed assessment or remediation plans from its vendors
and service providers. Consequently, Patriot/Wyndham cannot evaluate the
status or scope of those parties' Year 2000 compliance programs and will
not be able to test those parties' compliance. Patriot/Wyndham is
continuing to seek information from the parties that have not responded,
but cannot guarantee that they will comply with Patriot/Wyndham's requests.
As Patriot/Wyndham must rely on information provided by its vendors and
service providers, of which more than 50% have not responded, Patriot/
Wyndham may not be able to accurately determine the Year 2000 compliance
of its vendors and service providers. However, based on responses from
those parties that have responded, Patriot/Wyndham believes that its most
critical vendors and service providers will not cause Patriot/Wyndham's
operations to be materially disrupted as a result of Year 2000 issues.
In addition, based on existing responses Patriot/Wyndham has not identified
any of its critical vendors as non-compliant. If Patriot/Wyndham determines
that a vendor or service provider of critical goods or services is expected
to be non-compliant, Patriot/Wyndham will evaluate whether the vendor or
service provider could be replaced. Due to the lack of alternative sources,
Patriot/Wyndham may be required to remain with non-compliant vendors or
service providers. If Patriot/Wyndham identifies non-compliant vendors and
service providers, it will then determine appropriate contingency plans.
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Patriot/Wyndham believes that its current compliance program will
allow it sufficient time to identify which of its systems and other
electronic assets are not Year 2000 compliant and to effect the necessary
remedies to avoid substantial problems arising from Year 2000 induced
failures. Patriot/Wyndham believes that its reprogramming, upgrading and
systems replacements will be implemented by the end of the third quarter of
1999. Patriot/Wyndham believes that this should provide adequate time to
further correct any problems that did not surface during the implementation
and testing for those systems. Notwithstanding that, Patriot/Wyndham does
recognize that some vendors and the owners and managers/operators of
certain of its hotels either managed by Wyndham but not owned by Patriot or
owned by Patriot but not leased or operated by Wyndham may not comply with
its present schedules and could affect Patriot/Wyndham's timing and
remediation effects generally. If Patriot/Wyndham is not successful in
implementing its Year 2000 compliance plan, Patriot/Wyndham may suffer a
material adverse impact on its consolidated results of operations and
financial condition.
In addition to those systems within Patriot/Wyndham's control and the
control of its vendors and suppliers, there are other systems that could
have an impact on Patriot/Wyndham's businesses and which may not be Year
2000 compliant by January 1, 2000. These systems could affect the
operations of the air traffic control system and airlines or other segments
of the lodging and travel industries, or the economy and travel generally.
In addition, these systems could affect the hotels either managed by
Wyndham but not owned by Patriot or owned by Patriot but not leased or
operated by Wyndham or the hotels franchised under Patriot/Wyndham's brands
whose owners and managers/operators are implementing their own compliance
programs. These systems are outside of Patriot/Wyndham's control or
influence and their compliance may not be verified by Patriot/Wyndham.
However, these systems could adversely affect Patriot/Wyndham's financial
condition or results of operation.
During the second quarter of 1999, Patriot/Wyndham intends to develop
plans to address potential Year 2000 induced failures. Because
Patriot/Wyndham has no control over third party assessment and remediation
efforts, Patriot/Wyndham expects to focus most of its contingency planning
on externally caused disruptions. In addition, Patriot/Wyndham will develop
its plans on its belief that the consequences of Year 2000 induced failures
will be local in nature. These plans will be based on existing contingency
plans for operations during storms and other natural disasters. While each
hotel will develop a contingency plan, any disruption in utilities or other
key local services could disrupt operations of several hotels located in
the same geographic area. As part of Patriot/Wyndham's contingency
planning, it also expects to evaluate its continued management of hotels
either managed by Wyndham but not owned by Patriot or owned by Patriot but
not leased or operated by Wyndham that do not become Year 2000 compliant.
LEGAL PROCEEDINGS
On or about November 23, 1998, Ava, Inc. d/b/a Avante Salon & Spa, which
operates a beauty salon at the resort, filed a preliminary and permanent
injunction and a torts claim against El Conquistador and Golden Door Corp. The
case is pending in the Puerto Rico Court of First Instance, Superior Court of
Humacao. The action seeks preliminary and permanent injunctions ordering
defendants not to intervene with Avante's contractual and property rights
provided in the concession agreement pursuant to which the beauty salon is
operated. Avante also seeks damages in the sum of $5,000,000, plus costs and
attorney's fees. On December 4, 1998, defendants filed a motion to dismiss the
complaint together with their opposition to the complaint. On the same day, the
court held a hearing with respect to the preliminary injunction without granting
such injunction. At the hearing, the parties agreed to submit a joint
stipulation with respect to certain facts in order to assist the court in
rendering its decision. On December 14, 1998, the parties filed the joint
stipulation of facts. As of January 1999, both parties filed all memorandum of
law and motions required to be filed by the court. The parties are currently
awaiting the court's decision whether to grant injunctive relief and continue
the tort action or dismiss the suit.
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Other than set forth above, El Conquistador currently and from time to time
is involved in litigation incidental to the conduct of its business. In the
opinion of El Conquistador, none of the existing litigations is likely to have a
material adverse effect on El Conquistador or its business including the one set
forth above.
POLICY WITH RESPECT TO CERTAIN ACTIVITIES
The loan agreement will prohibit El Conquistador from issuing any
securities which are senior to the bonds. During the past three years, El
Conquistador has not issued any senior securities. From time to time during the
past three years, El Conquistador has borrowed monies from third-parties, its
affiliates and its partners in order to fund day-to-day operations at the resort
as well as for capital improvements and furniture, fixtures and equipment.
Additionally, El Conquistador maintained a revolving credit facility with the
Government Development Bank of up to $6,000,000 during the period of October
1996 through May 1998. As a condition to entering into the revolving credit
facility, the Government Development Bank required the partners of El
Conquistador to lend El Conquistador $800,000. In connection with the
acquisition of El Conquistador by Patriot/Wyndham these loans were repaid.
Additionally, as of March 31, 1999, El Conquistador was indebted to Posadas de
Puerto Rico Associates, Incorporated in the aggregate principal amount of
$33,668,885. Such loan will be subordinate to the bonds. Posadas de Puerto Rico
is an indirect wholly-owned subsidiary of Wyndham and is the owner of the
Condado Plaza Hotel & Casino in San Juan, Puerto Rico. El Conquistador's ability
to borrow funds in the future will be governed by the loan agreement. To the
extent that El Conquistador is able to borrow in the future, such borrowing
decisions will be made solely by its general partner, which will be Conquistador
Holding (SPE), Inc. upon completion of this offering.
Except for advances of available cash to the partners or their affiliates,
the loan agreement will prohibit El Conquistador from making loans to other
persons. Additionally, the loan agreement will prohibit El Conquistador from
offering securities in exchange for property and repurchasing or otherwise
acquiring its partnership interests or other securities, including the bonds.
Additionally, El Conquistador does not engage in the purchase and sale, or
turnover, of investments, investing in securities of other persons or
underwriting securities of other issuers. El Conquistador has not engaged in any
of the aforementioned activities during the past three years.
Following consummation of this offering, El Conquistador will be subject to
the informational reporting requirements of the Securities Exchange Act of 1934
during the current fiscal year by reason of the public offering and the issuance
of the bonds. In accordance with the Exchange Act, El Conquistador will file
with the SEC the reports and other information required to be filed under the
Exchange Act. El Conquistador anticipates, however, that it will not be subject
to the reporting requirements of the Exchange Act in future fiscal years
pursuant to Section 15(d) of the Exchange Act; however, El Conquistador will
continue to file copies of its annual reports and certain other information,
documents and reports specified in Rule 15c2-12 promulgated under the Exchange
Act so long as the bonds are outstanding.
INVESTMENT OBJECTIVES AND POLICIES
The purpose of El Conquistador is limited to the ownership of the resort
and entering into a management agreement for the operation of the resort. El
Conquistador was formed in order to develop, own and operate the resort, and to
generate income therefrom. El Conquistador and the managing general partner, on
behalf of El Conquistador, are authorized to enter into any agreements necessary
or desirable for the operation of the resort and Las Casitas Village and
ownership of the resort.
The resort and Las Casitas Village will be operated by the Hotel Operator.
For a complete discussion concerning these management arrangements, see 'EL
CONQUISTADOR RESORT & COUNTRY CLUB -- Management and Marketing of the Resort and
Las Casitas Village.' El Conquistador does not anticipate any additional
long-term financing other than the bonds. El Conquistador believes that its cash
flows from future operations will be sufficient to meet short-
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term working capital needs. Additional financing may be required for specific
projects at the resort, including the purchase of replacement furniture,
fixtures and equipment. The loan agreement will limit El Conquistador's ability
to obtain additional financing, including secured financing, in certain
circumstances. For a description of such limitations, see 'SUMMARY OF THE LOAN
AGREEMENT -- Covenants.' El Conquistador will not invest in real estate
mortgages or securities of or interests in persons primarily engaged in real
estate activities.
POLICIES WITH RESPECT TO CERTAIN TRANSACTIONS
El Conquistador was formed solely to own the resort and operate the resort
through a manager. So long as the bonds are outstanding, El Conquistador's
ability to make other investments or dispose of its assets will be limited by
the loan agreement, and, therefore, a policy with respect to such matters for
executive officers and partners of El Conquistador is not necessary.
The new partnership agreement will prohibit the general partner of El
Conquistador from engaging in any other business activities other than those as
a partner of El Conquistador. Conquistador Holding (SPE), Inc. will be the sole
general partner of El Conquistador upon consummation of this offering.
Conquistador Holding (SPE), Inc. will be a single purpose entity which will only
be permitted to engage in the business of acting as a partner of El
Conquistador. Conquistador Holding (SPE), Inc. will be prohibited from any other
business activities. However, Patriot/Wyndham, the beneficial owner of
substantially all of the partnership interests in El Conquistador will not be so
restricted.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
El Conquistador is subject to various conflicts of interest arising out of
its relationship with the partners of the partnership and their affiliates. See
'RISK FACTORS -- The management of multiple hotel properties by the Hotel
Operator may result in a conflict of interests' for a description of these
various conflicts of interest. Because El Conquistador will be operated by
Conquistador Holding (SPE), Inc., as general partner, these conflicts will not
be resolved through arm's-length negotiations, but through the exercise of the
general partner's judgment consistent with its fiduciary responsibility to WHG
El Con Corp., which will be the only other partner other than Conquistador
Holding (SPE), Inc. El Conquistador has agreed to indemnify the general partner
and its officers, directors, employees or agents, whether acting as general
partner or otherwise, except for gross negligence or willful misconduct.
Williams Hospitality, an affiliate of El Conquistador, has historically and
will continue to manage the resort and Las Casitas Village. The arrangements
between El Conquistador and Williams Hospitality, including those contained in
the management agreement, were not negotiated at arm's-length. There can be no
assurances that the terms of the management agreement, including the Hotel
Operator's fees, are as favorable to El Conquistador as those that could
reasonably be obtained in an arm's-length negotiation with an unrelated third
party. During the three months ended March 31, 1999, El Conquistador paid
Williams Hospitality an aggregate of $1,471,000 for management, tradename and
marketing fees pursuant to the management agreement. During the 12 months ended
December 31, 1998, Williams Hospitality (1) was paid $3,596,000 for basic
management fees, (2) earned $2,986,000 of incentive management fees and
(3) was reimbursed $1,800,000 for administrative expenses. The amounts paid to
and earned by Williams Hospitality in 1998 were governed by the prior management
agreement which was terminated on December 31, 1998. See 'EL CONQUISTADOR RESORT
& COUNTRY CLUB -- Management and Marketing of the Resort and Las Casitas
Village' for a detailed description of these arrangements and the fees paid with
respect thereto.
El Conquistador is also an affiliate of Wyndham Management, which will
manage the resort and Las Casitas Village and market the resort on behalf of
Williams Hospitality. El Conquistador is also an affiliate of Grand Bay, which
will market Las Casitas Village. Each of Wyndham Management and Grand Bay market
other resorts, some of which compete directly with the resort and Las Casitas
Village. There can be no assurance that either Wyndham Management or Grand
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Bay will not take actions which favor other properties that they market to the
detriment of the resort and Las Casitas Village.
Wyndham has a responsibility to its stockholders to maximize the economic
return of all of the Wyndham Resorts'r' that it manages, not only the resort.
There can be no assurance that Wyndham will not take actions or cause Wyndham
Management or Grand Bay to take such actions to benefit another Wyndham
Resort'r' or Grand Bay'r' hotel to the detriment of the resort. Such actions may
include, without limitation, shifting key employees from the resort to another
Wyndham Resort'r', marketing other Wyndham Resorts'r' or Grand Bay'r' hotels
more prominently than the resort and Las Casitas Village, and not providing the
financial support to the resort that it provides to other Wyndham Resorts'r'.
In order to repay a portion of the $120,000,000 1991 AFICA bonds, El
Conquistador borrowed $32,021,172 from Posadas de Puerto Rico Associates,
Incorporated. Posadas de Puerto Rico is an indirect wholly-owned subsidiary of
Wyndham, which beneficially owns approximately 23% of El Conquistador. The loan
is evidenced by a demand promissory note bearing interest at the prime rate. As
of March 31, 1999, the amount of such indebtedness together with accrued
interest totaled $33,668,885. This loan will be subordinate to the bonds.
Historically from time to time, El Conquistador borrowed funds from the
partners of El Conquistador. Such loans are classified as deficiency loans and
additional loans and are subordinate to the bonds. Deficiency loans were
required to be made during the five-year period from November 1993 until
November 1998. The proceeds of deficiency loans were used to pay operating costs
or any other fees or expenses related to the operation of the resort or the
partnership's business, including payment of liabilities or reserves for
liabilities. Deficiency loan proceeds were not used for renovation, improvement,
construction or development of the resort. The maximum aggregate principal
amount of deficiency loans that could be called was $7,000,000 for each general
partner and $14,000,000 in total. The actual amount of deficiency loans that
were called was $7,600,000. Additional loans are required to be made any time
after all capital contributions are made and either (1) there are outstanding
$14,000,000 of deficiency loans or (2) the obligations to make deficiency loans
has terminated. The general partners have the right, but not the obligation, to
make additional loans. The proceeds of additional loans are used to meet any of
the partnership's obligations for which it has insufficient funds. To date
$9,597,120 of additional loans have been made by the partners to El
Conquistador. As of March 31, 1999, such partner loans and related interest
totalled $15,739,625. Interest on partner loans currently ranges from 7.50% to
8.00% per annum. The most recent of such loans was made in October 1996 in the
aggregate principal amount of $800,000 and is described under 'POLICY WITH
RESPECT TO CERTAIN ACTIVITIES' above.
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THE BONDS
GENERAL
The bonds will be issued pursuant to the trust agreement in the aggregate
principal amount of $105,200,000*. The bonds will be dated , 1999, and
will bear interest, except for the capital appreciation bonds, at such rates and
will mature, subject to the rights of redemption described below, in such
amounts, on and of such years, as set forth on the inside front
cover page of this official statement and prospectus. Interest on the bonds,
except the capital appreciation bonds, will be payable monthly on the first day
of each month commencing on , 1999 until maturity or prior redemption.
Interest on the capital appreciation bonds will accrue from their date of
delivery at the yields set forth on the inside front cover page of this official
statement and prospectus, will be compounded monthly on the first day of each
month commencing , 1999, and will be payable at maturity or redemption
in an amount equal to the initial principal amount plus the accrued and unpaid
interest as of any date, which amount is referred to as the accreted value. The
accreted value per $5,000 maturity amount of each capital appreciation bond on
each interest payment date commencing , 1999 is shown on Appendix B to
this official statement and prospectus.
The bonds are issuable as fully registered bonds without coupons in
denominations of $5,000 or any integral multiple thereof, and in the case of
capital appreciation bonds, in $5,000 maturity amounts and integral multiples
thereof. The bonds will be registered under The Depository Trust Company
Book-Entry Only System described below. The principal or redemption price of and
interest on the bonds will be payable as described below under ' -- Book-Entry
Only System.'
TRUSTEE
The trustee will be Banco Santander Puerto Rico. The trustee's corporate
trust office is located at 221 Ponce de Leon Avenue, Lobby Level, Hato Rey,
Puerto Rico 00918.
BOOK-ENTRY ONLY SYSTEM
The following information concerning The Depository Trust Company and its
book-entry system has been obtained from The Depository Trust Company.
The Depository will act as securities depository for the bonds. The bonds
will be issued as fully registered bonds in the name of Cede & Co., the
Depository's partnership nominee. One fully registered bond will be issued for
each maturity of the bonds in the aggregate principal amount of such maturity,
and will be deposited with the Depository.
The Depository has advised El Conquistador and the underwriters as follows:
the Depository is a limited-purpose trust company organized under the New York
Banking Law, a 'banking organization' within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a 'clearing corporation' within the
meaning of the New York Uniform Commercial Code, and a 'clearing agency'
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. The Depository holds securities that its direct participants
deposit with the Depository. The Depository also facilitates the settlement of
securities transactions among direct participants, such as transfers and
pledges, in deposited securities through electronic book-entry changes in
accounts of the direct participants, thereby eliminating the need for physical
movement of securities. Direct participants include securities brokers and
dealers, including the underwriters, banks, trust companies, clearing
corporations, and certain other organizations. The Depository is owned by a
number of the direct participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the the Depository system is also available to others
such as banks, brokers, dealers and trust companies that clear transactions
through or maintain a custodial relationship with a direct participant, either
directly or indirectly. The rules applicable to the Depository and its
participants are on file with the SEC.
- ------------
* Preliminary, subject to change.
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Purchases of bonds under the the Depository system must be made by or through
direct participants which will receive a credit for the bonds on the
Depository's records. The ownership interest of each actual beneficial owner of
each bond is in turn to be recorded on the direct and indirect participants'
records. Beneficial owners will not receive written confirmation from the
Depository of their purchase, but beneficial owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the direct or indirect participant through
which the beneficial owner entered into the transaction. Transfers of ownership
interests in the bonds are to be accomplished by entries made on the books of
participants acting on behalf of beneficial owners. Beneficial owners will not
receive certificates representing their ownership interests in the bonds, except
in the event that use of the Depository system for the bonds is discontinued.
To facilitate subsequent transfers, all bonds deposited by participants with the
Depository are registered in the name of the Depository's partnership nominee,
Cede & Co. The deposit of bonds with the Depository and their registration in
the name of Cede & Co. effect no change in beneficial ownership. The Depository
has no knowledge of the actual beneficial owners of the bonds. The Depository's
records reflect only the identity of the direct participants to whose accounts
such bonds are credited, which may or may not be the beneficial owners. The
participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by the Depository to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the bonds of
any maturity are being redeemed, the Depository's practice is to determine by
lot the amount of the interest of each direct participant in such maturity to be
redeemed.
Neither the Depository nor Cede & Co. will consent or vote with respect to the
bonds. Under its usual procedures, the Depository mails an 'Omnibus Proxy' to
AFICA as soon as possible after the record date. The Omnibus Proxy assigns Cede
& Co.'s consenting or voting rights to those direct participants to whose
accounts the bonds are credited on the record date and identified in a listing
attached to the Omnibus Proxy.
Principal of and redemption premium, if any, on the bonds and interest payments
on the bonds, other than capital appreciation bonds, will be made to the
Depository. The Depository's practice is to credit direct participants' accounts
on each interest payment date in accordance with their respective holdings shown
on the Depository's records unless the Depository has reason to believe that it
will not receive payment on such date. Payments by participants to beneficial
owners will be governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in bearer form or
registered in 'street name,' and will be the responsibility of such participant
and not of the Depository, the trustee, El Conquistador or AFICA, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to the Depository is the responsibility of the
trustee, disbursement of such payments to direct participants is the
responsibility of the Depository, and disbursement of such payments to the
beneficial owners is the responsibility of direct and indirect participants.
Each person for which a participant acquires an interest in the bonds, as
nominee, may desire to make arrangements with such participant to receive a
credit balance in the records of such participant, and may desire to make
arrangements with such participant to have all notices of redemption or other
communications to the Depository, which may affect such persons, forwarded in
writing by such participant and to have notification made of all interest
payments.
The Depository may discontinue providing its services as securities
depository with respect to the bonds at any time by giving reasonable notice to
AFICA or the trustee. In such event, AFICA will try to find a substitute
securities depository and, if unsuccessful, definitive bonds will be printed and
delivered. In addition, AFICA, in its sole discretion and without the consent of
any other person, may terminate the services of the Depository as securities
depository with respect to
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the bonds if AFICA determines that beneficial owners of such bonds shall be able
to obtain definitive bonds. In such event, definitive bonds will be printed and
delivered as provided in the trust agreement and registered in accordance with
the instructions of the beneficial owners.
So long as Cede & Co., as nominee of the Depository, or any other nominee
of the Depository, is the registered owner of the bonds, all references herein
to the bondholders or registered owners of the bonds, other than under the
section 'TAX CONSEQUENCES,' shall mean Cede & Co., or such other nominee, in the
capacity of nominee for the Depository, and shall not mean the beneficial owners
of the bonds.
When reference is made to any action which is required or permitted to be
taken by the beneficial owners, such reference shall only relate to those
permitted to act, whether by statute, regulation or otherwise, on behalf of such
beneficial owners for such purposes. When notices are given, they shall be sent
by AFICA or the trustee to the Depository only.
For every registration of transfer or exchange of the book-entry bonds, the
beneficial owner may be charged a sum sufficient to cover any tax, fee or other
governmental charge that may be imposed in relation thereto.
NONE OF AFICA, THE TRUSTEE OR EL CONQUISTADOR SHALL HAVE ANY RESPONSIBILITY
OR OBLIGATION TO ANY PARTICIPANT OR ANY BENEFICIAL OWNER WITH RESPECT TO: (1)
THE ACCURACY OF ANY RECORDS MAINTAINED BY THE DEPOSITORY OR ANY PARTICIPANT, AS
DESCRIBED ABOVE; (2) THE PAYMENT OR TIMELINESS OF PAYMENT BY THE DEPOSITORY OR
ANY PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE
PRINCIPAL AMOUNT OR REDEMPTION PRICE OF OR INTEREST ON THE BONDS; (3) THE
DELIVERY OR TIMELINESS OF DELIVERY BY THE DEPOSITORY OR ANY PARTICIPANT OF ANY
NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF
THE TRUST AGREEMENT TO BE GIVEN TO BONDHOLDERS; (4) THE SELECTION OF THE
BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF
THE BONDS; OR (5) THE DEPOSITORY'S DUTIES WITH RESPECT TO ANY CONSENT GIVEN OR
OTHER ACTION TAKEN BY BONDHOLDERS.
In the event that the book-entry only system is discontinued and the
beneficial owners become registered owners of the bonds, the following
provisions will apply: the principal of the bonds and premium, if any, thereon
when due will be payable upon presentation of the bonds at the corporate trust
office of the trustee in San Juan, Puerto Rico, and interest on the bonds,
excluding the capital appreciation bonds, will be paid by check mailed to the
persons who were the registered owners, or in the case of beneficial owners
holding at least $1,000,000 aggregate initial principal amount of bonds,
excluding the capital appreciation bonds, who so request by wire transfer, as of
the 15th day of the month immediately preceding the related interest payment
date, as provided in the trust agreement. Bonds may be exchanged for an equal
aggregate principal amount of bonds, or maturity amount in the case of capital
appreciation bonds, in other authorized denominations, or maturity amounts in
the case of capital appreciation bonds, and of the same maturity and interest
rate, upon surrender thereof at the trustee's corporate trust office in San
Juan, Puerto Rico. The transfer of any bond may be registered only upon
surrender thereof to the trustee along with a duly executed assignment in form
satisfactory to the trustee. Upon any such registration of transfer, a new bond
or bonds of authorized denominations in an equal aggregate principal amount, or
maturity amount in the case of capital appreciation bonds, of the same maturity,
bearing interest at the same rate and registered in the name of the transferee
will be executed by AFICA and authenticated by the trustee. No charge may be
made to the bondholders for any exchange or registration of transfer of the
bonds, but any bondholder requesting any such exchange shall pay any tax or
other governmental charge required to be paid with respect to such exchange or
registration of transfer. The trustee will not be required to exchange or to
register the transfer of any bond during the period of 15 days preceding the
date of giving of notice of redemption or after any bond or portion thereof has
been selected for redemption.
REDEMPTION
Mandatory Redemption Other Than Upon Event of Taxability. The bonds will be
subject to mandatory redemption at a price equal to the principal amount thereof
plus accrued and unpaid interest up to the redemption date, without premium,
(1) in whole or in part, to the extent of any condemnation, casualty or
insurance proceeds received upon the occurrence of an event of
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condemnation, taking or destruction of, or damage to the resort under the
conditions set forth in the loan agreement, and (2) in whole upon cessation of
operations of the resort.
A cessation of operation of the resort will not be deemed to have occurred
(1) until 30 days have elapsed after notice has been given to El Conquistador by
AFICA that operations at the resort have ceased and El Conquistador has not
demonstrated to the satisfaction of AFICA that the resort is being operated as
an 'Industrial Facility' within the meaning of Act No. 121 of June 27, 1977 of
Puerto Rico, as amended, or that El Conquistador is, in good faith, seeking to
cause the resumption of an economically reasonable operation of the resort as an
Industrial Facility or (2) until receipt by AFICA and the trustee of notice from
El Conquistador that El Conquistador has no present intention of causing the
resumption of operations of the resort as an Industrial Facility or of seeking,
in good faith, to cause the resumption of an economically reasonable operation
of the resort as an Industrial Facility. A cessation of operation of the resort
will not be deemed to exist on account of an occurrence of an event of
condemnation, damage or destruction of the resort.
In addition, the term bonds, unless previously redeemed or purchased for
cancellation, are subject to mandatory redemption, in amounts equal to the
following amortization requirements:
<TABLE>
<CAPTION>
YEAR [DATE] [DATE]
------ ------------ ------------
<S> <C> <C> <C>
Term bonds maturing , 2014.......................... 2009 $ $
2010
2011
2012
2013
2014
Term bonds maturing , 2019.......................... 2014
2015
2016
2017
2018
2019
Term bonds maturing , 2024.......................... 2019
2020
2021
2022
2023
2024
Term bonds maturing , 2029.......................... 2024
2025
2026
2027
2028
2029
</TABLE>
The serial bonds mature at six-month intervals commencing ,
2002 as set forth on the inside front cover of this official statement and
prospectus.
The accreted value per $5,000 maturity amount of each capital appreciation
bond on each interest payment date commencing , 1999 is shown on
Appendix B to this offical statement and prospectus.
Mandatory Redemption Upon Event of Taxability. The bonds are further
subject to mandatory redemption in whole at a price equal to the principal
amount thereof plus accrued and unpaid interest to the redemption date upon the
second occurrence of an Event of Taxability. An Event of Taxability will occur
upon receipt by AFICA and the trustee of a report of El Conquistador's
accountants to the effect that because of the failure of El Conquistador to
comply with certain provisions of the U.S. Internal Revenue Code of 1986, as
amended and in effect on the date of issuance of the bonds, interest paid or
accrued on the bonds to a Qualifying Bondholder is includable in gross income
and subject to the payment of income taxes, a credit for the payment of which is
not otherwise available under the Internal Revenue Code as in effect on the date
of such report. If redeemed, such redemption shall occur not later than 45 days
after the occurrence
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of such an Event of Taxability. No such mandatory redemption shall be required
as a result of a change in the tax laws in force on the date of issuance of the
bonds.
Optional Redemption. The bonds are subject to redemption, at the option of
El Conquistador, in whole or in part, on , 2009 or on any interest
payment date thereafter, which date shall not be less than 45 days from the date
that notice of such redemption is received by the trustee, at the redemption
prices set forth below, expressed as percentages of the outstanding principal
amount of such bonds, plus accrued interest to the redemption date:
<TABLE>
<CAPTION>
REDEMPTION PERIOD REDEMPTION PRICE
- ---------------------------------------------------- ----------------------------------------------------
<S> <C>
, 2009 - , 2010......... 102.0%
, 2010 - , 2011......... 101.0%
, 2011 and thereafter................. 100.0%
</TABLE>
To exercise the foregoing optional redemption, El Conquistador is required
to deposit with the trustee moneys necessary to effect such redemption on a
business day not less than 31 days before the date on which the corresponding
redemption price is due and payable.
Selection and Notice of Redemption. At least 30 days before any redemption
date, notice thereof will be sent by the trustee via first-class mail, postage
prepaid, to Cede & Co., as nominee of the Depository, or if the book-entry only
system is discontinued as described above, by first-class mail, postage prepaid,
to the holders of the bonds to be redeemed. If less than all of the bonds are
called for redemption, the particular bonds or portions thereof to be redeemed
will be selected as provided below, except that so long as the book-entry only
system shall remain in effect, in the event of any such partial redemption, the
Depository shall reduce the credit balances of the applicable participants in
respect of the bonds in inverse order of maturity; provided that if fewer than
all of the outstanding bonds of the same maturity are called for redemption, the
bonds or portions of such maturity date to be redeemed shall be selected by the
trustee by such method as the trustee deems fair and appropriate. Such
participants shall in turn select those beneficial owners of the bonds whose
ownership interests are to be extinguished by such partial redemption, each by
inverse order of maturity or as determined by the trustee as provided above.
Each notice of redemption shall set forth:
(1) the redemption date;
(2) the redemption price;
(3) if fewer than all of the bonds then outstanding shall be called
for redemption, the distinctive numbers and letters, if any, of such bonds
to be redeemed and, in the case of bonds to be redeemed in part only, the
portion of the principal amount thereof to be redeemed;
(4) that on the date fixed for redemption such redemption price will
become due and payable upon each bond or portion thereof called for
redemption, and that interest thereon shall cease to accrue on and after
said redemption date; and
(5) the place where such bonds or portions thereof called for
redemption are to be surrendered for payment of such redemption price.
In case any bond is to be redeemed in part only, the notice of redemption
shall state also that on or after the redemption date, upon surrender of such
bond, a new bond or bonds in principal amount equal to the unredeemed portion of
such bond will be issued. Failure to mail such notice to any bondholder or any
defect in any notice so mailed shall not affect the validity of the proceedings
for the redemption of the bonds of any other bondholders.
Except with respect to the mandatory redemption of the term bonds in
accordance with the amortization requirements described above, if less than all
of the outstanding bonds shall be called for redemption, such bonds will be
redeemed in inverse order of maturity unless otherwise requested by El
Conquistador. If less than all of the bonds of any maturity are called for
redemption, the particular bonds or portions thereof to be redeemed shall be
selected by the trustee by such method as the trustee deems fair and
appropriate, in integral multiples of $5,000.
If notice of redemption is given and if sufficient funds are on deposit
with the trustee to provide for the payment of the principal of and premium, if
any, and interest on the bonds, or
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portions thereof, to be redeemed, then the bonds, or portions thereof, so called
for redemption will, on the redemption date, cease to bear interest and shall no
longer be deemed outstanding or be entitled to any benefit or security under the
trust agreement.
Any moneys which have been set aside for the purpose of paying any of the
bonds, either at the maturity thereof or upon a redemption or otherwise, and
which remain unclaimed by a bondholder for a period of two years after the date
on which such bonds shall have become due and payable or deemed tendered for
purchase, may, upon the request of El Conquistador, be paid to El Conquistador
or to such office, board or body as may be entitled by law to receive the same.
Thereafter, the holder of such bonds shall look only to El Conquistador or to
such office, board or body, as the case may be, for payment and then only to the
extent of the amount so received, without interest. AFICA and the trustee shall
have no responsibility with respect to such moneys.
SOURCES OF PAYMENT AND SECURITY FOR THE BONDS
In General. The bonds are limited obligations of AFICA payable solely from
monies derived pursuant to the loan agreement and from such other amounts as may
be available to the trustee under the trust agreement and the related collateral
agreements. The bonds will not constitute a charge against the general credit of
AFICA and will not constitute an indebtedness of the government of Puerto Rico
or any of its political subdivisions other than AFICA. The partners and the
affiliates of El Conquistador are not liable with respect to the payment of
principal of, premium, if any, or interest on the bonds.
The Loan Agreement. Under the loan agreement, El Conquistador will agree to
deposit with the trustee in a bond fund established under the trust agreement
amounts sufficient to pay, together with the amounts then on deposit therein,
principal of and premium, if any, and interest on the bonds. Such deposit must
be made on the business day immediately preceding the day on which the
corresponding amounts of principal, premium, if any, and interest are due and
payable. Pursuant to the trust agreement, AFICA will assign its interest in the
loan agreement, except certain rights of AFICA to indemnification, exemption
from liabilities, notices and the payment of costs and expenses, to the trustee
as security for the bonds.
The Reserve Fund. On the date of issuance of the bonds, El Conquistador
shall cause $9,100,000 to be deposited from the proceeds of the bonds to the
credit of a reserve fund. Moneys held for the credit of the reserve fund shall
be used for the purpose of paying the principal of and interest on the bonds
when due, whenever and to the extent that the moneys held to the credit of the
bond fund established to facilitate payments on the bonds shall be insufficient
for such purposes. If El Conquistador has failed to deposit amounts sufficient
to pay principal of and interest on the bonds as required under the loan
agreement, the trustee will transfer funds from the reserve fund to the bond
fund, and will notify El Conquistador of the existence of a deficiency in the
reserve fund, on the business day immediately succeeding the next interest
payment date. In accordance with the loan agreement, El Conquistador has the
obligation to replenish the reserve fund within 20 business days after notice
from the trustee of the existence of a reserve fund deficiency; provided,
however, that a deficiency in the reserve fund will not be an event of default
under the loan agreement until such deficiency exceeds $4,550,000. Additionally,
commencing , 1999 and on each thereafter if the
trustee determines that there exists a deficiency in the reserve fund due to a
reduction in the market value of securities deposited in the reserve fund, as
determined by the trustee pursuant to a valuation effected as provided in the
trust agreement, El Conquistador shall be obligated to replenish the reserve
fund within 20 business days after receipt of notice from the trustee; provided,
however, that a deficiency in the reserve fund will not be an event of default
under the loan agreement until such deficiency exceeds $4,550,000. El
Conquistador shall direct the trustee to cause the moneys held in the reserve
fund to be invested in Investment Obligations (as defined in 'SUMMARY OF THE
TRUST AGREEMENT -- Investment of Funds' below) of such long-term or short-term
maturities as El Conquistador elects; provided that such Investment Obligations
deposited in the reserve fund shall mature or be subject to redemption, at the
option of the holder thereof, not later than the
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respective dates when moneys held to the credit of such fund or account will be
required for the purposes intended.
Pledge Agreement and Mortgage. The bonds will be secured by a pledge of
real estate and leasehold mortgage notes in the principal amounts of
$105,200,000, $100,000 and $2,000,000, respectively, and bearing interest at the
rate of 12% per annum. The mortgage notes will be secured by a first priority
mortgage lien on the resort and on the Palominos Island lease, subject only to
liens permitted by the loan agreement.
The mortgage notes will be pledged to the trustee for the benefit of AFICA
and the bondholders pursuant to a pledge agreement as security for the
obligations of El Conquistador under the loan agreement.
A mortgagee title insurance policy insuring the real estate and leasehold
mortgages as a first priority lien on the resort, subject only to liens
permitted by the loan agreement, will be delivered on the date of issuance of
the bonds in an amount equal to the principal amount of the mortgage notes
referred to above.
Personal Property Security Agreements. The bonds additionally will be
secured by a personal property security agreement which will create a first
priority security interest in a substantial portion of El Conquistador's
tangible and intangible personal property, including tangible assets, used in
connection with the operation of the resort. If sufficient moneys were otherwise
not available in the bond fund established pursuant to the trust agreement and
the $9,100,000 reserve fund for the payment of the principal of and interest on
the bonds, the trustee may institute proceedings to cause the enforcement of its
security interests under such security agreement.
Assignments. As security for its obligations under the loan agreement, El
Conquistador will enter into an assignment of leases and rents and security
agreement and an assignment of the management agreement. The assignment
contracts perfect an assignment of certain contracts, leases, subleases,
concessions and other agreements and licenses related to the operation of the
resort.
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SUMMARY OF THE LOAN AGREEMENT
The following summary which describes certain provisions of the loan
agreement, does not purport to be complete and is subject to, and is qualified
by reference to, the loan agreement. A copy of the loan agreement is filed as an
exhibit to the registration statement of which this official statement and
prospectus is a part.
AFICA will issue the bonds and lend the proceeds to El Conquistador. El
Conquistador will agree to make payments directly to the trustee which, together
with amounts then held in the bond fund established under the trust agreement,
will be sufficient to make the payments of principal of and interest on such
bonds as the same become due. El Conquistador will make such payments from cash
it generates from operating activities. The obligations of El Conquistador under
the loan agreement will be absolute and unconditional without right of set-off
for any reason.
Pursuant to the loan agreement, El Conquistador will agree to indemnify
AFICA and to pay the costs and expenses of indemnifying the trustee against any
losses arising from the operation of the resort and Las Casitas Village or their
participation in this offering, subject to certain exceptions, and will agree to
pay the legal fees and expenses of AFICA and the trustee.
AFICA will assign all its rights under the loan agreement, except for
certain rights of AFICA to indemnification, exemption from liability and the
payment of costs and expenses, to the trustee pursuant to the trust agreement.
BOND PROCEEDS
The proceeds of the sale of the bonds will be used immediately after
completion of this offering to:
repay the $90,000,000 interim loan made on August 3, 1998 by Citicorp Real
Estate to El Conquistador and any unpaid interest thereon;
reimburse El Conquistador for interest previously paid on the interim
loan;
to fund the $9,100,000 reserve fund;
pay the $526,000 administrative fee to AFICA; and
pay costs and expenses associated with the issuance of the bonds,
including, printing fees, professional fees and fees of the trustee.
MAINTENANCE AND OPERATION OF THE RESORT
El Conquistador will agree to cause the resort to be operated as an
'Industrial Facility' within the meaning of Act No. 121 of the Legislature of
Puerto Rico and to be maintained, preserved and kept in good repair, working
order and condition and from time to time to make all necessary and proper
repairs, replacements and renewals; provided, however, that El Conquistador will
have no obligation to cause to be maintained, preserved, repaired, replaced or
renewed any element or unit of the resort the maintenance, preservation, repair,
replacement or renewal of which, in the opinion of El Conquistador, becomes
uneconomical to El Conquistador because of damage or destruction or
obsolescence, or change in economic or business conditions, or change in
government standards and regulations, or the termination by El Conquistador of
the operation of the facilities to which such element or unit of the resort is
an adjunct.
DISPOSITION OF PROJECT; ASSIGNMENT OF LOAN AGREEMENT; MERGER OR CONSOLIDATION OF
EL CONQUISTADOR
The resort may be sold, leased or otherwise disposed of with the prior
written consent of AFICA and the trustee. The said consent shall not be required
if the following conditions are met:
(1) El Conquistador (A) notifies AFICA, the trustee and the rating
agency rating the bonds of the proposed transaction, and (B) provides to
AFICA and the trustee proof reasonably satisfactory
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to them, which may include an opinion of counsel approved by AFICA and the
trustee, that the consummation of the proposed transaction will not result
in the interest payable on the bonds not continuing to constitute income
from sources within Puerto Rico under the Internal Revenue Code; and
(2) the rating agency provides confirmation that the rating on the
bonds will not be withdrawn or downgraded below the rating assigned to the
bonds on the date of issuance as a result of the consummation of the
proposed transaction. No such sale, lease or other disposition will relieve
El Conquistador of its obligations to make payments under the loan
agreement sufficient to pay principal of and interest on the bonds as the
same become due.
El Conquistador may assign the loan agreement with the prior written
consent of AFICA and the trustee. The said consent shall not be required if:
(A) the conditions mentioned in (1) and (2) of the prior paragraph are
complied with by El Conquistador; and
(B) the assignee (1) expressly assumes in writing El Conquistador's
obligations under the loan agreement and (2) delivers to AFICA and the
trustee a certificate executed by its chief financial officer or treasurer
stating that none of the obligations and covenants under the loan
agreement, the trust agreement and the related collateral documents assumed
by it, or the performance thereof will conflict with, or constitute on the
part of such assignee a breach of, or default under, any indenture,
mortgage, agreement or other instrument to which such assignee is a party
or by which it is bound, or any existing law, rule, regulation, judgment,
order or decree to which such assignee is subject.
So long as any bonds are outstanding, El Conquistador will not dispose of
all or substantially all of its assets and will not consolidate or merge into
another entity; provided, however, that El Conquistador may do so if: (1) the
successor or transferee entity is organized under the laws of Puerto Rico or any
state of the United States and complies with the source of income covenants
contained in the loan agreement; and (2) if the conditions mentioned in (A) and
(B) of the prior paragraph are complied with by El Conquistador or the successor
or transferee, as the case may be.
MAINTENANCE OF SOURCE OF INCOME; ADDITIONAL INTEREST UPON EVENT OF TAXABILITY
El Conquistador will agree under the loan agreement that during each
taxable year while the bonds are outstanding it will comply with the source of
income covenants so that all interest paid or payable on the bonds will
constitute income from sources within Puerto Rico under the provisions of the
Internal Revenue Code as in effect on the date of issuance of the bonds. Failure
to comply with the source of income covenants shall constitute an Event of
Taxability. If an Event of Taxability occurs, El Conquistador is required to pay
additional interest to each Qualifying Bondholder who receives or accrues
interest on the bonds subject to federal income taxation as a result thereof.
The source of income covenants under the loan agreement require El
Conquistador, so long as it is a partnership under the Internal Revenue Code, on
any determination date, to:
(1) be a partnership;
(2) be engaged in trade or business only in Puerto Rico;
(3) not be engaged, directly or imputedly, in any trade or business
outside Puerto Rico; and
(4) not derive, directly or imputedly, any gross income which is, or
is treated as, effectively connected with, or attributable to, the conduct
of a trade or business outside Puerto Rico.
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The source of income covenants under the loan agreement further require, if
El Conquistador is deemed an association taxable as a corporation for purposes
of the Internal Revenue Code, on any determination date, that:
(1) at least 80% of the gross income from all sources has been and
will be
(A) derived from sources outside the United States, or attributable
to income so derived by a subsidiary of El Conquistador, and
(B) attributable to the active conduct of a trade or business
outside the United States by El Conquistador or by a subsidiary of El
Conquistador; and
(2) all interest on the bonds will be paid by a trade or business of
El Conquistador in Puerto Rico.
The source of income covenants also require that all interest paid to, or
accrued by, a bondholder on the bonds to constitute income from sources within
Puerto Rico for purposes of the Internal Revenue Code.
Under the loan agreement, El Conquistador will be required to cause its
independent accountants to submit, no later than the last day of the third month
following the close of each of its taxable years, a report, which shall be made
in accordance with generally accepted auditing standards, stating whether in
connection with their audit of the books and records of El Conquistador, it
failed to comply with any of the source of income covenants during the taxable
year just ended and if as a consequence thereof:
(1) the interest paid to, or accrued by, a beneficial owner on the
bonds constituted income from sources outside Puerto Rico for purposes of
the Internal Revenue Code as in effect on the date of issuance of the
bonds; and
(2) in such opinion, under the Internal Revenue Code as in effect on
the date of such report, interest paid or accrued on bonds held by a
Qualifying Bondholder is includable in the gross income and subject to the
payment of income taxes, a credit for the payment of which is not otherwise
available to the Qualifying Bondholder.
Upon receipt of such report, the trustee shall promptly cause a copy
thereof to be mailed to each person who is a bondholder or who was a bondholder
during the then current calendar year and during the immediately preceding
calendar year. Thereafter, any Qualifying Bondholder who has paid or is required
to pay income taxes under the Internal Revenue Code in respect of the interest
paid or accrued on the bonds may submit a written claim for additional interest.
Such claim must set forth in reasonable detail the basis therefor and the
calculation of the additional interest and must be submitted to the trustee and
El Conquistador within 270 days from the date of receipt of the trustee's notice
of an independent accountants report showing that an Event of Taxability
occurred. El Conquistador will pay such claim for additional interest to the
Qualifying Bondholder within 30 days from the date El Conquistador receives the
notice of claim from the Qualifying Bondholder.
COVENANTS
In connection with this offering, El Conquistador agreed to certain
limitations on additional indebtedness and liens. El Conquistador will be
permitted to incur additional indebtedness provided it maintains, after taking
into consideration the principal amount of and debt service for such additional
indebtedness:
(1)(A) an Additional Indebtedness Loan-to-Value Ratio of no more than
65%, and
(B) an Additional Indebtedness Debt Service Coverage Ratio of no
less than 1.75; and
(2) in the case of additional indebtedness of more than $10,000,000,
El Conquistador must deliver a letter to the trustee from the rating agency
then rating the bonds, to the effect that the rating agency reviewed the
additional indebtedness and after the incurrence of the same, the bonds
will continue to have a rating not lower than the one assigned to the bonds
immediately prior to such incurrence.
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Additional Indebtedness Debt Service Coverage Ratio means at the time of
calculation, the quotient resulting from dividing (A) the net operating income
before income taxes and interest and excluding depreciation and other noncash
items of the resort for the last four full fiscal quarters, excluding any fiscal
quarter which ended less than 31 days prior to the date of determination, by
(B) the aggregate principal and interest on the bonds and the additional
indebtedness scheduled for payment over the next full 12 month period.
Additional Indebtedness Loan-to-Value Ratio means at the time of calculation,
the quotient resulting from dividing (1) the total principal amount of bonds
then outstanding, less the aggregate amount deposited to the credit of the bond
fund and the reserve fund, plus the principal amount of any additional
indebtedness, by (2) the appraised value of the resort as determined by the most
recent appraisal dated not more than three years prior to the date of
calculation.
El Conquistador will be permitted to make advances of available cash to its
partners and their affiliates on a quarterly basis; provided (1) El Conquistador
retains out of available cash an amount equal to the principal amount of the
bonds payable on the next principal payment date in the same taxable year plus
$2,500,000, (2) no event of default or event which with the giving of notice or
the passage of time would become an event of default under the loan agreement
shall have occurred and be continuing at the time such advance is made, (3) the
reserve fund balance is $9,100,000 at the time such advance is made, (4) the
amount of such advance shall not exceed the amount of available cash during the
12 months ending at the end of the last quarter with respect to which the
advance is being made and (5) there shall be in effect the insurance policies
required by the loan agreement. For these purposes, available cash means net
cash provided by (used in) operating activities reflected on the statement of
cash flows included in El Conquistador's regularly prepared financial statements
less principal paid on the bonds, principal and other debt service, other than
interest, paid on any other indebtedness, and capital expenditures which have
not been financed. El Conquistador will also be permitted to distribute cash to
the partners at any time provided such distribution is secured by a letter of
credit issued by an institution the long term obligations of which are rated
Baa2 to the extent the cash distributed exceeds amounts otherwise permitted to
be distributed.
Additionally, the El Conquistador partnership agreement will prohibit the
partnership from conducting any business other than the ownership and operation
of the resort. The partnership agreement may be amended without the consent of
AFICA so long as the amendment would not adversely affect the rights of the
bondholders.
The loan agreement contains covenants of El Conquistador normally required
of borrowers with respect to properties similar to that of the resort, including
covenants with respect to compliance with environmental laws and regulations,
and maintenance of insurance. The loan agreement permits El Conquistador to
restore or replace the resort or portions thereof in the event of any damage due
to casualty or loss due to condemnation upon compliance with certain conditions
set forth therein.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an event of default under the loan agreement:
(1) failure by El Conquistador to pay the amounts required to be paid
with respect to principal of or premium, if any, or interest on the bonds
when the same shall become due and payable;
(2) failure by El Conquistador to make any other payments, excluding
payments referred to in (1) above and payments to replenish the $9,100,000
reserve fund prior to its balance falling below $4,550,000, required by the
loan agreement and continuation of such failure for 30 days after written
notice thereof unless an extension is granted by the trustee prior to its
expiration;
(3) failure by El Conquistador to replenish the reserve fund at any
time its balance falls below $4,550,000;
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(4) failure by El Conquistador to observe and perform any other
covenant, condition, or agreement under the loan agreement, other than (1),
(2) or (3) above, and continuation of such failure for 90 days after
written notice thereof from the trustee or AFICA unless an extension is
granted by the trustee prior to its expiration; provided, however, that if
such failure cannot be corrected within such 90-day period, it shall not
constitute an event of default if corrective action is instituted by El
Conquistador during such period and diligently pursued until such failure
is corrected; and
(5) certain events of bankruptcy, liquidation or similar proceedings
involving El Conquistador.
If by reason of force majeure El Conquistador is unable to perform any of
its obligations under (2) (3) and (4) above, El Conquistador shall not be deemed
in default during the continuance of such inability, including reasonable time
for the removal of the effect thereof. Force majeure is defined in the loan
agreement to mean, without limitation, the following: (1) acts of God; strikes,
lockouts or other industrial disturbances; acts of public enemies; orders or
restraints of any kind of the government of the United States or of Puerto Rico
or any of their respective departments, agencies, political subdivisions or
officials, or any civil or military authority; war; insurrections; civil
disturbances; riots, epidemics; landslides; lightning; earthquakes; fires;
hurricanes; storms; droughts; floods; washouts; arrests; restraint of government
and people; explosions; breakage, malfunction or accident to facilities,
machinery, transmission pipes or canals; partial or entire failure of utilities,
or shortages of labor, materials, supplies or transportation; or (2) any cause,
circumstance or event not reasonably within the control of El Conquistador.
Upon the occurrence of any of the foregoing events of default, the trustee
may declare all unpaid amounts payable under the loan agreement in respect of
the bonds to be immediately due and payable and may take any action at law or
equity necessary to collect the payments then due and thereafter to become due,
or to enforce any obligation of El Conquistador under the loan agreement. No
remedial steps shall be taken, however, the effect of which would be to provide
funds for the payment of principal of and interest on the bonds which have not
yet matured or otherwise become due unless such principal and interest shall
have been declared due and payable under the trust agreement.
AFICA has no power to waive any default under the loan agreement or extend
the time for the correction of any default that could become an event of default
under the loan agreement without the consent of the trustee.
LIMITATION ON PARTNER'S LIABILITY
The loan agreement provides that no recourse may be had against any partner
of El Conquistador or any stockholder, officer, director, employee or agent,
among others, of such partner for any obligation under the loan agreement and
the remedies available under the loan agreement upon a default in any such
obligation shall be only against El Conquistador and its assets, including the
resort, and shall include foreclosure pursuant to the related collateral
documents.
AMENDMENTS AND SUPPLEMENTS TO THE LOAN AGREEMENT AND THE RELATED DOCUMENTS
The loan agreement and the related documents may be amended or supplemented
without the consent of the bondholders: (1) to cure any ambiguity or formal
defect or omission therein or, in any supplement thereto; (2) to grant to or
confer upon AFICA or the trustee for the benefit of the bondholders any
additional rights, remedies, powers, benefits, authority or security that may
lawfully be granted to or conferred upon AFICA, the trustee or the bondholders;
and (3) to add to the covenants of El Conquistador for the benefit of the
bondholders.
Other than for the purposes of the above paragraph, the loan agreement and
the related documents may be amended or supplemented with the approval of the
bondholders of not less than a majority of the principal of the bonds
outstanding at the time. No amendment or supplement to the loan agreement or the
related documents will become effective without the consent of the trustee.
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SUMMARY OF THE TRUST AGREEMENT
The following summary which describes certain provisions of the trust
agreement, does not purport to be complete and is subject to, and is qualified
by reference to, the trust agreement. A copy of the trust agreement is filed as
an exhibit to the registration statement of which this official statement and
prospectus is a part.
The trust agreement will constitute an assignment by AFICA to the trustee
of all of AFICA's right, title and interest in the loan agreement and the
related collateral documents, except for certain rights of AFICA to
indemnification, exemption from liability, the payment of costs and expenses and
the receipt of notices, in trust as security for the payment of the principal of
and interest on the bonds.
PROJECT FUND
The proceeds of the bonds, excluding the $9,100,000 reserve fund amount,
will be deposited with the trustee in the project fund established pursuant to
the trust agreement. The trustee will make disbursements from the project fund
immediately after completion of this offering to:
repay the $90,000,000 interim loan made on August 3, 1998 by Citicorp Real
Estate to El Conquistador and any unpaid interest thereon;
reimburse El Conquistador for interest previously paid on the interim
loan;
pay the $526,000 administrative fee to AFICA; and
pay costs and expenses associated with the issuance of the bonds,
including printing fees, professional fees and fees of the trustee.
BOND FUND
The trust agreement will establish with the trustee a bond fund that shall
be used for the payment of the principal of and interest on the bonds. The
following amounts will be deposited in the bond fund:
(1) all amounts paid pursuant to the loan agreement with respect to
principal of and interest on the bonds, including payments with respect to
optional and mandatory prepayments of the bonds;
(2) all amounts derived from the related collateral documents securing
payment of the bonds; and
(3) all other moneys received by the trustee or otherwise which are
permitted or required, or are directed by El Conquistador or AFICA to be
paid into the bond fund.
RESERVE FUND
On the date of issuance of the bonds, an amount equal to $9,100,000 will be
deposited in the reserve fund created under the trust agreement. Thereafter, El
Conquistador is required to make additional deposits from time to time so that
the amounts held to the credit of the reserve fund are not less than $9,100,000.
The trustee shall use amounts held to the credit of the reserve fund to make
transfers to the bond fund to the extent necessary to pay interest on and
principal of the bonds, whether at maturity, or upon acceleration or redemption,
whenever and to the extent that the moneys on deposit in the bond fund are
insufficient therefor.
After the trustee makes any disbursement from the reserve fund, El
Conquistador is obligated to deposit with the trustee, on the 20th business day
succeeding the receipt of notice from the trustee, sufficient funds to cause the
amount then to the credit of the reserve fund to equal $9,100,000. El
Conquistador is also required to similarly deposit any amount necessary to cover
any loss resulting from a decline in value of Investment Obligations held to the
credit of the reserve fund if on any date of valuation the value of such
Investment Obligations and other amounts on deposit in the reserve fund is less
than $9,100,000. Investment Obligations is defined below under ' -- Investment
of Funds.' However, a deficiency in the reserve fund will not be an event of
default under the loan agreement until such deficiency exceeds $4,550,000.
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RENEWAL AND REPLACEMENT FUND
The trust agreement will establish with the trustee a renewal and
replacement fund that shall be used for the payment of repair, renewal and
replacement of furniture, fixtures and equipment for the resort. El Conquistador
is obligated to deposit $333,333.34 in the renewal and replacement fund on each
monthly interest payment date, up to an initial aggregate amount of $4,000,000.
After the trustee makes any disbursement from the renewal and replacement
fund, El Conquistador is required to make additional deposits with the trustee
on each monthly interest payment date of $333,333.34 until the balance of such
fund equals $4,000,000. El Conquistador is also required to similarly deposit
any amount necessary to cover any loss resulting from a decline in value of
Investment Obligations held to the credit of the renewal and replacement fund
after the amount on deposit in such fund equals $4,000,000 if on any date the
value of such Investment Obligations and other amounts on deposit in the renewal
and replacement fund is less than $4,000,000 due to a decrease in the fair
market value of such Investment Obligations. El Conquistador's obligations to
make payments to the renewal and replacement fund are limited to a maximum of
$333,333.34 per month and $4,000,000 in the aggregate through the year ending
December 31, 2004. Thereafter, the aggregate maximum amount of the renewal and
replacement fund will be adjusted to equal 4.0% of El Conquistador's average net
revenues for the three years immediately prior to the year of the adjustment;
provided that such amount shall not be less than $4,000,000. Such adjustment
will be made every five years. After any adjustment, the required monthly amount
to be deposited in the fund will equal one-twelfth ( 1/12) of the adjusted
reserve amount.
INVESTMENT OF FUNDS
Moneys held for the credit of all funds and accounts under the trust
agreement shall be invested in Investment Obligations in accordance with the
instructions of El Conquistador. Any such Investment Obligations shall mature
not later than the respective dates when the money held for the credit of such
funds or accounts will be required for the purposes intended.
Investment Obligations are defined as government obligations and
obligations of any agency or instrumentality whose obligations are backed by the
full faith and credit of the United States of America and, to the extent from
time to time permitted by law,
(A) the obligations of the
(1) Federal National Mortgage Association,
(2) Federal Home Loan Banks,
(3) Federal Farm Credit System,
(4) Federal Home Loan Mortgage Corporation, and
(5) Government National Mortgage Association, to the extent not included in
government obligations;
(B) repurchase agreements with financial institutions which are members of
the Federal Reserve System or primary dealers in the United States Treasury
market the short-term obligations of which institutions or dealers are rated at
least 'A' by Moody's, or any similar rating to which it may be changed by each
such rating agency, or whose long-term obligations are rated in one of the three
highest rating categories by Moody's secured by government obligations or by
securities described in clause (A); provided, that such repurchase agreement
must provide that the value of the underlying obligations shall be maintained at
a current market value, calculated at least weekly, of not less than 104% of the
repurchase price, or in the case such underlying obligations are obligations of
the Federal National Mortgage Association or the Federal Home Loan Mortgage
Corporation, of not less than 105% of the repurchase price, a legal opinion
shall be furnished to the trustee to the effect that
(1) the repurchase agreement meets guidelines under the laws of Puerto Rico
for the legal investment of public funds,
(2) the trustee shall be given a first priority security interest,
(3) no independent third party shall have a lien,
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(4) such obligations repurchased must be transferred to the trustee or an
independent third party agent by physical delivery or by an entry made
on the records of the issuer of such obligations,
(5) in either case, the entity should receive confirmation from the
independent third party that those securities are being held in a
safekeeping account in the name of the entity, and the trust or
safekeeping departments of broker-dealers or financial institutions
selling investments or pledging collateral or underlying securities, or
their custodial agents, are not considered independent third parties
for the foregoing purposes,
(6) such repurchase agreement shall constitute a 'repurchase agreement'
within the meaning of Section 101 of the United States Bankruptcy Code,
as amended, and
(7) any investment in a repurchase agreement shall mature within 30 days;
(C) debt obligations and commercial paper rated 'M-1' or better by Moody's;
(D) U.S. Treasury Strips, REFCORP Strips and FICO Strips;
(E) money market funds registered under the Federal Investment Company Act
of 1940, whose shares are registered under the Securities Act of 1933, and
having a rating of 'P-1' by Moody's;
(F) certificates of deposit secured at all times by government obligations
or collateral described in (A) which certificates are issued by commercial
banks, savings and loan associations or mutual savings banks; provided that the
collateral must be held by a third party and the trustee must have a perfected
first priority security interest in the collateral;
(G) certificates of deposit, savings accounts, deposit accounts or money
market deposits which are fully insured by the Federal Deposit Insurance
Corporation, including the Bank Insurance Fund and the Savings Association
Insurance Fund;
(H) bonds or notes issued by any state, territory or municipality which are
rated by Moody's in one of the two highest rating categories assigned by such
agencies;
(I) federal funds or bankers' acceptances with a maximum term of one year
of any bank which has an unsecured, uninsured and unguaranteed obligation rating
of 'A' or better by Moody's;
(J) any Puerto Rico administered pool investment fund in which AFICA is
statutorily permitted or required to invest; and
(K) any other obligation, security or investment for which the trustee
shall have received written confirmation from Moody's to the effect that no
reduction in the rating on the bonds will result from the addition of such other
obligation, security or investment.
Any investment in government obligations or in obligations described in
(A) above may be made in the form of an entry made on the records of the issuer
of the particular obligation.
Government obligations are defined as
(1) direct obligations of, or obligations the principal of and the interest
on which are unconditionally guaranteed by, the United States of America, and
(2) any certificates or other evidences of an ownership in obligations or
in specified portions thereof, which may consist of specified portions of the
principal thereof or the interest thereon, of the character described in clause
(1).
EVENTS OF DEFAULT
Each of the following events is an event of default under the trust
agreement:
(1) failure to pay the principal of and premium, if any, and interest
on the bonds when the same shall become due and payable by AFICA; or
(2) any 'event of default', other than an event of default of the type
described in (1) above, shall have occurred under the loan agreement and
such event of default shall not have been remedied or waived.
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ACCELERATION OF MATURITIES
Upon the happening and continuance of an event of default specified above,
the trustee may, and upon the written request of holders of not less than 25% in
aggregate principal amounts of bonds then outstanding shall, by notice in
writing to AFICA, declare the principal of all the bonds then outstanding, if
not then due and payable, to be due and payable immediately, and upon such
declaration the same shall become and be immediately due and payable.
If at any time after the principal of the bonds shall have been declared to
be due and payable, and before the entry of a final judgment or decree in any
suit, action or proceeding instituted on account of such default, or before the
completion of the enforcement of any other remedy under the trust agreement,
moneys shall have accumulated in the bond fund sufficient to pay the principal
of all bonds then outstanding, except the principal of any bonds due and payable
solely as a result of such acceleration, and the interest accrued on such bonds
since the last payment date to which interest shall have been paid or duly
provided for, interest on overdue installments of interest, to the extent
permitted by law, at the rate or rates then borne by the bonds, and the charges,
compensation, expenses, disbursements, advances and liabilities of the trustee,
and all other amounts then payable by AFICA under the trust agreement shall have
been paid or a sum sufficient to pay the same shall have been deposited with the
trustee, and every other default known to the trustee in the observance or
performance of any covenant, condition, agreement or provision contained in the
bonds or in the trust agreement shall have been cured or waived, then and in
every such case the trustee may, and upon the written direction of the holders
of not less than a majority in aggregate principal amount of the bonds then
outstanding shall, by a notice in writing to AFICA and El Conquistador, rescind
and annul such declaration and its consequences, but no such rescission or
annulment shall extend to or affect any subsequent default or impair any right
consequent thereon.
ENFORCEMENT OF REMEDIES
The holders of a majority of the aggregate principal of bonds then
outstanding will have the right, subject to indemnification of the trustee, by
an instrument or concurrent instruments in writing delivered to the trustee, to
direct the remedial proceedings to be taken by the trustee under the trust
agreement provided such directions are in accordance with law and the trust
agreement and the trustee may take any other action deemed proper by the trustee
which is not inconsistent with such directions. Except as to the indemnity
provided in the loan agreement with respect to an Event of Taxability, no
bondholder will have any right to institute any suit, action or proceeding in
equity or at law on any bond or for the execution of any trust under the trust
agreement, or for any other remedy under the trust agreement unless:
(1) such boldholder has previously given to the trustee written notice of
the event of default on account of which such suit, action or proceeding is to
be instituted;
(2) the holders of not less than 25% of the aggregate principal of bonds
then outstanding have requested the trustee, after the right to execute such
powers or right of action, as the case may be, has accrued, and have afforded
the trustee a reasonable opportunity, either to proceed to exercise such powers
or to institute such action, suit or proceeding in its or their name;
(3) the trustee has been offered reasonable security and indemnity against
the costs, expenses and liabilities to be incurred, including, without
limitation, indemnification for environmental liability; and
(4) the trustee has refused or neglected to comply with such request within
a reasonable time.
No one or more bondholders will have any right, in any manner, to affect,
disturb or prejudice any rights under the trust agreement, or to enforce any
right thereunder, except in the manner therein provided. All suits, actions and
proceedings at law or in equity must be instituted, had and maintained in the
manner provided in the trust agreement and for the benefit of the bondholders.
Any individual right of action or other right given to one or more bondholder by
law is restricted by the trust agreement to the rights and remedies therein
provided.
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AMENDMENTS AND SUPPLEMENTS TO THE TRUST AGREEMENT
The trust agreement may be amended or supplemented without the consent of
the bondholders:
(1) to cure any ambiguity or to make any other provisions with respect
to matters or questions arising under the trust agreement consistent with
the provisions of the trust agreement; or
(2) to grant or confer upon the trustee for the benefit of the
bondholders any additional rights, remedies, powers, benefits, authority or
security that may lawfully be so granted or conferred; or
(3) to add to the covenants of AFICA for the benefit of the
boldholders or to surrender any right or power conferred upon AFICA under
the trust agreement; or
(4) to permit the qualification of the trust agreement under the Trust
Indenture Act of 1939 or any similar federal statute hereafter in effect or
to permit the qualification of the bonds for sale under the securities laws
of any of the states of the United States, and to add to the trust
agreement or any supplement or amendment thereto such other terms,
conditions and provisions as may be required by said Trust Indenture Act of
1939 or similar federal statute.
The trust agreement may be amended or supplemented with the consent of the
holders of a majority of the principal of the bonds outstanding at the time.
However, without the consent of each bondholder affected, any amendment to the
trust agreement may not:
(1) extend the time for the payment of the principal of or the
interest on any bond; or
(2) reduce the principal of any bond or the redemption premium, if
any, or the rate of interest thereon; or
(3) create any lien or security interest with respect to the loan
agreement or the payments thereunder; or
(4) give a preference or priority to any bond or bonds over any other
bond or bonds; or
(5) reduce the aggregate principal of the bonds required for consent
to such supplement or amendment or any waiver thereunder.
The trustee is not obligated to execute any proposed supplement or
amendment if its rights, obligations and interests would be affected thereby.
Nothing herein will affect any preexisting rights to create liens set forth in
the trust agreement.
No amendment or supplement to the trust agreement, other than to cure any
ambiguity, will become effective without the consent of El Conquistador.
DEFEASANCE
Any bond will be deemed paid and no longer entitled to any security under
the trust agreement upon satisfaction of certain conditions and the deposit with
the trustee of sufficient funds, or direct obligations of the United States of
America or obligations unconditionally guaranteed by the United States of
America, the principal of and the interest on which, when due, without any
reinvestment thereof, will provide moneys which will be sufficient to pay when
due the principal of and premium, if any, and interest due and to become due,
excluding any additional interest payable upon the second occurrence of an Event
of Taxability, on such bond. El Conquistador will be required to indemnify the
beneficial owners for any additional interest. If any bond is not to be redeemed
or does not mature within 60 days after such deposit, El Conquistador must give
irrevocable instructions to the trustee to give notice, in the same manner as
notice of redemption, that such deposit has been made. The bonds shall have not
been deemed paid unless the trustee shall have received an opinion of counsel
experienced in bankruptcy matters to the effect that payment to the beneficial
owners would not constitute a transfer which may be voided under the provisions
of the United States Bankruptcy Code, and an opinion of counsel experienced in
tax matters under the Internal Revenue Code to the effect that, assuming El
Conquistador will continue to comply with the source of income covenants in the
loan
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agreement, the deposit of said obligations or moneys would not adversely affect
the treatment of interest received by the beneficial owners as income from
sources within Puerto Rico.
AFICA
GENERAL
AFICA is a body corporate and politic constituting a public corporation and
governmental instrumentality of Puerto Rico. The Legislature of Puerto Rico
determined that the development and expansion of commerce, industry and health
and educational services within Puerto Rico are essential to the economic growth
of Puerto Rico and to attain full employment and preserve the health, welfare,
safety and prosperity of all its citizens. The Legislature also determined that
new methods of financing capital investments were required to promote industry
in Puerto Rico. Accordingly, AFICA was created under Act No. 121 of the
Legislature of Puerto Rico, approved June 27, 1977, as amended, for the purpose
of promoting the economic development, health, welfare and safety of the
citizens of Puerto Rico. AFICA is authorized to borrow money through the
issuance of revenue bonds and to loan the proceeds thereof to finance and
refinance the acquisition, construction and equipping of industrial, tourist,
educational, medical, environmental control and solid waste disposal facilities.
AFICA has no taxing power. AFICA's offices are located at Minillas Government
Center, De Diego Avenue, Stop 22, San Juan, Puerto Rico 00940. AFICA's telephone
number is (787) 782-4060.
GOVERNING BOARD
Act No. 121 of the Legislature of Puerto Rico provides that the governing
board of AFICA shall consist of seven members. The President of the Government
Development Bank for Puerto Rico, the Executive Director of the Puerto Rico
Industrial Development Company, the Executive Director of the Puerto Rico
Aqueduct and Sewer Authority, the President of the Puerto Rico Environmental
Quality Board and the Executive Director of the Puerto Rico Tourism Company are
each ex officio members of the governing board. The remaining two members of the
governing board are appointed by the Governor of Puerto Rico for terms of four
years. As of the date of this official statement and prospectus, the positions
of Executive Director of the Puerto Rico Industrial Development Company and
Executive Director of the Aqueduct and Sewer Authority are vacant. The following
individuals are the current members of the governing board:
<TABLE>
<CAPTION>
NAME POSITION TERM OCCUPATION
- -------------------------------- ------------ ----------------- -----------------------------
<S> <C> <C> <C>
Lourdes M. Rovira............... Chairperson Indefinite President, Government
Development Bank for Puerto
Rico
Hector J. Russe-Martinez........ Member Indefinite President, Puerto Rico
Environmental Quality Board
Jorge Davila.................... Member Indefinite Executive Director, Puerto
Rico Tourism Company
James Thordsen.................. Member June 27, 2002 President, James Thordsen,
Inc.
Jose Salas-Soler................ Member October 22, 2001 Attorney-at-Law
</TABLE>
Act No. 121 of the Legislature of Puerto Rico provides that the affirmative
vote of four members is sufficient for any action taken by the governing board.
The following individuals are currently officers of AFICA:
CARLOS COLON DE ARMAS, Executive Director of AFICA, is also Executive
Vice President of the Government Development Bank for Puerto Rico. He was
appointed to these positions in February 1999. Mr. Colon de Armas received
a PhD in finance from Purdue University in 1992. Prior to his appointment,
he was Deputy Executive Director of the Puerto Rico Highway and
Transportion Authority.
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VELMARIE BERLINGERI, Assistant Executive Director of AFICA, is also a
Vice President of the Government Development Bank for Puerto Rico. Ms.
Berlingeri has been associated with the Government Development Bank since
1993. Prior to her appointment, Ms. Berlingeri worked in the investments
area of a major private sector corporation in Puerto Rico. Ms. Berlingeri
received a Bachelor of Science in Business Administration degree from the
University of Puerto Rico in 1982.
DELFINA BETANCOURT-CAPO, Secretary and General Counsel of AFICA, is
also Senior Vice President and General Counsel of the Government
Development Bank for Puerto Rico. Ms. Betancourt has been associated with
the Government Development Bank since 1984. She received a law degree from
Cornell University in 1982.
OUTSTANDING REVENUE BONDS AND NOTES OF AFICA
As of April 30, 1999, AFICA had revenue bonds and notes issued and
outstanding in the aggregate principal amount of approximately $2.5 billion.
All such bond and note issues have been authorized and issued pursuant to
trust agreements or resolutions separate from and unrelated to the trust
agreement relating to the bonds and are payable from sources other than the
payments under the loan agreement.
Under Act No. 121 of the Legislature of Puerto Rico, AFICA may issue
additional bonds and notes from time to time to finance and refinance
industrial, tourist, educational, medical, environmental control or solid waste
disposal facilities. However, any such bonds and notes would be authorized and
issued pursuant to other trust agreements or resolutions separate from and
unrelated to the trust agreement relating to the bonds described in this
official statement and prospectus and would be payable from sources other than
the payments under the loan agreement.
GOVERNMENT DEVELOPMENT BANK FOR PUERTO RICO
As required by Act No. 272 of the Legislature of Puerto Rico, approved May
15, 1945, as amended, the Government Development Bank has acted as a financial
advisor to AFICA in connection with the issuance and sale of the bonds.
The Government Development Bank is a public corporation with varied
governmental financial functions. Its principal functions are to act as
financial advisor to and fiscal agent for Puerto Rico, its municipalities and
its public corporations in connection with the issuance of bonds and notes, to
make advances to public corporations and to make loans to private enterprises
that will aid in the economic development of Puerto Rico. The underwriters have
been selected by the Government Development Bank to act from time to time as
underwriters of its obligations and the obligations of Puerto Rico, its
instrumentalities and public corporations. The underwriters or their affiliates
also participate in other financial transactions with the Government Development
Bank.
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TAX CONSEQUENCES
In the opinion of Fiddler Gonzalez & Rodriguez, LLP, bond counsel, under
the provisions of the Acts of Congress and the laws of Puerto Rico now in force:
1. The bonds, and the transfer of the bonds, including any gain
derived upon the sale of the bonds, are exempt from Puerto Rico income tax
pursuant to Article 8(b) of Act No. 121 of the Legislature of Puerto Rico.
2. Interest on the bonds is:
(A) excluded from the gross income of the recipient thereof for
Puerto Rico income tax purposes pursuant to Section 1022(b)(4)(B) of the
Puerto Rico Internal Revenue Code of 1986, as amended;
(B) exempt from Puerto Rico income tax and alternative minimum tax
pursuant to Section 1022(b)(4)(B) of the Puerto Rico Internal Revenue
Code, Article 8(b) of Act No. 121 of the Legislature of Puerto Rico, and
Section 3 of the Puerto Rico Federal Relations Act; and
(C) exempt from Puerto Rico municipal license tax pursuant to
Section 9(25) of the Puerto Rico Municipal License Tax Act of 1974, as
amended, and Section 3 of the Puerto Rico Federal Relations Act.
3. The bonds are exempt from Puerto Rico personal property tax
pursuant Section 3.11 of the Puerto Rico Municipal Property Tax Act of
1991, as amended, and Section 3 of the Puerto Rico Federal Relations Act.
4. The bonds are exempt from Puerto Rico (A) gift tax with respect to
donors who are residents of Puerto Rico at the time the gift is made and
(B) estate tax with respect to estates of decedents who are residents of
Puerto Rico at the time of death, excluding, in each case, United States
citizens who acquired their United States citizenship other than by reason
of birth or residence in Puerto Rico.
5. The bonds will be considered an obligation of an instrumentality of
Puerto Rico for purposes of (A) the non-recognition of gain rules of
Section 1112(f)(2)(A) of the Puerto Rico Internal Revenue Code applicable
to certain involuntary conversions and (B) the exemption from the surtax
imposed by Section 1102 of the Puerto Rico Internal Revenue Code available
to corporations and partnerships that have a certain percentage of their
net income invested in obligations of instrumentalities of Puerto Rico and
certain other investments.
In the opinion of Fiddler Gonzalez & Rodriguez, LLP, bond counsel, based
upon the provisions of the Internal Revenue Code now in force and assuming that
El Conquistador complies with the source of income covenants contained in the
loan agreement, then:
1. interest on the bonds received by, or accrued to, an individual who
is a bona fide resident of Puerto Rico during the entire taxable year in
which such interest is received or accrued is excludable from gross income
for income tax purposes under the Internal Revenue Code;
2. interest on the bonds received by, or accrued to, a corporation
organized under the laws of Puerto Rico or any foreign country is not
subject to federal income taxation provided such interest is not
effectively connected with the conduct of a trade or business in the United
States by such corporation; and
3. interest on the bonds is not excludable from the gross income of
the recipients thereof for federal income tax purposes under Section 103(a)
of the Internal Revenue Code.
United States taxpayers, other than individuals who are bona fide residents
of Puerto Rico during the entire taxable year, will be subject to federal income
tax on any gain realized upon the sale or exchange of the bonds. Pursuant to
Notice 89-40 issued by the United States Internal Revenue Service on March 27,
1989, gain on the sale of the bonds, excluding 'original issue discount' accrued
under the Internal Revenue Code as of the date of such sale or exchange, by an
individual who is a bona fide resident of Puerto Rico during the entire taxable
year and that is
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a resident of Puerto Rico for purposes of Section 865(g)(1) of the Internal
Revenue Code will constitute Puerto Rico source income and, therefore, qualify
for the exclusion provided in Section 933(1) of the Internal Revenue Code,
provided such bonds do not constitute inventory in the hands of such individual.
You should be aware that ownership of the bonds may result in having a
portion of your interest expense allocable to interest on the bonds disallowed
for purposes of computing the regular tax and the alternative minimum tax for
Puerto Rico income tax purposes.
The opinion of Fiddler Gonzalez & Rodriguez, LLP, bond counsel, regarding
the tax consequences under the Internal Revenue Code and the Puerto Rico
Internal Revenue Code arising from ownership or disposition of the bonds is
limited to the above.
RATING
The bonds will initially be rated 'Baa2' by Moody's Investors Service, Inc.
There is no assurance that the rating given to the bonds will remain in effect
for any given period or that it will not be revised downward or withdrawn
entirely by Moody's if, in its sole judgment, circumstances so warrant. Any such
downward revision or withdrawal of such rating may have an adverse effect on the
market prices of the bonds. The rating of the bonds by Moody's is not a
recommendation to buy, sell or hold the bonds.
The rating given to the bonds reflects only the views of Moody's. An
explanation of the significance of such rating may be obtained only from Moody's
at 99 Church Street, New York, New York 10007.
Moody's was provided with materials relating to El Conquistador, the
resort, the bonds and other relevant information, and no application has been
made to any other rating agency for purposes of obtaining a rating on the bonds.
In addition, if requested, El Conquistador shall deliver to Moody's, from time
to time, such documents and other relevant information required for purposes of
its due diligence on the assigned rating to the bonds.
LEGAL INVESTMENT
The bonds will be eligible for deposit by banks in Puerto Rico to secure
public funds and will be approved investments for insurance companies to qualify
them to do business in Puerto Rico as required by law.
UNDERWRITING
The underwriters of the bonds are as follows:
Citicorp Financial Services Corporation
Citibank Center
Lomas Verdes Avenue
Cupey, Puerto Rico
Subject to the terms and conditions of a certain bond purchase agreement to
be entered into among AFICA, El Conquistador and the underwriters, AFICA will
agree to sell to the underwriters, and the underwriters will agree to purchase
from AFICA, all of the bonds listed on the inside front cover page of this
official statement and prospectus. The underwriters will purchase the bonds at
the public offering price thereof less the underwriting discount set forth
below:
<TABLE>
<CAPTION>
AGGREGATE PUBLIC UNDERWRITING
OFFERING PRICE UNDERWRITING STRUCTURING/MANAGEMENT PROCEEDS TO
OF THE BONDS DISCOUNT FEE EL CONQUISTADOR(1)
- -------------------------------- ------------ ---------------------- ------------------
<S> <C> <C> <C>
$105,200,000 $ $ $
</TABLE>
- ------------
(1) The proceeds to El Conquistador set forth above is before deducting expenses
of this offering payable by El Conquistador estimated at $5,000,000, and
$9,100,000 which will be deposited in the reserve fund.
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The underwriters propose initially to offer the bonds to the public, when,
as and if issued by AFICA and accepted by the underwriters, at the initial
public offering prices set forth or derived from information shown on the inside
front cover page of this official statement and prospectus. The initial offering
prices may be changed from time to time by the underwriters. The underwriters
may offer and sell the bonds to certain dealers, including dealers depositing
bonds into investment trusts, and others at prices lower than the initial public
offering prices stated or derived from information shown on the inside front
cover page hereof.
The bond purchase agreement will provide that the obligations of the
underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The underwriters are committed to
purchase all of the bonds if any are purchased.
Prior to this offering, there has been no active market for the bonds. The
underwriters have advised El Conquistador that they presently intend to make a
market in the bonds as permitted by applicable laws and regulations. The
underwriters are not obligated, however, to make a market in the bonds and any
such market making may be discontinued at any time at the sole discretion of the
underwriters. Accordingly, no assurance can be given as to the liquidity of, or
trading markets for, the bonds.
El Conquistador will agree to indemnify the underwriters and AFICA against
certain civil liabilities, including liabilities under the Securities Act of
1933. IN THE OPINION OF THE SEC, INDEMNIFICATION FOR LIABILITIES ARISING UNDER
THE SECURITIES ACT OF 1933 IS AGAINST PUBLIC POLICY AND THEREFORE UNENFORCEABLE.
The underwriters have in the past and may from time to time in the future
provide underwriting and other investment banking services to El Conquistador.
Citicorp Real Estate, Inc., an affiliate of Citicorp Financial Services
Corporation, is the lender under the interim loan made to El Conquistador on
August 3, 1998 and, in such capacity, received customary fees for such services.
LEGAL MATTERS
Legal matters incident to the authorization, issuance and sale of the bonds
are subject to the unqualified approving opinion of Fiddler Gonzalez &
Rodriguez, LLP, San Juan, Puerto Rico, bond counsel. Certain legal matters will
be passed upon for El Conquistador by Shack & Siegel, P.C., New York, New York
and by McConnell Valdes, San Juan, Puerto Rico, and for the underwriters by
Pietrantoni Mendez & Alvarez LLP, San Juan, Puerto Rico.
CONTINUING DISCLOSURE COVENANT
El Conquistador will enter into a continuing disclosure agreement with the
trustee wherein El Conquistador will covenant for the benefit of the holders and
the beneficial owners of the bonds to file within 120 days after the end of each
fiscal year beginning after their fiscal year 1999, with each nationally
recognized municipal securities information repository and with any Puerto Rico
state information depository financial information and operating data for such
fiscal year. Such disclosure will include (1) audited financial statements,
prepared in accordance with generally accepted accounting principles in effect
from time to time, and (2) operating data and revenues, expenditures, financial
operations and indebtedness generally found in this official statement and
prospectus, such as Selected Financial Data and, Results of Operations and
Financial Condition as provided in Management's Discussion and Analysis of
Financial Condition and Results of Operations.
El Conquistador will covenant also to file in a timely manner, with each
nationally recognized municipal securities information repository or with the
Municipal Securities Rulemaking Board, and with any Puerto Rico state
information depository, notice of any of the following events with respect to
the bonds, if material:
<TABLE>
<C> <S>
(1) principal and interest payment delinquencies;
(2) non-payment related defaults;
(3) unscheduled draws on debt service reserves reflecting financial difficulties;
</TABLE>
81
<PAGE>
<PAGE>
<TABLE>
<C> <S>
(4) substitution of credit or liquidity providers, or their failure to perform;
(5) adverse tax opinions or events affecting the tax-exempt status of the bonds, including the occurrence
of an Event of Taxability;
(6) modifications to rights of bondholders;
(7) bond calls;
(8) defeasances;
(9) release, substitution, or sale of property securing repayment of the bonds; and
(10) rating changes.
</TABLE>
These covenants have been made in order to assist the underwriters in
complying with paragraph (b)(5) of Rule 15c2-12 promulgated under the Securities
Exchange Act of 1934.
El Conquistador does not undertake to provide the above-described event
notice of a scheduled redemption, not otherwise contingent upon the occurrence
of an event, if the terms, dates and amounts of redemption are set forth in
detail in this official statement and prospectus under 'THE
BONDS -- Redemption.'
El Conquistador expects to provide the financial information and operating
data described above by delivering its audited financial statements prepared in
accordance with generally accepted accounting principles for the applicable
fiscal year and a supplemental report containing other information such as
Selected Financial Data and, Results of Operations and Financial Condition as
provided in Management's Discussion and Analysis of Financial Condition and
Results of Operations to the extent necessary to provide the financial
information and operating data described above by such deadline.
As of the date of this official statement and prospectus, there was no
Puerto Rico state information depository, and the nationally recognized
municipal securities information repositories are: Bloomberg Municipal
Repository, P.O. Box 840, Princeton, New Jersey 08542-0840; Kenny Information
Systems, Inc., Attn: Kenny Repository Service, 65 Broadway, New York, New York
10006; Thompson NRMSIR, 395 Hudson Street, New York, New York 10004, Attn:
Municipal Disclosure; and DPC Data Inc., One Executive Drive, Fort Lee, New
Jersey 07024.
El Conquistador may from time to time choose to provide notice of the
occurrence of certain other events in addition to those listed above if, in the
judgment of El Conquistador, such other events are material with respect to the
bonds, but El Conquistador does not undertake to provide any such notice of the
occurrence of any material event except those events listed above.
No bondholder may institute any suit, action or proceeding at law or in
equity for the enforcement of the foregoing covenants or for any remedy for
breach thereof, unless such bondholder shall have filed with El Conquistador
written notice of any request to cure such breach, and El Conquistador shall
have refused to comply within a reasonable time. All actions, suits or
proceedings shall be instituted only as specified in the continuing disclosure
agreement in any federal or Puerto Rico court located in the Municipality of San
Juan, and for the equal benefit of all bondholders of the outstanding bonds
benefitted by the same or a substantially similar covenant, and no remedy shall
be sought or granted other than specific performance by El Conquistador of the
covenant at issue. Notwithstanding the foregoing, no challenge to the adequacy
of the information provided in accordance with the filings mentioned above may
be prosecuted by any bondholder except in compliance with the remedial and
enforcement provisions contained in the trust agreement.
The above covenants may only be amended or waived if:
(A) the amendment or waiver is made in connection with a change in
circumstances that arises from a change in legal requirements, change in
law, or change in the identity, nature or status of El Conquistador; the
covenants, as amended, or the provision as waived, would have complied with
the requirements of Rule 15c2-12 promulgated under the Securities Exchange
Act of 1934 at the time of issuance of the bonds, after taking into account
any amendments or change in circumstance as evidenced by the receipt of an
opinion of counsel experienced in federal securities laws acceptable to the
trustee and El Conquistador; and the amendment or waiver does not
materially impair the interests of the bondholders, as determined by the
82
<PAGE>
<PAGE>
trustee or by counsel experienced in federal securities laws acceptable to
the trustee and El Conquistador; and
(B) the annual financial information containing, if applicable, the
amended operating data or financial information will explain, in narrative
form, the reasons for the amendment or waiver and the impact of the change
in the type of operating data or financial information being provided.
REPORTS OF EL CONQUISTADOR PARTNERSHIP
As a result of this offering, El Conquistador will be required to file all
reports with the SEC required by Sections 13 and 15(d) of the Securities
Exchange Act of 1934 from the date hereof at least through the end of the
reporting period for the fiscal year ending December 31, 1999. After such time,
El Conquistador does not intend to file annual or quarterly financial
information with the SEC. However, El Conquistador will file its audited annual
financial statements with each nationally recognized municipal securities
information repository and state information depository as required by Rule
15c2-12 promulgated under the Securities Exchange Act as well as provide certain
notices to such entities as well as the Municipal Securities Rulemaking Board
pursuant to such rule. Such financial statements will also be available from El
Conquistador upon written request, but will not be sent to bondholders without
such request. Requests for any of the aforementioned reports should be addressed
to El Conquistador Partnership L.P., S.E., c/o El Conquistador Resort & Country
Club, 1000 El Conquistador Avenue, Fajardo, Puerto Rico, 00738, Attention: Chief
Financial Officer.
EXPERTS
The (1) Balance Sheet of El Conquistador as of December 31, 1998 and
December 31, 1997, and the related statements of operations and deficiency in
partners' capital, and cash flows for the period March 1, 1998 through December
31, 1998 (successor partnership) and for the period January 1, 1998 through
February 28, 1998, the nine month period ended December 31, 1997 and the year
ended March 31, 1997 (predecessor partnership), (2) Consolidated Balance Sheet
of WKA El Con as of December 31, 1998, and (3) Consolidated Balance Sheet of WHG
El Con Corp. as of December 31, 1998 appearing in this official statement and
prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon, which contain an
explanatory paragraph describing conditions that raise substantial doubt about
each of El Conquistador's, WKA El Con's and WHG El Con Corp.'s ability to
continue as a going concern as described in: (A) the seventh paragraph of Note 9
to the audited Financial Statements of El Conquistador, (B) the fifth paragraph
of Note 8 to the audited Consolidated Balance Sheet of WKA El Con, and (C) the
fifth paragraph of Note 8 to the audited Consolidated Balance Sheet of WHG El
Con Corp., appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The Balance Sheet of Conquistador Holding, Inc. as of December 31, 1998
appearing in this official statement and prospectus and registration statement
has been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon, which contains an explanatory paragraph describing
conditions that raise substantial doubt about Conquistador Holding, Inc.'s
ability to continue as a going-concern as described in Note 3 to the
Conquistador Holding, Inc. Balance Sheet, appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
GLOSSARY
AFICA means the Puerto Rico Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Authority, a governmental
instrumentality of Puerto Rico.
An Event of Taxability will occur when AFICA and the trustee with respect
to the bonds receive a report from El Conquistador's accountants stating that El
Conquistador failed to comply with the source of income covenants under the loan
agreement and as a result of such failure interest on the bonds is taxable to
you.
83
<PAGE>
<PAGE>
Hotel Operator means collectively, Williams Hospitality Group Inc., Wyndham
Management Corporation and Grand Bay Management Company.
Qualifying Bondholder means a beneficial owner of the bonds that is (1) an
individual who during the entire taxable year in which he receives or accrues
interest on the bonds that due to the occurrence of an Event of Taxability is
not income from within Puerto Rico under the U.S. Internal Revenue Code of 1986,
as amended, was a bona fide resident of Puerto Rico or (2) a Puerto Rico
corporation or other foreign corporation, for purposes of the Internal Revenue
Code, that is not engaged in trade or business in the United States.
MISCELLANEOUS
Appended as Appendix A and constituting part of this official statement and
prospectus is the proposed form of opinion of Fiddler Gonzalez & Rodriguez, LLP,
bond counsel.
The execution and delivery of this official statement and prospectus have
been duly authorized by AFICA, and this official statement and prospectus has
been approved by El Conquistador.
This official statement and prospectus will be filed with each nationally
recognized municipal securities information repository and with the Municipal
Securities Rulemaking Board.
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL,
MEDICAL AND ENVIRONMENTAL CONTROL
FACILITIES FINANCING AUTHORITY
By: /s/
.............................................
ASSISTANT EXECUTIVE DIRECTOR
84
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
EL CONQUISTADOR PARTNERSHIP L.P.
<S> <C>
Pro Forma Condensed Financial Statements (Unaudited)
Introduction.......................................................................................... F-2
Pro Forma Condensed Balance Sheet as of March 31, 1999................................................ F-3
Pro Forma Condensed Statement of Operations for the Three Months Ended
March 31, 1999...................................................................................... F-5
Pro Forma Condensed Balance Sheet as of December 31, 1998............................................. F-6
Pro Forma Condensed Statement of Operations for the Twelve Months Ended December 31, 1998............. F-8
Audited Financial Statements
Report of Independent Auditors........................................................................ F-10
Balance Sheets as of March 31, 1999 and 1998 and December 31, 1998 and 1997........................... F-11
Statements of Operations for the Three Months Ended March 31, 1999, for the
Period of March 1, 1998 to March 31, 1998 (successor partnership) and for the Period of January 1,
1998 to February 28, 1998 (predecessor partnership), and for the Period of March 1, 1998 to December
31, 1998 (successor partnership), for the Period of January 1, 1998 to February 28, 1998, and for the
Fiscal Years Ended December 31, 1997 (9 Months) and March 31, 1997 (predecessor partnership)......... F-12
Statements of Partners' Capital (Deficiency) at April 1, 1996, March 31, 1997, December 31, 1997,
February 28, 1998, December 31, 1998 and March 31, 1999 and 1998..................................... F-13
Statements of Cash Flows for the Three Months Ended March 31, 1999, for the
Period of March 1, 1998 to March 31, 1998 (successor partnership) and for the Period of January 1,
1998 to February 28, 1998 (predecessor partnership), and for the Period of March 1, 1998 to December
31, 1998 (successor partnership), for the Period of January 1, 1998 to February 28, 1998, and for the
Fiscal Years Ended December 31, 1997 (9 Months) and March 31, 1997 (predecessor partnership)......... F-14
Notes to Financial Statements......................................................................... F-15
WKA EL CON ASSOCIATES
Consolidated Balance Sheet (Unaudited)
Consolidated Balance Sheet as of March 31, 1999....................................................... F-25
Notes to Consolidated Balance Sheet................................................................... F-26
Audited Consolidated Balance Sheet
Report of Independent Auditors........................................................................ F-31
Consolidated Balance Sheet as of December 31, 1998.................................................... F-32
Notes to Consolidated Balance Sheet................................................................... F-33
WHG EL CON CORP.
Consolidated Balance Sheet (Unaudited)
Consolidated Balance Sheet as of March 31, 1999....................................................... F-39
Notes to Consolidated Balance Sheet................................................................... F-40
Audited Consolidated Balance Sheet
Report of Independent Auditors........................................................................ F-45
Consolidated Balance Sheet as of December 31, 1998.................................................... F-46
Notes to Consolidated Balance Sheet................................................................... F-47
CONQUISTADOR HOLDING, INC.
Balance Sheet (Unaudited)
Balance Sheet as of March 31, 1999.................................................................... F-52
Notes to Balance Sheet................................................................................ F-53
Audited Balance Sheet
Report of Independent Auditors........................................................................ F-55
Balance Sheet as of December 31, 1998................................................................. F-56
Notes to Balance Sheet................................................................................ F-57
</TABLE>
F-1
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma condensed financial statements of El
Conquistador Partnership L.P. (the 'Partnership') reflect the following
transactions: (i) the offering and related transactions, including repayment of
the interim loan with Citicorp Real Estate; (ii) reduction in base management
fees and elimination of additional incentive management fees pursuant to the
amended and restated management agreement; (iii) the repayment of the
Partnership's $25,000,000 indebtedness to the Government Development Bank with
$10,000,000 cash from operations and the proceeds of a $15,000,000 capital
contribution to be made to the Partnership; and (iv) the acquisition of the
Partnership by Patriot/Wyndham. The pro forma condensed balance sheets as of
March 31, 1999 and December 31, 1998, show the effects of these transactions as
if they had occurred at the date of the balance sheets. The unaudited pro forma
condensed statement of operations for the three months ended March 31, 1999 and
the twelve months ended December 31, 1998 show the effects of these transactions
as if they had occurred January 1, 1999 and 1998, respectively.
The pro forma condensed financial statements were prepared by the
management of the Partnership. These pro forma condensed financial statements
may not be indicative of the results that actually would have occurred if the
transactions had been effected on the dates indicated or which may be obtained
in the future. The pro forma condensed financial statements should be read in
conjunction with the financial statements and notes thereto of the Partnership
included elsewhere in this official statement and prospectus.
F-2
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
PRO FORMA CONDENSED BALANCE SHEET
AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS(1) PRO FORMA(2)
------------ -------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 6,159,331 $ 2,453,874 $ 8,613,205
Restricted cash and investments held by bank............ 12,312,974 (3,212,974) 9,100,000
Trade accounts receivable, net of allowance for doubtful
accounts.............................................. 9,220,019 9,220,019
Due from affiliated companies........................... 27,027 27,027
Inventories............................................. 1,515,521 1,515,521
Prepaid expenses and others current assets.............. 5,629,996 5,629,996
------------ -------------- ------------
Total current assets............................... 34,864,868 (759,100) 34,105,768
Land, building and equipment:
Land.................................................... 20,255,500 20,255,500
Building................................................ 190,607,449 190,607,449
Furniture, fixture and equipment........................ 21,951,363 21,951,363
Construction in progress................................ 5,011,738 5,011,738
------------ -------------- ------------
237,826,050 237,826,050
Less accumulated depreciation........................... 8,386,013 8,386,013
------------ -------------- ------------
229,440,037 229,440,037
Operating equipment, net..................................... 1,538,227 1,538,227
Deferred debt issuance costs, net............................ -- 5,000,000 5,000,000
Goodwill, net................................................ 3,231,357 3,231,357
------------ -------------- ------------
Total assets............................................ $269,074,489 $ 4,240,900 $273,315,389
------------ -------------- ------------
------------ -------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Trade accounts payable.................................. $ 9,663,910 $ 9,663,910
Advance deposits........................................ 5,936,034 5,936,034
Accrued interest........................................ 959,100 $ (959,100) --
Other accrued liabilities............................... 4,333,032 4,333,032
Due to affiliated companies............................. 35,058,207 35,058,207
Note payable............................................ 90,000,000 (90,000,000) --
------------ -------------- ------------
Total current liabilities.......................... 145,950,283 (90,959,100) 54,991,183
Long-term debt............................................... 25,000,000 80,200,000 105,200,000
Due to affiliated companies.................................. 19,794,783 19,794,783
Due to partners.............................................. 15,739,625 15,739,625
Partners' capital:
Limited partners........................................ 43,812,858 10,500,000 54,312,858
General partners........................................ 18,776,940 4,500,000 23,276,940
------------ -------------- ------------
Total partners' capital............................ 62,589,798 15,000,000 77,589,798
------------ -------------- ------------
Total liabilities and partners' capital............ $269,074,489 $ 4,240,900 $273,315,389
------------ -------------- ------------
------------ -------------- ------------
</TABLE>
- ------------
(1)
<TABLE>
<CAPTION>
DEFERRED
DEBT
RESTRICTED ISSUANCE ACCRUED NOTE LONG-TERM PARTNERS
CASH CASH COSTS INTEREST PAYABLE DEBT CAPITAL
------------ ------------ ---------- -------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) $ 12,312,974 $(12,312,974)
(b) (959,100) $959,100
(c) 1,100,000 9,100,000 $5,000,000 $90,000,000 $(105,200,000)
(d) (10,000,000) 25,000,000 $(15,000,000)
------------ ------------ ---------- -------- ----------- ------------- ------------
$ 2,453,874 $ (3,212,974) $5,000,000 $959,100 $90,000,000 $ (80,200,000) $(15,000,000)
------------ ------------ ---------- -------- ----------- ------------- ------------
------------ ------------ ---------- -------- ----------- ------------- ------------
</TABLE>
(footnotes continued on next page)
F-3
<PAGE>
<PAGE>
(footnotes continued from previous page)
<TABLE>
<S> <C>
Represents receipts of restricted cash associated with the interim loan with Citicorp Real Estate for
(a) interest reserves.
(b) Represents the payment of accrued interest associated with the interim loan.
(c) Represents the gross proceeds from the offering and the application of those proceeds.
Repay interim loan $ 90,000,000
Reimbursement for interest paid on
interim loan........................ 1,100,000
Restricted cash required by offering 9,100,000
Payment of deferred financing costs 5,000,000
------------
$105,200,000
------------
------------
(d) Represents the reduction in long-term debt of $25,000,000 related to the Government Development Bank
debt which will be repaid by the Partnership with $10,000,000 cash from operations and the proceeds of
a $15,000,000 capital contribution by Conquistador Holding, Inc. The repayment of such debt and the
capital contribution are subject to and conditions to completion of the offering.
(2) Assumes that the offering and related transactions, including repayment of the interim loan, were
completed as of the balance sheet date.
</TABLE>
F-4
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS(1) PRO FORMA(2)
----------- -------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues:
Rooms......................................................... $18,662,797 $ 18,662,797
Food and beverage............................................. 11,571,974 11,571,974
Casino........................................................ 1,646,479 1,646,479
Other income.................................................. 7,644,349 7,644,349
----------- ------------
39,525,599 39,525,599
Less casino promotional allowances............................ 217,941 217,941
----------- ------------
Net revenues....................................................... 39,307,658 39,307,658
Costs and expenses:
Rooms......................................................... 4,183,830 4,183,830
Food and beverage............................................. 6,710,424 6,710,424
Casino........................................................ 891,372 891,372
Selling, general and administrative........................... 4,347,061 4,347,061
Management and incentive management fees...................... 1,158,001 1,158,001
Property operation, maintenance and energy costs.............. 2,348,650 2,348,650
Depreciation and amortization................................. 2,959,456 $ (220,955) 2,738,501
Other expenses................................................ 2,853,689 2,853,689
----------- -------------- ------------
25,452,483 (220,955) 25,231,528
----------- -------------- ------------
Income from operations............................................. 13,855,175 220,955 14,076,130
Interest income.................................................... 90,744 90,744
Interest expense................................................... (3,119,157) 437,509 (2,681,648)
----------- -------------- ------------
Net income............................................... $10,826,762 $ 658,464 $ 11,485,226
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
- ------------
(1)
<TABLE>
<CAPTION>
DEPRECIATION
AND INTEREST NET
AMORTIZATION EXPENSE INCOME
------------ ----------- -----------
<S> <C> <C> <C>
(a)...................................................... $ (262,622) $ 262,622
(b)...................................................... 41,667 (41,667)
(c)...................................................... $(2,072,184) 2,072,184
(d)...................................................... 1,634,675 (1,634,675)
------------ ----------- -----------
$ (220,955) $ (437,509) $ 658,464
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
(a) Represents the elimination of the deferred loan cost amortization associated
with the interim loan with Citicorp Real Estate.
(b) Represents the amortization of the deferred loan costs associated with the
offering estimated at approximately $5.0 million. The costs are amortized on
a straight-line basis over the 30-year term of the bonds at a rate of
$41,667 for the fiscal quarter beginning January 1, 1999 through March 31,
1999.
(c) Represents the elimination of the interest associated with the 1991 AFICA
bonds, the interim loan with Citicorp Real Estate and the $25,000,000 loan
from the Government Development Bank.
(d) Represents the interest on the bonds at an assumed rate of 6.215% per annum.
(2) Assumes that the offering and related transactions, including repayment of
the interim loan with Citicorp Real Estate, were completed on January 1,
1999.
F-5
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
PRO FORMA CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS(1) PRO FORMA(2)
------------ -------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 1,557,728 $ 789,231 $ 2,346,959
Restricted cash and investments held by bank............ 10,289,856 (1,189,856) 9,100,000
Trade accounts receivable, net of allowance for doubtful
accounts.............................................. 7,407,983 7,407,983
Due from affiliated companies........................... 423,683 423,683
Inventories............................................. 1,461,757 1,461,757
Prepaid expenses and others current assets.............. 5,910,962 5,910,962
------------ -------------- ------------
Total current assets............................... 27,051,969 (400,625) 26,651,344
Land, building and equipment:
Land.................................................... 20,255,500 20,255,500
Building................................................ 190,607,449 190,607,449
Furniture, fixture and equipment........................ 21,631,402 21,631,402
Construction in progress................................ 3,639,122 3,639,122
------------ -------------- ------------
236,133,473 236,133,473
Less accumulated depreciation........................... 6,274,591 6,274,591
------------ -------------- ------------
229,858,882 229,858,882
Other assets................................................. 335,750 335,750
Operating equipment, net..................................... 1,538,227 1,538,227
Deferred debt issuance costs, net............................ 262,622 4,737,378 5,000,000
Goodwill, net................................................ 3,320,290 3,320,290
------------ -------------- ------------
Total assets............................................ $262,367,740 $ 4,336,753 $266,704,493
------------ -------------- ------------
------------ -------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Trade accounts payable.................................. $ 8,764,237 $ $ 8,764,237
Advance deposits........................................ 9,463,505 9,463,505
Accrued interest........................................ 600,625 (600,625) 0
Other accrued liabilities............................... 5,695,417 5,695,417
Due to affiliated companies............................. 34,045,596 34,045,596
Note payable............................................ 90,000,000 (90,000,000) 0
------------ -------------- ------------
Total current liabilities.......................... 148,569,380 (90,600,625) 57,968,755
Long-term debt............................................... 25,000,000 80,200,000 105,200,000
Due to affiliated companies.................................. 21,442,761 21,442,761
Due to partners.............................................. 15,592,563 15,592,563
Partners' capital:
Limited partners........................................ 36,234,125 10,316,165 46,550,290
General partners........................................ 15,528,911 4,421,213 19,950,124
------------ -------------- ------------
Total partners' capital............................ 51,763,036 14,737,378 66,500,414
------------ -------------- ------------
Total liabilities and partners' capital............ $262,367,740 $ 4,336,753 $266,704,493
------------ -------------- ------------
------------ -------------- ------------
</TABLE>
- ------------
(1)
<TABLE>
<CAPTION>
DEFERRED
DEBT
RESTRICTED ISSUANCE ACCRUED NOTE LONG-TERM PARTNERS
CASH CASH COSTS INTEREST PAYABLE DEBT CAPITAL
------------ ------------ ---------- -------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(a) $ 10,289,856 $(10,289,856)
(b) (600,625) $600,625
(c) $ (262,622) $ 262,622
(d) 1,100,000 9,100,000 5,000,000 $90,000,000 $(105,200,000)
(e) (10,000,000) 25,000,000 (15,000,000)
------------ ------------ ---------- -------- ----------- ------------- ------------
$ 789,231 $ (1,189,856) $4,737,378 $600,625 $90,000,000 $ (80,200,000) $(14,737,378)
------------ ------------ ---------- -------- ----------- ------------- ------------
------------ ------------ ---------- -------- ----------- ------------- ------------
</TABLE>
(footnotes continued on next page)
F-6
<PAGE>
<PAGE>
(footnotes continued from previous page)
<TABLE>
<S> <C> <C> <C> <C>
Represents receipts of restricted cash associated with the interim loan with Citicorp Real Estate for
(a) interest reserves.
(b) Represents the payment of accrued interest associated with the interim loan.
(c) Represents the write-off of deferred financing costs associated with the interim loan.
(d) Represents the gross proceeds from the offering and the application of those proceeds.
Repay interim loan $ 90,000,000
Reimbursement for interest paid on
interim loan........................ 1,100,000
Restricted cash required by offering 9,100,000
Payment of deferred financing costs 5,000,000
------------
$105,200,000
------------
------------
(e) Represents the reduction in long term debt of $25,000,000 related to the Government Development Bank
debt which will be repaid by the Partnership with $10,000,000 cash from operations and the proceeds of
a $15,000,000 capital contribution by Conquistador Holding, Inc. The repayment of such debt and the
capital contribution are subject to and conditions to completion of the offering.
(2) Assumes that the offering and related transactions, including repayment of the interim loan, were
completed as of the balance sheet date.
</TABLE>
F-7
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PREDECESSOR
SUCCESSOR PARTNERSHIP
PARTNERSHIP JANUARY 1
MARCH 1 TO TO
DECEMBER 31, FEBRUARY 28,
1998 1998 ADJUSTMENTS(1) PRO FORMA(2)
------------- ------------- -------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Rooms................................... $ 31,535,091 $ 10,755,530 $ 42,290,621
Food and beverage....................... 22,370,192 6,475,176 28,845,368
Casino.................................. 4,126,490 931,502 5,057,992
Other income............................ 19,490,397 6,749,398 26,239,795
------------- ------------- -------------
77,522,170 24,911,606 102,433,776
Less casino promotional allowances...... 619,783 158,420 778,203
------------- ------------- -------------
Net revenues................................. 76,902,387 24,753,186 101,655,573
Costs and expenses:
Rooms................................... 11,511,757 3,108,760 14,620,517
Food and beverage....................... 14,572,791 3,523,059 18,095,850
Casino.................................. 2,398,225 740,044 3,138,269
Selling, general and administrative..... 12,446,893 2,633,989 15,080,882
Management and incentive management
fees.................................. 4,637,544 1,944,369 $ (3,626,114) 2,955,799
Property operation, maintenance and
energy costs.......................... 8,046,657 2,039,404 10,086,061
Depreciation and amortization........... 7,590,338 1,555,516 (819,703) 8,326,151
Other expenses.......................... 7,932,578 1,837,481 9,770,059
------------- ------------- -------------- -------------
69,136,783 17,382,622 (4,445,817) 82,073,588
------------- ------------- -------------- -------------
Income from operations....................... 7,765,604 7,370,564 4,445,817 19,581,985
Interest income.............................. 201,502 43,300 244,802
Interest expense............................. (12,341,454) (3,300,966) 4,442,539 (11,199,881)
------------- ------------- -------------- -------------
Income (loss) before extraordinary item...... $ (4,374,348) $ 4,112,898 $ 8,888,356 $ 8,626,906
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
</TABLE>
- ------------
(1)
<TABLE>
<CAPTION>
MANAGEMENT INCOME (LOSS)
FEE AND DEPRECIATION BEFORE
INCENTIVE AND INTEREST EXTRAORDINARY
FEE AMORTIZATION EXPENSE ITEM
----------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
(a).................................... $(6,581,913) $ 6,581,913
(b).................................... 2,744,346 (2,744,346)
211,453 (211,453)
(c).................................... $ (570,507) 570,507
(437,702) 437,702
(37,450) 37,450
59,289 (59,289)
(d).................................... 166,667 (166,667)
(e).................................... $ (10,981,239) 10,981,239
(f).................................... 6,538,700 (6,538,700)
----------- ------------ ------------- --------------
$(3,626,114) $ (819,703) $ (4,442,539) $ 8,888,356
----------- ------------ ------------- --------------
----------- ------------ ------------- --------------
</TABLE>
(footnotes continued on next page)
F-8
<PAGE>
<PAGE>
(footnotes continued from previous page)
(a) Represents the elimination in historical base management fees of 3.5%
($3,585,182) and incentive management fees of 10% ($2,996,731) which were
accrued based on the resort's gross revenues and gross operating profit,
respectively, and interest thereon.
(b) Represents the base management fees of 2.5% of gross revenues of the resort
and the implementation of a trade name fee of 0.5% of gross room revenues of
the resort. No adjustment has been made with respect to the new marketing
fee of 1.5% of gross room revenues of the resort and 1.0% of gross room
revenues of Las Casitas Village payable to Williams Hospitality pursuant to
the management agreement. The Partnership had previously incurred marketing
expenses internally at approximately the same costs. As the marketing
function will now be outsourced to its affiliate, the Partnership believes
that the resort's total historical marketing expenses will be substantially
the same on a pro forma basis.
<TABLE>
<S> <C>
Base management fee............................................................... $2,744,346
Trade name fee.................................................................... 211,453
----------
$2,955,799
----------
----------
</TABLE>
(c) Represents the elimination of the deferred loan cost amortization associated
with the 1991 AFICA bonds and the interim loan with Citicorp Real Estate.
The 1991 AFICA bonds were repaid with the net proceeds from the interim loan
with Citicorp Real Estate on August 3, 1998. Also represents the reduction
in depreciation of $37,450 and the increase in the amortization of goodwill
of $59,289 due to the acquisition of the Partnership by Patriot/Wyndham.
(d) Represents the amortization of the deferred loan costs associated with the
offering estimated at approximately $5.0 million. The costs are amortized on
a straight-line basis over the 30-year term of the bonds at a rate of
$166,667 for the fiscal year beginning January 1, 1998 through December 31,
1998.
(e) Represents the elimination of the interest associated with the 1991 AFICA
bonds, the interim loan with Citicorp Real Estate and the $25,000,000 loan
from the Government Development Bank.
(f) Represents the interest on the bonds at an assumed rate of 6.215% per annum.
(2) Assumes that the offering and related transactions, including repayment of
the interim loan with Citicorp Real Estate, were completed on January 1,
1998. Also, assumes that the acquisition of the Partnership by
Patriot/Wyndham and the management agreement became effective as of January
1, 1998.
F-9
<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 December 31, 1998 and 1997, and the related statements of
operations, partners' capital, and cash flows for the period March 1, 1998
through December 31, 1998 (successor partnership) and for the period January 1,
1998 through February 28, 1998, the nine month period ended December 31, 1997,
and the year ended March 31, 1997 (predecessor partnership). 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 December 31, 1998 and 1997, and the results of its operations and its
cash flows for the period March 1, 1998 through December 31, 1998 (successor
partnership) and for the period January 1, 1998 through February 28, 1998, the
nine month period ended December 31, 1997, and the year ended March 31, 1997
(predecessor partnership), in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that El
Conquistador Partnership L.P. will continue as a going-concern. As more fully
described in Note 9, El Conquistador Partnership L.P. is engaged in the process
of refinancing the balance due to Citicorp Real Estate, Inc. of $90,000,000,
which is required to be repaid on June 30, 1999, through a new bond to be issued
by the Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Financing Authority (see Note 18). If such refinancing is not
obtained, it raises substantial doubt about the Partnership's ability to
continue as a going-concern. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classifications of assets or the amounts and classifications of liabilities that
may result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
San Juan, Puerto Rico
February 5, 1999, except for
the second paragraph of
Note 18 as to which
the date is March 31, 1999
F-10
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
Interim Financial
Information
---------------------------
December 31, March 31,
--------------------------- ---------------------------
1998 1997 1999 1998
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 1,557,728 $ 1,128,177 $ 6,159,331 $ 1,656,287
Restricted cash and investments held by bank............ 10,289,856 3,480,539 12,312,974 3,371,340
Trade accounts receivable, less allowance for doubtful
accounts of $146,482 and $346,436 in December 31, 1998
and 1997, respectively, and $203,230 and $188,623 in
March 31, 1999 and 1998, respectively................. 7,407,983 5,851,394 9,220,019 6,592,812
Due from affiliated companies........................... 423,683 96,365 27,027 91,215
Inventories............................................. 1,461,757 1,673,266 1,515,521 1,850,677
Prepaid expenses and other current assets............... 5,910,962 1,723,603 5,629,996 2,096,486
------------ ------------ ------------ ------------
Total current assets............................... 27,051,969 13,953,344 34,864,868 15,658,817
Due from affiliated company.................................. -- 71,429 -- 67,857
Land, building and equipment:
Land.................................................... 20,255,500 14,372,707 20,255,500 20,255,500
Building................................................ 190,607,449 158,039,190 190,607,449 191,758,790
Furniture, fixtures and equipment....................... 21,631,402 34,658,913 21,951,363 18,126,259
Construction in progress................................ 3,639,122 -- 5,011,738 --
------------ ------------ ------------ ------------
236,133,473 207,070,810 237,826,050 230,140,549
Less accumulated depreciation........................... 6,274,591 25,944,072 8,386,013 1,323,783
------------ ------------ ------------ ------------
229,858,882 181,126,738 229,440,037 228,816,766
Other assets................................................. 335,750 --
Operating equipment, net..................................... 1,538,227 1,488,342 1,538,227 1,660,185
Deferred debt issuance costs, net of accumulated amortization
of $437,702 and $6,443,252 in December 31, 1998 and 1997,
respectively, and $0 and $6,687,754 in March 31, 1999 and
1998, respectively......................................... 262,622 2,247,117 -- 2,002,615
Deferred pre-opening costs, net of accumulated amortization
of $11,844,985............................................. -- 1,534,694 -- --
Goodwill, net of accumulated amortization of $296,444 in
December 31, 1998 and $385,377 in March 31, 1999........... 3,320,290 -- 3,231,357 --
------------ ------------ ------------ ------------
Total assets....................................... $262,367,740 $200,421,664 $269,074,489 $248,206,240
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
Current liabilities:
Trade accounts payable.................................. $ 8,764,237 $ 6,035,380 $ 9,663,910 $ 5,498,774
Advance deposits........................................ 9,463,505 10,104,458 5,936,034 5,940,757
Accrued interest........................................ 600,625 1,597,476 959,100 705,845
Other accrued liabilities............................... 5,695,417 5,058,633 4,333,032 6,441,734
Due to affiliated companies............................. 34,045,596 972,686 35,058,207 801,949
Notes payable to bank................................... 90,000,000 6,000,000 90,000,000 2,000,000
Current portion of long-term debt....................... -- 120,000,000 -- 120,000,000
Current portion of chattel mortgages and
capital lease obligations............................. -- 1,893,063 -- 1,293,638
------------ ------------ ------------ ------------
Total current liabilities.......................... 148,569,380 151,661,696 145,950,283 142,682,697
Long-term debt............................................... 25,000,000 25,000,000 25,000,000 25,000,000
Due to affiliated companies.................................. 21,442,761 10,386,002 19,794,783 14,824,743
Due to partners.............................................. 15,592,563 41,344,551 15,739,625 15,080,971
Partners' capital (deficiency):
Limited partners........................................ 36,234,125 (23,774,997) 43,812,858 35,432,480
General partners........................................ 15,528,911 (4,195,588) 18,776,940 15,185,349
------------ ------------ ------------ ------------
Total partners' capital (deficiency)......................... 51,763,036 (27,970,585) 62,589,798 50,617,829
------------ ------------ ------------ ------------
Total liabilities and partners' capital
(deficiency)..................................... $262,367,740 $200,421,664 $269,074,489 $248,206,240
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes.
F-11
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SUCCESSOR
PARTNERSHIP PREDECESSOR PARTNERSHIP INTERIM FINANCIAL INFORMATION
------------ ----------------------------------------- -----------------------------
JANUARY 1
TO NINE MONTH THREE MONTH
MARCH 1 TO FEBRUARY PERIOD ENDED YEAR ENDED PERIOD ENDED MARCH 1 TO
DECEMBER 31, 28, DECEMBER 31, MARCH 31, MARCH 31, MARCH 31,
1998 1998 1997 1997 1999 1998
------------ ----------- ------------ ------------ ------------ -----------
UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rooms............................ $31,535,091 $10,755,530 $25,129,621 $ 40,023,903 $18,662,797 $ 5,469,312
Food and beverage................ 22,370,192 6,475,176 17,428,549 26,235,365 11,571,974 3,116,387
Casino........................... 4,126,490 931,502 3,553,713 6,005,242 1,646,479 446,370
Other income..................... 19,490,397 6,749,398 14,473,191 21,959,328 7,644,349 3,192,297
------------ ----------- ------------ ------------ ------------ -----------
77,522,170 24,911,606 60,585,074 94,223,838 39,525,599 12,224,366
Less casino promotional
allowances..................... 619,783 158,420 458,447 1,265,710 217,941 56,865
------------ ----------- ------------ ------------ ------------ -----------
Net revenues................. 76,902,387 24,753,186 60,126,627 92,958,128 39,307,658 12,167,501
Costs and expenses:
Rooms............................ 11,511,757 3,108,760 9,603,101 12,377,694 4,183,830 1,561,952
Food and beverage................ 14,572,791 3,523,059 12,314,635 17,602,484 6,710,424 1,732,896
Casino........................... 2,398,225 740,044 2,383,568 3,848,981 891,372 54,943
Selling, general and
administrative................. 12,446,893 2,633,989 11,996,536 14,657,312 4,347,061 1,468,712
Management and incentive
management fees................ 4,637,544 1,944,369 2,984,995 5,680,355 1,158,001 953,527
Property operation, maintenance
and energy costs............... 8,046,657 2,039,404 9,094,645 12,382,577 2,348,650 899,142
Depreciation and amortization.... 7,590,338 1,555,516 6,886,836 9,146,664 2,959,456 778,397
Other expenses................... 7,932,578 1,837,481 6,875,562 9,702,212 2,853,689 960,854
------------ ----------- ------------ ------------ ------------ -----------
69,136,783 17,382,622 62,139,878 85,398,279 25,452,483 8,410,423
Income (loss) from operations........ 7,765,604 7,370,564 (2,013,251 ) 7,559,849 13,855,175 3,757,078
Interest income...................... 201,502 43,300 127,840 199,110 90,744 1,129
Interest expense..................... (12,341,454 ) (3,300,966) (13,156,711 ) (17,162,132) (3,119,157 ) (1,259,868)
------------ ----------- ------------ ------------ ------------ -----------
Income (loss) before extraordinary
item............................... (4,374,348 ) 4,112,898 (15,042,122 ) (9,403,173) 10,826,762 2,498,339
Extraordinary item:
Loss from early extinguishment of
debt........................... (1,676,613 ) -- -- -- -- --
------------ ----------- ------------ ------------ ------------ -----------
Net income (loss).................... $(6,050,961 ) $ 4,112,898 $(15,042,122) $ (9,403,173) $10,826,762 $ 2,498,339
------------ ----------- ------------ ------------ ------------ -----------
------------ ----------- ------------ ------------ ------------ -----------
<CAPTION>
JANUARY 1 TO
FEBRUARY 28,
1998
------------
<S> <C>
Revenues:
Rooms............................ $ 10,755,530
Food and beverage................ 6,475,176
Casino........................... 931,502
Other income..................... 6,749,398
------------
24,911,606
Less casino promotional
allowances..................... 158,420
------------
Net revenues................. 24,753,186
Costs and expenses:
Rooms............................ 3,108,760
Food and beverage................ 3,523,059
Casino........................... 740,044
Selling, general and
administrative................. 2,633,989
Management and incentive
management fees................ 1,944,369
Property operation, maintenance
and energy costs............... 2,039,404
Depreciation and amortization.... 1,555,516
Other expenses................... 1,837,481
------------
17,382,622
Income (loss) from operations........ 7,370,564
Interest income...................... 43,300
Interest expense..................... (3,300,966)
------------
Income (loss) before extraordinary
item............................... 4,112,898
Extraordinary item:
Loss from early extinguishment of
debt........................... --
------------
Net income (loss).................... $ 4,112,898
------------
------------
</TABLE>
See accompanying notes.
F-12
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
STATEMENTS OF PARTNERS' CAPITAL (DEFICIENCY)
<TABLE>
<CAPTION>
Partners'
Limited General Capital
Partners Partners (Deficiency)
------------ ------------ ------------
<S> <C> <C> <C>
Balance at April 1, 1996......................................... $ (2,996,496) $ (528,794) $ (3,525,290)
Net loss......................................................... (7,992,697) (1,410,476) (9,403,173)
------------ ------------ ------------
Balance at March 31, 1997........................................ (10,989,193) (1,939,270) (12,928,463)
Net loss......................................................... (12,785,804) (2,256,318) (15,042,122)
------------ ------------ ------------
Balance at December 31, 1997..................................... (23,774,997) (4,195,588) (27,970,585)
Net income....................................................... 3,495,963 616,935 4,112,898
------------ ------------ ------------
Balance at February 28, 1998..................................... $(20,279,034) $ (3,578,653) $(23,857,687)
------------ ------------ ------------
------------ ------------ ------------
Partners' capital contribution................................... $ 60,748,832 $ 20,922,852 $ 81,671,684
Net loss......................................................... (4,235,673) (1,815,288) (6,050,961)
------------ ------------ ------------
Balance at December 31, 1998..................................... $ 36,234,125 $ 15,528,911 $ 51,763,036
------------ ------------ ------------
------------ ------------ ------------
Interim Financial Information
- -----------------------------
Partners' capital at December 31, 1998........................... $ 15,528,911 $ 36,234,125 $ 51,763,036
Net income....................................................... 3,248,029 7,578,733 10,826,762
------------ ------------ ------------
Partners' capital at March 31, 1999.............................. $ 18,776,939 $ 43,812,859 $ 62,589,798
------------ ------------ ------------
------------ ------------ ------------
Partners' capital at December 31, 1997........................... $ (4,195,588) $(23,774,997) $(27,970,585)
Net income....................................................... 616,935 3,495,963 4,112,898
Partners' capital at February 28, 1998........................... (3,578,653) (20,279,034) (23,857,687)
Net income....................................................... 374,751 2,123,588 2,498,339
Partners' capital contribution................................... 18,389,251 53,587,926 71,977,177
------------ ------------ ------------
Partners' capital at March 31, 1998.............................. $ 15,185,349 $ 35,432,480 $ 50,617,829
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
F-13
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SUCCESSOR
PARTNERSHIP PREDECESSOR PARTNERSHIP INTERIM FINANCIAL INFORMATION
------------ ----------------------------------------- -----------------------------
JANUARY 1
TO NINE MONTH THREE MONTH
MARCH 1 TO FEBRUARY PERIOD ENDED YEAR ENDED PERIOD ENDED MARCH 1 TO
DECEMBER 31, 28, DECEMBER 31, MARCH 31, MARCH 31, MARCH 31,
1998 1998 1997 1997 1999 1998
------------ ----------- ------------ ------------ ------------ -----------
UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...................... $(6,050,961 ) $ 4,112,898 $(15,042,122) $ (9,403,173) $10,826,762 $ 2,498,339
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization...... 7,590,338 1,555,516 6,886,836 9,146,664 2,959,456 762,985
Provision for losses on accounts
receivable....................... 87,265 24,567 119,000 205,400 56,748 (65,697)
Loss on early extinguishment of
debt............................. 1,676,613 -- -- -- -- --
Incentive management fees.......... 1,913,172 1,072,463 860,043 2,375,526 -- 524,120
Deferred interest expense to
partners and affiliates.......... 1,695,577 311,571 2,417,475 3,100,085 1,015,630 407,718
Changes in operating assets and
liabilities:
Restricted cash and investments
held by bank................. (8,442,751 ) 1,633,434 (119,932 ) (481,252) (2,023,118 ) (1,524,235)
Trade accounts receivable...... (2,109,375 ) 440,954 (1,205,787 ) 332,877 (1,868,784 ) (1,141,242)
Affiliated companies, net...... 5,290,512 125,779 690,646 99,017 (1,107,279 ) (700,398)
Inventories.................... 330,714 (119,205) (10,389 ) (140,414) (53,764 ) (58,206)
Prepaid expenses and other
current assets............... (4,734,643 ) 211,533 (702,887 ) (74,811) 120,237 (89,710)
Trade accounts payable and
advance deposits............. 6,923,880 (4,835,976) 5,093,025 (179,123) (2,627,798 ) 137,015
Accrued interest and other
accrued liabilities.......... 473,454 221,161 (400,913 ) 873,753 (1,003,910 ) 270,309
------------ ----------- ------------ ------------ ------------ -----------
Net cash provided by (used in)
operating activities................. 4,643,795 4,754,695 (1,415,005 ) 5,854,549 6,294,180 1,020,998
INVESTING ACTIVITIES
Purchases of property and equipment.... (7,062,192 ) (272,876) (1,994,117 ) (1,305,594) (1,692,577 ) (203,439)
Net (purchases) usage of operating
equipment............................ -- (49,885) 103,877 (122,869) -- (121,958)
------------ ----------- ------------ ------------ ------------ -----------
Net cash used in investing
activities........................... (7,062,192 ) (322,761) (1,890,240 ) (1,428,463) (1,692,577 ) (325,397)
FINANCING ACTIVITIES
Payments of principal on long-term
debt................................. (121,505,134) (387,929) (2,446,796 ) (2,429,492) -- (211,496)
Proceeds from notes payable to bank.... 90,000,000 -- 4,500,000 9,500,000 -- --
Payments of principal on notes payable
to bank.............................. (4,000,000 ) (2,000,000) -- (10,773,359) -- (2,000,000)
Proceeds from partners' and affiliated
loans, and capital contributions..... 37,009,401 -- -- 800,000 -- --
Payment of loan extension costs........ (700,324 ) -- -- -- -- --
------------ ----------- ------------ ------------ ------------ -----------
Net cash provided by (used in)
financing activities................. 803,943 (2,387,929) 2,053,204 (2,902,851) -- (2,211,496)
------------ ----------- ------------ ------------ ------------ -----------
Net (decrease) increase in cash........ (1,614,454 ) 2,044,005 (1,252,041 ) 1,523,235 4,601,603 (1,515,895)
Cash at beginning of period............ 3,172,182 1,128,177 2,380,218 856,983 1,557,728 3,172,182
------------ ----------- ------------ ------------ ------------ -----------
Cash at end of period.................. $ 1,557,728 $ 3,172,182 $ 1,128,177 $ 2,380,218 $ 6,159,331 $ 1,656,287
------------ ----------- ------------ ------------ ------------ -----------
------------ ----------- ------------ ------------ ------------ -----------
Supplemental disclosure of cash flow
information:
Interest paid...................... $ 9,552,988 $ 3,078,480 $10,927,447 $ 13,789,097
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
Supplemental schedule of noncash
investing activities:
Equipment transferred from an
affiliate........................ -- -- $ 439,600 --
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
<CAPTION>
JANUARY 1 TO
FEBRUARY 28,
1998
------------
<S> <C>
OPERATING ACTIVITIES
Net income (loss)...................... $ 4,112,892
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization...... 1,555,516
Provision for losses on accounts
receivable....................... 24,567
Loss on early extinguishment of
debt............................. --
Incentive management fees.......... 1,072,463
Deferred interest expense to
partners and affiliates.......... 311,571
Changes in operating assets and
liabilities:
Restricted cash and investments
held by bank................. 1,633,434
Trade accounts receivable...... 440,954
Affiliated companies, net...... 125,779
Inventories.................... (119,205)
Prepaid expenses and other
current assets............... 211,533
Trade accounts payable and
advance deposits............. (4,835,976)
Accrued interest and other
accrued liabilities.......... 221,161
------------
Net cash provided by (used in)
operating activities................. 4,754,695
INVESTING ACTIVITIES
Purchases of property and equipment.... (272,876)
Net (purchases) usage of operating
equipment............................ (49,885)
------------
Net cash used in investing
activities........................... (322,761)
FINANCING ACTIVITIES
Payments of principal on long-term
debt................................. (387,929)
Proceeds from notes payable to bank.... --
Payments of principal on notes payable
to bank.............................. (2,000,000)
Proceeds from partners' and affiliated
loans, and capital contributions..... --
Payment of loan extension costs........ --
------------
Net cash provided by (used in)
financing activities................. (2,387,929)
------------
Net (decrease) increase in cash........ 2,044,005
Cash at beginning of period............ 1,128,177
------------
Cash at end of period.................. $ 3,172,182
------------
------------
Supplemental disclosure of cash flow
information:
Interest paid......................
Supplemental schedule of noncash
investing activities:
Equipment transferred from an
affiliate........................
</TABLE>
See accompanying notes.
F-14
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. 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, as amended (the Agreement). The Partnership is
50% owned by WKA El Con Associates (WKA El Con), a New York partnership, and 50%
by Conquistador Holding, Inc. (Conquistador Holding), a Delaware corporation,
each of which is substantially ultimately owned by Wyndham International, Inc.
(Wyndham) and Patriot American Hospitality, Inc. (Patriot). WKA El Con and
Conquistador Holding each own a 35% limited partnership interest and a 15%
general partnership interest 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.
The Partnership owns and operates a luxury resort hotel and casino in
Fajardo, Puerto Rico (the Resort).
CHANGE IN FISCAL YEAR
The Partnership changed its fiscal year from March 31 to December 31
beginning with the period ended December 31, 1997.
BASIS OF PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles which require 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.
The financial information relating to the Partnership's statements of
operations, partners' capital and cash flows for the year ended December 31,
1998 is presented separately for the periods January 1, through February 28 and
from March 1 through December 31 due to the new basis of accounting which
resulted from the acquisition of the Partnership (see Note 2).
INTERIM INFORMATION (UNAUDITED)
The interim financial statements as of March 31, 1999 and 1998 and for the
three month period ended March 31, 1999 and the period March 1, 1998 through
March 31, 1998 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 sheets as
of March 31, 1999 and 1998 and the result of operations and cash flows for the
three month period ended March 31, 1999 and the period March 1, 1998 through
March 31, 1998. Due to the seasonality of the Partnership's 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 the presentation of the interim financial statements.
F-15
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
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. Building is depreciated over a 30 year period. Equipment is
depreciated over a 10 year period.
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 term of the debt.
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 staffing, marketing, legal and other costs incurred prior to the
commencement of operations of the Resort. The costs were amortized on a
straight-line basis over a five year period.
GOODWILL
Goodwill represents the excess of the purchase price over the amount
assigned to net assets acquired and is being amortized over 20 years by the
straight-line method. At each balance sheet date the Partnership evaluates the
realizability of goodwill based on expectations of non-discounted cash flows or
whenever events or changes in circumstances indicate that it may not be
recoverable.
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
rooms, food and beverage, and hotel services furnished to patrons.
OTHER INCOME
Other income includes revenues from telephone, golf and tennis,
transportation and miscellaneous income.
2. ACQUISITION OF THE PARTNERSHIP
On January 16, 1998, Patriot American Hospitality Operating Company
Acquisition Subsidiary, a wholly-owned subsidiary of Wyndham merged with and
into WHG Resorts & Casinos Inc. (WHG), a 46.54% indirect owner of WKA El Con. As
part of the transaction WHG stockholders received for each issued and
outstanding share of common stock .784 shares of Wyndham and
F-16
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
Patriot, a self-administered REIT, which trade as 'Paired Shares' on the New
York Stock Exchange.
Effective February 28, 1998, Patriot acquired an additional 50% interest in
the Partnership for approximately $22,728,000, which interest was owned by
Kumagai Caribbean, Inc. (Kumagai), and an additional 37.23% interest in WKA El
Con for approximately $15,384,000.
On July 13, 1998, Patriot acquired the remaining 16.23% interest in WKA El
Con for approximately $3,890,000. The purchase transactions were accounted for
under the purchase method and the cumulative purchase price paid by Wyndham and
Patriot was the basis used to record net assets on the records of WHG and its
subsidiaries.
3. RESTRICTED CASH AND INVESTMENTS HELD BY BANK
As of December 31, 1998, pursuant to the terms of the Assignment and
Modification Agreement of the Letter of Credit and Reimbursement Agreement (see
Note 9), the Partnership had cash and investments on deposit for the payment of
interest, insurance and real property taxes amounting to $1,312,817, $5,688,012
and $3,289,027, respectively.
As of December 31, 1997, pursuant to the terms of the Loan Agreement (see
Note 9), the Partnership had cash and investments on deposit with the trustee
for the payment of interest due on February 1, 1998 and May 1, 1998 amounting to
$1,773,000 and $1,707,539, respectively.
4. TRADE ACCOUNTS RECEIVABLE
At December 31, 1998 and 1997, trade accounts receivable consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Trade accounts receivable -- hotel.......................................... $6,714,517 $5,580,876
Less allowance for doubtful accounts........................................ 120,127 234,614
---------- ----------
6,594,390 5,346,262
---------- ----------
Trade accounts receivable -- casino......................................... 839,948 616,954
Less allowance for doubtful accounts........................................ 26,355 111,822
---------- ----------
813,593 505,132
---------- ----------
Trade accounts receivable, net.............................................. $7,407,983 $5,851,394
---------- ----------
---------- ----------
</TABLE>
5. TRANSACTIONS WITH RELATED PARTIES
The Partnership had an Operating and Management Agreement (the Management
Agreement) with Williams Hospitality Group Inc. (Williams Hospitality) which
terminated effective December 31, 1998. The Management Agreement provided that
the Partnership would pay Williams Hospitality a basic management fee of 3.5% of
the Resort's gross revenues, as defined, and an incentive management fee of 10%
of the Resort's operating profit, as defined. Incentive management fees accrued
each year and were not payable until significant cash flow levels were achieved.
In addition, the Partnership was required to pay certain administrative expenses
incurred by Williams Hospitality in connection with management of the Resort.
Effective January 1, 1999, the Partnership entered into an Amended and
Restated Management Agreement (the Amended Management Agreement) with Williams
Hospitality which expires on January 31, 2014. The Amended Management Agreement
provides that the Partnership will pay Williams Hospitality a management fee of
3% of gross room revenues derived from condominiums and 2.5% of gross revenues
derived from the hotel, plus a hotel trade name fee of
F-17
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
.5% of gross room revenues. In addition, the Partnership is required to pay
certain administrative expenses incurred by Williams Hospitality in connection
with managing the Resort.
During the periods March 1, 1998 through December 31, 1998, January 1, 1998
through February 28, 1998, the nine month period ended December 31, 1997, and
the year ended March 31, 1997, basic management fees amounted to approximately
$2,724,000, $872,000, $2,125,000 and $3,305,000, respectively. Incentive
management fees amounted to approximately $1,913,000, $1,072,000, $860,000 and
$2,376,000, respectively. In addition, Williams Hospitality charged the
Partnership approximately $1,275,000, $525,000, $83,000 and $3,258,000 for the
periods March 1, 1998 through December 31, 1998, January 1, 1998 through
February 28, 1998, the nine month period ended December 31, 1997, and the year
ended March 31, 1997, respectively, for services provided to the Resort. In
addition, from March 1, 1998 to December 31, 1998, Wyndham charged the
Partnership approximately $1,933,000 for sales and administrative costs incurred
on behalf of the Partnership.
In addition, the Partnership was charged by Posadas de Puerto Rico
Associates, Incorporated (Posadas de Puerto Rico), affiliated through common
ownership, approximately $275,000, $176,000, $791,000 and $410,000 for services
provided to the Resort for the periods March 1, 1998 through December 31, 1998,
January 1, 1998 through February 28, 1998, the nine month period ended December
31, 1997, and the year ended March 31, 1997, respectively.
As of December 31, 1997, each partner had advanced $8,765,684 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 subordinate 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 provided for the payment of interest at a variable rate, computed
quarterly, equal to LIBOR plus 1.75% (7.30% and 7.46% at December 31, 1998 and
1997, respectively). Interest payments were deferred during the first five
years. The principal and deferred interest accrued at December 31, 1997 was to
be payable in quarterly installments of $250,000 commencing in March 2000 and a
final lump-sum payment in February 2002. The loan was collateralized by a
subordinated pledge of the Partnership's assets. The principal and interest due
to Kumagai was paid in 1998 when Patriot acquired Kumagai's 50% interest in the
Partnership. Interest and principal of $4,629,900 due to WKA El Con was paid in
1998 when Patriot acquired the remaining 16.23% interest in WKA El Con.
As of December 31, 1997, each partner had provided $3,800,000 to cover cash
flow deficiencies in the Partnership's operations as provided by the Agreement.
The deficiency loans consist 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. The principal
and interest due to Kumagai was paid in 1998 when Patriot acquired the former
partners' interest in the Partnership.
In 1993, the Partnership advanced approximately $2,000,000 to Williams
Hospitality for the purchase of transportation equipment leased to the
Partnership under a five year service agreement. Service agreement payments by
the Partnership were equal to the $39,819 monthly amounts receivable under the
advance. Repayment of the advances by Williams Hospitality were limited to
amounts payable under the service agreement. During the nine month period ended
December 31, 1997, Williams Hospitality transferred the transportation equipment
to the Partnership. The Partnership then sold the transportation equipment at a
loss of approximately $70,000.
In addition, a subsidiary of Williams Hospitality financed other
transportation equipment from an external borrowing amounting to $441,000
repayable over five years. Monthly payments were
F-18
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
$9,699. Also, in February 1997, a subsidiary of Williams Hospitality financed a
ferryboat from an external borrowing amounting to $456,000, repayable over seven
years. Monthly payments amount to $7,561. The Partnership chartered the
transportation equipment and ferryboat under terms similar to the transaction
described in the preceding paragraph.
On August 3, 1998, the Partnership borrowed $32,021,172 from Posadas de
Puerto Rico, the proceeds of which were used, together with the $90,000,000
advance from Citicorp Real Estate, Inc. (CRE) (see Note 6), to repay the
$120,000,000 1991 AFICA bonds (see Note 9). The loan bears interest at the prime
rate (7.75% at December 31, 1998). As of December 31, 1998, the amount of such
indebtedness together with accrued interest totaled $33,065,730. The loan is
payable on demand but is subordinate in all respects to the Partnership's
obligations to CRE with respect to the $90,000,000 advance.
6. NOTES PAYABLE TO BANK
On October 4, 1996, the Partnership entered into an amendment to a loan
agreement whereby the Government Development Bank for Puerto Rico (GDB) extended
the Partnership a $6,000,000 credit facility which was terminated in May 1998.
The notes issued under the credit facility bore interest at 1% over LIBOR. The
notes were secured by a mortgage note on the Partnership's real property, a
leasehold mortgage note on leased land and a lien on accounts receivable (see
Note 9). At December 31, 1998, the notes had been paid.
CRE made a $90,000,000 interim loan to the Partnership on August 3, 1998.
The note matured on November 3, 1998 and bore interest, computed monthly, equal
to LIBOR plus 2.25% (7.80% at December 31, 1998). The maturity date of the loan
was extended to March 31, 1999 (see Notes 9 and 18).
7. DUE TO AFFILIATED COMPANIES AND PARTNERS
Amounts due to affiliated companies consist of fees earned by Williams
Hospitality, funds advanced to the Partnership, other payments made by Williams
Hospitality, and for services rendered by Posadas de Puerto Rico and Posadas de
San Juan Associates.
F-19
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
At December 31, 1998 and 1997 amounts due to affiliated companies consisted
of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current:
Due to Williams Hospitality:
Basic management fees............................................... $ 804,043 $ 746,659
Other............................................................... 142,370 167,314
----------- -----------
946,413 913,973
Due to Posadas de San Juan............................................. 33,453 --
Due to Posadas de Puerto Rico.......................................... 33,065,730 58,713
----------- -----------
$34,045,596 $ 972,686
----------- -----------
----------- -----------
Non current:
Due to Williams Hospitality:
Incentive management fees........................................... $ 9,388,207 $ 6,402,571
Interest at 10% on incentive management fees........................ 1,274,200 676,592
Advances............................................................ 1,500,000 1,500,000
Interest on advances................................................ 987,120 852,076
Other............................................................... -- 375,529
----------- -----------
13,149,527 9,806,768
Due to Patriot......................................................... 8,293,234 --
Due to KG Caribbean.................................................... -- 579,234
----------- -----------
$21,442,761 $10,386,002
----------- -----------
----------- -----------
Partners:
Due to WKA El Con:
Advances............................................................ $11,315,015 $15,065,684
Interest on advances................................................ 4,277,548 4,430,554
----------- -----------
15,592,563 19,496,238
Due to Kumagai:
Advances............................................................ -- 16,565,683
Interest on advances................................................ -- 5,282,630
----------- -----------
-- 21,848,313
----------- -----------
$15,592,563 $41,344,551
----------- -----------
----------- -----------
</TABLE>
8. CHATTEL MORTGAGES AND CAPITAL LEASE OBLIGATIONS
At December 31, 1998 and 1997, chattel mortgages and capital lease
obligations on equipment consisted of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Chattel mortgage notes payable which bore interest at 9%, payable in
monthly installments of $215,784, including interest, through October,
1998, collateralized with personal property............................ $ -- $ 1,675,855
Capital lease obligations which bore interest at 11.5%, payable in
monthly installments of $28,335, including interest, through July,
1998, collateralized with personal property............................ -- 217,208
----------- -----------
$ -- $ 1,893,063
----------- -----------
----------- -----------
</TABLE>
F-20
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
9. LONG-TERM DEBT
At December 31, 1998 and 1997 long-term debt consisted of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <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 25,000,000
----------- -----------
25,000,000 145,000,000
Less current portion..................................................... -- 120,000,000
----------- -----------
$25,000,000 $25,000,000
----------- -----------
----------- -----------
</TABLE>
On February 7, 1991 the Puerto Rico Industrial, Tourist, Educational,
Medical and Environmental Control Facilities Financing Authority (the Authority)
sold industrial revenue bonds (Bonds) for $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 provided that the Partnership would 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.
Commencing on May 1, 1996, the Bonds were subject to redemption at the
Partnership's option at par plus accrued interest, if any. The Bonds were due on
November 1, 1999 and interest was payable quarterly. The 1991 Series A Bonds and
the 1991 Series B Bonds bore interest at a variable rate, computed quarterly,
equal to 100% and 94%, respectively, of a LIBOR rate minus 1/8th of 1%.
Effective November 1, 1996, the interest rate on the 1991 Series A Bonds
increased to 100% of the LIBOR rate. On February 7, 1991 the Partnership entered
into an Interest Rate Swap Agreement that expired on March 8, 1998 by which the
Partnership agreed to pay, effective May 1, 1991, 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 equal to 86% and 94%, respectively,
of the LIBOR rate minus 1/8th of 1%.
The Loan Agreement provided that the Partnership would deposit with the
trustee all interest which would become due not later than the 124th day
preceding the date of payment. The Bonds were collateralized by a letter of
credit, that terminated on September 9, 1998, issued by The Bank of
Tokyo-Mitsubishi, Ltd. (formerly The Mitsubishi Bank, Limited). Under the terms
of the Loan Agreement, such debt was required to be repaid on August 3, 1998
since the letter of credit was not renewed or replaced prior to June 9, 1998. On
August 3, 1998, the letter of credit was honored and the $120,000,000 was paid
in full.
In accordance with the Letter of Credit and Reimbursement Agreement, the
Partnership was obligated to immediately reimburse the letter of credit issuer
the full amount drawn under the letter of credit. On August 3, 1998, the
Partnership made a partial payment of $30,000,000 and entered into an Assignment
and Modification Agreement of the Letter of Credit and Reimbursement Agreement
with CRE. CRE reimbursed the letter of credit issuer with respect to the
$90,000,000 balance due under the Letter of Credit and Reimbursement Agreement.
All fees with respect to the letter of credit terminated on August 3, 1998.
Additionally, CRE became successor in interest to the collateral liens which
were in favor of The Bank of Tokyo-Mitsubishi, Ltd. on such date. As part of the
Assignment and Modification Agreement, the $90,000,000 advanced by CRE matured
on November 3, 1998 and was extended to March 31, 1999 (see Notes 6 and 18). In
connection with the repayment of the long-term debt the Partnership recorded an
F-21
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
extraordinary loss of approximately $1,700,000 related to the write-off of the
unamortized deferred issuance costs during the period from March 1, 1998 to
December 31, 1998.
The Partnership is engaged in the process of refinancing the balance due to
CRE through a new bond to be issued by the Authority. Based on the operating
history of the Resort, the Partnership's management believes such refinancing
will be achieved, but there can be no assurance thereof. If such refinancing is
not obtained, it raises substantial doubt about the Partnership's ability to
continue as a going-concern.
As of December 31, 1997, the Partnership was subject to an annual letter of
credit fee of approximately 1.25% of the Bond principal, except under certain
circumstances when the rate could be reduced to 1.2%. In addition, in connection
with the letter of credit the Partnership paid an annual agent's fee of
approximately .25% of the Initial Stated Amount, as defined.
Under the provisions of a term loan agreement with GDB, the Partnership
borrowed $25,000,000 for the payment of project costs. The loan 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 (6.06% and 6.52% at December 31, 1998 and 1997, respectively).
Interest is payable quarterly in arrears.
Commencing on April 1, 1993, the Partnership was 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. There had been no amounts deposited in escrow under this
provision.
The Bonds were and the term loan with GDB is collateralized by a first and
second mortgage lien on the Resort, a chattel mortgage on personal property, and
an assignment of various contracts and the Management Agreement (and effective
January, 1, 1999, the Amended Management Agreement) with Williams Hospitality.
The collateral is subject to a subordination agreement in favor of CRE, as
successor to The Bank of Tokyo-Mitsubishi, Ltd.
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 December 31, 1998 and 1997. The
carrying amount of 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 profits and losses
in their respective Puerto Rico and Federal income tax returns and, therefore,
no provision for income taxes has been made in the accompanying financial
statements.
The Partnership was granted 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 a 90% exemption from municipal real and personal property
taxes through the entire term of the grant. The Partnership's casino operations
are not covered by the tax exemption grant and are fully taxable.
F-22
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
12. CASINO PROMOTIONAL ALLOWANCES
Casino promotional allowances consisted of the following:
<TABLE>
<CAPTION>
NINE MONTH
MARCH 1 TO JANUARY 1 TO PERIOD ENDED YEAR ENDED
DECEMBER 31, FEBRUARY 28, DECEMBER 31, MARCH 31,
1998 1998 1997 1997
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Rooms........................................ $212,466 $ 32,846 $112,229 $ 334,775
Food and beverage............................ 256,601 41,030 197,022 402,772
Other........................................ 150,716 84,544 149,196 528,163
------------ ------------ ------------ ----------
$619,783 $158,420 $458,447 $1,265,710
------------ ------------ ------------ ----------
------------ ------------ ------------ ----------
</TABLE>
13. ADVERTISING COSTS
The Partnership recognizes the costs of advertising as expense in the
period in which they are incurred. Advertising costs amounted to approximately
$1,003,000, $216,000, $1,430,000 and $1,446,000 for the periods March 1, 1998
through December 31, 1998, January 1, 1998 through February 28, 1998, the nine
month period ended December 31, 1997, and the year ended March 31, 1997,
respectively.
14. COMMITMENTS
The Partnership leases land under an operating lease agreement for
thirty-two years with renewal options for two five-year periods. Following are
the minimum annual rental payments on the operating lease subsequent to December
31, 1998:
<TABLE>
<CAPTION>
<S> <C>
1999........................................................ $ 210,000
2000........................................................ 210,000
2001........................................................ 210,000
2002........................................................ 210,000
2003........................................................ 240,000
Thereafter.................................................. 5,440,000
----------
$6,520,000
----------
----------
</TABLE>
Total rent expense for the periods March 1, 1998 through December 31, 1998,
January 1, 1998 through February 28, 1998, the nine month period ended December
31, 1997, and the year ended March 31, 1997 amounted to approximately
$1,349,000, $384,000, $982,000 and $1,391,000, respectively.
15. EMPLOYEES' SAVINGS PLAN
Effective January 1, 1997, the Partnership adopted an employees' savings
plan for all hourly employees after one year of service or 1,000 hours.
Employees covered by any collective bargaining agreement are not eligible to
participate in the plan. Members of the plan can contribute an unlimited
percentage of their after tax compensation. The Partnership's contribution is
$300 per employee per year and a discretionary additional contribution.
The Partnership's contribution to the savings plan amounted to
approximately $166,000, $27,000, and $44,000 for the periods March 1, 1998
through December 31, 1998, January 1, 1998 through February 28, 1998, and the
nine month period ended December 31, 1997, respectively.
Effective January 1, 1997, the Partnership adopted a salary savings plan
for all salaried employees after one year of service or 1,000 hours. Employees
covered by any collective
F-23
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
bargaining agreement are not eligible to participate in the plan. The plan is
subject to the provisions of the Employee Retirement Income Security Act of 1974
(ERISA) and Section 1165(e) of the Puerto Rico Income Tax Act of 1994, as
amended. The employee's contribution is limited to $7,500 or 10% of their
compensation, whichever is less. Under the provisions of the plan, the
Partnership makes a minimum base contribution of $300 per participant plus a
discretionary contribution based on sick leave accrued in excess of 240 hours
and matches the employee's contribution based on the percentage the gross
operating profit, as defined, exceeds the Partnership's annual operating budget
as follows:
<TABLE>
<CAPTION>
MATCHING
G.O.P. EXCEEDS CONTRIBUTION
BUDGET BY PERCENTAGE
- ---------------------------------------------------------------------- ------------
<S> <C>
Less than 5%.......................................................... 25%
5%................................................................... 35%
10%................................................................... 45%
15%................................................................... 55%
20%................................................................... 65%
</TABLE>
The Partnership's contribution to the salary savings plan amounted to
approximately $70,000 $18,000, and $29,000 for the periods March 1, 1998 through
December 31, 1998, January 1, 1998 through February 28, 1998, and the nine month
period ended December 31, 1997, respectively.
16. HURRICANE GEORGES
On September 21 and 22, 1998, Hurricane Georges affected Puerto Rico and
caused certain damage to the Resort. The financial effects of the physical
damage caused by the hurricane were estimated at $32,000,000. However, the
Partnership believes that the nature of the damage and its insurance coverage is
such that there will not be a significant impact on the Partnership's results of
operations and financial condition.
17. ACCOUNTING CHANGE
In 1998, the Accounting Standards Executive Committee issued Statement of
Position (SOP) No. 98-5, 'Reporting on the Costs of Start-up Activities', which
requires the cost of start-up activities to be expensed as incurred. At December
31, 1998, the Partnership had approximately $462,000 of start-up costs incurred
in connection with the construction of a new spa, which are included in prepaid
expenses and other current assets. Effective January 1, 1999, the Partnership is
required to adopt SOP No. 98-5 and the effect in the accompanying balance sheet
of the adoption will be to decrease partners capital by approximately $462,000.
18. SUBSEQUENT EVENT
On January 29, 1999, the Partnership and CRE amended the Assignment and
Modification Agreement to provide for a maturity date of March 31, 1999, with an
additional extension option up to June 30, 1999, if certain conditions are met.
From February 1, 1999 until the maturity date, the interest rate changed to
LIBOR plus 2.75%.
On March 31, 1999, the Partnership exercised its extension option to extend
the maturity date to June 30, 1999.
F-24
<PAGE>
<PAGE>
PURCHASERS OF THE BONDS ARE NOT ACQUIRING ANY INTEREST IN,
OR SECURITIES OF, WKA EL CON ASSOCIATES
WKA EL CON ASSOCIATES
UNAUDITED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash......................................................................................... $ 6,162,931
Restricted cash and investments held by bank................................................. 12,312,974
Trade accounts receivable, less allowance for doubtful accounts of $203,230.................. 9,220,019
Due from affiliated companies................................................................ 27,027
Inventories.................................................................................. 1,515,521
Prepaid expenses and others current assets................................................... 5,629,996
------------
Total current assets....................................................................... 34,868,468
Land, building and equipment:
Land......................................................................................... 20,255,500
Building..................................................................................... 191,849,507
Furniture, fixture and equipment............................................................. 21,951,363
Construction in progress..................................................................... 5,011,738
------------
239,068,108
Less accumulated depreciation................................................................ 8,400,698
------------
230,667,410
Operating equipment, net.......................................................................... 1,538,227
Deferred debt issuance costs and other assets, net of accumulated
amortization of $721,932........................................................................ 84,430
Goodwill, net of accumulated amortization of $385,377............................................. 3,231,357
------------
Total assets............................................................................ $270,389,892
------------
------------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Trade accounts payable....................................................................... $ 9,663,910
Advance deposits............................................................................. 5,936,034
Accrued interest............................................................................. 959,100
Other accrued liabilities.................................................................... 4,390,532
Due to affiliated companies.................................................................. 35,058,207
Note payable to bank......................................................................... 90,000,000
------------
Total current liabilities.................................................................. 146,007,783
Long-term debt.................................................................................... 25,000,000
Due to affiliated companies....................................................................... 20,739,579
Due to partners................................................................................... 6,131,843
Minority interest................................................................................. 21,054,422
Partners' capital................................................................................. 51,456,265
------------
Total liabilities and partners' capital................................................. $270,389,892
------------
------------
</TABLE>
See accompanying notes.
F-25
<PAGE>
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO UNAUDITED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
1. 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 WHG El Con Corp. (WHG El Con),
a wholly-owned subsidiary of Wyndham International, Inc. (Wyndham) and 53.46% by
Conquistador Holding, Inc., which is owned by Patriot American Hospitality, Inc.
(Patriot) and Wyndham. The Partnership shall continue to exist until January 9,
2040, 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 consolidated balance sheet includes the accounts of El Con, a limited
partnership organized under the laws of Delaware, pursuant to a Joint Venture
Agreement dated January 12, 1990, as amended (the El Con Agreement). El Con is
50% owned by the Partnership and 50% by Conquistador Holding, Inc. The joint
venture partners (Partners) are both General Partners and Limited Partners in
the Partnership. By agreement between Wyndham and Patriot, the Partnership's
interest is the controlling 50% in El Con. El Con shall continue to exist until
March 31, 2030, unless terminated earlier by mutual agreement of the General
Partners.
El Con owns a luxury resort hotel and casino in Fajardo, Puerto Rico (the
Resort).
The Partnership is a 50% limited partner in Las Casitas Development Company
I, S en C (S.E.) (Las Casitas), a joint venture that constructed and sold
condominiums on property adjacent to El Con.
BASIS OF PRESENTATION
The consolidated balance sheet has 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 balance sheet. 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. Building is depreciated over a 30 year period. Equipment is
depreciated over a 10 year period.
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 term of the debt.
GOODWILL
Goodwill represents the excess of the purchase price over the amount
assigned to net assets acquired and is being amortized over 20 years by the
straight-line method. At each balance sheet date the Partnership evaluates the
realizability of goodwill based on expectations of non-discounted cash flows or
whenever events or changes in circumstances indicate that it may not be
recoverable.
F-26
<PAGE>
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO UNAUDITED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
MARCH 31, 1999
2. RESTRICTED CASH AND INVESTMENTS HELD BY BANK
As of March 31, 1999, pursuant to the terms of the Assignment and
Modification Agreement of the Letter of Credit and Reimbursement Agreement (see
Note 7), El Con had cash and investments on deposit for the payment of interest,
insurance and real property taxes amounting to $3,326,059, $7,646,184 and
$1,340,731, respectively.
3. TRADE ACCOUNTS RECEIVABLE
At March 31, 1999, trade accounts receivable consisted of the following:
<TABLE>
<S> <C>
Trade accounts receivable -- hotel...................................................... $9,100,766
Less allowance for doubtful accounts.................................................... 161,875
----------
8,938,891
Trade accounts receivable -- casino..................................................... 322,483
Less allowance for doubtful accounts.................................................... 41,355
----------
281,128
Trade accounts receivable, net.......................................................... 9,220,019
----------
----------
</TABLE>
4. TRANSACTIONS WITH RELATED PARTIES
Effective January 1, 1999, El Con entered into an Amended and Restated
Management Agreement (the Amended Management Agreement) with Williams
Hospitality Group Inc. (Williams Hospitality) which expires on January 31, 2014.
The Amended Management Agreement provides that El Con will pay Williams
Hospitality a management fee of 3% of gross room revenues derived from
condominiums and 2.5% of gross revenues derived from the hotel, plus a hotel
trade name fee of .5% of gross room revenues. In addition, El Con is required to
pay certain administrative expenses incurred by Williams Hospitality in
connection with managing the Resort.
In February 1997, a subsidiary of Williams Hospitality financed a ferryboat
from an external borrowing amounting to $456,000, repayable over seven years.
Monthly payments amount to $7,561. El Con chartered the ferryboat from the
subsidiary.
5. NOTE PAYABLE TO BANK
Citicorp Real Estate, Inc. (CRE) made a $90,000,000 interim loan to El Con
on August 3, 1998. The note matured on November 3, 1998 and bore interest,
computed monthly, equal to LIBOR plus 2.25%. The maturity date of the loan was
extended to March 31, 1999 and the interest rate was changed to LIBOR plus 2.75%
(8.10% at March 31, 1999) (see Note 7).
6. DUE TO AFFILIATED COMPANIES AND PARTNERS
Amounts due to affiliated companies consist of fees earned by Williams
Hospitality, funds advanced to El Con, other payments made by Williams
Hospitality, and for services rendered by Posadas de Puerto Rico Associates,
Incorporated and Posadas de San Juan Associates.
At March 31, 1999, amounts due to affiliated companies consisted of the
following:
F-27
<PAGE>
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO UNAUDITED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
MARCH 31, 1999
<TABLE>
<CAPTION>
Current:
<S> <C>
Due to Williams Hospitality:
Management fees.............................................................. $ 1,158,001
-----------
Due to Posadas de San Juan........................................................ 231,321
Due to Posadas de Puerto Rico..................................................... 33,668,885
-----------
$35,058,207
-----------
-----------
Non current:
Due to Williams Hospitality:
Incentive management fees.................................................... $ 9,388,207
Interest at 10% on incentive management fees................................. 1,505,689
Advances..................................................................... 1,500,000
Interest on advances......................................................... 1,015,600
Due to Patriot.................................................................... 7,330,083
-----------
$20,739,579
-----------
-----------
</TABLE>
WHG El Con loaned the Partnership $8,229,700 under the terms of loan
agreements. As of March 31, 1999, the outstanding balance of such loans was
$6,131,843. The notes are payable in 2003 to 2005 and bear interest at the prime
rate commencing on various dates. The interest rate for such loans as of March
31, 1999 was 7.75%.
7. LONG-TERM DEBT
Under the provisions of a term loan agreement with GDB, El Con borrowed
$25,000,000 for the payment of project costs. The loan 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
(6.06% at March 31, 1999). Interest is payable quarterly in arrears.
In 1991 the Puerto Rico Industrial, Tourist, Medical, Educational and
Environmental Control Facilities Financing Authority (the Authority) sold
industrial revenue bonds (Bonds) for $120,000,000 and loaned the proceeds to El
Con to be used for the payment of project costs pursuant to a Loan Agreement.
The Loan Agreement provided that El Con would pay all interest and principal on
the Bonds. Under the terms of the Loan Agreement, such debt was required to be
repaid on August 3, 1998 since the letter of credit collateralizing the Bonds
was not renewed or replaced prior to June 9, 1998. On August 3, 1998, the letter
of credit was honored and the $120,000,000 was paid in full.
In accordance with the Letter of Credit and Reimbursement Agreement, El Con
was obligated to immediately reimburse the letter of credit issuer the full
amount drawn under the letter of credit. On August 3, 1998, El Con made a
partial payment of $30,000,000 and entered into an Assignment and Modification
Agreement of the Letter of Credit and Reimbursement Agreement with CRE. CRE
reimbursed the letter of credit issuer with respect to the $90,000,000 balance
due under the Letter of Credit and Reimbursement Agreement. Additionally, CRE
became successor in interest to the collateral liens. As part of the Assignment
and Modification Agreement, the $90,000,000 advanced by CRE matured on November
3, 1998 and was extended to January 29, 1999 (see Note 5). On January 29, 1999,
El Con and CRE amended the Assignment and Modification Agreement to provide for
a maturity date of March 31, 1999, with an additional extension option up to
June 30, 1999, if certain conditions were met. From February 1, 1999 until the
maturity date, the interest rate changed to LIBOR rate plus 2.75% (8.10% on
March 31, 1999). On March 31, 1999, El Con exercised its extension option to
extend the maturity date to June 30, 1999.
F-28
<PAGE>
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO UNAUDITED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
MARCH 31, 1999
The bonds were and the term loan with GDB is collateralized by a first and
second mortgage lien on the Resort, a chattel mortgage on personal property, and
an assignment of various contracts and the Operating and Management Agreement
(and effective January 1, 1999, the Amended Management Agreement) with Williams
Hospitality. The collateral is subject to a subordination agreement in favor of
CRE.
El Con is engaged in the process of refinancing the balance due to CRE
through a new bond to be issued by the Authority. Based on the operating history
of the Resort, El Con's management believes such refinancing will be achieved,
but there can be no assurance thereof. If such refinancing is not obtained, it
raises substantial doubt about El Con's ability to continue as a going-concern
and, therefore, the Partnership's ability to continue as a going-concern.
8. 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, 1999. The carrying
amount of note payable to bank 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.
9. INCOME TAXES
The Partnership and El Con are 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 and El Con's profit and losses in their respective income tax
returns. Profit and losses of the Partnership and El Con for Federal income tax
purposes is reported by the partners.
El Con was granted 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 a 90% exemption from municipal real and personal property taxes
through the entire term of the grant. El Con's casino operations are not covered
by the tax exemption grant and are fully taxable.
10. COMMITMENTS
El Con leases land under an operating lease agreement for thirty-two years
with renewal options for two five-year periods. Following are the minimum annual
rental payments on the operating lease subsequent to March 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
1999........................................................................ $ 157,500
2000........................................................................ 210,000
2001........................................................................ 210,000
2002........................................................................ 210,000
2003........................................................................ 240,000
Thereafter.................................................................. 5,440,000
----------
$6,467,500
----------
----------
</TABLE>
11. EMPLOYEES' SAVINGS PLAN
Effective January 1, 1997, El Con adopted an employees' savings plan for
all hourly employees after one year of service or 1,000 hours. Employees covered
by any collective bargaining agreement are not eligible to participate in the
plan. Members of the plan can
F-29
<PAGE>
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO UNAUDITED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
MARCH 31, 1999
contribute an unlimited percentage of their after tax compensation. El Con's
contribution is $300 per employee per year and a discretionary additional
contribution.
Effective January 1, 1997, El Con adopted a salary savings plan for all
salaried employees after one year of service or 1,000 hours. Employees covered
by any collective bargaining agreement are not eligible to participate in the
plan. The plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA) and Section 1165(e) of the Puerto Rico Income Tax
Act of 1994, as amended.
Under the provisions of the plan, El Con makes a minimum base contribution
of $300 per participant plus a discretionary contribution based on sick leave
accrued in excess of 240 hours and matches the employee's contribution based on
the percentage the gross operating profit, as defined, exceeds the El Con's
annual operating budget as follows:
<TABLE>
<CAPTION>
G.O.P. MATCHING
EXCEEDS CONTRIBUTION
BUDGET BY PERCENTAGE
- -------------- ------------
<S> <C>
Less than 5% 25%
5% 35%
10% 45%
15% 55%
20% 65%
</TABLE>
12. HURRICANE GEORGES
On September 21 and 22, 1998, Hurricane Georges affected Puerto Rico and
caused certain damage to the Resort. The financial effects of the physical
damage caused by the hurricane were estimated at $32,000,000. However, El Con's
management believes that the nature of the damage and its insurance coverage is
such that there will not be a significant impact on El Con's financial
condition.
F-30
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
WKA EL CON ASSOCIATES
We have audited the accompanying consolidated balance sheet of WKA El Con
Associates (the Partnership) as of December 31, 1998. This balance sheet is the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the consolidated financial position of WKA El Con Associates
at December 31, 1998, in conformity with generally accepted accounting
principles.
The accompanying consolidated balance sheet has been prepared assuming that
WKA El Con Associates will continue as a going-concern. As more fully described
in Note 8, El Conquistador Partnership L.P., in which the Partnership has a 50%
ownership interest, is engaged in the process of refinancing the balance due to
Citicorp Real Estate, Inc. of $90,000,000, which is required to be repaid on
June 30, 1999, through a new bond issuance to be issued by the Puerto Rico
Industrial, Tourist, Educational, Medical and Environmental Control Facilities
Financing Authority (see Note 14). If such refinancing is not obtained, it
raises substantial doubt about the Partnership's ability to continue as a
going-concern. The balance sheet does not include any adjustments to reflect the
possible future effects on the recoverability and classifications of assets or
the amounts and classifications of liabilities that may result from the outcome
of this uncertainty.
/S/ ERNST & YOUNG LLP
San Juan, Puerto Rico
April 8, 1999
F-31
<PAGE>
<PAGE>
PURCHASERS OF THE BONDS ARE NOT ACQUIRING ANY INTEREST IN,
OR SECURITIES OF, WKA EL CON ASSOCIATES
WKA EL CON ASSOCIATES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash......................................................................................... $ 1,561,328
Restricted cash and investments held by bank................................................. 10,289,856
Trade accounts receivable, less allowance for doubtful accounts of $146,482.................. 7,407,983
Due from affiliated companies................................................................ 423,683
Inventories.................................................................................. 1,461,757
Prepaid expenses and others current assets................................................... 5,910,962
------------
Total current assets.................................................................... 27,055,569
Land, building and equipment:
Land......................................................................................... 20,255,500
Building..................................................................................... 191,904,360
Furniture, fixture and equipment............................................................. 21,631,402
Construction in progress..................................................................... 3,639,122
------------
237,430,384
Less accumulated depreciation................................................................ 6,329,399
------------
231,100,985
Other assets...................................................................................... 335,750
Operating equipment, net.......................................................................... 1,538,227
Deferred debt issuance costs, net of accumulated amortization of $448,772......................... 357,590
Goodwill, net of accumulated amortization of $296,444............................................. 3,320,290
------------
Total assets............................................................................ $263,708,411
------------
------------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Trade accounts payable....................................................................... $ 8,764,237
Advance deposits............................................................................. 9,463,505
Accrued interest............................................................................. 600,625
Other accrued liabilities.................................................................... 5,752,917
Due to affiliated companies.................................................................. 34,045,596
Notes payable to bank........................................................................ 90,000,000
------------
Total current liabilities............................................................... 148,626,880
Long-term debt.................................................................................... 25,000,000
Due to affiliated companies....................................................................... 22,387,557
Due to partner.................................................................................... 6,027,918
Minority interest................................................................................. 15,641,086
Partners' capital................................................................................. 46,024,970
------------
Total liabilities and partners' capital................................................. $263,708,411
------------
------------
</TABLE>
See accompanying notes.
F-32
<PAGE>
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
1. 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 WHG El Con Corp. (WHG El Con),
a wholly-owned subsidiary of Wyndham International, Inc. (Wyndham) and 53.46% by
Conquistador Holding, Inc., which is owned by Patriot American Hospitality, Inc.
(Patriot) and Wyndham. The Partnership shall continue to exist until January 9,
2040, 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 consolidated balance sheet includes the accounts of El Con, a limited
partnership organized under the laws of Delaware, pursuant to a Joint Venture
Agreement dated January 12, 1990, as amended (the El Con Agreement). El Con is
50% owned by the Partnership and 50% by Conquistador Holding, Inc. The joint
venture partners (Partners) are both General Partners and Limited Partners in
the Partnership. By agreement between Wyndham and Patriot, the Partnership's
interest is the controlling 50% in El Con. El Con shall continue to exist until
March 31, 2030, unless terminated earlier by mutual agreement of the General
Partners.
El Con owns a luxury resort hotel and casino in Fajardo, Puerto Rico (the
Resort).
The Partnership is a 50% limited partner in Las Casitas Development Company
I, S en C (S.E.) (Las Casitas), a joint venture that constructed and sold
condominiums on property adjacent to El Con.
BASIS OF PRESENTATION
The consolidated balance sheet has 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 balance sheet. 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. Building is depreciated over a 30 year period. Equipment is
depreciated over a 10 year period.
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 term of the debt.
F-33
<PAGE>
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
DECEMBER 31, 1998
GOODWILL
Goodwill represents the excess of the purchase price over the amount
assigned to net assets acquired and is being amortized over 20 years by the
straight-line method. At each balance sheet date the Partnership evaluates the
realizability of goodwill based on expectations of non-discounted cash flows or
whenever events or changes in circumstances indicate that it may not be
recoverable.
2. ACQUISITION OF THE PARTNERSHIP
On January 16, 1998, Patriot American Hospitality Operating Company
Acquisition Subsidiary, a wholly-owned subsidiary of Wyndham merged with and
into WHG Resorts & Casinos Inc. (WHG), a 46.54% owner of the Partnership. As
part of the transaction WHG stockholders received for each issued and
outstanding share of common stock .784 shares of Wyndham and Patriot, a
self-administered REIT, which trade as 'Paired Shares' on the New York Stock
Exchange.
Effective February 28, 1998, Patriot acquired an additional 37.23% interest
in the Partnership for approximately $15,384,000. Patriot also acquired an
additional 50% interest in El Con for approximately $22,728,000, which interest
was owned by Kumagai Caribbean, Inc.
On July 13, 1998, Patriot acquired the remaining 16.23% interest in the
Partnership for approximately $3,890,000. The purchase transactions were
accounted for under the purchase method and the cumulative purchase price paid
by Wyndham and Patriot was the basis used to record net assets on the records of
WHG and its subsidiaries.
3. RESTRICTED CASH AND INVESTMENTS HELD BY BANK
As of December 31, 1998, pursuant to the terms of the Assignment and
Modification Agreement of the Letter of Credit and Reimbursement Agreement (see
Note 8), El Con had cash and investments on deposit for the payment of interest,
insurance and real property taxes amounting to $1,312,817, $5,688,012 and
$3,289,027, respectively.
4. TRADE ACCOUNTS RECEIVABLE
At December 31, 1998, trade accounts receivable consisted of the following:
<TABLE>
<CAPTION>
Trade accounts receivable -- hotel.............................................. $6,714,517
<S> <C>
Less allowance for doubtful accounts............................................ 120,127
----------
6,594,390
----------
Trade accounts receivable -- casino............................................. 839,948
Less allowance for doubtful accounts............................................ 26,355
----------
813,593
----------
Trade accounts receivable, net.................................................. $7,407,983
----------
----------
</TABLE>
5. TRANSACTIONS WITH RELATED PARTIES
El Con had an Operating and Management Agreement (the Management Agreement)
with Williams Hospitality Group Inc. (Williams Hospitality) which terminated
effective December 31, 1998. The Management Agreement provided that El Con would
pay Williams Hospitality a basic management fee of 3.5% of the Resort's gross
revenues, as defined, and an incentive management fee of 10% of the Resort's
operating profit, as defined. Incentive management fees accrued each year and
were not payable until significant cash flow levels were achieved. In addition,
El Con was
F-34
<PAGE>
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
DECEMBER 31, 1998
required to pay certain administrative expenses incurred by Williams Hospitality
in connection with management of the Resort.
Effective January 1, 1999, El Con entered into an Amended and Restated
Management Agreement (the Amended Management Agreement) with Williams
Hospitality which expires on January 31, 2014. The Amended Management Agreement
provides that El Con will pay Williams Hospitality a management fee of 3% of
gross room revenues derived from condominiums and 2.5% of gross revenues derived
from the hotel, plus a hotel trade name fee of .5% of gross room revenues. In
addition, El Con is required to pay certain administrative expenses incurred by
Williams Hospitality in connection with managing the Resort.
In February 1997, a subsidiary of Williams Hospitality financed a ferryboat
from an external borrowing amounting to $456,000, repayable over seven years.
Monthly payments amount to $7,561. El Con chartered the ferryboat from the
subsidiary.
6. NOTE PAYABLE TO BANK
Citicorp Real Estate, Inc. (CRE) made a $90,000,000 interim loan to El Con
on August 3, 1998. The note matured on November 3, 1998 and bore interest,
computed monthly, equal to LIBOR plus 2.25% (7.75% at December 31, 1998). The
maturity date of the loan was extended to March 31, 1999 (see Notes 8 and 14).
7. DUE TO AFFILIATED COMPANIES AND PARTNERS
Amounts due to affiliated companies consist of fees earned by Williams
Hospitality, funds advanced to El Con, other payments made by Williams
Hospitality, and for services rendered by Posadas de Puerto Rico Associates,
Incorporated and Posadas de San Juan Associates.
At December 31, 1998, amounts due to affiliated companies consisted of the
following:
<TABLE>
<CAPTION>
Current:
<S> <C>
Due to Williams Hospitality:
Basic management fees................................................ $ 804,043
Other................................................................ 142,370
-----------
946,413
Due to Posadas de San Juan................................................ 33,453
Due to Posadas de Puerto Rico............................................. 33,065,730
-----------
$34,045,596
-----------
-----------
Non current:
Due to Williams Hospitality:
Incentive management fees............................................ $ 9,388,207
Interest at 10% on incentive management fees......................... 1,274,200
Advances............................................................. 1,500,000
Interest on advances................................................. 987,120
-----------
13,149,527
Due to Patriot............................................................ 9,238,030
-----------
$22,387,557
-----------
-----------
</TABLE>
WHG El Con loaned the Partnership $8,229,700 under the terms of loan
agreements. As of December 31, 1998, the outstanding balance of such loans was
$6,027,918. The notes are payable in 2003 to 2005 and bear interest at the prime
rate. The interest rate on such notes as of December 31, 1998 was 7.75%.
F-35
<PAGE>
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
DECEMBER 31, 1998
8. LONG-TERM DEBT
Under the provisions of a term loan agreement with GDB, El Con borrowed
$25,000,000 for the payment of project costs. The loan 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
(6.06% at December 31, 1998). Interest is payable quarterly in arrears.
In 1991 the Puerto Rico Industrial, Tourist, Medical, Educational and
Environmental Control Facilities Financing Authority (the Authority) sold
industrial revenue bonds (Bonds) for $120,000,000 and loaned the proceeds to El
Con to be used for the payment of project costs pursuant to a Loan Agreement.
The Loan Agreement provided that El Con would pay all interest and principal on
the Bonds. Under the terms of the Loan Agreement, such debt was required to be
repaid on August 3, 1998 since the letter of credit collateralizing the Bonds
was not renewed or replaced prior to June 9, 1998. On August 3, 1998, the letter
of credit was honored and the $120,000,000 was paid in full.
In accordance with the Letter of Credit and Reimbursement Agreement, El Con
was obligated to immediately reimburse the letter of credit issuer the full
amount drawn under the letter of credit. On August 3, 1998, El Con made a
partial payment of $30,000,000 and entered into an Assignment and Modification
Agreement of the Letter of Credit and Reimbursement Agreement with CRE. CRE
reimbursed the letter of credit issuer with respect to the $90,000,000 balance
due under the Letter of Credit and Reimbursement Agreement. Additionally, CRE
became successor in interest to the collateral liens. As part of the Assignment
and Modification Agreement, the $90,000,000 advanced by CRE matured on November
3, 1998 and was extended to March 31, 1999 (see Notes 6 and 14).
The Bonds were and the term loan with GDB is collateralized by a first and
second mortgage lien on the Resort, a chattel mortgage on personal property, and
an assignment of various contracts and the Management Agreement (and effective
January 1, 1999, the Amended Management Agreement) with Williams Hospitality.
The collateral is subject to a subordination agreement in favor of CRE.
El Con is engaged in the process of refinancing the balance due to CRE
through a new bond to be issued by the Authority. Based on the operating history
of the Resort, El Con's management believes such refinancing will be achieved,
but there can be no assurance thereof. If such refinancing is not obtained, it
raises substantial doubt about El Con's ability to continue as a going-concern
and, therefore, the Partnership's ability to continue as a going concern.
9. 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 December 31, 1998. The carrying
amount of the note payable to bank 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.
10. INCOME TAXES
The Partnership and El Con are 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 and El Con's profit and losses in their respective income tax
F-36
<PAGE>
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
DECEMBER 31, 1998
returns. Profit or losses of the Partnership and El Con for Federal income tax
purposes is reported by the partners.
El Con was granted 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 a 90% exemption from municipal real and personal property taxes
through the entire term of the grant. El Con's casino operations are not covered
by the tax exemption grant and are fully taxable.
11. COMMITMENTS
El Con leases land under an operating lease agreement for thirty-two years
with renewal options for two five-year periods. Following are the minimum annual
rental payments on the operating lease subsequent to December 31, 1998:
<TABLE>
<S> <C>
1999.................................................................. $ 210,000
2000.................................................................. 210,000
2001.................................................................. 210,000
2002.................................................................. 210,000
2003.................................................................. 240,000
Thereafter............................................................ 5,440,000
----------
$6,520,000
----------
----------
</TABLE>
12. EMPLOYEES' SAVINGS PLAN
Effective January 1, 1997, El Con adopted an employees' savings plan for
all hourly employees after one year of service or 1,000 hours. Employees covered
by any collective bargaining agreement are not eligible to participate in the
plan. Members of the plan can contribute an unlimited percentage of their after
tax compensation. El Con's contribution is $300 per employee per year and a
discretionary additional contribution.
Effective January 1, 1997, El Con adopted a salary savings plan for all
salaried employees after one year of service or 1,000 hours. Employees covered
by any collective bargaining agreement are not eligible to participate in the
plan. The plan is subject to the provisions of the Employee Retirement Income
Security Act of l974 (ERISA) and Section 1165(e) of the Puerto Rico Income Tax
Act of l994, as amended.
Under the provisions of the plan, El Con makes a minimum base contribution
of $300 per participant plus a discretionary contribution based on sick leave
accrued in excess of 240 hours and matches the employee's contribution based on
the percentage the gross operating profit, as defined, exceeds El Con's annual
operating budget as follows:
<TABLE>
<CAPTION>
G.O.P. MATCHING
EXCEEDS CONTRIBUTION
BUDGET BY PERCENTAGE
- ---------------------------------------------------------------------- ------------
<S> <C>
Less than 5%.......................................................... 25%
5%................................................................... 35%
10%................................................................... 45%
15%................................................................... 55%
20%................................................................... 65%
</TABLE>
F-37
<PAGE>
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
DECEMBER 31, 1998
13. HURRICANE GEORGES
On September 21 and 22, 1998, Hurricane Georges affected Puerto Rico and
caused certain damage to the Resort. The financial effects of the physical
damage caused by the hurricane were estimated at $32,000,000. However, El Con's
management believes that the nature of the damage and its insurance coverage is
such that there will not be a significant impact on El Con's financial
condition.
14. SUBSEQUENT EVENT
On January 29, 1999, El Con and CRE amended the Assignment and Modification
Agreement to provide for a maturity date of March 31, 1999, with an additional
extension option up to June 30, 1999, if certain conditions were met. From
February 1, 1999 until the maturity date, the interest rate changed to LIBOR
plus 2.75%. On March 31, 1999, El Con exercised its extension option to extend
the maturity date to June 30, 1999.
F-38
<PAGE>
<PAGE>
PURCHASERS OF THE BONDS ARE NOT ACQUIRING ANY INTEREST IN,
OR SECURITIES OF, WHG EL CON CORP.
WHG EL CON CORP.
UNAUDITED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash......................................................................................... $ 6,162,931
Restricted cash and investments held by bank................................................. 12,312,974
Trade accounts receivable, less allowance for doubtful accounts of $203,230.................. 9,220,019
Due from affiliated companies................................................................ 27,027
Inventories.................................................................................. 1,515,521
Prepaid expenses and others current assets................................................... 5,629,996
------------
Total current assets............................................................... 34,868,468
Due from affiliates............................................................................... 3,125,837
Land, building and equipment:
Land......................................................................................... 20,255,500
Building..................................................................................... 191,849,507
Furniture, fixture and equipment............................................................. 21,951,363
Construction in progress..................................................................... 5,011,738
------------
239,068,108
Less accumulated depreciation................................................................ 8,400,698
------------
230,667,410
Operating equipment, net.......................................................................... 1,538,227
Deferred debt issuance costs and other assets, net of accumulated amortization of $721,932........ 84,430
Goodwill, net of accumulated amortization of $385,377............................................. 3,231,357
------------
Total assets....................................................................... $273,515,729
------------
------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Trade accounts payable....................................................................... $ 9,663,910
Advance deposits............................................................................. 5,936,034
Accrued interest............................................................................. 959,100
Other accrued liabilities.................................................................... 4,390,532
Due to affiliated companies.................................................................. 35,058,207
Notes payable to bank........................................................................ 90,000,000
------------
Total current liabilities.......................................................... 146,007,783
Long-term debt.................................................................................... 25,000,000
Deferred tax liability............................................................................ 4,323,213
Due to affiliated companies....................................................................... 20,739,579
Minority interest................................................................................. 40,118,608
Shareholder's equity:
Common stock, no par value:
Authorized shares - 3,000;
Issued and outstanding shares - 1,000................................................... 11,494,000
Additional paid-in capital................................................................... 22,902,979
Retained earnings............................................................................ 2,929,567
------------
Total shareholder's equity......................................................... 37,326,546
------------
Total liabilities and shareholder's equity......................................... $273,515,729
------------
------------
</TABLE>
See accompanying notes.
F-39
<PAGE>
<PAGE>
WHG EL CON CORP.
NOTES TO UNAUDITED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
1. ORGANIZATION AND PRINCIPAL ACCOUNTING POLICIES
ORGANIZATION
WHG El Con Corp. (the Company), organized under the laws of Delaware, is a
wholly-owned subsidiary of Patriot American Hospitality Operating Company
Acquisition Subsidiary, a wholly-owned subsidiary of Wyndham International, Inc.
(Wyndham). The Company owns 46.54% of WKA El Con Associates (WKA El Con), a
joint venture organized under the General Partnership Law of the State of New
York for the purpose of becoming a general and a limited partner of El
Conquistador Partnership L.P. (El Con). The remaining 53.46% is owned by
Conquistador Holding, Inc (Conquistador Holding).
El Con is a limited partnership organized under the laws of Delaware,
pursuant to a Joint Venture Agreement dated January 12, 1990, as amended. El Con
is 50% owned by WKA El Con and 50% by Conquistador Holding, which is owned by
Patriot American Hospitality, Inc. (Patriot) and Wyndham. By agreement between
Wyndham and Patriot, the Company's interest is the controlling interest in WKA
El Con. El Con owns a luxury resort hotel and casino in Fajardo, Puerto Rico
(the Resort).
The consolidated balance sheet includes the accounts of WKA El Con and its
50% ownership in El Con.
BASIS OF PRESENTATION
The consolidated balance sheet has 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 balance sheet. 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. Building is depreciated over a 30 year period. Equipment is
depreciated over a 10 year period.
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 term of the debt.
GOODWILL
Goodwill represents the excess of the purchase price over the amount
assigned to net assets acquired and is being amortized over 20 years by the
straight-line method. At each balance sheet date the Company evaluates the
realizability of goodwill based on expectations of non-discounted cash flows or
whenever events or changes in circumstances indicate that it may not be
recoverable.
2. RESTRICTED CASH AND INVESTMENTS HELD BY BANK
As of March 31, 1999, pursuant to the terms of the Assignment and
Modification Agreement of the Letter of Credit and Reimbursement Agreement (see
Note 7), El Con had cash and
F-40
<PAGE>
<PAGE>
WHG EL CON CORP.
NOTES TO UNAUDITED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
MARCH 31, 1999
investments on deposit for the payment of interest, insurance and real property
taxes amounting to $3,326,059, $7,646,184 and $1,340,731, respectively.
3. TRADE ACCOUNTS RECEIVABLE
At March 31, 1999, trade accounts receivable consisted of the following:
<TABLE>
<S> <C>
Trade accounts receivable -- hotel.............................................. $9,100,766
Less allowance for doubtful accounts............................................ 161,875
----------
8,938,891
Trade accounts receivable -- casino............................................. 322,483
Less allowance for doubtful accounts............................................ 41,355
----------
281,128
----------
Trade accounts receivable, net.................................................. $9,220,019
----------
----------
</TABLE>
4. TRANSACTIONS WITH RELATED PARTIES
Effective January 1, 1999, El Con entered into an Amended and Restated
Management Agreement (the Amended Management Agreement) with Williams
Hospitality Group Inc. (Williams Hospitality) which expires on January 31, 2014.
The Amended Management Agreement provides that El Con will pay Williams
Hospitality a management fee of 3% of gross room revenues derived from
condominiums and 2.5% of gross revenues derived from the hotel, plus a hotel
trade name fee of .5% of gross room revenues. In addition, El Con is required to
pay certain administrative expenses incurred by Williams Hospitality in
connection with managing the Resort.
In February 1997, a subsidiary of Williams Hospitality financed a ferryboat
from an external borrowing amounting to $456,000, repayable over seven years.
Monthly payments amount to $7,561. El Con chartered the ferryboat from the
subsidiary.
5. NOTE PAYABLE TO BANK
Citicorp Real Estate, Inc. (CRE) made a $90,000,000 interim loan to El Con
on August 3, 1998. The note matured on November 3, 1998 and bore interest,
computed monthly, equal to LIBOR plus 2.25%. The maturity date of the loan was
extended to March 31, 1999 and the interest rate was changed to LIBOR plus 2.75%
(8.10% at March 31, 1999) (see Note 7).
6. DUE TO AFFILIATED COMPANIES AND PARTNERS
Amounts due to affiliated companies consist of fees earned by Williams
Hospitality, funds advanced to El Con, other payments made by Williams
Hospitality, and for services rendered by Posadas de Puerto Rico Associates
Incorporated and Posadas de San Juan Associates.
F-41
<PAGE>
<PAGE>
WHG EL CON CORP.
NOTES TO UNAUDITED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
MARCH 31, 1999
At March 31, 1999, amounts due to affiliated companies consisted of the
following:
<TABLE>
<S> <C>
Current:
Due to Williams Hospitality:
Management fees........................................................... $ 1,158,001
-----------
Due to Posadas de San Juan................................................... 231,321
Due to Posadas de Puerto Rico................................................ 33,668,885
-----------
$35,058,207
-----------
-----------
Non current:
Due to Williams Hospitality:
Incentive management fees................................................. $ 9,388,207
Interest at 10% on incentive management fees.............................. 1,505,689
Advances.................................................................. 1,500,000
Interest on advances...................................................... 1,015,600
-----------
Due to Patriot............................................................... 7,330,083
-----------
$20,739,579
-----------
-----------
</TABLE>
7. LONG-TERM DEBT
Under the provisions of a term loan agreement with GDB, El Con borrowed
$25,000,000 for the payment of project costs. The loan 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
(5.81% at March 31, 1999). Interest is payable quarterly in arrears.
In 1991 the Puerto Rico Industrial, Tourist, Medical, Educational and
Environmental Control Facilities Financing Authority (the Authority) sold
industrial revenue bonds (Bonds) for $120,000,000 and loaned the proceeds to El
Con to be used for the payment of project costs pursuant to a Loan Agreement.
The Loan Agreement provided that El Con would pay all interest and principal on
the Bonds. Under the terms of the Loan Agreement, such debt was required to be
repaid on August 3, 1998 since the letter of credit collaterizing the Bonds was
not renewed or replaced prior to June 9, 1998. On August 3, 1998, the letter of
credit collaterizing the Bonds was honored and the $120,000,000 was paid in
full.
In accordance with the Letter of Credit and Reimbursement Agreement, El Con
was obligated to immediately reimburse the letter of credit issuer the full
amount drawn under the letter of credit. On August 3, 1998, El Con made a
partial payment of $30,000,000 and entered into an Assignment and Modification
Agreement of the Letter of Credit and Reimbursement Agreement with CRE. CRE
reimbursed the letter of credit issuer with respect to the $90,000,000 balance
due under the Letter of Credit and Reimbursement Agreement. Additionally, CRE
became successor in interest to the collateral liens. As part of the Assignment
and Modification Agreement, the $90,000,000 advanced by CRE matured on November
3, 1998 and was extended to Januay 29, 1999 (see Note 5). On January 29, 1999,
El Con and CRE amended the Assignment and Modification Agreement to provide for
a maturity date of March 31, 1999, with an additional extension option up to
June 30, 1999, if certain conditions were met. From February 1, 1999 until the
maturity date, the interest rate changed to LIBOR plus 2.75% (8.10% on March 31,
1999). On March 31, 1999 El Con exercised its option to extend the maturity date
to June 30, 1999.
The bonds were and the term loan with GDB is collateralized by a first and
second mortgage lien on the Resort, a chattel mortgage on personal property, and
an assignment of various contracts and the Operating and Management Agreement
(and effective January 1, 1999, the
F-42
<PAGE>
<PAGE>
WHG EL CON CORP.
NOTES TO UNAUDITED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
MARCH 31, 1999
Amended Management Agreement) with Williams Hospitality. The collateral is
subject to a subordination agreement in favor of CRE.
El Con is engaged in the process of refinancing the balance due to CRE
through a new bond to be issued by the Authority. Based on the operating history
of the Resort, El Con's management believes such refinancing will be achieved,
but there can be no assurance thereof. If such refinancing is not obtained, it
raises substantial doubt about El Con's ability to continue as a going-concern
and, therefore, the Company's ability to continue as a going-concern.
8. 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 Company's financial instruments at March 31, 1999. The carrying amount of
note payable to bank approximates fair value because of the short maturity of
the instruments or recent issuance. The fair value of the Company's long-term
debt has not been determined because similar terms and conditions may no longer
be available.
9. INCOME TAXES
The Company's operations are included with Wyndham's Federal income tax
return. Statement of Financial Accounting Standards No. 109, 'Accounting for
Income Taxes' (SFAS No. 109) requires that a portion of income tax expense
(benefit) be allocated to the Company. The 'Separate Return Method' was used to
calculate the Federal income tax provision allocated to the Company.
WKA El Con and El Con are 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 WKA El Con's and
El Con's profit and losses in their respective income tax returns. Profit and
losses of WKA El Con and El Con for Federal income tax purposes is reported by
the partners.
El Con was granted 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 a 90% exemption from municipal real and personal property taxes
through the entire term of the grant. El Con's casino operations are not covered
by the tax exemption grant and are fully taxable.
Deferred income taxes reflect the net tax effects of temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and the amounts used for income taxes in the income tax return of the Company.
The deferred tax liability as of March 31, 1999, relates to the different
depreciation methods used for book and tax purposes.
F-43
<PAGE>
<PAGE>
WHG EL CON CORP.
NOTES TO UNAUDITED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
MARCH 31, 1999
10. COMMITMENTS
El Con leases land under an operating lease agreement for thirty-two years
with renewal options for two five-year periods. Following are the minimum annual
rental payments on the operating lease subsequent to March 31, 1999:
<TABLE>
<S> <C>
1999.................................................................. $ 157,500
2000.................................................................. 210,000
2001.................................................................. 210,000
2002.................................................................. 210,000
2003.................................................................. 240,000
Thereafter............................................................ 5,440,000
----------
$6,467,500
----------
----------
</TABLE>
11. EMPLOYEES' SAVINGS PLAN
Effective January 1, 1997, El Con adopted an employees' savings plan for
all hourly employees after one year of service or 1,000 hours. Employees covered
by any collective bargaining agreement are not eligible to participate in the
plan. Members of the plan can contribute an unlimited percentage of their after
tax compensation. El Con's contribution is $300 per employee per year and a
discretionary additional contribution.
Effective January 1, 1997, El Con adopted a salary savings plan for all
salaried employees after one year of service or 1,000 hours. Employees covered
by any collective bargaining agreement are not eligible to participate in the
plan. The plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA) and Section 1165(e) of the Puerto Rico Income Tax
Act of 1994, as amended.
Under the provisions of the plan, El Con makes a minimum base contribution
of $300 per participant plus a discretionary contribution based on sick leave
accrued in excess of 240 hours and matches the employee's contribution based on
the percentage the gross operating profit, as defined, exceeds El Con's annual
operating budget as follows:
<TABLE>
<CAPTION>
G.O.P. MATCHING
EXCEEDS CONTRIBUTION
BUDGET BY PERCENTAGE
- --------------------------------------------- ------------
<S> <C>
Less than 5%................................. 25%
5%.......................................... 35%
10%.......................................... 45%
15%.......................................... 55%
20%.......................................... 65%
</TABLE>
12. HURRICANE GEORGES
On September 21 and 22, 1998, Hurricane Georges affected Puerto Rico and
caused certain damage to the Resort. The financial effects of the physical
damage caused by the hurricane were estimated at $32,000,000. However, El Con's
management believes that the nature of the damage and its insurance coverage is
such that there will not be a significant impact on El Con's results of
operations and financial condition.
F-44
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholder
WHG EL CON CORP.
We have audited the accompanying consolidated balance sheet of WHG El Con
Corp. as of December 31, 1998. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the consolidated financial position of WHG El Con Corp. at
December 31, 1998, in conformity with generally accepted accounting principles.
The accompanying consolidated balance sheet has been prepared assuming that
WHG El Con Corp. will continue as a going-concern. As more fully described in
Note 8, El Conquistador Partnership L.P., in which WHG El Con Corp. has a 23.27%
ownership interest, is engaged in the process of refinancing the balance due to
Citicorp Real Estate, Inc. of $90,000,000, which is required to be repaid on
June 30, 1999, through a new bond issuance to be issued by the Puerto Rico
Industrial, Tourist, Educational, Medical and Environmental Pollution Control
Facilities Financing Authority (see Note 14). If such refinancing is not
obtained, it raises substantial doubt about the Company's ability to continue as
a going-concern. The balance sheet does not include any adjustments to reflect
the possible future effects on the recoverability and classifications of assets
or the amounts and classifications of liabilities that may result from the
outcome of this uncertainty.
/S/ ERNST & YOUNG LLP
San Juan, Puerto Rico
April 8, 1999
F-45
<PAGE>
<PAGE>
PURCHASERS OF THE BONDS ARE NOT ACQUIRING ANY INTEREST IN,
OR SECURITIES OF, WHG EL CON CORP.
WHG EL CON CORP.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash......................................................................................... $ 1,561,328
Restricted cash and investments held by bank................................................. 10,289,856
Trade accounts receivable, less allowance for doubtful accounts of $146,482.................. 7,407,983
Due from affiliated companies................................................................ 423,683
Inventories.................................................................................. 1,461,757
Prepaid expenses and other current assets.................................................... 5,910,962
------------
Total current assets............................................................... 27,055,569
Due from affiliated company....................................................................... 3,125,837
Land, building and equipment:
Land......................................................................................... 20,255,500
Building..................................................................................... 191,904,360
Furniture, fixture and equipment............................................................. 21,631,402
Construction in progress..................................................................... 3,639,122
------------
237,430,384
Less accumulated depreciation................................................................ 6,329,399
------------
231,100,985
Other assets...................................................................................... 335,750
Operating equipment, net.......................................................................... 1,538,227
Deferred debt issuance costs, net of accumulated amortization of $448,772......................... 357,590
Goodwill, net of accumulated amortization of $296,444............................................. 3,320,290
------------
Total assets....................................................................... $266,834,248
------------
------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Trade accounts payable....................................................................... $ 8,764,237
Advance deposits............................................................................. 9,463,505
Accrued interest............................................................................. 600,625
Other accrued liabilities.................................................................... 5,752,855
Due to affiliated companies.................................................................. 34,045,596
Notes payable to bank........................................................................ 90,000,000
------------
Total current liabilities.......................................................... 148,626,818
Long-term debt.................................................................................... 25,000,000
Deferred income tax liability..................................................................... 4,884,855
Due to affiliated companies....................................................................... 22,387,557
Minority interest................................................................................. 31,801,815
Shareholder's equity:
Common Stock, no par value:
Authorized shares -- 3,000;
Issued and outstanding -- 1,000......................................................... 11,494,000
Additional paid-in capital................................................................... 22,902,979
Accumulated deficit.......................................................................... (263,776)
------------
Total shareholder's equity......................................................... 34,133,203
------------
Total liabilities and shareholder's equity......................................... $266,834,248
------------
------------
</TABLE>
See accompanying notes.
F-46
<PAGE>
<PAGE>
WHG EL CON CORP.
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
1. ORGANIZATION AND PRINCIPAL ACCOUNTING POLICIES
ORGANIZATION
WHG El Con Corp. (the Company), organized under the laws of Delaware, is a
wholly-owned subsidiary of Patriot American Hospitality Operating Company
Acquisition Subsidiary, a wholly owned subsidiary of Wyndham International, Inc.
(Wyndham). The Company owns 46.54% of WKA El Con Associates (WKA El Con), a
joint venture organized under the General Partnership Law of the State of New
York for the purpose of becoming a general and a limited partner of El
Conquistador Partnership L.P. (El Con). The remaining 53.46% is owned by
Conquistador Holding, Inc.
El Con is a limited partnership organized under the laws of Delaware,
pursuant to a Joint Venture Agreement dated January 12, 1990, as amended. El Con
is 50% owned by WKA El Con and 50% by Conquistador Holding, Inc., which is owned
by Patriot American Hospitality, Inc. (Patriot) and Wyndham. By agreement
between Wyndham and Patriot, the Company's interest is the controlling interest
in WKA El Con. El Con owns a luxury resort hotel and casino in Fajardo, Puerto
Rico (the Resort).
The consolidated balance sheet includes the accounts of WKA El Con and its
50% ownership in El Con.
BASIS OF PRESENTATION
The consolidated balance sheet has 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 balance sheet. 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. Building is depreciated over a 30 year period. Equipment is
depreciated over a 10 year period.
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 term of the debt.
GOODWILL
Goodwill represents the excess of the purchase price over the amount
assigned to net assets acquired and is being amortized over 20 years by the
straight-line method. At each balance sheet date the Company evaluates the
realizability of goodwill based on expectations of non-discounted cash flows or
whenever events or changes in circumstances indicate that it may not be
recoverable.
2. ACQUISITION OF THE COMPANY
On January 16, 1998, Patriot American Hospitality Operating Company
Acquisition Subsidiary, a wholly-owned subsidiary of Wyndham merged with and
into WHG Resorts & Casinos Inc.
F-47
<PAGE>
<PAGE>
WHG EL CON CORP.
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
DECEMBER 31, 1998
(WHG), a 46.54% owner of WKA El Con. As part of the transaction WHG stockholders
received for each issued and outstanding share of common stock .784 shares of
Wyndham and Patriot, a self-administered REIT, which trade as 'Paired Shares' on
the New York Stock Exchange.
Effective February 28, 1998, Patriot acquired an additional 37.23% interest
in WKA El Con for approximately $15,384,000. Patriot also acquired an additional
50% interest in El Con for approximately $22,728,000, which interest was owned
by Kumagai Caribbean, Inc.
On July 13, 1998, Patriot acquired the remaining 16.23% interest in WKA El
Con for approximately $3,890,000. The purchase transactions were accounted for
under the purchase method and the cumulative purchase price paid by Wyndham and
Patriot was the basis used to record net assets on the records of WHG and its
subsidiaries.
3. RESTRICTED CASH AND INVESTMENTS HELD BY BANK
As of December 31, 1998, pursuant to the terms of the Assignment and
Modification Agreement of the Letter of Credit and Reimbursement Agreement (see
Note 8), El Con had cash and investments on deposit for the payment of interest,
insurance and real property taxes amounting to $1,312,817, $5,688,012 and
$3,289,027, respectively.
4. TRADE ACCOUNTS RECEIVABLE
At December 31, 1998, trade accounts receivable consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Trade accounts receivable -- hotel.............................................. $6,714,517
Less allowance for doubtful accounts............................................ 120,127
----------
6,594,390
Trade accounts receivable -- casino............................................. 839,948
Less allowance for doubtful accounts............................................ 26,355
----------
813,593
----------
Trade accounts receivable, net.................................................. $7,407,983
----------
----------
</TABLE>
5. TRANSACTIONS WITH RELATED PARTIES
El Con had an Operating and Management Agreement (the Management Agreement)
with Williams Hospitality Group Inc. (Williams Hospitality) which terminated
effective December 31, 1998. The Management Agreement provided that El Con would
pay Williams Hospitality a basic management fee of 3.5% of the Resort's gross
revenues, as defined, and an incentive management fee of 10% of the Resort's
operating profit, as defined. Incentive management fees accrued each year were
not payable until significant cash flow levels were achieved. In addition, El
Con was required to pay certain administrative expenses incurred by Williams
Hospitality in connection with management of the Resort.
Effective January 1, 1999, El Con entered into an Amended and Restated
Management Agreement (the Amended Management Agreement) with Williams
Hospitality which expires on January 31, 2014. The Amended Management Agreement
provides that El Con will pay Williams Hospitality a management fee of 3% of
gross room revenues derived from condominiums and 2.5% of gross revenues derived
from the hotel, plus a hotel trade name fee of .5% of gross room revenues. In
addition, El Con is required to pay certain administrative expenses incurred by
Williams Hospitality in connection with managing the Resort.
In February 1997, a subsidiary of Williams Hospitality financed a ferryboat
from an external borrowing amounting to $456,000, repayable over seven years.
Monthly payments amount to $7,561. El Con chartered the ferryboat from the
subsidiary.
F-48
<PAGE>
<PAGE>
WHG EL CON CORP.
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
DECEMBER 31, 1998
6. NOTE PAYABLE TO BANK
Citicorp Real Estate, Inc. (CRE) made a $90,000,000 interim loan to El Con
on August 3, 1998. The note matured on November 3, 1998 and bore interest,
computed monthly, equal to LIBOR plus 2.25% (7.75% at December 31, 1998). The
maturity date of the loan was extended to March 31, 1999 (see Notes 8 and 14).
7. DUE TO AFFILIATED COMPANIES AND PARTNERS
Amounts due to affiliated companies consist of fees earned by Williams
Hospitality, funds advanced to El Con and other payments made by Williams
Hospitality, and for services rendered by Posadas de Puerto Rico Associates,
Incorporated and Posadas de San Juan Associates.
At December 31, 1998, amounts due to affiliated companies consisted of the
following:
<TABLE>
<CAPTION>
Current:
<S> <C>
Due to Williams Hospitality:
Basic management fees................................................ $ 804,043
Other................................................................ 142,370
-----------
946,413
Due to Posadas de San Juan................................................ 33,453
Due to Posadas de Puerto Rico............................................. 33,065,730
-----------
$34,045,596
-----------
-----------
Non current:
Due to Williams Hospitality:
Incentive management fees............................................ $ 9,388,207
Interest at 10% on incentive management fees......................... 1,274,200
Advances............................................................. 1,500,000
Interest on advances................................................. 987,120
-----------
13,149,527
Due to Patriot............................................................ 9,238,030
-----------
$22,387,557
-----------
-----------
</TABLE>
8. LONG-TERM DEBT
Under the provisions of a term loan agreement with GDB, El Con borrowed
$25,000,000 for the payment of project costs. The loan 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
(6.06% at December 31, 1998). Interest is payable quarterly in arrears.
In 1991 the Puerto Rico Industrial, Tourist, Medical, Educational and
Environmental Control Facilities Financing Authority (the Authority) sold
industrial revenue bonds (Bonds) for $120,000,000 and loaned the proceeds to El
Con to be used for the payment of project costs pursuant to a Loan Agreement.
The Loan Agreement provided that El Con would pay all interest and principal on
the Bonds. Under the terms of the Loan Agreement, such debt was required to be
repaid on August 3, 1998 since the letter of credit was not renewed or replaced
prior to June 9, 1998. On August 3, 1998, the letter of credit collateralizing
the Bonds was honored and the $120,000,000 was paid in full.
In accordance with the Letter of Credit and Reimbursement Agreement, El Con
was obligated to immediately reimburse the letter of credit issuer the full
amount drawn under the letter of credit. On August 3, 1998, El Con made a
partial payment of $30,000,000 and entered into an
F-49
<PAGE>
<PAGE>
WHG EL CON CORP.
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
DECEMBER 31, 1998
Assignment and Modification Agreement of the Letter of Credit and Reimbursement
Agreement with CRE. CRE reimbursed the letter of credit issuer with respect to
the $90,000,000 balance due under the Letter of Credit and Reimbursement
Agreement. Additionally, CRE became successor in interest to the collateral
liens. As part of the Assignment and Modification Agreement, the $90,000,000
advanced by CRE matured on November 3, 1998 and was extended to March 31, 1999
(see Notes 6 and 14).
The Bonds were and the term loan with GDB is collateralized by a first and
second mortgage lien on the Resort, a chattel mortgage on personal property, and
an assignment of various contracts and the Management Agreement (and effective
January 1, 1999, the Amended Management Agreement) with Williams Hospitality.
The collateral is subject to a subordination agreement in favor of CRE.
El Con is engaged in the process of refinancing the balance due to CRE
through a new bond to be issued by the Authority. Based on the operating history
of the Resort, El Con's management believes such refinancing will be achieved,
but there can be no assurance thereof. If such refinancing is not obtained, it
raises substantial doubt about El Con's ability to continue as a going-concern
and, therefore, the Company's ability to continue as a going-concern.
9. 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 Company's financial instruments at December 31, 1998. The carrying amount
of the note payable to bank approximates fair value because of the short
maturity of the instruments or recent issuance. The fair value of the Company's
long-term debt has not been determined because similar terms and conditions may
no longer be available.
10. INCOME TAXES
The Company's operations are included with Wyndham's Federal income tax
return. Statement of Financial Accounting Standards No. 109, 'Accounting for
Income Taxes', requires that a portion of the income tax expense (benefit) be
allocated to the Company. The 'Separate Return Method' was utilized to calculate
the Federal income tax expense (benefit) allocated to the Company.
WKA El Con and El Con are 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 WKA El Con's and El
Con's profit and losses in their respective income tax returns. Profits and
losses of WKA El Con and El Con for Federal income tax purposes is reported by
the partners.
El Con was granted 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 a 90% exemption from municipal real and personal property taxes
through the entire term of the grant. El Con's casino operations are not covered
by the tax exemption grant and are fully taxable.
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 income tax return of the Company.
The deferred tax liability as of December 31, 1998 relates to the different
depreciation methods used for book and tax purposes.
F-50
<PAGE>
<PAGE>
WHG EL CON CORP.
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
DECEMBER 31, 1998
11. COMMITMENTS
El Con leases land under an operating lease agreement for thirty-two years
with renewal options for two five-year periods. Following are the minimum annual
rental payments on the operating lease subsequent to December 31, 1998:
<TABLE>
<S> <C>
1999.................................................................. $ 210,000
2000.................................................................. 210,000
2001.................................................................. 210,000
2002.................................................................. 210,000
2003.................................................................. 240,000
Thereafter............................................................ 5,440,000
----------
$6,520,000
----------
----------
</TABLE>
12. EMPLOYEES' SAVINGS PLAN
Effective January 1, 1997, El Con adopted an employees' savings plan for
all hourly employees after one year of service or 1,000 hours. Employees covered
by any collective bargaining agreement are not eligible to participate in the
plan. Members of the plan can contribute an unlimited percentage of their after
tax compensation. El Con's contribution is $300 per employee per year and a
discretionary additional contribution.
Effective January 1, 1997, El Con adopted a salary savings plan for all
salaried employees after one year of service or 1,000 hours. Employees covered
by any collective bargaining agreement are not eligible to participate in the
plan. The plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA) and Section 1165(e) of the Puerto Rico Income Tax
Act of 1994, as amended.
Under the provisions of the plan, El Con makes a minimum base contribution
of $300 per participant plus a discretionary contribution based on sick leave
accrued in excess of 240 hours and matches the employee's contribution based on
the percentage the gross operating profit, as defined, exceeds El Con's annual
operating budget as follows:
<TABLE>
<CAPTION>
G.O.P. MATCHING
EXCEEDS CONTRIBUTION
BUDGET BY PERCENTAGE
- --------------------------------------------- ------------
<S> <C>
Less than 5%................................. 25%
5%.......................................... 35%
10%.......................................... 45%
15%.......................................... 55%
20%.......................................... 65%
</TABLE>
13. HURRICANE GEORGES
On September 21 and 22, 1998, Hurricane Georges affected Puerto Rico and
caused certain damage to the Resort. The financial effects of the physical
damage caused by the hurricane were estimated at $32,000,000. However, El Con's
management believes that the nature of the damage and its insurance coverage is
such that there will not be a significant impact on El Con's financial
condition.
14. SUBSEQUENT EVENT
On January 29, 1999, El Con and CRE amended the Assignment and Modification
Agreement to provide for a maturity date of March 31, 1999, with an additional
extension option up to June 30, 1999, if certain conditions are met. From
February 1, 1999 until the maturity date, the interest rate changed to LIBOR
rate plus 2.75%. On March 31, 1999, El Con exercised its extension option to
extend the maturity date to June 30, 1999.
F-51
<PAGE>
<PAGE>
PURCHASERS OF THE BONDS ARE NOT ACQUIRING ANY INTEREST IN,
OR SECURITIES OF, CONQUISTADOR HOLDING, INC.
CONQUISTADOR HOLDING, INC.
UNAUDITED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<S> <C>
ASSETS
Cash............................................................................................... $ 101
Investments in unconsolidated subsidiaries......................................................... 40,109,189
-----------
Total assets........................................................................ $40,109,290
-----------
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Income taxes payable.......................................................................... $ 1,183,750
Shareholders' equity:
Class A voting common stock, $0.01 par value; 50,000 shares authorized;
100 shares issued and outstanding...................................................... $ 1
Class B non-voting common stock, $0.01 par value; 50,000 shares authorized; 9,900 shares
issued and outstanding................................................................... 99
Additional paid-in capital............................................................... 38,064,946
Retained earnings........................................................................ 2,198,393
-----------
40,263,439
Less: subscription note receivable....................................................... (1,337,899)
-----------
Total shareholders' equity.......................................................... $38,925,540
-----------
Total liabilities and shareholders' equity........................................ $40,109,290
-----------
-----------
</TABLE>
See accompanying notes.
F-52
<PAGE>
<PAGE>
CONQUISTADOR HOLDING, INC.
NOTES TO UNAUDITED BALANCE SHEET
MARCH 31, 1999
1. ORGANIZATION
Conquistador Holding, Inc. (the 'Company') is owned by Patriot American
Hospitality, Inc. ('PAH') and a subsidiary of Wyndham International, Inc.
('Wyndham'). The Company was incorporated for the purpose of acquiring general
partnership interests in El Conquistador Partnership L.P. ('El Con') and WKA El
Con Associates ('WKA'). WKA owns the remaining partnership interests in El Con
while El Con owns the El Conquistador Resort & Country Club located in Fajardo,
Puerto Rico.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of the balance sheet in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the balance sheet and accompanying notes. Actual
results could differ from those estimates.
INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS
The Company has a 50% interest in El Con and a 53.46% interest in WKA. The
remaining partnership interests of El Con and WKA are owned by a subsidiary of
Wyndham. By agreement between Wyndham and PAH, WKA's interest is the controlling
50% interest in El Con. Accordingly, the Company accounts for its investments in
El Con and WKA under the equity method.
INCOME TAXES
The Company records its provision for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, 'Accounting for Income
Taxes' ('SFAS 109'). Under the liability method of SFAS 109, deferred taxes are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using the enacted tax rates in effect in the years the
differences are expected to reverse.
3. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS
Investments in unconsolidated partnerships as of March 31, 1999 are as
follows:
<TABLE>
<S> <C>
Investment in El Con........................................................... $21,054,467
Investment in WKA.............................................................. 19,054,722
-----------
$40,109,189
-----------
-----------
</TABLE>
Summarized financial information for El Con as of March 31, 1999 is as
follows:
<TABLE>
<S> <C>
Total assets.................................................................. $269,074,489
Total liabilities............................................................. $206,484,691
Partners' capital............................................................. $ 62,589,798
</TABLE>
Summarized financial information for WKA as of March 31, 1999 is as
follows:
<TABLE>
<S> <C>
Total assets.................................................................. $270,389,892
Total liabilities............................................................. $218,933,627
Partners' capital............................................................. $ 51,456,265
</TABLE>
Certain debt of El Con was collateralized by a letter of credit which
expired on September 9, 1998. On August 3, 1998, the letter of credit was
honored and drawn on. In accordance with the
F-53
<PAGE>
<PAGE>
Letter of Credit and Reimbursement Agreement, El Con was obligated to
immediately reimburse the letter of credit issuer the full $120,000,000 drawn.
On August 3, 1998, El Con repaid the letter of credit issuer by making a partial
payment of $30,000,000 and obtaining a $90,000,000 interim loan from a lender
to pay the remainder. The loan matured on November 3, 1998 and was extended to
March 15, 1999. On January 29, 1999, El Con and the lender of the $90,000,000
amended their agreement to provide for a muturity date of March 31, 1999, with
an addititional extension option up to June 30, 1999, if certain conditions
were met. On March 31, 1999, El Con exercised its extension option to extend the
maturity date to June 30, 1999. El Con is engaged in the process of refinancing
the $90,000,000 debt through a new bond issue. The Company believes such
refinancing will be achieved, but there can be no assurance thereof. This raises
substantial doubt about the Company's ability to continue as a going-concern.
4. SUBSCRIPTION NOTE RECEIVABLE
Upon incorporation, Wyndham, through one of its subsidiaries, contributed
cash of $101 and a note payable to the Company in the amount of $1,337,899 in
exchange for 100 shares of the Company's Class A common stock.
5. HURRICANE GEORGES
On September 21 and 22, 1998, Hurricane Georges affected Puerto Rico and
caused certain damage to the hotel owned by El Con. The financial effects of the
physical damage caused by the hurricane were estimated at $32,000,000. However,
the Company believes that the nature of the damage and insurance coverage is
such that there will not be a significant impact on the Company's financial
condition.
F-54
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
CONQUISTADOR HOLDING, INC.
We have audited the accompanying balance sheet of Conquistador Holding,
Inc., a Delaware corporation, as of December 31, 1998. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Conquistador Holding, Inc. as of
December 31, 1998, in conformity with generally accepted accounting principles.
The accompanying balance sheet has been prepared assuming that Conquistador
Holding, Inc. will continue as a going-concern. As more fully described in Notes
3 and 6, El Conquistador Partnership L.P., is engaged in the process of
refinancing the balance due to a lender in the amount of $90,000,000, which
matures on June 30, 1999, through a new bond issuance to be issued by the Puerto
Rico Industrial, Tourist, Educational, Medical and Environmental Control
Facilities Financing Authority. If such financing is not obtained, it raises
substantial doubt about the Company's ability to continue as a going-concern.
The balance sheet does not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classifications of liabilities that may result from the outcome of this
uncertainty.
/S/ ERNST & YOUNG LLP
Dallas, Texas
April 12, 1999
F-55
<PAGE>
<PAGE>
PURCHASERS OF THE BONDS ARE NOT ACQUIRING ANY INTEREST IN,
OR SECURITIES OF, CONQUISTADOR HOLDING, INC.
CONQUISTADOR HOLDING, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Cash............................................................................................... $ 101
Investments in unconsolidated subsidiaries......................................................... 31,801,815
-----------
Total assets........................................................................ $31,801,916
-----------
-----------
SHAREHOLDERS' EQUITY
Shareholders' equity:
Class A voting common stock, $0.01 par value; 50,000 shares authorized;
100 shares issued and outstanding........................................................... $ 1
Class B non-voting common stock, $0.01 par value; 50,000 shares authorized; 9,900 shares
issued and outstanding....................................................................... 99
Additional paid in capital.................................................................... 38,064,946
Retained deficit.............................................................................. (4,925,231)
-----------
33,139,815
Less: subscription note receivable............................................................ (1,337,899)
-----------
Total shareholders' equity.......................................................... $31,801,916
-----------
-----------
</TABLE>
See accompanying notes.
F-56
<PAGE>
<PAGE>
CONQUISTADOR HOLDING, INC.
NOTES TO BALANCE SHEET
DECEMBER 31, 1998
1. ORGANIZATION
Conquistador Holding, Inc. (the 'Company') is owned by Patriot American
Hospitality, Inc. ('PAH') and a subsidiary of Wyndham International, Inc.
('Wyndham'). The Company was incorporated for the purpose of acquiring general
partnership interests in El Conquistador Partnership L.P. ('El Con') and WKA El
Con Associates ('WKA'). WKA owns the remaining partnership interests in El Con
while El Con owns the El Conquistador Resort & Country Club located in Fajardo,
Puerto Rico.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of the balance sheet in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the balance sheet and accompanying notes. Actual
results could differ from those estimates.
INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS
Effective March 1, 1998, the Company acquired a 50% interest in El Con and
a 37.23% interest in WKA from PAH. The remaining partnership interests of El Con
and WKA are owned by a subsidiary of Wyndham. By agreement between Wyndham and
PAH, WKA's interest is the controlling 50% interest in El Con. Accordingly, the
Company accounts for its investments in El Con and WKA under the equity method.
On July 13, 1998, the Company acquired an additional 16.23% interest in WKA
for approximately $3,890,000.
INCOME TAXES
The Company records its provision for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 ('SFAS 109'). Under the
liability method of SFAS 109, deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using the enacted tax rates in effect in the years the differences
are expected to reverse.
As of December 31, 1998, the Company has a net operating loss carryforward
of $4,925,231 which is available through December 31, 2018. The net operating
loss created a deferred tax asset of $1,723,831 which has been fully reserved.
3. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS
Investments in unconsolidated partnerships as of December 31, 1998 are as
follows:
<TABLE>
<S> <C>
Investment in El Con........................................................... $15,641,086
Investment in WKA.............................................................. 16,160,729
-----------
$31,801,815
-----------
-----------
</TABLE>
F-57
<PAGE>
<PAGE>
CONQUISTADOR HOLDING, INC.
NOTES TO BALANCE SHEET -- (CONTINUED)
DECEMBER 31, 1998
Summarized financial information for El Con as of December 31, 1998 is as
follows:
<TABLE>
<S> <C>
Total assets.................................................................. $262,367,740
Total liabilities............................................................. $210,604,704
Partners' capital............................................................. $ 51,763,036
</TABLE>
Summarized financial information for WKA as of December 31, 1998 is as
follows:
<TABLE>
<S> <C>
Total assets.................................................................. $263,708,411
Total liabilities............................................................. $217,683,441
Partners' capital............................................................. $ 46,024,970
</TABLE>
Certain debt of El Con was collateralized by a letter of credit which
expired on September 9, 1998. On August 3, 1998, the letter of credit was
honored and drawn on. In accordance with the Letter of Credit and Reimbursement
Agreement, El Con was obligated to immediately reimburse the letter of credit
issuer the full $120,000,000 drawn. On August 3, 1998, El Con repaid the letter
of credit issuer by making a partial payment of $30,000,000 and obtaining a
$90,000,000 interim loan from a lender to pay the remainder. The loan matured on
November 3, 1998, with an additional extension option to March 15, 1999
available if certain conditions were met (see Note 6). El Con is engaged in the
process of refinancing the $90,000,000 debt through a new bond issue. The
Company believes such refinancing will be achieved, but there can be no
assurance thereof. This raises substantial doubt about the Company's ability to
continue as a going-concern.
4. SUBSCRIPTION NOTE RECEIVABLE
Upon incorporation, Wyndham, through one of its subsidiaries, contributed
cash of $101 and a note payable to the Company in the amount of $1,337,899 in
exchange for 100 shares of the Company's Class A common stock.
5. HURRICANE GEORGES
On September 21 and 22, 1998, Hurricane Georges affected Puerto Rico and
caused certain damage to the hotel owned by El Con. The financial effects of the
physical damage caused by the hurricane were estimated at $32,000,000. However,
the Company believes that the nature of the damage and insurance coverage is
such that there will not be a significant impact on the Company's financial
condition.
6. SUBSEQUENT EVENTS
On January 29, 1999, El Con and the lender of the $90,000,000 amended their
agreement to provide for a maturity date of March 31, 1999, with an additional
extension option up to June 30, 1999, if certain conditions are met. On March
31, 1999, El Con exercised its extension option to extend the maturity date to
June 30, 1999.
F-58
<PAGE>
<PAGE>
APPENDIX A
FORM OF OPINION OF FIDDLER GONZALEZ & RODRIGUEZ, LLP, BOND COUNSEL
[ ,] 1999
Puerto Rico Industrial, Tourist, Educational,
Medical and Environmental Control Facilities
Financing Authority
San Juan, Puerto Rico
Gentlemen:
We have examined Act No. 121 of the Legislature of Puerto Rico, approved
June 27, 1977, as amended (the 'Act'), creating Puerto Rico Industrial, Medical,
Educational and Environmental Pollution Control Facilities Financing Authority
(the 'Authority'), a body corporate and politic constituting a public
corporation and governmental instrumentality of Puerto Rico ('Puerto Rico').
We have also examined certified copies of the proceedings of the Board of
Directors of the Authority in authorizing the execution and delivery of the
Trust Agreement and the Loan Agreement hereinafter referred to, and certified
copies of the proceedings and other proofs submitted relative to the
authorization, issuance, and sale of the following bonds (the 'Bonds'):
$105,200,000
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL, MEDICAL
AND ENVIRONMENTAL CONTROL
FACILITIES FINANCING AUTHORITY
TOURISM REVENUE BONDS, 1999 SERIES A
(EL CONQUISTADOR RESORT PROJECT)
Said Bonds are issued under and pursuant to a Deed of Trust Agreement (the
'Trust Agreement'), dated the date hereof, by and between the Authority and
Banco Santander Puerto Rico, Trustee (the 'Trustee').
The proceeds of the sale of the Bonds are to be used for the purpose of
repaying the principal of and interest on an interim loan provided by Citicorp
Real Estate, Inc. to El Conquistador Partnership L.P., S.E. (the 'Borrower'),
funding certain reserves and paying certain costs and expenses of issuing the
Bonds. The proceeds of said interim financing were used to pay Borrower's
obligations under a certain reimbursement agreement resulting from the
redemption of bonds issued by the Authority for the financing, in part, of the
purchase, renovation, development, construction, equipping and operation of a
hotel in Fajardo, Puerto Rico, known as El Conquistador Resort & Country Club.
The Authority has entered into a Loan Agreement, dated the date hereof (the
'Loan Agreement'), with the Borrower providing for the loan of the proceeds of
the sale of the Bonds to the Borrower and for repayment by the Borrower of the
loan in amounts sufficient to pay the principal of and interest on the Bonds as
the same will become due and payable. The Loan Agreement provides that the loan
repayments will be paid directly to the Trustee and will be deposited to the
credit of a special fund created by the Trust Agreement and designated 'Tourism
Revenue Bonds 1999 Series A (El Conquistador Resort Project) Bonds Fund' (the
'Bond Fund'), which special fund is charged with the payment of the principal of
and interest on the Bonds. In addition, the Loan Agreement, except for certain
rights of the Authority, and the repayments thereunder, has been assigned to the
Trustee.
The Bonds are subject to redemption as provided in the Trust Agreement.
As to any questions of fact material to our opinion, we have relied upon
representations of the Authority and the Borrower contained in the Trust
Agreement and the Loan Agreement, the
A-1
<PAGE>
<PAGE>
certified proceedings and other certifications by officials of the Authority and
the Borrower, without undertaking to verify the same by independent
investigation.
We have also examined one of the Bonds as executed and authenticated.
All capitalized terms used in this opinion letter and not otherwise defined
herein will have the meanings ascribed to them in the Trust Agreement.
From such examination, we are of the opinion that:
1. The Act is valid.
2. The proceedings of the Board of Directors of the Authority required
in connection with the authorization, issuance and sale of the Bonds and
the authorization, execution, and delivery of the Loan Agreement and the
Related Documents to which the Authority is a party and the Trust Agreement
have been validly and legally taken.
3. The Trust Agreement and the Related Documents to which the
Authority is a party have been duly authorized, executed and delivered by
the Authority and assuming due authorization, execution and delivery by the
other parties thereto, constitute the legal, valid, binding and enforceable
obligations of the Authority in accordance with their terms, except to the
extent such enforceability may be limited by bankruptcy, insolvency or
other laws affecting creditors' rights generally, and subject to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4. The Bonds have been duly authorized by the Authority and constitute
legal, valid, and binding obligations of the Authority, payable solely from
the Bond Fund and entitled to the benefit of the Trust Agreement.
5. All right, title and interest of the Authority in and to the
Related Documents (except certain rights of the Authority including its
rights to payment of expenses indemnity) have been validly assigned to the
Trustee.
6. The Bonds do not constitute an indebtedness of either Puerto Rico
or any of its principal subdivisions, other than the Authority, and neither
Puerto Rico nor any of such political subdivisions, other than the
Authority, will be liable thereon.
7. The Bonds and the transfer of the Bonds, including gain derived
upon the sale of the Bonds, are exempt from Puerto Rico income tax pursuant
to Article 8(b) of the Act.
8. Interest on the Bonds is (i) excluded from the gross income of the
recipient thereof for Puerto Rico income tax purposes pursuant to Section
1022(b)(4)(B) of the Puerto Rico Internal Revenue Code of 1994, as amended
(the 'PR-Code'); (ii) exempt from Puerto Rico income tax and alternative
minimum tax pursuant to Section 1022(b)(4)(B) of the PR-Code, Article 8(b)
of the Act and Section 3 of the Puerto Rico Federal Relations Act ('PRFRA')
and; (iii) exempt from Puerto Rico municipal license tax pursuant to
Section 9(25) of the Puerto Rico Municipal License Tax Act of 1974, as
amended, and Section 3 of the PRFRA.
9. The Bonds are exempt from Puerto Rico personal property tax
pursuant to Section 3.11 of the Puerto Rico Municipal Property Tax Act of
1991, as amended, and Section 3 of the PRFRA.
10. The Bonds are exempt from Puerto Rico (i) gift tax with respect to
donors who are residents of Puerto Rico at the time the gift is made and
(ii) estate tax with respect to estates of decedents who are residents of
Puerto Rico at the time of death, excluding, in each case, United States
citizens who acquired their United States citizenship other than by reason
of birth or residence in Puerto Rico.
11. Assuming that the Partnership complies with the source of income
representations, warranties and covenants contained in the Loan Agreement,
then:
a. Interest received or accrued on the Bonds is excludable from
gross income pursuant to Section 933(1) of the Code if the holder of the
Bonds is an individual who is a bona fide resident of Puerto Rico during
the entire taxable year in which the interest is received or accrued.
A-2
<PAGE>
<PAGE>
b. Interest received or accrued on the Bonds is not subject to
United States federal income tax if the holder of the Bonds is a
corporation organized under the laws of Puerto Rico or any foreign
country and such interest is not effectively connected with the conduct
of a trade or business in the United States by such corporation.
12. Interest on the Bonds is not excluded from the gross income of the
recipient thereof for United States federal income tax purposes under
Section 103(a) of the Code.
13. The Bonds will be considered an obligation of an instrumentality
of Puerto Rico for purposes of (i) the non-recognition of gain rules of
Section 1112(f)(2)(A) of the PR-Code applicable to certain involuntary
conversions and (ii) the exemption from surtax imposed by Section 1102 of
the PR-Code available to corporations and partnerships that have certain
percentage of their net income invested in obligations of instrumentalities
of Puerto Rico and certain other investments.
United States taxpayers, other than individuals who are bona fide
residents of Puerto Rico during the entire taxable year, will be subject to
United States federal income tax on gain realized upon the sale or exchange
of the Bonds. Pursuant to Notice 89-40, 1989-1 CB 681, gain on the sale of
the Bonds (not including original issue discount accruing under the Code as
of the date of such sale or exchange) by an individual who is bona fide
resident of Puerto Rico for purposes of Section 865(g)(1) of the Code will
constitute income from sources within Puerto Rico and will qualify for the
exclusion provided in Section 933(1) of the Code, provided that the Bonds
do not constitute inventory property in such individual's hands.
Ownership of the Bonds may result in having a portion of the interest
expense allocable to interest on the Bonds disallowed for purposes of
computing the regular tax and the alternative minimum tax for Puerto Rico
income tax purposes.
This opinion is limited to the above, and we express no other opinion
regarding Puerto Rico or United States tax consequences arising from ownership
or disposition of the Bonds.
This letter is furnished by us solely for the benefit of the Authority and
the holders from time to time of the Bonds and may not be relied upon by any
other person.
We hereby consent to the inclusion of this opinion as Appendix A to the
official statement and prospectus included in the registration statement. We
further consent to the reference made to us under the captions 'Summary -- Tax
Consequences,' 'Tax Consequences' and 'Legal Matters' in the offical statement
and prospectus.
Respectfully submitted,
A-3
<PAGE>
<PAGE>
APPENDIX B
ACCRETION TABLE FOR CAPITAL APPRECIATION BONDS
(PER $5,000 MATURITY AMOUNT)
B-1
<PAGE>
<PAGE>
_____________________________ _____________________________
NONE OF EL CONQUISTADOR, AFICA OR THE UNDERWRITERS HAVE AUTHORIZED ANY
PERSON TO MAKE A STATEMENT THAT DIFFERS FROM WHAT IS IN THIS OFFICIAL STATEMENT
AND PROSPECTUS. IF ANY PERSON DOES MAKE A STATEMENT THAT DIFFERS FROM WHAT IS IN
THIS OFFICIAL STATEMENT AND PROSPECTUS, YOU SHOULD NOT RELY ON IT. THIS OFFICIAL
STATEMENT AND PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO
BUY THE BONDS IN ANY JURISDICTION THE OFFER OR SALE IS NOT PERMITTED. THE
INFORMATION IN THIS OFFICIAL STATEMENT AND PROSPECTUS IS COMPLETE AND ACCURATE
AS OF ITS DATE, BUT THE INFORMATION MAY CHANGE AFTER THAT DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................................................... 3
Risk Factors............................................................................................... 13
Use of Proceeds............................................................................................ 23
El Conquistador Resort & Country Club...................................................................... 24
El Conquistador Partnership ............................................................................... 32
Security Ownership of Management and Certain Beneficial Owners............................................. 34
Management of El Conquistador Partnership ................................................................. 37
Selected Financial Data.................................................................................... 41
Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................................................................................ 44
Legal Proceedings.......................................................................................... 56
Policy with Respect to Certain Activities.................................................................. 57
Investment Objectives and Policies......................................................................... 57
Policies with Respect to Certain Transactions.............................................................. 58
Certain Relationships and Related Transactions............................................................. 58
The Bonds.................................................................................................. 60
Summary of the Loan Agreement.............................................................................. 67
Summary of the Trust Agreement............................................................................. 72
AFICA...................................................................................................... 77
Government Development Bank for
Puerto Rico.............................................................................................. 78
Tax Consequences........................................................................................... 79
Rating..................................................................................................... 80
Legal Investment........................................................................................... 80
Underwriting............................................................................................... 80
Legal Matters.............................................................................................. 81
Continuing Disclosure Covenant............................................................................. 81
Reports of El Conquistador
Partnership ............................................................................................. 83
Experts.................................................................................................... 83
Glossary................................................................................................... 83
Miscellaneous.............................................................................................. 84
Index to Financial Statements.............................................................................. F-1
Form of Opinion of Bond Counsel............................................................................ A-1
Accretion Table for Capital
Appreciation Bonds....................................................................................... B-1
</TABLE>
------------------------
UNTIL ALL DEALERS EFFECTING TRANSACTIONS IN THE BONDS,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
_____________________________ _____________________________
_____________________________ _____________________________
$105,200,000
AFICA
TOURISM REVENUE BONDS,
1999 SERIES A
(EL CONQUISTADOR
RESORT PROJECT)
--------------------------------------
OFFICIAL STATEMENT
AND PROSPECTUS
--------------------------------------
CITICORP FINANCIAL
SERVICES CORPORATION
_____________________________ _____________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting commissions. All of the amounts shown are estimates except for the
Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
- -------------------------------------------------------------------------------- ----------
<S> <C>
SEC registration fee............................................................ $ 30,946
Printing expenses............................................................... 350,000
Accounting fees and expenses.................................................... 300,000
Legal fees and expenses......................................................... 1,000,000
Trustee fees.................................................................... 30,000
AFICA fees...................................................................... 526,000
Miscellaneous expenses.......................................................... 13,054
----------
TOTAL...................................................................... $2,250,000
----------
----------
</TABLE>
ITEM 32. SALES TO SPECIAL PARTIES.
Not applicable.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Partnership Agreement of El Conquistador Partnership L.P., S.E.
provides that no general partner and none of its officers, directors, partners,
employees or agents, whether acting as a general partner, a member of the
Development Committee (as defined in the Partnership Agreement) or otherwise,
has any liability to El Conquistador or any other partner for any acts performed
by such general partner, officer, director, partner, employee or agent, by or on
behalf of El Conquistador in its capacity as such except for gross negligence or
willful misconduct. The Partnership Agreement of El Conquistador also provides
that the liability of each limited partner is limited to its capital
contribution and that no limited partner as such has any other liability to
contribute money to, or in respect of the liabilities or obligations of, El
Conquistador, nor is any limited partner as such personally liable for any
obligations of El Conquistador except as otherwise provided by law.
Each of the general partner and limited partners of El Conquistador will be
a Delaware corporation at the time of the offering.
Each partner's authority to indemnify its respective officers and directors
will be governed by the provisions of Section 145 of the General Corporation Law
of the State of Delaware and by the Certificate of Incorporation of such
partner. The Certificate of Incorporation of each partner will provide that it
shall, to the fullest extent permitted by Section 145 of the Delaware General
Corporation Law, (1) 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, and (2)
advance expenses to any and all said persons, and that such indemnification and
advances 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,
employees or agents and shall inure to the benefit of the heirs, executors and
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<PAGE>
<PAGE>
administrators of such person. In addition, the Certificate of Incorporation of
each partner will provides for the elimination of personal liability of
directors of such partner to such partner or its stockholders for monetary
damages for breach of fiduciary duty as a director, to the fullest extent
permitted by the Delaware General Corporation Law, as amended and supplemented.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
ITEM 36. FINANCIAL STATEMENT AND EXHIBITS.
(a) Financial Statements.
<TABLE>
<S> <C>
EL CONQUISTADOR PARTNERSHIP L.P.
Pro Forma Condensed Financial Statements (Unaudited)
Introduction.......................................................................................... F-2
Pro Forma Condensed Balance Sheet as of March 31, 1999................................................ F-3
Pro Forma Condensed Statement of Operations for the Three Months Ended
March 31, 1999...................................................................................... F-5
Pro Forma Condensed Balance Sheet as of December 31, 1998............................................. F-6
Pro Forma Condensed Statement of Operations for the Twelve Months Ended December 31, 1998............. F-8
Audited Financial Statements
Report of Independent Auditors........................................................................ F-10
Balance Sheets as of March 31, 1999 and 1998 and December 31, 1998 and 1997........................... F-11
Statements of Operations for the Three Months Ended March 31, 1999, for the
Period of March 1, 1998 to March 31, 1998 (successor partnership) and for the Period of January 1,
1998 to February 28, 1998 (predecessor partnership), and for the Period of March 1, 1998 to December
31, 1998 (successor partnership), for the Period of January 1, 1998 to February 28, 1998, and for the
Fiscal Years Ended December 31, 1997 (9 Months) and March 31, 1997 (predecessor partnership)......... F-12
Statements of Partners' Capital (Deficiency) at April 1, 1996, March 31, 1997, December 31, 1997,
February 28, 1998, December 31, 1998 and March 31, 1999 and 1998..................................... F-13
Statements of Cash Flows for the Three Months Ended March 31, 1999, for the
Period of March 1, 1998 to March 31, 1998 (successor partnership) and for the Period of January 1,
1998 to February 28, 1998 (predecessor partnership), and for the Period of March 1, 1998 to December
31, 1998 (successor partnership), for the Period of January 1, 1998 to February 28, 1998, and for the
Fiscal Years Ended December 31, 1997 (9 Months) and March 31, 1997 (predecessor partnership)......... F-14
Notes to Financial Statements......................................................................... F-15
WKA EL CON ASSOCIATES
Consolidated Balance Sheet (Unaudited)
Consolidated Balance Sheet as of March 31, 1999....................................................... F-25
Notes to Consolidated Balance Sheet................................................................... F-26
Audited Consolidated Balance Sheet
Report of Independent Auditors........................................................................ F-31
Consolidated Balance Sheet as of December 31, 1998.................................................... F-32
Notes to Consolidated Balance Sheet................................................................... F-33
WHG EL CON CORP.
Consolidated Balance Sheet (Unaudited)
Consolidated Balance Sheet as of March 31, 1999....................................................... F-39
Notes to Consolidated Balance Sheet................................................................... F-40
</TABLE>
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<TABLE>
<S> <C>
Audited Consolidated Balance Sheet
Report of Independent Auditors........................................................................ F-45
Consolidated Balance Sheet as of December 31, 1998.................................................... F-46
Notes to Consolidated Balance Sheet................................................................... F-47
CONQUISTADOR HOLDING, INC.
Balance Sheet (Unaudited)
Balance Sheet as of March 31, 1999.................................................................... F-52
Notes to Balance Sheet................................................................................ F-53
Audited Balance Sheet
Report of Independent Auditors........................................................................ F-55
Balance Sheet as of December 31, 1998................................................................. F-56
Notes to Balance Sheet................................................................................ F-57
</TABLE>
(b) Exhibits.
<TABLE>
<C> <S>
1 -- Contract of Purchase among El Conquistador Partnership L.P., S.E., Citicorp Financial Services
Corporation, PaineWebber Incorporated of Puerto Rico, Salomon Smith Barney Inc. and Puerto Rico
Industrial, Tourist, Educational, Medical and Environmental Control Facilities Authority ('AFICA').
'D'3.1 -- El Conquistador Partnership L.P. Venture Agreement dated January 12, 1990 between WKA El Con Associates
and Kumagai Caribbean, Inc., as amended May 4, 1992, March 31, 1998 and April 29, 1998.
'D'3.2 -- Certificate of Limited Partnership, as amended, of El Conquistador Partnership L.P.
3.3 -- Amended and Restated Partnership Agreement of El Conquistador Partnership L.P., S.E.
'D'3.4 -- Amendment to Certificate of Limited Partnership of El Conquistador Partnership L.P.
3.5 -- Amendment to Certificate of Limited Partnership of El Conquistador Partnership L.P., S.E.
3.6 -- Assignment of Interests and Fourth Amendment to Venture Agreement of El Conquistador Partnership L.P.,
S.E.
4.1 -- Loan Agreement between AFICA and El Conquistador Partnership L.P., S.E.
4.2 -- Trust Agreement between AFICA and Banco Santander Puerto Rico, as trustee.
4.3 -- Serial Bond (included in Exhibit 4.2 hereof).
4.4 -- Term Bond (included in Exhibit 4.2 hereof).
4.5 -- Capital Appreciation Bond (included in Exhibit 4.2 hereof).
5.1 -- Opinion of Shack & Siegel, P.C. with respect to legality of securities being registered.
5.2 -- Opinion of McConnell Valdez with respect to the legality of the securities being registered.
8 -- Opinion of Fiddler Gonzalez & Rodriguez, LLP, with respect to certain tax matters.
'D'10.1 -- El Conquistador Partnership L.P. Development Services and Management Agreement dated January 12, 1990
between El Conquistador Partnership L.P. and Williams Hospitality Management Corporation (now known as
Williams Hospitality Group Inc.), as amended as of September 30, 1990 and January 31, 1991.
'D'10.2 -- Deed of Lease dated December 15, 1990 by Alberto Bachman Umpierre and Lilliam Bachman Umpierre to El
Conquistador Partnership L.P.
'D'10.3 -- Letter of Credit and Reimbursement Agreement dated as of February 7, 1991 between El Conquistador
Partnership L.P. and The Mitsubishi Bank, Limited acting through its New York Branch (now known as The
Bank of Tokyo-Mitsubishi, Ltd.) and the Irrevocable Transferable Standby Letter of Credit dated
February 7, 1991 issued pursuant thereto.
'D'10.4 -- First Amendment to the Letter of Credit and Reimbursement Agreement dated as of May 5, 1992 between El
Conquistador Partnership L.P., WKA El Con Associates, Kumagai Caribbean, Inc. and The Mitsubishi Bank,
Limited acting through its New York Branch (now known as The Bank of Tokyo-Mitsubishi, Ltd).
</TABLE>
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<TABLE>
<C> <S>
'D'10.5 -- Assignment and Modification Agreement dated as of August 3, 1998 among El Conquistador Partnership
L.P., Citicorp Real Estate, Inc., Banco Popular de Puerto Rico, as trustee, AFICA and The Mitsubishi
Bank, Limited acting through its New York Branch (now known as The Bank of Tokyo-Mitsubishi, Ltd).
'D'10.6 -- Replacement Reserve Agreement dated as of August 3, 1998 between El Conquistador Partnership L.P. and
Citicorp Real Estate, Inc.
'D'10.7 -- Debt Service Reserve Agreement (Citicorp Real Estate, Inc.) dated as of August 3, 1998 between El
Conquistador Partnership L.P. and Citicorp Real Estate, Inc.
'D'10.8 -- Debt Service Reserve Agreement (Government Development Bank) dated as of August 3, 1998 between El
Conquistador Partnership L.P. and Citicorp Real Estate, Inc.
'D'10.9 -- Environmental Indemnity Agreement dated as of August 3, 1998 by El Conquistador Partnership L.P. and
Patriot American Hospitality, Inc. in favor of Citicorp Real Estate, Inc.
'D'10.10 -- Security Agreement dated as of August 3, 1998 between El Conquistador Partnership L.P. and Citicorp
Real Estate, Inc.
'D'10.11 -- Assignment of Leases and Rents dated as of August 3, 1998 by El Conquistador Partnership L.P. to
Citicorp Real Estate, Inc.
'D'10.12 -- Assignment of Licenses, Permits and Contracts dated as of August 3, 1998 by El Conquistador Partnership
L.P. to Citicorp Real Estate, Inc.
'D'10.13 -- Assignment of Management Agreement and Subordination of Management Fees dated as of August 3, 1998 by
El Conquistador Partnership L.P. to Citicorp Real Estate, Inc. and acknowledged and consented to by
Williams Hospitality Group Inc.
'D'10.14 -- Promissory Note dated August 3, 1998 in the aggregate principal amount of $32,021,172 made by El
Conquistador Partnership L.P. in favor of Posadas de Puerto Rico Associates, Incorporated.
'D'10.15 -- Loan Agreement dated February 7, 1991 between The Government Development Bank for Puerto Rico and El
Conquistador Partnership L.P.
'D'10.16 -- First Amendment to Loan Agreement dated May 5, 1992 between The Government Development Bank for Puerto
Rico and El Conquistador Partnership L.P.
'D'10.17 -- Second Amendment to Loan Agreement dated as of October 4, 1996 between The Government Development Bank
for Puerto Rico and El Conquistador Partnership L.P.
'D'10.18 -- Management Agreement Subordination and Attornment Agreement dated as of February 7, 1991 between
Williams Hospitality Management Corporation (now known as Williams Hospitality Group Inc.) and The
Mitsubishi Bank, Limited acting through its New York Branch (now known as The Bank of Tokyo-Mitsubishi,
Ltd).
'D'10.19 -- Collateral Pledge Agreement dated as of February 7, 1991 among El Conquistador Partnership L.P., AFICA
and The Mitsubishi Bank, Limited acting through its New York Branch (now known as The Bank of
Tokyo-Mitsubishi, Ltd).
'D'10.20 -- Mortgage dated February 7, 1991 by El Conquistador Partnership L.P. in favor of AFICA.
'D'10.21 -- Deed of Mortgage dated February 7, 1991 by El Conquistador Partnership L.P. in favor of The Government
Development Bank for Puerto Rico.
'D'10.22 -- Leasehold Mortgage dated February 7, 1991 by El Conquistador Partnership L.P. in favor of AFICA.
'D'10.23 -- Deed of Leasehold Mortgage dated February 7, 1991 by El Conquistador Partnership L.P. in favor of The
Government Development Bank for Puerto Rico.
'D'10.24 -- Deed of Segregation and Ratification of Lease dated May 28, 1991 between Alberto Bachman Umpierre and
Lilliam Bachman Umpierre, and El Conquistador Partnership L.P.
'D'10.25 -- Amendment to Reimbursement Agreement and Ratification of Guaranties dated as of November 3, 1998 among
El Conquistador Partnership L.P., Patriot American Hospitality, Inc. and Citicorp Real Estate, Inc.
10.26 -- Continuing Disclosure Agreement between El Conquistador Partnership L.P., S.E. and Banco Santander
Puerto Rico, as trustee.
</TABLE>
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<TABLE>
<C> <S>
*10.27 -- Master Security Agreement between El Conquistador Partnership L.P., S.E. and Banco Santander Puerto
Rico, as trustee on behalf of and for the benefit of AFICA.
*10.28 -- Assignment of Leases and Rents and Security Agreement between El Conquistador Partnership L.P., S.E.
and Banco Santander Puerto Rico, as trustee on behalf of and for the benefit of AFICA.
*10.29 -- Assignment of Hotel Management Agreement between El Conquistador Partnership L.P., S.E. and Banco
Santander Puerto Rico, as trustee on behalf of and for the benefit of AFICA.
*10.30 -- Mortgage made by El Conquistador Partnership L.P., S.E. in favor of Banco Santander Puerto Rico, as
trustee on behalf of and for the benefit of AFICA.
*10.31 -- Leasehold Mortgage made by El Conquistador Partnership L.P., S.E. in favor of Banco Santander Puerto
Rico, as trustee on behalf of and for the benefit of AFICA.
*10.32 -- Mortgage Notes Pledge and Security Agreement between El Conquistador Partnership L.P., S.E. and Banco
Santander Puerto Rico, as trustee on behalf of and for the benefit of AFICA.
'D'10.33 -- Amended and Restated Management Agreement between El Conquistador Partnership L.P. and Williams
Hospitality Group Inc.
'D'10.34 -- Form of El Conquistador Resort and Country Club Condominium Unit Management and Rental Agreement.
'D'10.35 -- Amendment to Reimbursement Agreement and Ratification of Guaranties dated as of January 29, 1999 among
El Conquistador Partnership L.P., Patriot American Hospitality, Inc. and Citicorp Real Estate, Inc.
'D'10.36 -- Assignment of Management Agreement and Subordination of Management Fees dated as of January 1, 1999 by
El Conquistador Partnership L.P. to Citicorp Real Estate, Inc. and acknowledged and consented to by
Williams Hospitality Group Inc.
'D'10.37 -- Letter Agreement dated March 31, 1999 among El Conquistador Partnership L.P., Patriot American
Hospitality, Inc. and Citicorp Real Estate, Inc.
12 -- Statement with respect to computation of ratios.
23.1 -- Consent of Ernst & Young LLP with respect to El Conquistador Partnership L.P., WKA El Con Associates
and WHG El Con Corp.
23.2 -- Consent of Ernst & Young LLP with respect to Conquistador Holding, Inc.
23.3 -- Consent of McConnell Valdez (contained in their opinion filed as Exhibit 5.2 hereto).
23.4 -- Consent of Fiddler Gonzalez & Rodriguez, LLP (contained in their opinion filed as Exhibit 8 hereto).
23.5 -- Consent of Shack & Siegel, P.C. (contained in their opinion filed as Exhibit 5.1 hereto).
'D'24 -- Powers of Attorney.
'D'25 -- Statement of Eligibility of Trustee (filed separately on January 13, 1999).
27 -- Financial Data Schedule (filed with EDGAR version only).
</TABLE>
- ------------
'D' Previously filed.
* To be filed by amendment.
ITEM 37. UNDERTAKINGS.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such
II-5
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indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(i) The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(l) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Amendment No. 3 to
the Registration Statement (333-65889) to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, Texas on the 12th
day of May, 1999.
EL CONQUISTADOR PARTNERSHIP L.P., S.E.
(Registrant)
By: CONQUISTADOR HOLDING, INC.
By: /s/ JAMES D. CARREKER
...................................
NAME: JAMES D. CARREKER
TITLE: CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Pursuant to the Securities Act of 1933, this Amendment No. 3 to the
Registration Statement (333-65889) has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITIES IN WHICH SIGNED DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ JAMES D. CARREKER Chief Executive Officer (Principal Executive May 12, 1999
......................................... Officer) of the Registrant and Director of
JAMES D. CARREKER Conquistador Holding, Inc.
/s/ LAWRENCE S. JONES Executive Vice President and Treasurer May 12, 1999
......................................... (Principal Financial Officer and Principal
LAWRENCE S. JONES Accounting Officer) of the Registrant and
Director of Conquistador Holding, Inc.
</TABLE>
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as.................... 'r'
The dagger symbol shall be expressed as.................................. 'D'
II-7
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EXHIBIT 1
$105,200,000
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL, MEDICAL
AND ENVIRONMENTAL CONTROL FACILITIES FINANCING AUTHORITY
TOURISM REVENUE BONDS, 1999 SERIES A
(EL CONQUISTADOR RESORT PROJECT)
CONTRACT OF PURCHASE
_________ ___, 1999
Puerto Rico Industrial, Tourist,
Educational, Medical and Environmental
Control Facilities Financing Authority
c/o Government Development Bank
for Puerto Rico
PO Box 42001
Minillas Government Center
San Juan, Puerto Rico 00940
El Conquistador Partnership L.P., S.E.
1000 El Conquistador Avenue
Fajardo, Puerto Rico 00738
Ladies and Gentlemen:
The undersigned (the "Underwriters"), hereby offer to enter into this
Contract of Purchase (this "Contract") with Puerto Rico Industrial, Tourist,
Educational, Medical and Environmental Control Facilities Financing Authority
(the "Authority") and El Conquistador Partnership L. P., S.E. (the
"Partnership"), a limited partnership organized under the laws of the State of
Delaware that has elected to be treated as a special partnership under the
provisions of Subparagraph K of Chapter 3 of Subtitle A of the Puerto Rico
Internal Revenue Code of 1994, as amended. Upon (i) the acceptance of this offer
and the execution hereof by the Authority and the Partnership and (ii) the
execution and delivery to the Representative (as defined herein) by the
Partnership of a Letter of Representation, dated the date hereof, in
substantially the form set forth in Exhibit A hereto (the "Letter of
Representation"), this Contract shall be in full force and effect and binding in
accordance with its terms upon the Authority, the Partnership and the
Underwriters. This offer is made subject to acceptance by the Authority and the
Partnership, by execution of this Contract and its delivery to the
Representative at or prior to 5:00 P.M., San Juan time, on the date hereof, and,
if not so accepted, will be subject to withdrawal by the Underwriters upon
notice delivered to the Authority and the Partnership at any time prior to
acceptance hereof.
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The Underwriters have designated Citicorp Financial Services
Corporation as their representative (the "Representative"). The Representative
has been duly authorized to act hereunder by and on behalf of the other
Underwriters. Any action under this Contract taken by the Representative will be
binding upon all the Underwriters.
1. Upon the terms and conditions and upon the basis of the
representations hereinafter and in the Letter of Representation set forth, each
Underwriter, severally and not jointly, hereby agrees to purchase from the
Authority for offering to the public, and the Authority hereby agrees to sell to
each Underwriter, severally and not jointly, for such purpose, all (but not less
than all) of the aggregate principal amount of the Authority's Tourism Revenue
Bonds, 1999 Series A (El Conquistador Resort Project) (the "Bonds") set forth in
Schedule A hereto opposite the name of such Underwriter, at the aggregate
purchase price of $___________ (representing the par amount of the Bonds, less
underwriters' discount of $____________).
2. (a) The Partnership has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-11 (No.
333-65889) covering the registration of undivided interests in the loan
agreement dated as of __________ ___, 1999 between the Authority and the
Partnership (the "Loan Agreement") under the Securities Act of 1933, as amended
(the "1933 Act"), including the preliminary official statement and prospectus
related to the Bonds. Promptly after execution and delivery of this Agreement,
the Partnership will prepare and file an official statement and prospectus in
accordance with the provisions of Rule 430A ("Rule 430A") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act Regulations")
and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations. The
information included in such official statement and prospectus that was omitted
from such registration statement at the time it became effective but that is
deemed to be part of such registration statement at the time it became effective
pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A
Information". Each official statement and prospectus used before such
registration statement became effective, and any official statement and
prospectus that omitted, as applicable, the Rule 430A Information that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "Preliminary Official Statement and Prospectus."
Such registration statement, including the exhibits thereto, the documents
incorporated therein by reference and schedules thereto at the time it became
effective and including the Rule 430A Information is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final official
statement and prospectus in the form first furnished to the Underwriters for use
in connection
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with the offering of the Bonds is herein called the "Official Statement and
Prospectus." For purposes of this Agreement, all references to the Registration
Statement, any Preliminary Official Statement and Prospectus, the Official
Statement and Prospectus or any amendment or supplement to any of the foregoing
shall be deemed to include the copy filed with the Commission pursuant to its
Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
(b) The Bonds shall be dated, shall mature in the amounts and on
the dates, shall bear interest at the rates per annum and shall be subject to
redemption, all as set forth in the Official Statement and Prospectus. The Bonds
shall be issued and secured under and pursuant to a Trust Agreement to be dated
_________ __, 1999 (the "Trust Agreement") between the Authority and Banco
Santander Puerto Rico as trustee (the "Trustee"). All capitalized terms not
otherwise defined herein shall have the same meanings as defined in the Trust
Agreement.
(c) The proceeds of the Bonds will be used to make a loan (the
"Loan") to the Partnership under the terms of the Loan Agreement. Loan proceeds
will be used to (i) repay the principal of and interest on an interim loan made
by Citicorp Real Estate, Inc. to the Partnership, (ii) make a deposit in the
amount of $9,100,000 to the credit of the Debt Service Reserve Fund, and (iii)
pay certain costs and expenses of issuing the Bonds. The Bonds will be secured
by a pledge of real estate and leasehold mortgage notes (collectively, the
"Mortgage Notes") in the principal amounts of $105,200,000, $2,000,000 and
$100,000, respectively, and bearing interest at the rate of 12% per annum. The
Mortgage Notes will be secured by a first priority mortgage lien on the land and
improvements on which El Conquistador Resort & Country Club is located, which is
owned by the Partnership, and on the leasehold estate for Palominos Island
(collectively, the "Mortgage"), a first priority security interest on certain
personal property of the Partnership and a collateral assignment of certain
contracts to which the Partnership is a party or relating to the management and
operation of the Project (the "Assignments"). The Mortgage Notes will be pledged
to the Authority pursuant to a pledge agreement (the "Pledge Agreement") to be
entered between the Authority and the Partnership as security for the
obligations of the Partnership under the Loan Agreement. The Authority will
assign its rights under the Pledge Agreement and the Mortgage Notes to the
Trustee for the benefit of the Bondholders.
(d) The Trust Agreement, the Loan Agreement, the Pledge Agreement,
the Mortgage Notes, the Mortgage, the Assignments, the other related documents,
the Letter of Representation and the Continuing Disclosure Agreement (as defined
below) are sometimes referred to collectively herein as the "Documents." The
Trust Agreement, the Loan Agreement and the Pledge Agreement are sometimes
referred to as the "Authority Documents." The Partnership will enter
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into a Continuing Disclosure Agreement with the Trustee to be dated as of
_________ __, 1999 (the "Continuing Disclosure Agreement") relating to the
undertaking by the Partnership to provide certain information required by Rule
15c2-12 ("Rule 15c2-12") under the Securities and Exchange Act of 1934, as
amended (the "1934 Act").
3. No tombstone or other advertisement of the sale of the Bonds by the
Underwriters shall be published without the prior approval, oral or written, of
the Authority of such tombstone or other advertisement. If the Authority fails
to disapprove the form of any tombstone or other advertisement within two
business days after receipt of such form of tombstone or other advertisement by
the Authority, such failure shall constitute approval thereof by the Authority.
4. Concurrently with your acceptance hereof, the Partnership will
deliver to us the Letter of Representation of the Partnership of even date
herewith, substantially in the form attached hereto as Exhibit A, addressed to
the Authority and the Underwriters.
5. The Authority makes the following representations, all of which will
survive the purchase and public offering of the Bonds:
(a) The Authority is a body corporate and politic constituting a
public corporation and governmental instrumentality of the Commonwealth of
Puerto Rico (the "Commonwealth"), duly constituted and existing under the laws
of the Commonwealth, including Act No. 121 of the Legislature of the
Commonwealth, approved June 27, 1977, as amended (the "Act").
(b) The Authority has full power and authority to issue and sell
the Bonds to the Underwriters and to enter into the Authority Documents and this
Contract and to carry out the transactions contemplated by this Contract and the
Authority Documents, and has taken all actions and obtained all consents and
approvals required in connection therewith by the Act and any other applicable
law.
(c) The Authority has duly adopted a resolution approving the
issuance and sale of the Bonds, authorizing and approving the execution and due
performance of the Authority Documents and this Contract, and all actions
necessary or appropriate to carry out the same (the "Resolution"), and the
making and performance of each such agreement do not and will not conflict with,
violate or result in a breach of or constitute a default under the Act or the
by-laws of the Authority or any indenture, mortgage, deed of trust, agreement or
other instrument to which the Authority is a party or by which the Authority or
any of its properties is or may be bound or any constitutional or statutory
provisions or order, rule, regulation, decree or ordinance of any court,
government or governmental body having jurisdiction over the Authority or any of
its properties.
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(d) When delivered in accordance with this Contract, the Bonds
will have been duly authorized, executed, authenticated and delivered and will
constitute valid, legally binding and enforceable obligations of the Authority,
entitled to the benefit and security of the Trust Agreement.
(e) This Contract constitutes, and the Authority Documents, when
executed and delivered by the corresponding parties thereto, each will
constitute, valid, legally binding obligations of the Authority enforceable
against the Authority in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors rights generally, and by general equitable principles.
(f) The information contained in the Preliminary Official
Statement and Prospectus and the Official Statement and Prospectus with respect
to the Authority and Government Development Bank for Puerto Rico ("GDB") does
not contain an untrue statement of a material fact or omit to state a material
fact necessary to make the statements contained therein not misleading in the
light of the circumstances under which they were made, and there is no fact
known to the Authority which the Authority has not disclosed to the Underwriters
in writing which materially adversely affects the ability of the Authority to
perform its obligations under this Contract, the Bonds or the Authority
Documents.
(g) There is no litigation, proceeding or investigation pending
against the Authority or, to the best of the Authority's knowledge, threatened
against or affecting the Authority (nor to the knowledge of the Authority is
there any basis therefor), (1) to restrain or enjoin the issuance, sale or
delivery of any of the Bonds or the application of the proceeds thereof, (2) in
any way contesting or affecting any authority for, or the validity of, the
Bonds, the Authority Documents, this Contract, the application of the proceeds
of the Bonds or the payment, collection or application of revenues or the Grant
thereof pursuant to the Trust Agreement or the Loan Agreement, or (3) in any way
contesting the existence of the Authority or the right and power of the
Authority to act in connection with the Bonds as contemplated in the Authority
Documents and the Official Statement and Prospectus.
(h) All consents, approvals, authorizations and orders of, or
filing, registration, or qualification with, any governmental or regulatory
authorities which are required to be obtained by the Authority for the
consummation of the transactions contemplated by the Authority Documents have
been or will be duly and validly obtained or performed on or before the Closing
Date (as hereinafter defined) and, as to those already obtained, are in full
force.
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(i) The Preliminary Official Statement and Prospectus was "deemed
final" as of its date by the Authority for purposes of paragraph (b)(1) of Rule
15c2-12.
6. At 10:00 A.M., Atlantic standard time, on _______ __, 1999 or at
such other time or on such earlier or later business day as shall have been
mutually agreed upon by you and us, the Authority will deliver to the Trustee
for the account of the Underwriters, at the offices of Fiddler Gonzalez &
Rodriguez, LLP, San Juan, Puerto Rico, the Bonds duly executed and authenticated
and will deliver the Documents, and the Underwriters will accept such delivery
and pay the purchase price of the Bonds as set forth in Paragraph 1 hereof, in
Federal funds payable to the Trustee for the account of the Authority. Such
payment and delivery are herein called the "Closing" and the date of the Closing
is herein called the "Closing Date". The Bonds will be delivered in the form of
one fully registered Bond for each maturity of Bonds, registered in the name of
Cede & Co., as nominee of DTC, and shall be available for inspection in Puerto
Rico, on or before the business day prior to the Closing Date. It is understood
that each Underwriter has authorized the Representative, for its account, to
accept delivery of receipt for, and make payment of, the purchase price for the
Bonds which it has agreed to purchase. The Representative, individually and not
as representative of the Underwriters, may (but shall not be obligated to) make
payment of the purchase price for the Bonds to be purchased by each Underwriter
on the Closing Date, but such payment shall not relieve such Underwriter from
its obligations hereunder.
7. The Partnership covenants with each Underwriter as follows:
(a) The Partnership, subject to Section 7(b) hereof, will comply
with the requirements of Rule 430A, and will notify the Representative
immediately, and confirm the notice in writing, (i) when any post-effective
amendment to the Registration Statement shall become effective, or any
supplement to the Official Statement and Prospectus or any amended Official
Statement and Prospectus shall have been filed, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
Official Statement and Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of any
Preliminary Official Statement and Prospectus, or of the suspension of the
qualification of the Bonds for offering or sale in any jurisdiction, or of the
initiation or threat made directly to the Partnership, its agents or attorneys
of any proceedings for any of such purposes. The Partnership will promptly
effect the filings necessary pursuant to Rule 424(b) and will take such steps as
it deems necessary to ascertain promptly whether the form of Official Statement
and Prospectus transmitted for filing under Rule 424(b) was received
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for filing by the Commission and, in the event that it was not, it will promptly
file such Official Statement and Prospectus. The Partnership will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible moment.
(b) The Partnership will give the Representative notice of its
intention to file or prepare any amendment to the Registration Statement
(including any filing under Rule 462(b)) or of any amendment, supplement or
revision to either the official statement and prospectus included in the
Registration Statement at the time it became effective or to the Official
Statement and Prospectus, and will furnish the Representative with copies of any
such documents a reasonable amount of time prior to such proposed filing or use,
as the case may be, and will not file or use any such document to which the
Representative or counsel for the Underwriters shall reasonably object.
(c) The Partnership has furnished or will deliver to the
Representative and counsel for the Underwriters, without charge, signed copies
of the Registration Statement as originally filed and of each amendment thereto
(including exhibits filed therewith or incorporated by reference therein) and
signed copies of all consents and certificates of experts, and will also deliver
to the Representative, without charge, a conformed copy of the Registration
Statement as originally filed and of each amendment thereto (without exhibits)
for each of the Underwriters. The copies of the Registration Statement and each
amendment thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T promulgated under the
1933 Act ("Regulation S-T").
(d) The Partnership has delivered to each Underwriter, without
charge, as many copies of each Preliminary Official Statement and Prospectus as
such Underwriter reasonably requested, including, but not limited to, sufficient
copies of the Preliminary Official Statement and Prospectus as the Underwriters
deem necessary to satisfy the Underwriters' obligations under Rule 15c2-12 with
respect to distribution to each potential customer, upon request, of a copy of
the Preliminary Official Statement and Prospectus and the Partnership hereby
consents to the use of such copies for purposes permitted by the 1933 Act. The
Partnership will furnish to each Underwriter, without charge, during the period
when the Official Statement and Prospectus is required to be delivered under the
1933 Act or the 1934 Act, such number of copies of the Official Statement and
Prospectus (as amended or supplemented) as such Underwriter may reasonably
request. The Partnership covenants to deliver to the Underwriters within seven
(7) days of the acceptance by the Underwriters of this Agreement such number of
copies of the Official Statement and Prospectus and executed by the Authority
and the Partnership as the Underwriters may reasonably require in order for the
Underwriters
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to comply with the rules of the Municipal Securities Rulemaking Board, including
without limitation, Rule G-32, and Section (b)(4) of Rule 15c2-12. The Official
Statement and Prospectus and any amendments or supplements thereto furnished to
the Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T. The Official Statement and Prospectus shall be in
substantially the same form as that of the Preliminary Official Statement and
Prospectus of the Authority dated _________ __, 1999 previously distributed with
respect to the Bonds, incorporating only such changes as shall have been
approved by the Authority, the Representative and the Partnership.
(e) After the Official Statement and Prospectus has been delivered
in accordance with this Section 7 and for 25 days after the "end of the
underwriting period" as such term is defined in Section (f)(2) of Rule 15c2-12,
if any event shall occur as a result of which it is necessary to amend or
supplement the Official Statement and Prospectus in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, the Partnership will so advise the Underwriters. The Partnership
will cooperate in preparing and furnishing to the Underwriters and to the
dealers (whose names and addresses the Underwriters will furnish to the
Partnership and to the Authority) to whom Bonds may have been sold by the
Underwriters and to any other dealers upon request, either an amendment or
supplement to the Official Statement and Prospectus so that the Official
Statement and the Prospectus, as so amended or supplemented, will not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made therein, in the light of the circumstances under
which they were made, not misleading. The obligations of the Partnership set
forth in this paragraph shall be carried out at the sole expense of the
Partnership. The cost of providing such amendment or supplement prior to Closing
and during the relevant period following the Closing shall be paid by the
Partnership.
(f) The Partnership will comply with the 1933 Act and the 1933 Act
Regulations so as to permit the completion of the distribution of the Bonds as
contemplated in this Contract and in the Official Statement and Prospectus. If
at any time when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the Bonds, any event shall occur or condition shall
exist as a result of which it is necessary, in the opinion
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of counsel for the Underwriters or for the Partnership, to amend the
Registration Statement or amend or supplement the Official Statement and
Prospectus in order that the Official Statement and Prospectus will not include
any untrue statements of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light of
the circumstances existing at the time it is delivered to a prospective
purchaser, or if it shall be necessary, in the opinion of such counsel, at any
such time to amend the Registration Statement or amend or supplement the
Official Statement and Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Partnership will promptly prepare
and file with the Commission, subject to Section 7(b) hereof, such amendment or
supplement as may be necessary to correct such statement or omission or to make
the Registration Statement or the Official Statement and Prospectus comply with
such requirements, and the Partnership will furnish to the Underwriters such
number of copies of such amendment or supplement as the Underwriters may
reasonably request.
(g) The Partnership will use its best efforts, in cooperation with
the Underwriters, to qualify the interests in the Loan Agreement and the Bonds
for offer and sale under the applicable securities laws of such states and other
jurisdictions as the Representative may designate and to maintain such
qualifications in effect for a period of not less than one year from the
effective date of the Registration Statement and any Rule 462(b) Registration
Statement; provided, however, that the Partnership shall not be obligated to
file any general consent to service of process or to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which it is not
so qualified or to subject itself to taxation in respect of doing business in
any jurisdiction in which it is not otherwise so subject. In each jurisdiction
in which the interests in the Loan Agreement and the Bonds have been so
qualified, the Partnership will file such statements and reports as may be
required by the laws of such jurisdiction to continue such qualification in
effect for a period of not less than one year from the date of the Registration
Statement and any Rule 462(b) Registration Statement.
(h) The Partnership will timely file such reports pursuant to the
1934 Act as are necessary in order to make generally available to Bondholders as
soon as practicable an earnings statement for the purposes of, and to provide
the benefits contemplated by, the last paragraph of Section 11(a) of the 1933
Act.
(i) The Partnership will use the net proceeds received by it under
the Loan Agreement in the manner specified in the Official Statement and
Prospectus under "Use of Proceeds".
(j) The Partnership, during the period when the Official Statement
and Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant to the
1934 Act within the time periods required by the 1934 Act and the rules and
regulations of the Commission thereunder.
(k) The Partnership will comply with all the provisions of all
undertakings contained in the Registration Statement.
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(l) During the period of five years commencing on the date the
Registration Statement is declared effective by the Commission, the Partnership
will furnish to the Representative and each other Underwriter who may so request
copies of each annual or other report it shall be required to file with the
Commission.
8. The obligations of the Underwriters hereunder are subject to the
following conditions:
(a) At the time of the Closing (i) the execution of this Contract
and the Letter of Representation shall have been approved and/or ratified by the
Authority and the Partnership, respectively; (ii) the Official Statement and
Prospectus, the Documents, the Resolution, this Contract and the Letter of
Representation (each in substantially the forms thereof presented to the
Underwriters) shall be in full force and effect and shall not have been amended,
modified or supplemented prior to the Closing except as may have been agreed to
in writing by the parties hereto, and the Partnership shall have duly adopted or
executed, as appropriate, and there shall be in full force and effect such
additional resolutions, agreements, instruments or certificates as shall, in the
opinion of Fiddler Gonzalez & Rodriguez, LLP, Bond Counsel, or Pietrantoni
Mendez & Alvarez LLP, Counsel to the Underwriters, be necessary or appropriate
in connection with the transactions and documents contemplated hereby; (iii) the
representations and warranties of the Authority provided in Paragraph 5 herein
and by the Partnership in its Letter of Representation shall be true and
accurate in all material respects; (iv) the Authority and the Partnership shall
perform or have performed all their respective obligations required under or
specified in this Contract to be performed at or prior to the Closing; and (v)
the proceeds of the sale of the Bonds shall be applied as described in the
Official Statement and Prospectus.
(b) The Registration Statement, including any Rule 462(b)
Registration Statement, has become effective and at the Closing Date no stop
order suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefor initiated or threatened by the
Commission, and any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
counsel to the Underwriters. A prospectus containing the Rule 430A information
shall have been filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have been filed and
declared effective in accordance with the requirement of Rule 430A).
(c) The Underwriters may terminate this Contract by notification
to you if at any time at or prior to the Closing (i) there shall exist any event
or circumstance which either (A) makes untrue or incorrect in any material
respect any statement or information
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contained in the Official Statement and Prospectus which has not been corrected
in an amendment or supplement to the Official Statement and Prospectus or (B) is
not reflected in the Official Statement and Prospectus, or in an amendment or
supplement thereto, but should be reflected therein in order to make the
statements and information contained therein, in the light of the circumstances
under which they were made, not misleading in any material respect, or (ii)
there shall have occurred any outbreak of hostilities (or an escalation of
hostilities commenced prior to the execution of this Contract) or other
unforeseen national or international calamity or crisis, the effect of such
outbreak, escalation, calamity or crisis on the financial markets of the United
States or the Commonwealth being such as substantially to affect adversely the
marketability of the Bonds, or (iii) there shall be placed into effect a general
suspension of trading on the New York Stock Exchange or minimum or maximum
prices for trading shall have been fixed and be in force, or maximum ranges for
prices for securities shall have been required and be in force on the New York
Stock Exchange, whether by virtue of a determination by that Exchange or by
order of the Commission or any other governmental authority having jurisdiction,
or (iv) a general banking moratorium shall have been declared by either federal,
New York or Commonwealth authorities having jurisdiction and be in force, or (v)
a stop order, ruling, regulation or official statement by or on behalf of the
Commission shall be issued or made to the effect that the issuance, offering or
sale of the Bonds as contemplated hereby, or of obligations of the general
character of the Bonds, is in violation of any provision of the 1933 Act, the
1934 Act or the Trust Indenture Act of 1939, as amended, or (vi) subsequent to
the date hereof a supplement or amendment shall have been made to the Official
Statement and Prospectus or any event shall have occurred which makes the
statements in the Official Statement and Prospectus (other than statements with
respect to any of the Underwriters), in the light of the circumstances under
which they were made, untrue or misleading in any material respect, which
supplement, amendment or event in the reasonable judgment of the Underwriters
materially adversely affects the marketability of the Bonds or the market price
thereof, or (vii) any order, directive or communication, suspending the sale of
the Bonds or otherwise materially adverse to the offering shall have been issued
or any proceedings for those purposes shall have been instituted, or to the
knowledge of the Underwriters, the Authority or the Partnership, contemplated
before or threatened by any federal or Commonwealth governmental agency having
jurisdiction over the Authority, the Partnership or the Bonds, or (viii) if
there has been, since the time of execution of this Contract or since the
respective dates as of which the information is given in the Official Statement
and Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Partnership, whether or not arising in the ordinary course of business.
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(d) At or prior to the Closing, the Representative shall receive
the following documents:
(i) An unqualified approving opinion of Fiddler Gonzalez &
Rodriguez, LLP, Bond Counsel, as to the Bonds dated the Closing Date and in
substantially the form set forth as Appendix A to the Preliminary Official
Statement and Prospectus.
(ii) The supplemental opinion of Bond Counsel, dated the
Closing Date, addressed to the Underwriters and in substantially the form set
forth in Exhibit B hereto.
(iii) A certificate or certificates, dated as of the Closing
Date, signed by a duly authorized representative of the Authority and in form
and substance satisfactory to Bond Counsel and to the Underwriters in which such
official states as follows:
(A) The representations of the Authority herein
contained are true and correct as of the Closing, and the Official Statement and
Prospectus insofar as it relates to the Authority does not include any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading.
(B) No litigation is pending or, to the knowledge of the
Authority, threatened (1) to restrain or enjoin the issuance, sale or delivery
of any of the Bonds or the application of the proceeds thereof, (2) in any way
contesting or affecting any authority for, or the validity of the Bonds, the
Authority Documents, this Contract, the application of the proceeds of the Bonds
or the payment, collection or application of revenues or the Grant thereof
pursuant to the Trust Agreement or the Loan Agreement, (3) in any way contesting
the right and power of the Authority to act in connection with the transactions
contemplated in the Documents and the Official Statement and Prospectus, or (4)
contesting or affecting the accuracy or completeness of the Official Statement
and Prospectus or any amendment or supplement thereto.
(C) No event known to the Authority affecting the
Authority has occurred since the date of the Official Statement and Prospectus
which should be disclosed in the Official Statement and Prospectus for the
purposes for which it is to be used or which is necessary to disclose therein in
order to make the statements and information therein relating to the Authority
not misleading in any material respect.
(iv) An opinion, dated the date of Closing, of McConnell
Valdes, Puerto Rico Counsel for the Partnership, in substantially the form set
forth in Exhibit C hereto.
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(v) An opinion dated as of the Closing Date, of Shack &
Siegel, P.C., Special Counsel to the Partnership, in substantially the form set
forth in Exhibit D hereto.
(vi) An opinion, dated the date of Closing, of Delfina
Betancourt-Capo, Esq., Counsel for the Authority, in substantially the form set
forth in Exhibit E hereto.
(vii) A certificate, dated the date of Closing, signed by an
authorized officer of the Partnership and a principal financial or accounting
officer of the Partnership, in which such officers state that, to their
knowledge, after reasonable investigation:
(A) The representations and warranties of the
Partnership in the Letter of Representation are true and correct as of the
Closing.
(B) No litigation is pending or to the knowledge of the
Partnership threatened, (1) to restrain or enjoin the issuance, sale or delivery
of any of the Bonds, the application of the proceeds of the Bonds or the
collection of revenues Granted under the Trust Agreement and the Documents, (2)
in any way contesting or affecting any authority for the issuance of the Bonds
or the validity of the Bonds, the Documents to which it is a party, this
Contract or the Letter of Representation, the application of the proceeds of the
Bonds or the payment, collection or application of revenues or the Grant thereof
pursuant to the Trust Agreement or the Loan Agreement, or (3) in any way
contesting the existence or powers of the Partnership or the powers or
entitlement to office of any executive officer thereof.
(C) No event affecting the Partnership has occurred
since the date of the Official Statement and Prospectus which should be
disclosed in the Official Statement and Prospectus for the purpose for which it
is to be used, or which is necessary to disclose therein in order to make the
statements and information therein, in the light of the circumstances under
which they were made, not misleading in any material respect.
(D) The Partnership has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder and
under the Documents on or prior to the Closing Date.
(E) Such other matters as the Representative may
reasonably request.
(viii) Evidence, acceptable to the Underwriters, that the
Bonds have received a "Baa2" rating from Moody's Investors Service,
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Inc., consistent with the rating set forth on the cover of the Official
Statement and Prospectus.
(ix) Executed counterparts or certified copies of each of the
Documents.
(x) Executed counterparts or certified copies of the title
insurance policies required under the Loan Agreement.
(xi) A certificate of the Trustee dated as of the Closing
Date, addressed to the Authority and the Underwriters to the effect that:
(A) the Trustee is duly created, validly existing and in
good standing pursuant to the laws of the Commonwealth and is duly qualified to
perform its duties as Trustee;
(B) the Trustee has been duly authorized to enter into
the Trust Agreement and the Continuing Disclosure Agreement and to perform all
of its obligations thereunder; and
(C) the Trustee has duly authenticated and delivered the
Bonds pursuant to the provisions of this Contract.
(xii) An opinion, addressed to the Underwriters and dated the
Closing Date, of Pietrantoni Mendez & Alvarez LLP, counsel to the Underwriters,
with respect to the Bonds, the Official Statement and Prospectus and other
related matters as the Representative may reasonably request.
(xiii) One or more certificates of the Authority and the
Partnership, dated the date of the Closing and in form and substance reasonably
satisfactory to the Underwriters, as to the application of the proceeds of the
Bonds and other sums.
(xiv) The Representative shall have received at the time of
execution of this Contract from Ernst & Young LLP (a) a letter dated the date
hereof, in form and substance reasonably satisfactory to the Representative,
together with signed or reproduced copies of such letter for each of the
Underwriters, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Official Statement and Prospectus, and (b) a
letter stating that they are independent certified public accountants as defined
in Rule 101 of the Code of Professional Ethics of the American Institute of
Certified Public Accountants with respect to the Partnership and consenting to
the inclusion of their report on the balance sheets of the Partnership as of
December 31, 1998 and 1997, and the related statements of operations, partners'
capital, and cash
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flows for the period March 1, 1998 through December 31, 1998 (successor
partnership) and for the period January 1, 1998 through February 28, 1998, the
nine-month period ended December 31, 1997, and the year ended March 31, 1997
(predecessor partnership), in the Registration Statement, the Preliminary
Official Statement and Prospectus and the Official Statement and Prospectus.
(xv) At the Closing, the Representative shall have received
from Ernst & Young LLP a letter, dated as of the Closing Date, to the effect
that they reaffirm the statements made in the letter furnished pursuant to part
(a) of subsection (xiv) of this Section, except that the specified date referred
to therein shall be a date not more than five business days prior to the Closing
Date.
(xvi) At the Closing, counsel to the Underwriters shall have
been furnished with such documents and opinions as they may reasonably require
for the purpose of enabling them to pass upon the issuance and sale of the Bonds
as herein contemplated, or in order to evidence the accuracy of any of the
representations and warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Partnership in connection
with the issuance and sale of the Bonds as herein contemplated shall be
reasonably satisfactory in form and substance to the Representative and counsel
for the Underwriters.
If the Authority and the Partnership shall be unable to satisfy
the conditions to the obligations of the Underwriters contained in this
Contract, or if the obligations of the Underwriters shall be terminated for any
reason permitted by this Contract, this Contract shall terminate and none of the
Underwriters, the Partnership or the Authority shall have any further
obligations hereunder, except as provided in Paragraph 9 hereof. However, the
Underwriters may in their discretion waive one or more of the conditions imposed
by this Contract for the protection of the Underwriters and proceed with the
Closing.
9. The Authority will pay or cause to be paid from, but only from, the
proceeds of the Bonds and any moneys made available for such purpose by the
Partnership, all expenses incident to the performance of its obligations under
this Contract, including, but not limited to, mailing or delivery of the Bonds,
costs of printing the Bonds, the Preliminary Official Statement and Prospectus
and the Official Statement and Prospectus, including the mailing and delivery
thereof by the printer, fees and disbursements of Bond Counsel, any fees charged
by investment rating agencies in respect of the Bonds, accountant's fees, the
fees and disbursements for the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, the fees and disbursements of
the Underwriters' counsel in connection with the preparation, printing and
delivery to the Underwriters of this Contract and any agreement among
Underwriters
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and such other documents as may be required in connection with the offering,
purchase, sale, issuance or delivery of the Bonds to the Underwriters, including
any transfer taxes and any stamp or other duties payable upon the sale, issuance
or delivery of the Bonds to the Underwriters, the qualification of the Bonds
under securities laws in accordance with the provisions of Section 7(g) hereof,
including filing fees and the disbursements of counsel in connection therewith,
and the fees and expenses of any transfer agent or registrar for the Bonds. The
Partnership shall also pay all marketing and advertising expenses in connection
with the offering of the Bonds, and all other expenses incurred by the
Underwriters in connection with their offering and distribution of the Bonds up
to and including the Closing Date. If this Contract is terminated for any reason
whatsoever other than by a breach of a covenant herein by the Underwriters, the
Partnership shall pay the fees and expenses otherwise required to be paid by the
Authority from Bond proceeds. If this Contract is terminated by the Underwriters
for a reason permitted hereunder, the Partnership shall also pay the fees and
expenses otherwise required to be paid by the Underwriters to parties other than
the Underwriters.
10. Any notice or other communication to be given hereunder shall be in
writing and mailed or delivered or transmitted by telephone or telegraph, (a) if
sent to the Underwriters, c/o Citicorp Financial Services Corporation, Citibank
Center, 1 Citibank Drive, 2nd Floor South, San Juan, Puerto Rico 00926,
Attention: Michael McDonald, (b) if to the Authority, to its representative at
the address set forth above and (c) if to the Partnership, c/o Patriot American
Hospitality, Inc., 1950 Stemmons Freeway, Suite 6001, Dallas, Texas 75207,
Attention: General Counsel.
11. If one or more of the Underwriters shall fail or refuse at the
Closing to purchase the Bonds which it or they are obligated to purchase under
this Contract (the "Defaulted Securities"), the Representative shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Securities in such amounts as may be agreed upon
and upon the terms herein set forth; if, however, the Representative shall not
have completed such arrangements within such 24-hour period, then:
(a) if the amount of Defaulted Securities does not exceed 10% of
the aggregate amount of Bonds to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not jointly, to
purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
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(b) if the amount of Defaulted Securities exceeds 10% of the
aggregate amount of Bonds to be purchased on such date and arrangements
satisfactory to the remaining Underwriters, the Authority and the Partnership
for the purchase of such Defaulted Securities are not made within 48 hours of
such default, this Agreement, shall terminate without liability on the part of
any non-defaulting Underwriter, the Authority or the Partnership.
In the event of any such default which does not result in a
termination of this Agreement, either the Representative or the Partnership
shall have the right to postpone the Closing Date for a period not exceeding
seven days in order to effect any required changes in the Registration Statement
or Official Statement and Prospectus or in any other documents or arrangements.
As used herein, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 11.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of its default.
12. The statements set forth in the Official Statement and Prospectus
under the heading "Underwriting" constitute the only information furnished in
writing by the Underwriters to the Partnership in connection with the
preparation of the Official Statement and Prospectus. The statements set forth
in the Official Statement and Prospectus under the headings "AFICA" and
"Government Development Bank for Puerto Rico" constitute the only information
furnished in writing by the Authority to the Partnership in connection with the
preparation of the Official Statement and Prospectus.
13. This Contract is made solely for the benefit of the signatories
hereto (including the successors or assigns of the Underwriters) and no other
person shall acquire or have any right hereunder or by virtue hereof. Nothing
herein shall be deemed to constitute this Contract a contract of suretyship by
the Authority. All representations, warranties and agreements in this Contract
shall remain operative and in full force and effect, regardless of (a) delivery
of and payment for the Bonds hereunder and (b) any termination of this Contract.
This Contract may be executed in several counterparts, each of which shall be
regarded as an original and all of which shall constitute one and the same
document.
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14. This Contract shall be governed by, and construed in accordance
with, the laws of the Commonwealth, and time is of the essence in the
performance of its provisions. The parties hereto intend to be legally bound
hereby.
Very truly yours,
CITICORP FINANCIAL SERVICES
CORPORATION
[---------------------------]
[---------------------------]
By: Citicorp Financial Services
Corporation, as Representative
By:_______________________________
Name:
Title:
ACCEPTED AS OF __________ __, 1999
PUERTO RICO INDUSTRIAL, TOURIST,
EDUCATIONAL, MEDICAL AND ENVIRONMENTAL
CONTROL FACILITIES FINANCING AUTHORITY
By:__________________________________
Name:
Title:
EL CONQUISTADOR PARTNERSHIP L.P., S.E.
By: CONQUISTADOR HOLDING (SPE), INC.
By:__________________________________
Name:
Title:
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EXHIBIT A
LETTER OF REPRESENTATION
PUERTO RICO INDUSTRIAL, TOURIST,
EDUCATIONAL, MEDICAL AND ENVIRONMENTAL
CONTROL FACILITIES FINANCING AUTHORITY
San Juan, Puerto Rico
CITICORP FINANCIAL SERVICES CORPORATION
San Juan, Puerto Rico
[------------------------------]
San Juan, Puerto Rico
[------------------------------]
San Juan, Puerto Rico
__________ __, 1999
Ladies and Gentlemen:
Pursuant to the Contract of Purchase dated the date hereof (the
"Contract") among Citicorp Financial Services Corporation, [___________
_________________] and [__________________________] (collectively, the
"Underwriters"), Puerto Rico Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Authority (the "Authority") and the
undersigned (the "Partnership"), the Authority proposes to issue $105,200,000
aggregate principal amount of its Tourism Revenue Bonds, 1999 Series A (El
Conquistador Resort Project) (the "Bonds"). Concurrently therewith the Authority
and Banco Santander Puerto Rico, as trustee (the "Trustee"), will enter into a
Trust Agreement (the "Trust Agreement") to be dated _______ __, 1999.
Unless otherwise defined in this letter, capitalized terms used herein
which are defined, or are used as defined terms, in the Contract shall have the
respective meanings therein specified.
The proceeds of the Bonds will be used to make a loan (the "Loan") to
the Partnership under the terms of a loan agreement, dated as of _________ __,
1999 (the "Loan Agreement"), between the Partnership and the Authority. Loan
proceeds will be used to (i) repay the
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principal of and interest on an interim loan made by Citicorp Real Estate, Inc.
to the Partnership, (ii) make a deposit in the amount of $9,100,000 to the
credit of the Debt Service Reserve Fund for the Bonds, and (iii) pay certain
costs and expenses of issuing the Bonds. The Loan will be repaid by the
Partnership in installments at such times and in such amounts as are sufficient
to pay the principal of and premium, if any, and interest on the Bonds when due.
The Bonds shall be payable solely from monies derived pursuant to the Loan
Agreement and from such other amounts as may be available to the Trustee under
the Trust Agreement, the Pledge Agreement or any security agreement created
under the terms and conditions of the Loan Agreement.
In order to induce you to enter into the Contract, the terms of which
are hereby approved, and to make the offering and sale of the Bonds therein
contemplated, the Partnership, intending to be legally bound, hereby agrees with
each of you as follows:
(a) The Partnership hereby represents and warrants to each of you
that at the date hereof,
(i) The Partnership is a limited partnership duly organized
and validly existing under the laws of the State of Delaware, is duly authorized
to operate its properties and to carry on its business as now conducted within
the Commonwealth of Puerto Rico, and has full right, power and authority to
enter into this Letter of Representation, to approve the Preliminary Official
Statement and Prospectus and the Official Statement and Prospectus, the Bonds
and the other Documents, and to perform other acts and things provided for in
the Documents, the Contract and this Letter of Representation and as described
in or as contemplated by the Official Statement and Prospectus.
(ii) The execution and delivery by the Partnership of the
Registration Statement, the Official Statement and Prospectus, this Letter of
Representation, the Contract and the other Documents to which it is a party (the
"Partnership Documents") and the approval by the Partnership of the Contract,
the Bonds and the Documents do not, and compliance with the provisions thereof
and hereof will not, conflict with or result in the breach of any of the terms,
conditions or provisions of, or constitute a default under, any provision of its
partnership agreement, as amended to date, nor in any material respect with any
existing law, court or administrative regulation, judgment, decree, order,
agreement, indenture, mortgage, lease, sublease or other instrument to which the
Partnership is a party or by which it or any of its properties is or may be
bound.
(iii) The Partnership is not in breach of or in default under
any existing law, court or administrative regulation,
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decree, order, agreement indenture, mortgage, lease, sublease or other
instrument to which it is a party or by which it or any of its properties is or
may be bound, and no event has occurred or is continuing which, with the passage
of time or the giving of notice, or both, would constitute a default or an event
of default thereunder, except for such breaches, defaults, potential defaults or
events of default, if any, which individually and in the aggregate would have no
material adverse effect on the Partnership's financial condition, operations or
properties.
(iv) Since the date of the most recent financial statements
appearing in the Official Statement and Prospectus, except as described therein,
there has been no material adverse change in the financial condition or results
of operations of the Partnership nor has it incurred any liabilities or
obligations, direct or contingent, or entered into or agreed to enter into any
transactions or contracts (written or oral) not (a) in the ordinary course of
business or (b) related to the repair and restoration of the Project due to
damage caused by Hurricane Georges, which liabilities, obligations, transactions
or contracts would, individually or in the aggregate, be material to the
business, operations, properties, assets, financial condition or prospects of
the Partnership, except as disclosed in writing to the Authority and the
Underwriters.
(v) The Partnership has duly authorized all necessary action
to be taken by it for: (A) the issuance and sale of the Bonds by the Authority
upon the terms and conditions set forth herein, in the Official Statement and
Prospectus, the Registration Statement, the Contract and the Trust Agreement and
the approval of the Official Statement and Prospectus, the Bonds and the other
Documents; (B) the approval of the Contract; and (C) the execution, delivery and
approval of the Official Statement and Prospectus, this Letter of
Representation, the Partnership Documents and any and all such other agreements
and documents as may be required to be executed, delivered and approved by the
Partnership in order to carry out, effectuate and consummate the transactions
contemplated hereby and by the Documents, the Contract and the Official
Statement and Prospectus.
(vi) The descriptions and information contained in the
Official Statement and Prospectus under the captions "Summary," "Risk Factors,"
"Use of Proceeds," "El Conquistador Resort & Country Club," "El Conquistador
Partnership," "Security Ownership of Management and Certain Beneficial Owners,"
"Management of El Conquistador Partnership," "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operation," "Legal Proceedings," "Policy with Respect to Certain Activities,"
"Investment Objectives and Policies," "Policies with Respect to Certain
Transactions," "Certain Relationships and Related Transactions," "The
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Bonds," "Summary of the Loan Agreement," "Summary of the Trust Agreement" and
"Continuing Disclosure Covenant," are correct in all material respects and do
not contain any untrue statement of a material fact and do not omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(vii) Except as may be described in the Preliminary Official
Statement and Prospectus and the Official Statement and Prospectus, there is no
action, suit, proceeding, inquiry or investigation at law or in equity or before
or by any public board or body pending or, to the knowledge of the Partnership,
threatened against or affecting the Partnership, or, to the knowledge of the
Partnership, is there any meritorious basis for such an action, suit,
proceeding, inquiry or investigation, wherein an unfavorable decision, ruling or
finding would have an adverse effect on the financial condition of the
Partnership, the operation by the Partnership of its property or the
transactions contemplated by the Contract and the Official Statement and
Prospectus; or would have an adverse effect on the validity or enforceability of
the Bonds, the Documents, the Contract or any agreement or instrument by which
the Partnership is or may be bound in connection with the Bonds; or would in any
way contest the existence or powers of the Partnership.
(viii) Each of the Partnership Documents is, or when executed
and delivered by the Partnership will be, and this Letter of Representation is,
the legal, valid and binding obligation of the Partnership enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally, from time to time in effect, and by general equitable principles.
(ix) The Partnership will not take or omit to take any action
which action or omission will in any way cause the proceeds from the sale of the
Bonds to be applied in a manner contrary to that provided in the Trust Agreement
and the Loan Agreement, as in force from time to time.
(x) Each of the Registration Statement and any Rule 462(b)
Registration Statement has become effective under the 1933 Act and no stop order
suspending the effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no proceedings for
that purpose have been instituted or are pending or, to the knowledge of the
Partnership, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.
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At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Date, the Registration Statement, the Rule 462(b)
Registration Statement and any amendments and supplements thereto complied and
will comply in all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations and did not and will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. Neither the Official Statement and
Prospectus nor any amendments or supplements thereto, at the time the Official
Statement and Prospectus or any such amendment or supplement was issued and at
the Closing Date, included or will include an untrue statement of a material
fact or omitted or will omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. The representations and warranties in this subsection
shall not apply to statements in or omissions from the Registration Statement or
the Official Statement and Prospectus made in reliance upon and in conformity
with information furnished to the Partnership in writing by any Underwriter
through the Representative expressly for use in the Registration Statement or
the Official Statement and Prospectus. The representations and warranties in
this subsection shall not apply to statements in or omissions from the
Registration Statement or the Official Statement and Prospectus made in reliance
upon and in conformity with information furnished to the Partnership in writing
by the Authority or its representative expressly for use in the Registration
Statement or the Official Statement and Prospectus.
The statements set forth in the Official Statement and Prospectus under
the heading "Underwriting" constitute the only information furnished in writing
by the Underwriters to the Partnership in connection with the preparation of the
Official Statement and Prospectus. The statements set forth in the Official
Statement and Prospectus under the headings "AFICA" and "Government Development
Bank for Puerto Rico" constitute the only information furnished in writing by
the Authority to the Partnership in connection with the preparation of the
Official Statement and Prospectus.
Each Preliminary Official Statement and Prospectus and the Official
Statement and Prospectus filed as part of the Registration Statement as
originally filed or as part of any amendment thereto, or filed pursuant to Rule
424 under the 1933 Act, complied when so filed in all material respects with the
1933 Act Regulations and each Preliminary Official Statement and Prospectus and
the Official Statement and Prospectus delivered to the Underwriters for use in
connection with this offering was identical to the electronically
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transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.
There are no contracts or other documents required to be filed as
exhibits to the Registration Statement under the 1933 Act or the 1933 Act
Regulations that forms of which have not been so filed. The documents which are
incorporated by reference in any Preliminary Official Statement and Prospectus
or the Official Statement and Prospectus or from which information is so
incorporated by reference, when they became effective or were filed with the
Commission, as the case may be, complied in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations or the 1934 Act and
the rules and regulations thereunder, as applicable, and did not, when such
documents were so filed, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, and any documents so filed and incorporated by
reference subsequent to the effective date of the Registration Statement shall,
when they are filed with the Commission, conform in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations and the 1934 Act
and the rules and regulations thereunder, as applicable.
(xi) Ernst & Young LLP, the accounting firm which certified
the financial statements and supporting schedules included in the Registration
Statement, is an independent public accounting firm within the meaning of the
1933 Act.
(xii) The financial statements of the Partnership (other than
the pro-forma financial statements of the Partnership), WKA El Con Associates,
WHG El Con Corp. and Conquistador Holding, Inc., included in the Registration
Statement and the Official Statement and Prospectus (or, if the Official
Statement and Prospectus is not in existence, in the most recent Preliminary
Official Statement and Prospectus), together with the related schedules and
notes, present fairly the financial position of the Partnership, WKA El Con
Associates, WHG El Con Corp. and Conquistador Holding, Inc., at the dates
indicated; said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The supporting schedules, if any, included in
the Registration Statement present fairly in accordance with GAAP the
information required to be stated therein. The selected financial data and the
summary financial information included in the Official Statement and Prospectus
(other than the pro-forma financial data included therein) present fairly the
information shown and have been compiled on a basis consistent with that of the
audited financial statements included or incorporated by reference in the
Registration Statement. The pro-
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forma financial statements (including the notes thereto) of the Partnership and
the other pro-forma financial information of the Partnership included in the
Financial Statements, selected financial data and summary financial information
sections of the Official Statement and Prospectus (i) comply as to form in all
material respects with the applicable requirements of Regulation S-X promulgated
under the 1934 Act, (ii) have been prepared in all material respects in
accordance with the Commission's rules and guidelines with respect to pro-forma
financial statements, and (iii) have been properly computed on the bases
described therein; the assumptions used in the preparation of the pro-forma
financial data and other pro-forma financial information included in the
Official Statement and Prospectus are reasonable and the adjustments used
therein are appropriate to give effect to the transactions or circumstances
referred to therein.
(xiii) There are no contracts or documents which are required
to be described in the Registration Statement or the Official Statement and
Prospectus (or if the Official Statement and Prospectus is not in existence, in
the most recent Preliminary Official Statement and Prospectus) or to be filed as
exhibits thereto which have not been so described and filed as required.
(xiv) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency is necessary or required for the performance by
the Partnership of its obligations hereunder, in connection with the offering,
the issuance or sale of the Bonds hereunder or the consummation of the
transactions contemplated by the Contract, except such as have been already
obtained or as may be required under the 1933 Act or the 1933 Act Regulations,
state securities laws or the bylaws and rules of the National Association of
Securities Dealers, Inc. (the "NASD") in connection with the purchase and
distribution by the Underwriters of the Bonds to be sold thereby.
(xv) The Partnership has such permits, licenses, approvals,
consents and other authorizations (collectively, "Governmental Licenses") issued
by the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by it, except where the
lack of such Governmental Licenses would not, singly or in the aggregate, have a
material adverse effect on the operations of the Partnership; the Partnership is
in compliance with the terms and conditions of all such Governmental Licenses,
except where the failure so to comply would not, singly or in the aggregate,
have a material adverse effect on the operations of the Partnership; all of the
Governmental Licenses are valid and in full force and effect, except where the
invalidity of such Governmental Licenses or the failure of such Governmental
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Licenses to be in full force and effect would not have a material adverse effect
on the operations of the Partnership; and the Partnership has not received any
notice of proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a material adverse
effect on the operations of the Partnership.
(xvi) The Partnership has good and insurable fee simple title
("pleno dominio") to all real property comprising the Project, excluding
Palominos Island, and good title to all other properties and assets owned by it,
in each case, free and clear of all Liens (as defined in the Loan Agreement)
other than Permitted Liens (as defined in the Loan Agreement) and all of the
leases and subleases material to the business of the Partnership, and under
which the Partnership holds properties described in the Official Statement and
Prospectus, including Palominos Island, are in full force and effect, and the
Partnership has not received any notice of any material claim of any sort that
has been asserted by anyone adverse to the rights of the Partnership under any
of the leases or subleases mentioned above, or affecting or questioning the
rights of the Partnership to the continued possession of the leased or subleased
properties under any such lease or sublease.
(xvii) The Partnership meets the requirements for use of Form
S-11 under the 1933 Act Regulations.
(xviii) To the knowledge of the Partnership, except as
described in the Registration Statement, (A) the Partnership is not in violation
of any federal, state, local or foreign statute, law, rule, regulation,
ordinance, code, policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order, consent,
decree or judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened release
of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products (collectively, "Hazardous
Materials") or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Partnership has all permits, authorizations and
approvals required under any applicable Environmental Laws and is in compliance
with such requirements, (C) there are no pending or threatened administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigation or proceedings relating to
any Environmental
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Law against the Partnership and (D) there are no events or
circumstances known to the Partnership that might reasonably be expected to form
the basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental body or agency, against or
affecting the Partnership relating to Hazardous Materials or any Environmental
Laws.
(xix) No court, supervisory or regulatory authority or
arbitrator has, by order or otherwise, prohibited or suspended, or, to the
knowledge of the Partnership, threatened to prohibit or suspend, the use of the
Official Statement and Prospectus.
(xx) The Partnership maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorization, (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP and to maintain accountability
for assets, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(xxi) No statement, representation, or warranty made by the
Partnership in the Contract or made in any certificate or document required by
the Contract to be delivered to the Representative was or will be, when made,
inaccurate, untrue or incorrect in any material respect.
(xxii) Neither the Partnership nor, to the Partnership's best
knowledge, any employee or agent of the Partnership has made any payment of
funds of the Partnership or received or retained any funds of the Partnership in
violation of any law, rule or regulation which payment, receipt or retention of
funds is of a character required to be disclosed in the Official Statement and
Prospectus (or, if the Official Statement and Prospectus is not in existence, in
the most recent Preliminary Official Statement and Prospectus).
(xxiii) The Partnership has filed all foreign, federal,
Puerto Rico and local tax returns that are required to be filed or has requested
extensions thereof and has paid all taxes required to be paid by it and any
other assessment, fine or penalty levied against it, to the extent that any of
the foregoing is due and payable.
(b) The Partnership covenants that between the date hereof and
Closing it will take no action which will cause the
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representations and warranties made herein to be untrue as of the Closing.
(c) The Partnership authorizes the Official Statement and
Prospectus, and the information therein contained, to be used in connection with
the public offering and sale of the Bonds, and ratifies and approves the prior
distribution of the Preliminary Official Statement and Prospectus by the
Underwriters.
If between the date hereof and the date of the Closing, any event
shall occur which would cause the Official Statement and Prospectus, as then
supplemented or amended, to contain any untrue statement of a material fact or
to omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, (a) the Partnership, if it has knowledge of such event,
will give prompt written notice of that event to the Authority and the
Underwriters, and (b) if in the reasonable opinion of the Authority, the
Partnership or the Underwriters such event requires the preparation and
publication of a supplement or amendment to the Official Statement and
Prospectus, the Partnership will cooperate to cause the Official Statement and
Prospectus to be amended or supplemented in a form approved by the Underwriters
and the Authority.
(d) The Partnership agrees to indemnify and hold harmless the
Underwriters and each person, if any, who controls the Underwriters within the
meaning of the 1933 Act ("controlling person"), from and against (i) all losses,
claims, damages, liabilities or expenses (including reasonable counsel fees and
all other expenses related to the defense of any action, whether or not the
Partnership assumes the defense of such action), joint or several, to which the
Underwriters or such controlling person may become subject, under federal laws
or regulations or otherwise, insofar as such losses, claims, damages,
liabilities, and expenses (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
pertaining to the Partnership (including the information listed in paragraph
(a)(vi) above) as set forth in the Official Statement and Prospectus, or any
amendment or supplement thereto, the Preliminary Official Statement and
Prospectus, or the Registration Statement (or any amendment thereto), including
the Rule 430A Information, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make such statements, in the light of the circumstances under
which they were made, not misleading; (ii) against any and all loss, liability,
claim, damage and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened based
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upon any such untrue statement or omission, or any such alleged untrue statement
or omission; provided that any such settlement is effected with the written
consent of the Partnership; and (iii) against any and all expense whatsoever, as
incurred (including the reasonable fees and disbursements of counsel chosen by
Representative), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or (ii)
above; provided, however, that this indemnity shall not apply to any losses,
claims, damages, liabilities or expenses whatsoever arising out of or based upon
any such untrue statement or allegedly untrue statement, or any such omission or
alleged omission, if such statement or omission (A) was made in reliance upon
information in respect of the Underwriters furnished in writing to the
Partnership by any of the Underwriters expressly for use in the Official
Statement and Prospectus or any amendment or supplement thereto, the Preliminary
Official Statement and Prospectus or the Registration Statement (or any
amendment thereto) including the Rule 430A Information or (B) was corrected by a
supplement or amendment to the Official Statement and Prospectus (or by the
Official Statement and Prospectus, in the case of a statement or omission in the
Preliminary Official Statement and Prospectus) or the Registration Statement (or
any amendment thereto) including the 430A Information delivered to the
Underwriters prior to sale of the Bonds to the person asserting the loss. The
Partnership will have the right to assume the defense of any action against the
Underwriters or any controlling person, which shall include but not be limited
to retaining counsel reasonably satisfactory to the indemnified party; provided,
however, that any indemnified party may retain separate counsel in any such
action and may participate in the defense thereof at the sole expense of such
indemnified party. This indemnity agreement will be in addition to any liability
which the Partnership may otherwise have. The Partnership shall not be liable to
indemnify the Underwriters for any settlement effected without the Partnership's
consent.
(e) The Partnership will indemnify and hold harmless the Authority
and each member of the Authority and each officer and employee of the Authority
against any losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and all other expenses related to the defense of any
action, whether or not the Partnership assumes the defense of such action) joint
or several, to which the Authority or any member of the Authority or any officer
or employee of the Authority may become subject, under federal laws or
regulations or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any
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material fact pertaining to the Partnership (including the information listed in
paragraph (a)(vi) above) as set forth in the Official Statement and Prospectus
or any amendment or supplement thereto or the Registration Statement (or any
amendment thereto) including the 430A Information, or in the Preliminary
Official Statement and Prospectus, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make such statements, in light of the
circumstances under which they were made, not misleading; provided, however,
that this indemnity shall not apply to any losses, claims, damages, liabilities
or expenses arising out of or based upon any such untrue statement or allegedly
untrue statement, or any such omission or alleged omission, if such statement or
omission (A) was made in reliance upon information in respect of the Authority
furnished in writing to the Partnership by the Authority expressly for use in
the Official Statement and Prospectus or any amendment or supplement thereto or
the Preliminary Official Statement and Prospectus, or the Registration Statement
(or any amendment thereto) including the 430A Information or (B) was corrected
by a supplement or amendment to the Official Statement and Prospectus (or by the
Official Statement and Prospectus, in the case of a statement or omission in the
Preliminary Official Statement and Prospectus) or to the Registration Statement
including the Rule 430A Information delivered to the Authority prior to sale of
the Bonds to the person asserting the loss. The Partnership will have the right
to assume the defense of any action against the Authority or any member, officer
or employee of the Authority based upon allegations of any such loss, claim,
damage, liability or action, including the retaining of counsel reasonably
satisfactory to the Authority; provided, however, that any indemnified party may
retain separate counsel in any such action and participate in the defense
thereof at the sole expense of such indemnified party. This indemnity agreement
will be in addition to any liability which the Partnership may otherwise have.
The Partnership shall not be liable to indemnify the Authority for any
settlement effected without the Partnership's consent.
(f) Each Underwriter, severally, and not jointly, agrees to
indemnify and hold harmless the Partnership and its respective affiliates,
directors, officers, agents, representatives and employees, and each controlling
person of the Partnership, against any losses, claims, damages, liabilities or
expenses arising out of or based upon any untrue statement or alleged untrue
statement made in the Official Statement and Prospectus, the Preliminary
Official Statement and Prospectus or the Registration Statement (or any
amendment to any of the foregoing), including the Rule 430A Information, of a
material fact required to be stated therein or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which
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they were made, not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with information in
respect of the Underwriters or any of them furnished in writing to the
Partnership by any of the Underwriters expressly for use therein. The
Underwriters or any of them will have the right to assume the defense of any
action against the Partnership or any affiliate, director, officer, agent,
representative, employee or controlling person of the Partnership, which shall
include but not be limited to retaining counsel reasonably satisfactory to the
indemnified party; provided, however, that any indemnified party may retain
separate counsel in any such action and may participate in the defense thereof
at the sole expense of such indemnified party. This indemnity agreement will be
in addition to any liability which the Underwriters may otherwise have. The
Underwriters shall not be liable to indemnify the Partnership for any settlement
effected without the Underwriter's consent.
(g) The Authority agrees to indemnify and hold harmless the
Partnership and its respective affiliates, directors, officers, agents,
representatives and employees, and each controlling person of the Partnership,
against any losses, claims, damages, liabilities or expenses arising out of or
based upon any untrue statement or alleged untrue statement made in the Official
Statement and Prospectus, the Preliminary Official Statement and Prospectus or
the Registration Statement (or any amendment to any of the foregoing), including
the Rule 430A Information, of a material fact required to be stated therein or
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with information in respect of the Authority furnished in writing to
the Partnership by the Authority expressly for use therein. The Authority will
have the right to assume the defense of any action against the Partnership or
any affiliate, director, officer, agent, representative, employee or controlling
person of the Partnership, which shall include but not be limited to retaining
counsel reasonably satisfactory to the indemnified party; provided, however,
that any indemnified party may retain separate counsel in any such action and
may participate in the defense thereof at the sole expense of such indemnified
party. This indemnity agreement will be in addition to any liability which the
Authority may otherwise have. The Authority shall not be liable to indemnify the
Partnership for any settlement effected without the Authority's consent.
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(h) Promptly after receipt by an indemnified party under this
Letter of Representation of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party under this Letter of Representation, notify the indemnifying
party of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability (except as to lack of
notification which causes actual damage) which it may have to any indemnified
party otherwise than under this Letter of Representation. In case any such
action is brought against any indemnified party and it notifies the Partnership
of the commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party. After
notice from the indemnifying party to such indemnified party of its assumption
of the defense, the indemnifying party will not be liable to such indemnified
party under this Letter of Representation for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, except to the extent
provided in subparagraphs (d), (e), (f) and (g) above.
(i) In the event the Contract shall terminate because of the
default of the Underwriters, the Partnership agrees that it (i) will not look to
the Authority for the payment of any third party costs, (ii) will protect the
Authority against any third party claims for fees, costs or expenses, (iii) will
be responsible for the settlement and discharge thereof and (iv) will pay to the
Authority its expenses related to the Bonds upon the receipt of the money paid
to the Partnership by the Underwriters pursuant to Section 9 of the Contract.
(j) Until the Official Statement and Prospectus has been prepared
and is available for distribution, the Partnership shall provide to the
Underwriters sufficient quantities of the Preliminary Official Statement and
Prospectus as the Underwriters deem necessary to satisfy the Underwriters'
obligations under Rule 15c2-12 with respect to distribution to each potential
customer, upon request, of a copy of the Preliminary Official Statement and
Prospectus.
As soon as practicable after the date hereof, and in any event
within seven business days of the date hereof, the Partnership shall execute and
deliver to the Underwriters executed copies of the Official Statement and
Prospectus dated the date hereof, relating to the Bonds, in substantially the
form of the Preliminary Official Statement and Prospectus, with only such
changes therein as shall have been approved by the Authority, the Partnership
and the Underwriters (the delivery of the Official Statement and Prospectus
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to the Underwriters and the acceptance thereof by the Underwriters to constitute
in all events such approval), executed on behalf of the Authority and the
Partnership by duly authorized officers. The Official Statement and Prospectus
shall be provided for distribution in such quantity as shall be requested by the
Underwriters in order to permit the Underwriters to comply with the provisions
of Rule 15c2-12 and the applicable rules of the Municipal Securities Rulemaking
Board with respect to distribution to each potential customer, upon request, of
a copy of the final Official Statement and Prospectus and the Underwriters agree
to distribute such Official Statement and Prospectus in compliance with Rule
15c2-12.
The Partnership authorizes and consents to the use of the
Preliminary Official Statement and Prospectus by the Underwriters prior to the
availability of the Official Statement and Prospectus for such purposes as such
documents may be legally used. After the Official Statement and Prospectus has
been delivered and for 25 days after the "end of the underwriting period" as
such term is defined in Section (f)(2) of Rule 15c2-12 if any event shall occur
as a result of which it is necessary to amend or supplement the Official
Statement and Prospectus in order to make the statements therein, in the light
of the circumstances under which they are made, not misleading, the Partnership
will so advise the Authority and the Representative, as appropriate. In any such
case, the Partnership will cooperate in preparing and furnishing to the
Underwriters and to the dealers (whose names and addresses the Underwriters will
furnish to the Partnership) to whom Bonds may have been sold by the Underwriters
and to any other dealers upon request, either an amendment or supplement to the
Official Statement and Prospectus so that the Official Statement and Prospectus,
as so amended or supplemented will not contain an untrue statement of a material
fact or omit to state a material fact necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. Such amendments shall be filed with the Commission in compliance
with the requirements of the 1933 Act and the 1993 Act Regulations. The cost of
providing such amendment or supplement prior to the Closing and during the
relevant period following the Closing shall be paid by the Partnership.
No tombstone or other advertisement of the sale of the Bonds by
the Underwriters shall be published without the prior approval, oral or written,
of the Partnership of such tombstone or other advertisement. If the Partnership
fails to disapprove the form of any tombstone or other advertisement within two
business days after receipt of such form of tombstone or other advertisement by
the Partnership, such failure shall constitute approval thereof by the
Partnership.
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(k) The Partnership covenants and agrees to enter into the
Continuing Disclosure Agreement to provide ongoing disclosure about the
Partnership, for the benefit of the beneficial owners of the Bonds on or before
the date of delivery of the Bonds as required under Section (b)(5) of Rule
15c2-12. The Continuing Disclosure Agreement shall be as described in the
Preliminary Official Statement and Prospectus, with such changes as may be
agreed in writing by the Underwriters.
All representations, warranties and agreements in this Letter of
Representation shall remain operative and survive in full force and effect
regardless of (a) delivery of and payment for the Bonds under the Contract, and
(b) any termination of the Contract or this Letter of Representation.
Kindly confirm your acceptance of this Letter of Representation by
signing and returning to the Partnership a duplicate hereof.
Very truly yours,
EL CONQUISTADOR PARTNERSHIP L.P., S. E.
BY: CONQUISTADOR HOLDING (SPE), INC.
By:
---------------------------------
Name:
Title:
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ACCEPTED and CONFIRMED
as of the date first above
written.
CITICORP FINANCIAL SERVICES CORPORATION
[---------------------------]
[---------------------------]
By: Citicorp Financial Services Corporation,
as Representative
By:
-----------------------------------
Name:
Title:
PUERTO RICO INDUSTRIAL, TOURIST,
EDUCATIONAL, MEDICAL AND ENVIRONMENTAL
CONTROL FACILITIES FINANCING AUTHORITY
By:
-----------------------------------
Name: Velmarie Berlingeri
Title: Acting Executive Director
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EL CONQUISTADOR PARTNERSHIP L.P., S.E.
AMENDED AND RESTATED
VENTURE AGREEMENT
DATED ______________, 1999
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P., S.E.
AMENDED AND RESTATED
VENTURE AGREEMENT
Table of Contents
-----------------
Page
----
1. Defined Terms.............................................2
2. Formation and Organization................................9
2.1 Formation...........................................9
2.2 Name, Place of Business and Office..................9
2.3 Purpose.............................................9
2.4 Term...............................................10
3. Partners and Capital.....................................10
3.1 General Partner....................................10
3.2 Limited Partners...................................10
3.3 Capital Contributions of the Partners..............11
3.4 No Right to Return of Capital......................12
3.5 No Obligation to Restore Deficits..................12
4. Management of the Partnership............................12
4.1 Authority of General Partner.......................12
4.2 Matters Requiring Consent of Independent Directors
of the General Partner..........................15
4.3 Operation of the Partnership.......................15
4.4 Liability of Partners..............................16
4.5 Financial Information..............................16
4.6 Tax Returns........................................17
4.7 Fiscal Year........................................17
4.8 Tax Matters Partner................................17
4.9 Delegation of Authority............................19
4.10 General Partner, Limited Partners or Affiliates
Dealing with the Partnership....................19
4.11 Other Business Activities..........................19
4.12 Additional Financial Information...................21
4.13 Separateness.......................................21
5. Loans to the Partnership.................................22
5.1 Additional Loans...................................22
i
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5.2 Repayment of Loans.................................23
6. Capital Accounts; Allocation of Profits and Losses.......24
6.1 Definitions........................................24
6.2 Definition of Capital Accounts.....................25
6.3 Allocations of Income and Loss.....................26
6.4 Special Partnership Election.......................26
7. Partnership Distributions................................27
7.1 Distributable Cash from Operations.................27
7.2 Distributable Cash from a Capital Transaction......29
7.3 Other Distributions................................32
8. Transferability of Partners' Interests...................32
8.1 No Transfer........................................32
8.2 Permitted Sales of Limited Partners' Interests.....34
8.3 Permitted Security Interests.......................35
8.4 Withdrawal or Transfer by the General Partner......36
8.5 Effect of Bankruptcy, Dissolution, Death or
Incompetence of a Limited Partner...............37
8.6 Right to Continue..................................38
8.7 Effect of Transfer.................................38
9. Rights and Obligations of Limited Partners...............39
9.1 Management of the Partnership......................39
9.2 Limitation on Liability of Limited Partners........39
9.3 Liability to Limited Partners......................39
9.4 Power of Attorney..................................40
10. Approvals................................................41
10.1 Puerto Rico Gaming Authority Approval..............41
11. Partnership Obligations..................................41
11.1 Nature of Obligations..............................41
11.2 Indemnities........................................42
12. Termination and Liquidation..............................44
12.1 Termination........................................44
12.2 Winding Up.........................................45
12.3 Dissolution. ......................................46
ii
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13. Miscellaneous............................................46
13.1 Further Assurances.................................46
13.2 Expenses...........................................46
13.3 Notices............................................47
13.4 Equitable Remedies.................................47
13.5 Remedies Cumulative................................47
13.6 Captions; Partial Invalidity.......................48
13.7 Entire Agreement...................................48
13.8 Applicable Law.....................................48
13.9 Counterparts.......................................49
13.10 Successors.........................................49
13.11 Confidentiality....................................49
iii
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<PAGE>
AMENDED AND RESTATED
VENTURE AGREEMENT
OF
EL CONQUISTADOR PARTNERSHIP L.P., S.E.
THIS LIMITED PARTNERSHIP AGREEMENT (this "Venture Agreement")
is made the ___ day of ______________ 1999, between CONQUISTADOR HOLDING (SPE),
INC. ("Holding"), a Delaware corporation formed as a single purpose entity,
having an address c/o Patriot American Hospitality, Inc., 1950 Stemmons Freeway,
Suite 6001, Dallas, Texas 75207, and WHG EL CON CORP. ("WHG"), a Delaware
corporation, having an address c/o Wyndham International, Inc., 1950 Stemmons
Freeway, Suite 6001, Dallas, Texas 75207.
W I T N E S S E T H:
-------------------
WHEREAS, El Conquistador Partnership L.P., S.E. (formerly
known as El Conquistador Partnership L.P.) was duly formed pursuant to a certain
Venture Agreement dated January 12, 1990, and the filing of a Certificate of
Limited Partnership with the Secretary of State of the State of Delaware on
January 16, 1990; and
WHEREAS, said Venture Agreement was subsequently amended and
various of its partners changed and substituted; and
WHEREAS, Holding is the sole general partner and Class A
Limited Partner of the Partnership and WHG and Holding are each Class B Limited
Partners of the Partnership; and
WHEREAS, the Partners desire to amend and restate the Venture
Agreement as set forth herein.
NOW THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby amend and restate the Venture Agreement
in its entirety and the following, as the same may be amended as provided
herein, shall govern the Partnership.
1
<PAGE>
<PAGE>
1. DEFINED TERMS.
The capitalized terms used in this Venture Agreement and the
Appendix shall, unless the context otherwise requires, have the meanings
specified in this Section. The singular shall include the plural and the
masculine form shall include the feminine and neuter forms and vice versa, as
the context requires.
1.1 "ACT" means the Delaware Revised Uniform Limited
Partnership Act, 6 Del. C., Section 17-101 et seq., as amended from time to
time.
1.2 "ADDITIONAL LOANS" means a loan or loans made to the
Partnership pursuant to Section 5.1 hereof and the loans made to the Partnership
pursuant to the Prior Venture Agreement or by any affiliate of the Partnership
and which are evidenced by (i) an amended and restated promissory note of even
date herewith made by the Partnership in the aggregate principal amount of
$_____ payable to Holding, (ii) an amended and restated promissory note of even
date herewith made by the Partnership in the aggregate principal amount of
$________ payable to WHG and (iii) a promissory note of even date herewith made
by the Partnership in the aggregate principal amount of $32,021,172 payable to
Posadas de Puerto Rico Associates, Incorporated.
1.3 "ADJUSTED CAPITAL ACCOUNT" means the Capital Account
of a Partner reduced by any adjustments, allocations or distributions described
in Treas. Reg. ss. 1.704-1(b)(2)(ii)(d)(4), (5) or (6).
1.4 "AFFILIATE" means any person controlling, under common
control with, or controlled by the person in question.
1.5 "AFICA" means the Puerto Rico Industrial, Tourist,
Educational, Medical and Environmental Control Facilities Financing Authority.
1.6 "APPENDIX" means the Appendix attached to this
Venture Agreement.
1.7 "BANKRUPTCY" means the initiation of any proceeding,
whether voluntary or involuntary, under the federal bankruptcy laws or any
state, local or foreign bankruptcy act, including, without limitation, an
assignment for the benefit of creditors, if not discharged, in the case of any
involuntary proceeding, within 60 days.
1.8 "CAPITAL ACCOUNTS" is defined in Section 6.2.1 hereof.
2
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1.9 "CAPITAL CONTRIBUTIONS" means the amounts contributed to
the capital of the Partnership by any Partner, other than Supplemental
Contributions.
1.10 "CAPITAL TRANSACTION" means any sale, condemnation or
insured casualty loss of all or any substantial part of the Resort and
refinancings of the Resort. Loans to be made by any Partner under the terms
hereof shall not be deemed a refinancing of the Resort.
1.11 "CLASS A LIMITED PARTNER" means Holding in its capacity
as an owner of a Class A Residual Partnership Interest and any transferee of all
or any portion of such Class A Residual Partnership Interest who is admitted to
the Partnership as a Class A Limited Partner pursuant to the terms of this
Venture Agreement.
1.12 "CLASS A RESIDUAL PARTNERSHIP INTEREST" is defined
in Section 3.2 hereof.
1.13 "CLASS B LIMITED PARTNER" means WHG and/or Holding
in its capacity as an owner of a Class B Residual Partnership Interest and any
transferee of all or any portion of such Class B Residual Partnership Interest
who is admitted to the Partnership as a Class B Limited Partner pursuant to the
terms of this Venture Agreement.
1.14 "CLASS B RESIDUAL PARTNERSHIP INTEREST" is defined
in Section 3.2 hereof.
1.15 "CODE" means the Internal Revenue Code of 1986, as
amended from time to time.
1.16 "COLLATERAL" is defined in Section 12.3.2 hereof.
1.17 "CONTRIBUTION RATIO" means with respect to each Partner,
the ratio that such Partner's Capital Contribution bears to the Capital
Contributions of a specified group of Partners.
1.18 "CONTROL" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a person, whether through ownership of voting securities, by contract or
otherwise.
1.19 "DEFERRED PREFERRED RETURN" means the amount of any
Preferred Return unpaid from all prior Fiscal Year(s) of the Partnership,
together with interest thereon at the rate of 10% per annum from the end of the
Fiscal Year to which such Preferred Return relates to the date of payment.
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1.20 "DEFICIENCY LOAN" means the loans heretofore made to the
Partnership as such pursuant to the Prior Venture Agreement or by any affiliate
of the Partnership and which are evidenced by (i) an amended and restated
promissory note of even date herewith made by the Partnership in the aggregate
principal amount of $_________ payable to Holding, (ii) an amended and restated
promissory note of even date herewith made by the Partnership in the aggregate
principal amount of $__________ payable to WHG and (iii) an amended and restated
promissory note of even date herewith made by the Partnership in the aggregate
principal amount of $___________ payable to the Manager.
1.21 "DEPRECIATION" means, for each Fiscal Year of the
Partnership, the deductions for depreciation under Sections 167 and 168 of the
Code (or any similar provision hereafter enacted), with respect to the Resort
and amortization deductions under Sections 195 and 709(b) of the Code.
1.22 "DISTRIBUTABLE CASH" means Operating Cashflow less all
payments made in respect of Deficiency Loans and Additional Loans.
1.23 "DISTRIBUTABLE CASH FROM A CAPITAL TRANSACTION" means
Extraordinary Cashflow less all payments made in respect of Deficiency Loans and
Additional Loans.
1.24 "ECONOMIC RISK OF LOSS" shall have the meaning set
forth in Treas. Reg. ss. 1.704-1T(b)(4)(iv)(k)(1).
1.25 "ERISA" is defined in Section 8.1.2.2 hereof.
1.26 "EXTRAORDINARY CASHFLOW" means the gross cash proceeds
received by the Partnership resulting from a Capital Transaction, reduced by all
costs, expenditures, fees, amounts needed for any required debt repayments,
funds reserved for repair, replacement or reconstruction of the Resort and any
other reserves established by the General Partner to meet obligations of the
Partnership, but before providing for the payment of (i) Preferred Returns and
Deferred Preferred Returns, (ii) the Incentive Management Fee and (iii)
Deficiency Loans and Additional Loans.
1.27 "FIRST MORTGAGE LOAN" means the loan in the principal
amount of $105,200,000 made by AFICA to the Partnership on even date herewith
pursuant to the First Mortgage Loan Documents.
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1.28 "FIRST MORTGAGE LOAN DOCUMENTS" means all the documents
and instruments evidencing the Partnership's obligations under the First
Mortgage Loan including the notes, loan agreements, mortgages, and deeds of
trust relating thereto and all other documents and instruments executed and
delivered in connection therewith.
1.29 "FISCAL YEAR" is defined in Section 4.7 hereof.
1.30 "GAIN FROM A CAPITAL TRANSACTION" is defined in
Section 6.1.2 hereof.
1.31 "GENERAL PARTNER" means Holding in its capacity as
General Partner and owner of the General Residual Partnership Interest, and any
successor or transferee who is admitted as a General Partner and owner of the
General Residual Partnership Interest pursuant to the terms of this Venture
Agreement.
1.32 "GENERAL RESIDUAL PARTNERSHIP INTEREST" is defined
in Section 3.1 hereof.
1.33 "INCENTIVE MANAGEMENT FEE" means the Incentive
Management Fee payable to the Manager and denominated as such under the Prior
Management Agreement.
1.34 "INJURED PARTY" is defined in Section 11.2.4 hereof.
1.35 "INTEREST" means the entire ownership interest of a
Partner of the Partnership at any particular time, including the right of any
such Partner to any and all benefits to which such Partner may be entitled
under this Venture Agreement, together with the obligations of such Partner to
comply with all the terms and provisions of this Venture Agreement and the Act
1.36 "LIMITED PARTNER" means any Class A Limited Partner
and any Class B Limited Partner.
1.37 "LOSSES" are defined in Section 11.2.1 hereof.
1.38 "MANAGEMENT AGREEMENT" means the El Conquistador Hotel
Amended and Restated Management Agreement dated as of January 1, 1999 between
the Partnership and the Manager pursuant to which the Manager manages the
Resort.
1.39 "MANAGER" means Williams Hospitality Group Inc. (formerly
known as Williams Hospitality Management Corporation) as the manager of the
Resort including the hotel, casino, golf course, marina, condominiums and
related operations constituting the Resort pursuant to the Management Agreement,
and any permitted assignee thereof.
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1.40 "MINIMUM GAIN ATTRIBUTABLE TO PARTNER NONRECOURSE DEBT"
shall have the meaning set forth in Treas. Reg. ss. 1.704-1T(b)(4)(iv)(h).
1.41 "NET INCOME" is defined in Section 6.1.1 hereof.
1.42 "NET LOSS" is defined in Section 6.1.1 hereof.
1.43 "NET LOSS FROM A CAPITAL TRANSACTION" is defined in
Section 6.1.2 hereof.
1.44 "NONRECOURSE DEDUCTIONS" shall have the meaning set forth
in Treas. Reg. ss. 1.704-1T(b)(4)(iv)(b).
1.45 "NONRECOURSE LIABILITY" shall have the meaning set forth
in Treas. Reg. ss. 1.704-1T(b)(4)(iv)(k)(3).
1.46 "OFFER" is defined in Section 8.2.2 hereof.
1.47 "OFFERING PRICE" is defined in Section 8.2.2 hereof.
1.48 "OPERATING CASHFLOW" means all cash received by the
Partnership from all sources (including investment income from all reserves and
other liquid investments of the Partnership but excluding proceeds from a
Capital Transaction) less all cash expended or reserved for all due and maturing
liabilities, including debt service (principal and interest) on the First
Mortgage Loan, capital and operating expenditures, and other obligations of the
Partnership whether or not secured by the assets of the Partnership but no
deductions shall be made for (i) expenditures and reserves actually deducted in
determining Extraordinary Cashflow, (ii) Preferred Return(s) and Deferred
Preferred Return(s), (iii) the Incentive Management Fee and (iv) payment of
Deficiency Loans and Additional Loans.
1.49 "OTHER PARTY" is defined in Section 11.2.4 hereof
1.50 "PARTNER" shall mean a General Partner, a Limited Partner
or both as the context shall require.
1.51 "PARTNER NONRECOURSE DEBT" shall have the meaning set
forth in Treas. Reg. ss. 1.704-1T(b)(4)(iv)(k)(4).
1.52 "PARTNER NONRECOURSE DEDUCTIONS" is defined in Article
III, Section 2 of the Appendix.
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1.53 "PARTNERSHIP" means the limited partnership formed by the
Prior Venture Agreement as continued by this Venture Agreement.
1.54 "PARTNERSHIP MINIMUM GAIN" shall have the meaning set
forth in Treas. Reg. ss. 1.704-1T(b)(4)(iv)(c).
1.55 "PARTNER'S SHARE OF PARTNERSHIP MINIMUM GAIN" shall be
calculated as set forth in Treas. Reg. ss. 1.704-1T(b)(4)(iv)(f).
1.56 "PARTNER'S SHARE OF MINIMUM GAIN ATTRIBUTABLE TO PARTNER
NONRECOURSE DEBT" shall be calculated as set forth in Treas. Reg. ss.
1.704-1T(b)(4)(h)(5).
1.57 "PREFERRED RETURN" means for any Fiscal Year or part
thereof an 8.5% annual rate of return on the amount each Partner's Unrecovered
Capital calculated based upon the amount of each Partner's Unrecovered Capital
from day to day.
1.58 "PRIOR MANAGEMENT AGREEMENT" means that certain
development services and management agreement between the Manager and the
Partnership dated January 12, 1990, and all amendments thereto in force and
effective, as it was, at all relevant times prior to the date of the Management
Agreement.
1.59 "PRIOR VENTURE AGREEMENT" means that certain Venture
Agreement dated January 12, 1990, and all amendments thereto in force and
effective, as it was, at all relevant times prior to the date of this Venture
Agreement.
1.60 "RECAPTURE" means that portion of the gain on any sale,
exchange or other disposition of Partnership property which is characterized as
ordinary income by virtue of the recapture rules of Section 1250 or Section 1245
of the Code.
1.61 "REGULATIONS" means the United States Treasury
Regulations.
1.62 "RESIDUAL PARTNERSHIP INTEREST" means for each Partner
the percentage set forth as such in Sections 3.1 and 3.2 hereof, as the same may
be amended from time to time, and which may consist of a General Residual
Partnership Interest, a Class A Residual Partnership Interest and/or a Class B
Residual Partnership Interest.
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1.63 "RESORT" means the land and all buildings, property and
facilities that constitute the El Conquistador Resort & Country Club, as the
same may exist from time to time, including, without limitation, Las Casitas
Village and any additional phases thereof.
1.64 "SECRETARY" is defined in Section 4.8.2.1 hereof.
1.65 "SELLING PARTNER" is defined in Section 8.2.2 hereof.
1.66 "SUPPLEMENTAL CONTRIBUTION" is defined in
Section 3.3 hereof.
1.67 "SUPPLEMENTAL PREFERRED RETURN" means for any Fiscal Year
or part thereof an 8.5% annual rate of return on the amount of each Partner's
Unrecovered Supplemental Contribution calculated based upon the amount of each
Partner's Unrecovered Supplemental Contribution from day to day.
1.68 "SUPPLEMENTAL DEFERRED PREFERRED RETURN" means the amount
of any Supplemental Preferred Return unpaid from all prior Fiscal Year(s) of the
Partnership, together with interest thereon at the rate of 10% per annum from
the end of the Fiscal Year to which such Supplemental Preferred Return relates
to the date of payment.
1.69 "TARGET CAPITAL ACCOUNT" is defined in
Section 6.2.2 hereof.
1.70 "TAX MATTERS PARTNER" is defined in
Section 4.8.1 hereof.
1.71 "TREAS. REG. SS." means the Regulations.
1.72 "UNRECOVERED CAPITAL" means with respect to each Partner
the amount atany time of such Partner's Capital Contribution actually made to
the Partnership, reduced by distributions made to such Partner pursuant to
Section 7.2.9 hereof.
1.73 "UNRECOVERED SUPPLEMENTAL CONTRIBUTION" means with
respect to each Partner the amount at any time of such Partner's Supplemental
Contribution actually made to the Partnership, reduced by distributions made to
such Partner pursuant 7.2.8 hereof.
1.74 "VENTURE AGREEMENT" means this amended and restated
venture agreement of limited partnership as the same may be amended or restated
in writing from time to time.
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2. FORMATION AND ORGANIZATION.
2.1 FORMATION. The limited partnership was duly formed on
January 16, 1990, by the filing of a Certificate of Limited Partnership with the
Office of the Secretary of State of the State of Delaware, under and pursuant to
the laws of the State of Delaware and the Act. The rights, duties and
liabilities of the Partners shall be as provided by the laws of the State of
Delaware, except as otherwise expressly provided in this Venture Agreement.
2.2 NAME, PLACE OF BUSINESS AND OFFICE. The name of the
Partnership shall be EL CONQUISTADOR PARTNERSHIP L.P., S.E. The business of the
Partnership shall be conducted under that name or such other name as may be
determined by the General Partner. The office and principal place of business of
the Partnership shall be at such place or places as the General Partner may from
time to time determine. The General Partner shall promptly notify the Limited
Partners of the location of and any change in the location of the principal
office of the Partnership. If required by applicable law, the General Partner
shall file or record an assumed or fictitious name certificate in the
appropriate records in each place in which the nature of the operations of the
Partnership makes such filings or recordings necessary. The General Partner
shall promptly execute and cause to be filed with the Secretary of State of the
State of Delaware any necessary amendments to the certificate of limited
partnership as required by the Act. The General Partner shall do all other acts
and things (including publication or periodic filings of any certificate) that
may now or hereafter be required for the perfection and continuing maintenance
of the Partnership as a limited partnership under the laws of the State of
Delaware.
2.3 PURPOSE. From and after the date hereof, the business and
purpose of the Partnership is and shall be solely to continue to own, operate,
maintain, improve, finance, refinance, lease and, if and when appropriate, to
sell or otherwise dispose of the Resort and perform any and all acts and
services necessary or desirable in connection with the foregoing and for no
other purpose. The Partnership shall not engage in any business or own any
assets other than the Resort and those related to the Resort or otherwise in
furtherance of the purpose of the Partnership. The Partnership shall not incur
any indebtedness other than the First Mortgage Loan, any refinancing of the
First Mortgage Loan or any other indebtedness except in connection with the
operation of the
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Resort, and so long as the First Mortgage Loan is outstanding as permitted by
the First Mortgage Loan Documents. The relationship between and among the
Partners shall be limited to the performance of the specific purposes of the
Partnership as set forth in this Venture Agreement. Nothing herein shall be
construed to create a general purpose partnership between or among the Partners
or any of them; to authorize any Partner to act as general agent for any other;
or to confer or grant to any Partner any proprietary interest in, or to subject
any Partner to any liability for or in respect of, the business, assets, profits
or obligations of any other Partner, except only to the extent contemplated by
this Venture Agreement.
2.4 TERM. The Partnership commenced on January 16, 1990 and
shall continue for a term ending March 31, 2035 unless sooner terminated as
provided in Section 12 hereof.
3. PARTNERS AND CAPITAL.
3.1 GENERAL PARTNER. The name and address of the General
Partner, and its General Residual Partnership Interest is as follows:
General Partner Residual Partnership Interest
--------------- -----------------------------
(also referred to as the General
Residual Partnership Interest)
Conquistador Holding (SPE), Inc. 15%
c/o Patriot American Hospitality, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, Texas 75207
3.2 LIMITED PARTNERS. The names and addresses of the Limited
Partners, and their Class A Residual Partnership Interests and Class B Residual
Partnership Interests are as follows:
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Class A Limited Partner Residual Partnership Interest
----------------------- -----------------------------
(also referred to as the Class A
Residual Partnership Interest)
Conquistador Holding (SPE), Inc. 35%
c/o Patriot American Hospitality, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, Texas 75207
Class B Limited Partners Residual Partnership Interest
------------------------ -----------------------------
(also referred to as the Class B
Residual Partnership Interests)
Conquistador Holding (SPE), Inc. 26.73%
c/o Patriot American Hospitality, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, Texas 75207
WHG El Con Corp. 23.27%
c/o Wyndham International, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, Texas 75207
3.3 CAPITAL CONTRIBUTIONS OF THE PARTNERS. All required
Capital Contributions have been received by the Partnership, and are reflected
in each Partner's Capital Account. Additionally, the Partners may make
supplemental contributions (each a "Supplemental Contribution") to the
Partnership, such Supplemental Contributions to be made pursuant to the written
consent of the Partners as they may agree upon from time to time.
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3.4 NO RIGHT TO RETURN OF CAPITAL. No Partner shall have the
right to withdraw any part of its Capital Contribution or Supplemental
Contribution or to demand or receive the return of its Capital Contribution or
Supplemental Contribution except as expressly set forth herein.
3.5 NO OBLIGATION TO RESTORE DEFICITS. No Partner shall be
obligated to restore any deficit balance in its Capital Account upon the
dissolution and liquidation of the Partnership.
4. MANAGEMENT OF THE PARTNERSHIP.
4.1 AUTHORITY OF GENERAL PARTNER. The General Partner, as
such, and not the Limited Partners, as such, shall have full and complete
discretion in the management of the Partnership for the purposes set forth in
Section 2.3 hereof and to do all things necessary, desirable or convenient to
carry on the business of the Partnership without notice to or obtaining the
consent of the Limited Partners. Subject to the foregoing, the General Partner
shall perform or cause to be performed, at the Partnership's expense and in its
name, the coordination of all management, leasing and operational functions
relating to the Resort and the arrangement for long-term loans. Without limiting
the generality of the foregoing, the General Partner (subject to the provisions
of this Venture Agreement) is expressly authorized on behalf of the Partnership
to:
4.1.1 operate any business normal or customary for the owner
of a hotel/casino/resort property similar to the Resort;
4.1.2 perform any and all acts necessary or appropriate to the
ownership, improvement, operation, leasing and sale of the Resort, including,
but not limited to, making applications for rezoning or objections to rezoning
of other property, and commencing, defending and/or settling litigation
regarding the Partnership, the Resort or any aspect thereof;
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4.1.3 procure and maintain with responsible companies (or
participate in a group policy with any affiliated entities) such insurance as
may be available in such amounts and covering such risks as are deemed
appropriate by the General Partner, but in no event shall the amount of, or
risks covered by, such insurance be less than that which is required pursuant to
the First Mortgage Loan Documents during the term of the First Mortgage Loan,
provided that such insurance is available;
4.1.4 take and hold all property of the Partnership, real,
personal and mixed, in the Partnership's name, or in the name of a nominee of
the Partnership for the purpose of placing a mortgage on the Resort or closing a
loan relating to the Resort;
4.1.5 mortgage, lease, sell or otherwise dispose of all or any
portion of the assets of the Partnership, including assets consisting of real
property, or borrow moneys on behalf of the Partnership and execute and deliver
on behalf of and in the name of the Partnership, or in the name of a nominee of
the Partnership, deeds, deeds of trust, notes, leases, subleases, mortgages,
bills of sale, financing statements, security agreements, easements and any and
all other instruments necessary or incidental to the conduct of the
Partnership's business and the financing thereof;
4.1.6 coordinate all accounting and clerical functions of the
Partnership and employ such accountants, lawyers, managers, agents and other
management, professional or service personnel, including affiliates, as may from
time to time be required to carry on the business of the Partnership;
4.1.7 collect all rents and other income accruing to the
Partnership and pay all costs, expenses, debts and other obligations of the
Partnership;
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4.1.8 negotiate and execute for and on behalf of the
Partnership leases for space or units in the Resort on such terms and conditions
as the General Partner may determine in its sole discretion;
4.1.9 pay the fees, commissions and expense reimbursements
provided for elsewhere in this Venture Agreement;
4.1.10 invest Partnership funds in United States Treasury
obligations, bankers acceptances, money market accounts, certificates of
deposit, investment grade commercial paper and similar money market and short
term instruments;
4.1.11 amend or extend the Management Agreement from time to
time or enter into a new management agreement upon the expiration or termination
of the Management Agreement;
4.1.12 perform any and all obligations provided elsewhere in
this Venture Agreement to be performed by the General Partner;
4.1.13 otherwise provide for the management of the Resort on
such terms as the General Partner shall determine, in the exercise of its sole
discretion;
4.1.14 enter into any contracts, agreements or arrangements
with or make loans to or pay compensation or fees to any Partner or an affiliate
of any Partner or any officer, director, employee or agent of any Partner or any
affiliate of any Partner;
4.1.15 amend this Venture Agreement including any amendment to
create a class or group of partnership interests not previously outstanding,
provided such new class or group is junior in rank to those existing on the date
hereof;
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4.1.16 admit any Partners to the Partnership; and
4.1.17 purchase or otherwise acquire any new or
additional property which may expand Resort.
4.2 MATTERS REQUIRING CONSENT OF INDEPENDENT DIRECTORS
OF THE GENERAL PARTNER.
Notwithstanding anything to the contrary contained in this
Venture Agreement and any provision of law that otherwise so empowers the
Partnership, at any time that the First Mortgage Loan remains outstanding, the
consent of the General Partner, which consent must include the vote or written
consent of the independent directors of the General Partner, is required to:
4.2.1 cause the Partnership to file for Bankruptcy, or consent
to a Bankruptcy filing with respect to the Partnership, or file an insolvency
petition or otherwise institute insolvency proceedings of the Partnership;
4.2.2 except as otherwise permitted by the First Mortgage Loan
Documents, dissolve, terminate, liquidate, consolidate, merge or sell all or
substantially all of the assets of the Partnership;
4.2.3 amend, modify, change or repeal Section 2.3 or 4.2 of
this Venture Agreement.
4.3 OPERATION OF THE PARTNERSHIP. Except as otherwise set
forth in this Section 4, the General Partner shall have the full and exclusive
right to manage and control the business and affairs of the Partnership and to
make all decisions regarding the business of the Partnership and shall otherwise
have all of the rights, powers and obligations of a general partner of a limited
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partnership under the Act. In performing its duties under this Venture
Agreement, the General Partner shall have all power and authority to act in the
name and on behalf of the Partnership and the Partners in connection with the
affairs of the Partnership necessary to perform such duties. No Limited Partner
in its capacity as such, shall participate in the management of or have any
control of the Partnership's business nor shall any Limited Partner, as such,
have the power to represent, act for, sign for or bind the General Partner or
the Partnership.
4.4 LIABILITY OF PARTNERS. Neither the General Partner nor any
of its stockholders, officers, directors, employees, affiliates or agents,
whether acting as General Partner or otherwise, shall have any liability to the
Partnership or to any other Partner for any acts performed by the General
Partner or such stockholder, officer, director, employee, affiliate or agent, by
or on behalf of the Partnership in its capacity as such except for gross
negligence or willful misconduct.
4.5 FINANCIAL INFORMATION. The General Partner shall, at the
expense of the Partnership, maintain or cause to be maintained the books and
records of the Partnership (including all items of income and loss) in
accordance with generally accepted accounting principles consistently applied.
The General Partner shall prepare or cause to be prepared and delivered to each
of the Partners the following financial statements:
4.5.1 not later than 90 days after the end of each Fiscal Year
of the Partnership, a balance sheet, an income statement and a statement of cash
flows of the Partnership for such Fiscal Year, certified by the independent
certified public accountants then servicing the Partnership as having been
prepared in accordance with generally accepted accounting principles
consistently applied;
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4.5.2 not later than 45 days after the end of each of the
first three quarters of the Partnership's Fiscal Year, an unaudited balance
sheet, income statement and statement of cash flows of the Partnership for such
quarter; and
4.5.3 not later than the twentieth (20th) day of each calendar
month, an unaudited balance sheet, income statement and statement of cash flows
of the Partnership for the preceding calendar month and the Fiscal Year to date.
4.6 TAX RETURNS. The General Partner shall engage and instruct
the independent certified public accountants or other professionals then
servicing the Partnership to prepare income tax returns for the Partnership as
soon as practical after the end of each of the Partnership's Fiscal Years and
shall instruct such accountants to deliver such tax returns to each Partner and
to file such tax returns with the appropriate governmental agencies.
4.7 FISCAL YEAR. Commencing with the fiscal year ending
December 31, 1997, the fiscal year of the Partnership (the "Fiscal Year") shall
end on each December 31 or on such other date as shall be determined by the
General Partner. Any references to any prior Fiscal Year shall refer to the
Partnership's actual fiscal year for income tax purposes in respect of such time
period.
4.8 TAX MATTERS PARTNER.
4.8.1 Designation of Tax Matters Partner. The General Partner
shall be the tax matters partner as defined in Section 6231(a)(7) of the Code
(the "Tax Matters Partner").
4.8.2 Duties of Tax Matters Partner. To the extent and in the
manner provided by applicable law and regulations, the Tax Matters Partner
shall:
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4.8.2.1 furnish the name, address, partnership Interest and
taxpayer identification number of each Partner, including any successor to a
Partner, to the Secretary of the Treasury of the United States or his delegate
(the "Secretary"); and
4.8.2.2 keep each Partner informed of the administrative and
judicial proceedings for the adjustment at the Partnership level of any item
required to be taken into account by a Partner for income tax purposes (such
administrative proceeding referred to hereinafter as a "tax audit" and such
judicial proceeding referred to hereinafter as a "judicial review").
4.8.3 Authority of Tax Matters Partner. The Tax Matters
Partner may, in its sole discretion:
4.8.3.1 enter into any settlement with the Internal Revenue
Service, the Secretary or any other taxing authority;
4.8.3.2 seek judicial review of any administrative adjustment;
4.8.3.3 file a request for an administrative adjustment or a petition for
judicial review with respect thereto;
4.8.3.4 enter into any agreement with the Internal Revenue
Service or any other taxing authority to extend the period for assessing any tax
which is attributable to any item required to be taken into account by a Partner
for tax purposes, or an item affected by such item; or
4.8.3.5 take any other action on behalf of the Partners or the
Partnership in connection with any tax audit or judicial review regardless of
whether or not permitted by applicable law or regulations.
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4.9 DELEGATION OF AUTHORITY. Except as otherwise set forth in
this Venture Agreement, the General Partner may appoint, employ, contract or
otherwise deal with any person for the transaction of the business of the
Partnership, which person may, under supervision of the General Partner, perform
any acts or services for the Partnership as the General Partner may approve.
4.10 GENERAL PARTNER, LIMITED PARTNERS OR AFFILIATES DEALING
WITH THE PARTNERSHIP.
4.10.1 Nothing in this Venture Agreement shall be construed to
prevent any Partner or any affiliate thereof from acting as manager for the
Resort. The Partners acknowledge that an affiliate of each of Holding and WHG is
engaged by the Partnership to act as the Manager. The Partners acknowledge that
the General Partner shall not be entitled to payment of any fee for its services
as General Partner, but the Partners acknowledge that various fees may be paid
to Partners for services rendered by them in their capacities other than as
Partners.
4.10.2 In addition to services elsewhere set forth in this
Venture Agreement, the General Partner or any of its affiliates shall have the
right to contract or otherwise deal with the Partnership for the purchase or
sale of property or services or for other purposes upon such terms as the
General Partner, in its sole discretion, shall determine and the General Partner
shall have no duty to disclose such arrangements or such relationships to the
Limited Partners.
4.11 OTHER BUSINESS ACTIVITIES.
4.11.1 The General Partner shall not be obligated to devote
its full time to the Partnership, or to devote its financial, personnel or other
services or resources exclusively for the benefit or on behalf of the
Partnership or to the activities in which the Partnership is participating,
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but shall only be obligated to devote such time, attention and resources to the
conduct of the business of the Partnership as it shall deem reasonably necessary
for the conduct of such business and the performance of its obligations
hereunder, and the General Partner is expressly authorized to exercise its
powers and discharge its duties hereunder through its affiliates and employees
of such affiliates. Any stockholder, officer, director, employee or affiliate of
the General Partner, directly or indirectly, may engage in or possess an
interest in other business ventures of every nature and description and in any
vicinity whatsoever, including the ownership, operation, management and
development of real property or resorts in competition with the Resort, and
neither the Partnership, nor any other Partner, shall have any rights in or to
such independent ventures or to any profits therefrom. Any of such activities
may be undertaken with or without notice to or participation therein by the
other Partners. Each Partner and the Partnership hereby waives any right or
claim that they may have against any Partner (or any stockholder, officer,
director, employee or affiliate of any Partner) now or hereafter conducting such
activity with respect to the income or profits therefrom. The Partners
acknowledge that affiliates of each of Holding and WHG are engaged in Puerto
Rico in the business of owning, operating, managing and developing hotel and
casino properties and other properties and that nothing in this Venture
Agreement or otherwise shall be construed to limit, prevent or otherwise impair
such activities. Holding, WHG and their affiliates have no obligation to offer
any opportunity to the Partnership or any Partner or allow the Partnership to
invest in any property or business of any Partner or of any of their affiliates.
Neither the Partnership nor any Partner shall by virtue of this Venture
Agreement have any right, title or interest in or to such permitted independent
activities or ventures.
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4.11.2 Notwithstanding anything to the contrary contained in
this Venture Agreement, at any time that the First Mortgage Loan remains
outstanding, the General Partner must be a special purpose entity which is a
corporation and its business purpose shall be limited to acting as a General
Partner and Limited Partner of the Partnership.
4.12 ADDITIONAL FINANCIAL INFORMATION. The Partners
acknowledge that because the fiscal year of the Partnership, the Resort and each
of the Partners may be different, certain additional financial information and
accounting reviews may be necessary in order to provide each Partner with
sufficient information to meet its own financial reporting needs and
obligations. The Partnership, at its sole cost and expense shall furnish or
cause to be furnished to each Partner such additional information as each
Partner shall reasonably request. Such additional information may be furnished
or provided by the accountants for the Partnership or the accountants for the
Partner requesting such information at the Partnership's expense, or a
combination of both. The General Partner shall cause the Partnership to furnish
such information so that each of the Partner's needs are met in the manner most
economical to the Partnership.
4.13 SEPARATENESS.
4.13.1 The Partnership shall (i) observe all partnership
formalities, including the maintenance of current minute books, (ii) maintain
its own separate and distinct books of account, bank accounts, and partnership
records, (iii) cause its financial statements to be prepared in accordance with
generally accepted accounting principles in a manner that indicates the separate
existence of the Partnership and its assets and liabilities, (iv) pay all its
liabilities out of its own funds, (v) in all dealings with the public, identify
itself, and conduct its own business, under its own
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name and as a separate and distinct entity, (vi) independently make decisions
with respect to its business and daily operations, (vii) maintain an arm's
length relationship with its affiliates, (viii) pay the salaries of its own
employees, (ix) allocate fairly and reasonably any overhead for shared office
space, (x) use separate stationery, invoices and checks, (xi) at all times
remain solvent, (xii) file its own tax return and (xiii) maintain adequate
capital sufficient to carry out these enumerated covenants and conduct its
business as described herein.
4.13.2 Except in accordance with the First Mortgage Loan
Documents so long as the First Mortgage Loan is outstanding, the Partnership
shall not (i) commingle its assets with those of, or pledge its assets for the
benefit of, any other person, (ii) assume, guarantee or become obligated, or
hold out its credit as being available to satisfy, the debts, liabilities or
obligations of any other person, (iii) acquire obligations or securities of, or
make loans or advances to, any affiliate or (iv) incur any indebtedness.
5. LOANS TO THE PARTNERSHIP.
5.1 ADDITIONAL LOANS. If at any time the Partnership has
insufficient funds to meet any of its obligations other than obligations to any
of its Partners, then any Partner directly or through any of its affiliates
shall have the right, but not the obligation, to fund such deficiencies by
making Additional Loans to the Partnership in the amounts necessary to meet such
obligations but only if the reasonable needs of the Partnership's business so
require. If all of the Partners or their affiliates desire to make such
Additional Loans to the Partnership, each shall have the right to do so in
proportion to their respective Residual Partnership Interests or in such other
proportion as they shall agree. If less than all of the Partners desire to make
such Additional Loans, such Partners
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desiring to make such Additional Loans shall have the right to make such
Additional Loans in proportion to their Residual Partnership Interests or in
such other proportion as they shall agree for the full amount needed. Subject to
the provisions of the First Mortgage Loan Documents, Additional Loans shall be
repaid as agreed upon between the Partner making such loan(s) and the
Partnership and shall bear simple interest at the rate per annum equal to the
lesser of the prime rate announced in New York City by The Chase Manhattan Bank
from time to time as its "Prime Rate" or the maximum lawful rate under
applicable law or at such other rate as the Partner making such loan and the
Partnership shall agree. All Additional Loans shall be non-recourse to the
Partners of the Partnership and shall be subordinate to the First Mortgage Loan
but senior to Deficiency Loans and all other distributions to the Partners
hereunder and shall be paid only in accordance with Section 5.2 hereof.
5.2 REPAYMENT OF LOANS. Subject to appropriate subordination
agreements which may be required by the holders of the First Mortgage Loan, the
Partnership shall be required to pay interest and principal on Deficiency Loans
and Additional Loans solely from Operating Cashflow and Extraordinary Cashflow
in the following manner and shall not be required to pay such Deficiency Loans
and Additional Loans from any other sources:
FIRST: In payment of interest and then principal of all
outstanding Additional Loans. Unless other priorities for payment are
specifically provide for in connection with any Additional Loan, if Additional
Loans have been made by or were assigned to more than one Partner or its
affiliate, then such funds shall be applied to such loans in the same proportion
as each
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Partner's or other lender's aggregate Additional Loans bear to the total
outstanding Additional Loans, first in payment of interest and then principal;
SECOND: In payment of interest and then principal of all
outstanding Deficiency Loans. Unless other priorities for payments are
specifically provided for in connection with any Deficiency Loan, then if
Deficiency Loans were made by or were assigned to more than one Partner or its
affiliate, then such funds shall be applied to such loans in the same proportion
as each Partner's or other lender's aggregate Deficiency Loans bear to the total
outstanding Deficiency Loans, first in payment of interest and then principal.
Operating Cashflow shall be paid in reduction of such loans at least
once per year on or before the 120th day following the end of the Fiscal Year.
Extraordinary Cashflow shall be paid in reduction of such loans as soon as
practical after the receipt of such proceeds.
6. CAPITAL ACCOUNTS; ALLOCATION OF PROFITS AND LOSSES.
6.1 DEFINITIONS. As used in this Venture Agreement, the
following terms shall have the meanings hereinafter set forth:
6.1.1 "Net Income" and "Net Loss" shall mean, for each Fiscal
Year, the Partnership's taxable income or loss for such Fiscal Year as
determined under Code Section 703(a) and Treas. Reg. ss. 1.703-1, but with the
following adjustments:
6.1.1.1 Net Income and Net Loss shall be adjusted to
treat items of tax-exempt income described in Code Section 705(a)(1)(B) as
items of gross income, and to treat as deductible items all nondeductible,
noncapital expenditures (other than expenses in respect of which an election is
made under Code Section 709) described in Code Section 705(a)(2)(B),
including any
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items treated under Treas. Reg. ss. 1.704-1(b)(2)(iv)(i) as items described in
Code Section 705(a)(2)(B).
6.1.1.2 Items of Depreciation, Gain from a
Capital Transaction and Net Loss from a Capital Transaction shall be excluded
from the computation of Net Income or Net Loss.
6.1.2 "Gain from a Capital Transaction" and "Net Loss from a
Capital Transaction" shall mean, for each Fiscal Year, the gain and loss,
respectively, realized by the Partnership from a Capital Transaction.
6.2 DEFINITION OF CAPITAL ACCOUNTS.
6.2.1 Capital Accounts. The Partnership shall establish and
maintain "Capital Accounts" for each Partner throughout the full term of the
Partnership in accordance with Treas. Reg. ss. 1.704-1(b)(2)(iv), as such
regulation may be amended from time to time. To the extent not inconsistent with
such rules, the following provisions shall apply:
The Capital Account of each Partner shall be credited with (i)
each Partner's Capital Contribution and Supplemental Capital Contribution and
(ii) such Partner's share of Net Income and Gain from a Capital Transaction (or
items thereof). The Capital Account of each Partner shall be debited by (i) the
amount of distributions made to such Partner (other than distributions in
repayment of debt, as payment of interest or as fees (including the Incentive
Management Fee) or reimbursement of expenses) and (ii) such Partner's share of
Net Loss, Net Loss from a Capital Transaction and Depreciation (or items
thereof) including expenditures which can neither be capitalized nor deducted
for tax purposes.
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6.2.2 "Target Capital Account" shall mean for any Partner the
Capital Account of such Partner as of the most recently completed Fiscal Year
which would equal the hypothetical distribution that any such Partner would
receive if the Partnership sold all of its assets (including cash) for cash
equal to the tax basis of such assets as of the end of such Fiscal Year (or book
value if an adjustment has been made pursuant to Treas. Reg.
ss.1.704-1(b)(2)(iv)(g)) and all liabilities allocable to those assets were due
and satisfied according to their terms (limited with respect to each nonrecourse
liability to the book basis of the assets securing that liability (or book value
if an adjustment has been made pursuant to Treas. Reg. ss.1.704-1(b)(2)(iv)(g))
and all net assets of the Partnership (including the proceeds from the
disposition) were distributed pursuant to Section 7.2 hereof as of the last day
of such Fiscal Year reduced by each Partner's share of Partnership Minimum Gain
and Partner Minimum Gain immediately prior to the hypothetical sale and such
Partner's share of Distributable Cash which if taken into account hereunder
shall not be taken into account when distributed.
6.3 ALLOCATIONS OF INCOME AND LOSS. Income and loss of the
Partnership shall be allocated and charged to the Capital Accounts of the
Partners in accordance with the provisions of the Appendix attached hereto, all
the terms of which are incorporated herein by reference.
6.4 SPECIAL PARTNERSHIP ELECTION. The Partnership and each of
its Partners shall prepare, execute and file appropriate documents and returns
with the taxing authorities or otherwise in a manner so as to reduce, minimize
or eliminate Puerto Rican income taxes payable including, without limitation,
the election by the Partnership to be treated for Puerto Rican income tax
purposes as a special partnership.
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7. PARTNERSHIP DISTRIBUTIONS.
7.1 DISTRIBUTABLE CASH FROM OPERATIONS. Subject to the
restrictions, if any, contained in the First Mortgage Loan Documents so long as
the First Mortgage Loan remains outstanding, Distributable Cash shall be
distributed at least once per year on or before the 120th day following the end
of the Fiscal Year and shall be distributed and applied in the following order
of priority:
7.1.1 Payment of the Preferred Return in respect of the
General Residual Partnership Interest and the Class A Residual Partnership
Interest for such Fiscal Year to the extent not previously paid from
Distributable Cash from a Capital Transaction. If the Distributable Cash is
insufficient to pay such Preferred Return in full, then the Distributable Cash
shall be paid in respect of each such Partner's General Residual Partnership
Interest and Class A Residual Partnership Interest in the same ratio as such
Partner's Unrecovered Capital as a General Partner and/or Class A Limited
Partner bears to the aggregate Unrecovered Capital of the General Partner and
Class A Limited Partners and the amount of any Preferred Return unpaid shall
become Deferred Preferred Return.
7.1.2 Payment of any Deferred Preferred Return to the
General Partner and the Class A Limited Partners in respect of the General
Residual Partnership Interest and the Class A Residual Partnership Interest. If
such Distributable Cash is insufficient to pay such Deferred Preferred Return in
full, then such Distributable Cash shall be paid in respect of each such
Partner's General Residual Partnership Interest and Class A Residual Partnership
Interest in the same ratio as such Partner's Unrecovered Capital as a General
Partner and/or Class A Limited Partner bears to the
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aggregate Unrecovered Capital of the General Partner and Class A Limited
Partners and shall be applied first to the interest portion of such Deferred
Preferred Return and then to the oldest Preferred Return portions.
7.1.3 Payment of the Preferred Return to the Class B Limited
Partners for such Fiscal Year to the extent not previously paid from
Distributable Cash from a Capital Transaction. If such Distributable Cash is
insufficient to pay such Preferred Return in full, then such Distributable Cash
shall be paid in respect of each such Partner's Class B Residual Partnership
Interest in the same ratio as such Partner's Unrecovered Capital bears to the
aggregate Unrecovered Capital of the Class B Limited Partners and the amount of
any Preferred Return unpaid shall become Deferred Preferred Return.
7.1.4 Payment of any Deferred Preferred Return to the Class B
Limited Partners in respect of the Class B Residual Partnership Interest. If
such Distributable Cash is insufficient to pay such Deferred Preferred Return in
full, then such Distributable Cash shall be paid in respect of each such
Partner's Class B Residual Partnership Interest in the same ratio as such
Partner's Unrecovered Capital bears to the aggregate Unrecovered Capital of the
Class B Limited Partners and shall be applied first to the interest portion of
such Deferred Preferred Return and then to the oldest Preferred Return portions.
7.1.5 Payments of Supplemental Preferred Returns to the
Partners in accordance with their Unrecovered Supplement Contributions to the
extent not previously paid from Distributable Cash from a Capital Transaction.
If the Distributable Cash is insufficient to pay such Supplemental Preferred
Returns in full, then the Distributable Cash shall be paid to each such Partner
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in the same ratio as such Partner's Unrecovered Supplemental Contributions bear
to the aggregate Unrecovered Supplemental Contributions of all Partners and the
amount of any Supplemental Preferred Return unpaid shall become Supplemental
Deferred Preferred Return.
7.1.6 Payment of the Supplemental Deferred Preferred Return to
all Partners. If such Distributable Cash is insufficient to pay such
Supplemental Deferred Preferred Return in full, then such Distributable Cash
shall be paid to each Partner in the same ratio as such Partner's Unrecovered
Supplemental Contributions bear to the aggregate Unrecovered Supplemental
Contributions of all Partners and shall be applied first to the interest portion
of such Supplemental Deferred Preferred Return and then to the oldest
Supplemental Preferred Return portions.
7.1.7 Payment of the Incentive Management Fee.
7.1.8 Any balance remaining shall be paid to the Partners in
accordance with their Residual Partnership Interests.
7.2 DISTRIBUTABLE CASH FROM A CAPITAL TRANSACTION. Except as
otherwise provided in the First Mortgage Loan Documents, as soon as practical
after the receipt of the proceeds from a Capital Transaction, the Partnership
shall distribute and apply the Distributable Cash from a Capital Transaction in
the following order of priority:
7.2.1 Payment of the Preferred Return to the General Partner
and the Class A Limited Partners for the current Fiscal Year in respect of the
General Residual Partnership Interest and the Class A Residual Partnership
Interest. If the Distributable Cash from a Capital Transaction is insufficient
to pay such Preferred Return in full, then the Distributable Cash from a Capital
Transaction shall be paid in respect of each such Partner's General Residual
Partnership
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Interest and Class A Residual Partnership Interest in the same ratio as such
Partner's Unrecovered Capital as a General Partner and/or Class A Limited
Partner bears to the aggregate Unrecovered Capital of the General Partner and
Class A Limited Partners.
7.2.2 Payment of any Deferred Preferred Return to the General
Partner and the Class A Limited Partners in respect of the General Residual
Partnership Interest and the Class A Residual Partnership Interest. If such
Distributable Cash from a Capital Transaction is insufficient to pay such
Deferred Preferred Return in full, then such Distributable Cash from a Capital
Transaction shall be paid in respect of each such Partner's General Residual
Partnership Interest and Class A Residual Partnership Interest in the same ratio
as such Partner's Unrecovered Capital in respect of the General Residual
Partnership Interest and the Class A Residual Partnership Interest bears to the
aggregate Unrecovered Capital of the General Partner and Class A Limited
Partners and shall be applied first to the interest portion of such Deferred
Preferred Return and then to the oldest Preferred Return portions.
7.2.3 Payment of the Preferred Return to the Class B Limited
Partners for the current Fiscal Year in respect of the Class B Residual
Partnership Interest. If such Distributable Cash from a Capital Transaction is
insufficient to pay such Preferred Return in full, then such Distributable Cash
from a Capital Transaction shall be paid in respect of each such Partner's Class
B Residual Partnership Interest in the same ratio as such Partner's Unrecovered
Capital bears to the aggregate Unrecovered Capital of the Class B Limited
Partners.
7.2.4 Payment of any Deferred Preferred Return to the Class B
Limited Partners in respect of the Class B Residual Partnership Interest. If
such Distributable Cash from a
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Capital Transaction is insufficient to pay such Deferred Preferred Return in
full, then such Distributable Cash from a Capital Transaction shall be paid in
respect of each such Partner's Class B Residual Partnership Interest in the same
ratio as such Partner's Unrecovered Capital bears to the aggregate Unrecovered
Capital of the Class B Limited Partners and shall be applied first to the
interest portion of such Deferred Preferred Return and then to the oldest
Preferred Return portions.
7.2.5 Payments of Supplemental Preferred Returns to the
Partners for the current Fiscal Year in accordance with their Unrecovered
Supplemental Contributions. If the Distributable Cash from a Capital Transaction
is insufficient to pay such Supplemental Preferred Returns in full, then the
Distributable Cash from a Capital Transaction shall be paid to each such Partner
in the same ratio as such Partner's Unrecovered Supplemental Contributions bear
to the aggregate Unrecovered Supplemental Contributions of all Partners.
7.2.6 Payment of the Supplemental Deferred Preferred Return to
all Partners. If such Distributable Cash from a Capital Transaction is
insufficient to pay such Supplemental Deferred Preferred Return in full, then
such Distributable Cash from a Capital Transaction shall be paid to each Partner
in the same ratio as such Partner's Unrecovered Supplemental Contributions bear
to the aggregate Unrecovered Supplemental Contributions of all Partners and
shall be applied first to the interest portion of such Supplemental Deferred
Preferred Return and then to the oldest Supplemental Preferred Return portion.
7.2.7 Payment of the Incentive Management Fee.
7.2.8 To the Partners as return of their respective
Supplemental Contributions in an amount equal to their respective Unrecovered
Supplemental Contributions. If
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the remaining Distributable Cash from a Capital Transaction is less
than the Partners' Unrecovered Supplemental Contributions, then the
remaining Distributable Cash from a Capital Transaction shall be paid to each
Partner in the same proportion as each Partner's Unrecovered Supplemental
Contribution bears to the aggregate Unrecovered Supplemental Contributions of
all Partners.
7.2.9 To the Partners as return of their respective Capital
Contributions in an amount equal to their respective Unrecovered Capital. If the
remaining Distributable Cash from a Capital Transaction is less than the
Partners' Unrecovered Capital, then the remaining Distributable Cash from a
Capital Transaction shall be paid to each Partner in the same proportion as each
Partner's Unrecovered Capital bears to the aggregate Unrecovered Capital of all
Partners.
7.2.10 Any balance remaining shall be paid to the Partners in
accordance with their respective Residual Partnership Interests.
7.3 OTHER DISTRIBUTIONS. Notwithstanding anything to the
contrary contained in this Venture Agreement, the General Partner may make
distributions to the Partners of Distributable Cash, Operating Cashflow or any
other available cash at any time as the General Partner deems appropriate,
provided such distributions are not prohibited by the First Mortgage Loan
Documents so long as the First Mortgage Loan remains outstanding.
8. TRANSFERABILITY OF PARTNERS' INTERESTS.
8.1 NO TRANSFER.
8.1.1 Except as otherwise set forth in this Section 8, no
Partner may sell, assign, transfer, pledge, encumber, hypothecate, mortgage,
exchange or otherwise transfer or dispose of all or any part of its Interest,
without the written consent of the General Partner. Any such
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attempted sale, assignment, transfer, pledge, encumbrance, hypothecation,
mortgage, exchange or other transfer or disposition by a Partner without such
consent shall be null and void. No sale, assignment, transfer or other
alienation permitted by this Venture Agreement shall constitute or result in a
termination of the Partnership unless otherwise expressly provided for herein.
For purposes of this Section 8.1, a sale or transfer of all or any portion of
the beneficial ownership of the General Partner shall be deemed a transfer of
the General Residual Partnership Interest.
8.1.2 Notwithstanding anything contained in this Section 8, no
Partner shall sell or offer for sale or solicit offers to purchase or effect any
transfer of any Interest in the Partnership whether or not otherwise permitted
under this Section 8 to any person
8.1.2.1 in such a manner as to require the registration or
qualification of such Interest under the Securities Act of 1933, as amended, or
under any applicable state, local or foreign securities laws;
8.1.2.2 if such sale or transfer would result in or create a
prohibited transaction under, or cause the Partnership to become a "party in
interest" as defined in Section 3(14) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or otherwise result in the holder of an
Interest in the Partnership or the assets of the Partnership being subject to
the provisions of ERISA;
8.1.2.3 if any part of the funds to be used in such purchase
or transfer to acquire an Interest in the Partnership constitutes assets of an
employee benefit plan within the meaning of Section 3(3) of ERISA or any trust
created under any such plan, or assets of a plan as defined in Section
4975(e)(i) of the Code, or any trust created under any such plan;
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8.1.2.4 if such sale or transfer would constitute or result in
a termination of the Partnership under Section 708 (or any successor provision)
of the Code;
8.1.2.5 if such sale or transfer would cause the Partnership
to cease to be classified as a partnership for federal income tax purposes or
the Interest of each Partner to cease to be treated as a partnership interest
for federal income tax purposes;
8.1.2.6 if such sale or transfer would constitute a default
under or cause the acceleration of the First Mortgage Loan;
8.1.2.7 if the Puerto Rico Gaming Authorities require such
person to be qualified or approved and such person has not been so qualified or
approved prior to becoming a Partner; or
8.1.2.8 if such sale or transfer would adversely affect any
tax exemptions granted to the Partnership by the Commonwealth of Puerto Rico.
In connection with any sale or transfer, the General Partner
may request counsel to the Partnership to render its opinion to the Partnership
as to whether such sale or transfer would cause a termination of the
Partnership for federal income tax purposes. No offer, sale, transfer,
hypothecation or pledge of any Interest may be made unless the Partnership shall
have received an opinion of counsel satisfactory to the General Partner that
such proposed transaction is exempt from registration under the federal
securities laws and any applicable state or local securities laws.
8.2 PERMITTED SALES OF LIMITED PARTNERS' INTERESTS.
8.2.1 Any Limited Partner may sell, assign or transfer all or
any portion of its limited partnership Interest to any other Partner or to any
affiliate of any Partner, provided that
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in the case of an affiliate, such affiliate is admitted to the Partnership as a
Class A Limited Partner or Class B Limited Partner, as the case may be, as
hereinafter provided.
8.2.2 Any Limited Partner (the "Selling Partner") desiring to
sell or otherwise dispose of all or any part of its Interest as a Limited
Partner (whether a Class A Residual Partnership Interest and/or a Class B
Residual Partnership Interest) to an unaffiliated third party shall first offer
(the "Offer") in writing to sell such Interest or part thereof to the General
Partner. Such Offer shall set forth the price (the "Offering Price") and the
terms at which the Selling Partner desires to sell such Interest including
copies of any third party offer received by such Selling Partner. The General
Partner shall have the right, but not the obligation, to accept such Offer by
written notice of acceptance within 30 days from its receipt of the Offer. If
the Offer is not accepted in full by the General Partner then the Selling
Partner shall be free for a period of 180 days thereafter to enter into a
binding contract with an unaffiliated third party for the sale of such Interest
for a price not less than 95% of the Offering Price and otherwise on such
material terms and conditions as are not more favorable to the purchaser than
those contained in the Offer; provided, however, that if the sale of such
Interest is not consummated within 60 days after the entry into such contract,
the Selling Partner's Interest in the Partnership shall again be subject to the
restrictions of this Section 8.2
8.2.3 Upon the consummation of any sale or transfer permitted
under this Section 8.2, the purchaser or transferee of such Interest shall be
admitted as a Class A Limited Partner or Class B Limited Partner, as the case
may be.
8.3 PERMITTED SECURITY INTERESTS. Each Partner shall have the
right to grant a security interest in all or any part of its Interests in the
Partnership both as a General Partner and as
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a Limited Partner, to secure payment of that certain promissory note dated the
date hereof in the aggregate principal amount of $15,000,000 made by
Conquistador Holding, Inc. and payable to the Government Development Bank for
Puerto Rico.
8.4 WITHDRAWAL OR TRANSFER BY THE GENERAL PARTNER.
8.4.1 The General Partner shall be entitled to withdraw from
the Partnership only in connection with a transfer of its General Residual
Partnership Interest otherwise permitted under this Venture Agreement.
8.4.2 If the General Partner desires to sell or otherwise
dispose of all of its General Residual Partnership Interest to an unaffiliated
third party at any time after repayment in full of the First Mortgage Loan or as
otherwise permitted by the First Mortgage Loan Documents, the General Partner
shall first Offer in writing to sell such Interest to the Limited Partners,
other than itself, and such Limited Partners shall have the right to accept such
Offer in proportion to their respective Residual Partnership Interests, by
written notice of acceptance within 30 days from their receipt of such Offer. If
the Offer is not accepted in full by such Limited Partners, the General Partner
shall Offer the General Residual Partnership Interest not so accepted to the
Limited Partners who shall have accepted the Offer and such Limited Partners
shall have the right, but not the obligation, to accept such additional Offer in
proportion to their respective Residual Partnership Interests, by written notice
given within 15 days of their receipt of such additional Offer. The Limited
Partners entitled to receive an Offer from the General Partner shall have the
right to accept the Offers in such other proportion as they shall agree. If the
Offers are not accepted by the Limited Partners with respect to the entire
General Residual Partnership Interest, then the General Partner
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shall be free for a period of 180 days thereafter to enter into a binding
contract with an unaffiliated third party for the sale of such Interest for a
price not less than 95% of the Offering Price for such Interest and otherwise on
such material terms and conditions as are not more favorable to the purchaser
then those contained in the Offer; provided, however, that if the sale of such
Interest is not consummated within 60 days after entry into such contract, the
General Residual Partnership Interest shall again be subject to the restrictions
of this Section 8.4.
8.4.3 Upon the consummation of any sale or transfer permitted
under this Section 8.4, the purchaser or transferee of the General Residual
Partnership Interest shall be admitted as the General Partner.
8.5 EFFECT OF BANKRUPTCY, DISSOLUTION, DEATH OR INCOMPETENCE
OF A LIMITED PARTNER. The Bankruptcy, dissolution or death of a Limited Partner
or an adjudication that a Limited Partner is incompetent (which term shall
include, but not be limited to, insanity), shall not cause the termination or
dissolution of the Partnership, and the business of the Partnership shall
continue. In the event of the Bankruptcy, dissolution or death of a Limited
Partner, the trustee, receiver, executor, administrator or trustee of its
estate, or if he is adjudicated incompetent, his committee, guardian or
conservator, shall have the rights of such Limited Partner for the purpose of
settling or managing his estate or property and such power as the Bankrupt,
dissolved, deceased or incompetent Limited Partner possessed to assign all or
any part of its Interest and to join with the assignee in satisfying conditions
precedent to the admission of the assignee as a Limited Partner. The estate of a
dissolved, deceased or incompetent Limited Partner shall not be relieved of any
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liabilities or obligations of the dissolved, deceased or incompetent Limited
Partner to the Partnership under this Venture Agreement.
8.6 RIGHT TO CONTINUE
If, at any time, the General Partner should withdraw in its
capacity as General Partner (by reason of Bankruptcy, dissolution, or
otherwise), the Limited Partners shall have the right, but not the obligation,
to continue the business and operation of the Partnership and to appoint a
replacement to serve as General Partner, which appointment shall be made within
90 days of the withdrawal of the General Partner and shall be effective as of
the date of such withdrawal. Such right to continue shall be exercised by an
agreement in writing signed by all the Limited Partners.
8.7 EFFECT OF TRANSFER. A Partner selling, transferring or
assigning all or any portion of its Interest hereunder shall pay all taxes and
fees incurred by the Partnership or any other Partner as a result of any
transfer of all or any portion of such Partner's Interest in the Partnership.
Any purchaser, transferee or assignee of a Partner's Interest shall be bound by
all of the terms and conditions of this Venture Agreement, including this
Section 8 with the same force and effect as if such transferee had been a
signatory and an original party to this Venture Agreement in the place and stead
of its transferor. No sale, transfer or assignment shall be effective and no
purchaser, transferee or assignee of any Interest shall be admitted to the
Partnership unless and until such purchaser, transferee or assignee shall have
accepted and agreed to be bound by the terms and conditions of this Venture
Agreement and expressly assumed all obligations of the transferor with respect
to such Interest, except those obligations which are enforceable against the
transferor only by foreclosure of a lien or encumbrance on the Resort or the
other property or assets of the Partnership by executing
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a counterpart hereof and other appropriate instruments and shall have delivered
such executed counterparts and instruments to the General Partner.
9. RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.
9.1 MANAGEMENT OF THE PARTNERSHIP. No Limited Partner as such
shall take part in the management or control of the business of the Partnership
or transact any business in the name of the Partnership. No Limited Partner as
such shall have the power or authority to bind the Partnership or to sign any
agreement or document in the name of the Partnership. No Limited Partner shall
have any power or authority with respect to the Partnership.
9.2 LIMITATION ON LIABILITY OF LIMITED PARTNERS. The liability
of each Limited Partner shall be limited to its obligations, if any, to make
Capital Contributions and Supplemental Contributions. No Limited Partner as such
shall have any other liability to contribute money to, or in respect of the
liabilities or obligations of, the Partnership, nor shall any Limited Partner as
such be personally liable for any obligations of the Partnership except as
otherwise provided by law. No Limited Partner as such shall be obligated to make
loans to the Partnership.
9.3 LIABILITY TO LIMITED PARTNERS. Neither the General Partner
nor any of its stockholders, officers, directors, employees or affiliates shall
have any fiduciary obligations to the Limited Partners as provided by the Act or
the law of the State of Delaware or any other jurisdiction absent gross
negligence or willful misconduct on the part of the General Partner or such
stockholder, officer, director, employee or affiliate. The Limited Partners
shall look solely to the assets of the Partnership for any liability owed to
them including any return of their Capital Contributions and
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Supplemental Contributions, if any, and shall not look to the General Partner to
satisfy any such liabilities.
9.4 POWER OF ATTORNEY. Each Limited Partner hereby makes,
constitutes and appoints the General Partner its true and lawful attorney for
itself and in its name, place and stead to make, execute, sign, acknowledge,
file for recording at the appropriate public offices, and publish such documents
as may be necessary to carry out the provisions of this Venture Agreement,
including (i) this Venture Agreement and amendments to this Venture Agreement
and (ii) certificates or instruments which may be required by law or are
necessary to the conduct of the Partnership's business. Each Limited Partner
shall execute and deliver to the General Partner within five (5) days after
receipt of the General Partner's written request therefor, such other and
further powers of attorney and instruments as the General Partner deems
necessary to carry out the purpose of this Section 9.4. The foregoing grant of
authority is hereby declared to be irrevocable and a power coupled with an
interest and shall not be affected by the Bankruptcy, death or disability of any
Limited Partner and the assignment by any Limited Partner of its Interest;
provided that in the event of an assignment of its entire Interest, the
foregoing power of attorney of an assignor Limited Partner shall survive such
assignment only until such time as the assignee is admitted to the Partnership
as a Limited Partner and all required documents and instruments have been duly
executed, filed and recorded to effect such substitution. In the event of any
conflict or inconsistency between the provisions of this Venture Agreement and
any document executed, signed or acknowledged by the General Partner or filed
for recording or published pursuant to the power of attorney granted in this
Section, this Venture Agreement shall govern.
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10. APPROVALS.
10.1 PUERTO RICO GAMING AUTHORITY APPROVAL. The General
Partner shall use its best efforts to obtain and thereafter maintain all
consents, approvals and authorizations which must be obtained and maintained by
it in order to consummate the transactions contemplated hereby and operate the
Resort as a first class luxury resort, including, without limitation, all
consents, approvals and authorizations from the Treasury of the Commonwealth of
Puerto Rico and any other governmental body or agency having authority over
licensing of gambling in the Commonwealth of Puerto Rico and any tax exemption
granted to the Partnership by the Commonwealth of Puerto Rico.
11. PARTNERSHIP OBLIGATIONS.
11.1 NATURE OF OBLIGATIONS. All obligations of and expenses
and losses incurred by the Partnership or the General Partner on behalf of the
Partnership, and all payments made by the General Partner in connection with the
Partnership and the Resort, including any liability for damages arising out of
claims or actions against the General Partner on account of the ownership or
operation of the Resort, shall be obligations of the Partnership and shall be
satisfied out of the assets of the Partnership. Any indebtedness of the
Partnership, including any loans contemplated by this Venture Agreement, which
are secured by a mortgage, security interest or other lien or encumbrance on the
Resort or the interests of the Partners in the Partnership, its assets, profits
and distributions and any mortgages, security interests or other liens or
encumbrances executed or granted in connection therewith, shall expressly
provide (unless the General Partner shall otherwise agree in writing) that the
obligee shall look solely to its security interest in the Resort or the
interests of the
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Partners in the Partnership, its assets, profits and distributions for the
payment of any and all amounts due under the term of such instruments and that
the Partners shall have absolutely no personal liability for the payment of such
indebtedness or for any deficiency judgment resulting from the foreclosure of
such mortgage, security interest or liens.
11.2 INDEMNITIES.
11.2.1 The Partnership shall defend, indemnify and hold
harmless the General Partner and its stockholders, officers, directors,
employees and affiliates from and against all claims, demands, actions, suits,
proceedings, losses, liabilities, damages, deficiencies, costs or expenses
(including interest, penalties and reasonable attorneys fees and disbursements
(collectively, "Losses")) arising from any act taken on behalf of or reasonably
believed by the General Partner, its stockholders, officers, directors,
employees or affiliates to be taken on behalf of the Partnership other than
willful misconduct or gross negligence.
11.2.2 The General Partner shall defend, indemnify and hold
the Partnership harmless against and from all Losses which shall or may arise by
reason of anything done or omitted to be done by the General Partner (through or
by its agents, employees or other representatives) constituting gross negligence
or willful misconduct.
11.2.3 The General Partner shall defend, indemnify and hold
the Partnership harmless against and from all Losses which shall or may be
asserted by a transferee of all or any portion of the General Partner's Interest
as a Limited Partner.
11.2.4 For purposes of this Section, the party entitled to
indemnification shall be known as the "Injured Party" and the party required
to indemnify shall be known as the "Other
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Party." In the event that the Other Party shall be obligated to the Injured
Party pursuant to this Section 11.2 or in the event that a suit, action,
investigation, claim or proceeding is begun, made or instituted as a result of
which the Other Party may become obligated to the Injured Party hereunder, the
Injured Party shall give prompt written notice to the Other Party of the
occurrence of such event. The Other Party shall have the right to defend,
contest or otherwise protect against any such suit, action, investigation, claim
or proceeding at the Other Party's own cost and expense by counsel of its own
choice reasonably satisfactory to the Injured Party. The Injured Party shall
have the right, but not the obligation, to participate at its own expense in the
defense thereof by counsel of its own choice. In the event that the Other Party
fails timely to defend, contest or otherwise protect against any such suit,
action, investigation, claim or proceeding, the Injured Party shall have the
right to defend, contest or otherwise protect against the same and may make any
compromise or settlement thereof and recover the entire cost thereof from the
Other Party, including, without limitation, reasonable attorneys fees,
disbursements and all amounts paid as a result of such suit, action,
investigation, claim or proceeding or compromise or settlement thereof. In the
event the Injured Party elects at any time not to seek or continue to rely upon
indemnification from the Other Party with respect to any Loss, it shall have the
right to pay, defend, contest or otherwise protect against the same at its sole
cost and expense and the Other Party shall have no liability to the Injured
Party in respect of such Loss and no right to defend or participate in the
defense of such Loss. Anything to the contrary herein notwithstanding, prior to
finally settling any such suit, action, investigation, claim or proceeding, the
Other Party shall give the Injured Party notice of its intention to settle the
same and the terms of such proposed settlement. If the Injured Party shall
object to such proposed
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settlement within 10 days after its receipt of such notice, then the Injured
Party shall thereafter, at its sole expense, assume the control and defense of
such suit, action, investigation, claim or proceeding. In such event, the Other
Party shall not be relieved from its obligations hereunder but such obligations
shall be limited with respect to the amount of such suit, action, investigation,
claim or proceeding in the sense that its liability may not be greater than the
amount for which the same could have been settled as proposed by the Other Party
and will not be greater than the amount for which such suit, action,
investigation, claim or proceeding is ultimately resolved. If the Injured Party
does not object to the terms of the proposed settlement within the aforesaid 10
day period, then the Other Party shall have the right to consummate such
proposed settlement upon the terms set forth in the aforesaid notice. Failure to
give the Other Party timely notice of any suit, action, investigation, claim or
proceeding shall in no way relieve such party from its obligation to indemnify
the Injured Party except to the extent of Losses actually caused to the Other
Party by reason of such failure.
11.2.5 Any indemnification of the General Partner by the
Partnership shall be fully subordinate to any and all obligations imposed by the
First Mortgage Loan Documents and such indemnification shall not constitute a
claim against the Partnership in the event that the cashflow of the Partnership
is insufficient to pay the obligations under the First Mortgage Loan Documents.
12. TERMINATION AND LIQUIDATION.
12.1 TERMINATION. The Partnership shall terminate upon the
occurrence of any one of the following events:
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12.1.1 The end of its term as provided in Section 2.4 hereof.
12.1.2 The sale or abandonment of all or substantially all of
the Resort.
12.1.3 Bankruptcy of the General Partner, subject to Section
8.6 hereof.
12.1.4 The agreement among all the Partners to cause such
termination.
12.2 WINDING UP. Upon termination of the Partnership for any
reason, the Partnership shall continue its business solely for the purpose of
winding up its affairs and shall be liquidated as rapidly as business judgment
permits. All decisions with respect to disposition of Partnership assets,
collection or compromise of any amounts receivable and payment or compromise of
any amounts payable by the Partnership shall be made only by the General
Partner, unless the General Partner is in Bankruptcy. The assets of the
Partnership or proceeds thereof shall be applied for the following purposes in
the following order:
12.2.1 Payment or provision for payment of all just debts and
obligations of the Partnership to creditors (other than Deficiency Loans,
Additional Loans, Preferred Returns, Deferred Preferred Returns and Incentive
Management Fees) and for the expenses of winding up the affairs of the
Partnership.
12.2.2 Payment of interest and then principal on the
Deficiency Loans and Additional Loans in the order of priority and in such
proportions as set forth in Section 5.2 hereof.
12.2.3 Payment of Distributable Cash in accordance with
Section 7.1 hereof with respect to any Fiscal Year for which such distributions
had not been made.
12.2.4 In accordance with the order of priority of the
distribution of Distributable Cash from a Capital Transaction as provided in
Section 7.2 hereof.
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12.3 DISSOLUTION.
12.3.1 Notwithstanding anything in this Section 12 to the
contrary, so long as the First Mortgage Loan Documents shall be in effect, the
Partnership shall only be dissolved in accordance with the terms of the First
Mortgage Loan Documents.
12.3.2 Upon dissolution of the Partnership, or other Event of
Default as defined in the First Mortgage Loan Documents, the beneficiary or is
successors or assigns under the Deed of Trust between AFICA and Banco Santander
Puerto Rico, as trustee, dated as of the date hereof shall have the independent
ability, subject to the provisions of the First Mortgage Loan Documents, to (i)
retain the collateral securing the obligations under the First Mortgage Loan
Documents (the "Collateral") and (ii) continue to pay the scheduled debt service
under the First Mortgage Loan Documents or liquidate the Collateral in the event
that the proceeds from the sale of the Collateral would be insufficient to repay
the obligations under the First Mortgage Loan Documents.
13. MISCELLANEOUS.
13.1 FURTHER ASSURANCES. Each Partner hereby agrees to execute
and deliver all such other and additional certificates, instruments and
documents and do all such other acts and things as may be necessary to more
fully effectuate this Venture Agreement and carry on the business contemplated
herein.
13.2 EXPENSES. All costs, expenses and fees incurred by the
General Partner in connection with the operation of the business of the
Partnership and the preparation, negotiation and
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execution of this Venture Agreement shall be paid for and borne by the
Partnership and the General Partner shall be entitled to be reimbursed for any
of such amounts paid directly by it.
13.3 NOTICES. All notices, requests, statements, offers,
acceptances or other writings required or permitted to be given or furnished
hereunder to any Partner shall be deemed sufficiently given or furnished if in
writing and delivered personally to such Partner, transmitted by confirmed fax,
deposited in the United States mail, in a sealed envelope, certified, with
postage prepaid, or sent by responsible overnight delivery service addressed to
such Partner, at its address as set forth in Sections 3.1 and 3.2 hereof or at
such other address as such Partner shall have previously designated by written
notice to the other Partners and shall be effective when personally delivered or
transmitted, five (5) business days after mailing or the next business day after
delivery to a responsible overnight delivery service.
13.4 EQUITABLE REMEDIES. In the event of a breach or
threatened breach of this Venture Agreement by any Partner and the remedy at law
in favor of the other Partners will be inadequate, such other Partners, in
addition to all other rights which may be available, shall accordingly have the
right of specific performance in the event of any breach, or injunction in the
event of any threatened breach, of this Venture Agreement by any Partner.
13.5 REMEDIES CUMULATIVE. Except as otherwise provided herein,
each right, power and remedy provided for herein or now or hereafter existing at
law, in equity, by statute or otherwise shall be cumulative and concurrent and
shall be in addition to every other right, power or remedy provided for herein,
or now or hereafter existing at law, in equity, by statute or otherwise, and the
exercise or beginning of the existence or the forbearance of exercise by any
party of any one
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or more of such rights, powers or remedies shall not preclude the simultaneous
or later exercise by such party of any or all of such other rights, powers or
remedies.
13.6 CAPTIONS; PARTIAL INVALIDITY. The captions and section
numbers appearing in this Venture Agreement are inserted only as a matter of
convenience and in no way define, limit, construe or describe the scope or
intent of such sections of this Venture Agreement nor in any way affect this
Venture Agreement. If any term, covenant or condition of this Venture Agreement
or the application thereof to any person or circumstance shall, to any extent,
be invalid or unenforceable, the remainder of this Venture Agreement, or the
application of such term, covenant or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant or condition of this Venture Agreement
shall be valid and be enforced to the fullest extent permitted by law.
13.7 ENTIRE AGREEMENT. This Venture Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof and
supersedes the Prior Venture Agreement. This Venture Agreement cannot be
changed, modified or discharged orally but only by an agreement in writing
executed by the appropriate Partners as otherwise provided herein. This Venture
Agreement shall be amended as may be necessary to reflect the subsequent
addition, substitution or deletion of any Partner.
13.8 APPLICABLE LAW. This Venture Agreement shall be
interpreted and construed under and governed by the Act and the laws of the
State of Delaware applicable to agreements executed and performed entirely
within that State.
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13.9 COUNTERPARTS. This Venture Agreement may be executed in
several original counterparts, each of which shall for all purposes be deemed an
original, and all of such counterparts shall together constitute but one and the
same agreement.
13.10 SUCCESSORS. All of the provisions of this Venture
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Partners hereto. Any Partner who makes a transfer or assignment
of all of its Interest permitted by the terms of this Venture Agreement shall
have no further liability or obligation hereunder, except with respect to claims
arising prior to such transfer or assignment. References in this Venture
Agreement to one or more of the parties hereto, or to a "Partner" or the
"Partners" shall, in the case of a transfer or assignment of any such Partner's
Interest which is permitted by this Venture Agreement, be deemed to be, or to
include, as the case may be, a reference to such permitted assignee or
transferee and shall not be deemed to include a reference to the Partner who has
transferred or assigned such Interest.
13.11 CONFIDENTIALITY. Each Partner agrees not to issue any
press release or make any public announcement or public statement regarding this
Venture Agreement without the consent of the General Partner, except as may be
required by law.
IN WITNESS WHEREOF, the parties hereto have set their hands
and seals as of the day and year first written.
WHG EL CON CORP.
By:
---------------------
Name:
Title:
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CONQUISTADOR HOLDING (SPE), INC.
By:____________________________
Name:
Title:
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State of Texas )
: ss.:
County of Dallas )
On _______________, 1999, before me personally came
___________________, to me known and known to me to be ______________ of WHG El
Con Corp., the corporation described in and who executed the foregoing
instrument, and he acknowledged to me that he executed the same by order of the
Board of Directors.
________________________
Notary Public
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State of Texas )
: ss.:
County of Dallas )
On ________________, 1999, before me personally came
________________ to me known and known to me to be ______________ of
Conquistador Holding (SPE), Inc., the corporation described in and who executed
the foregoing instrument, and he acknowledged to me that he executed the same by
order of the Board of Directors.
________________________
Notary Public
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APPENDIX
The following constitutes an Appendix to the EL CONQUISTADOR
PARTNERSHIP L.P., S.E. AMENDED AND RESTATED VENTURE AGREEMENT, dated
____________, 1999 and shall be deemed a part thereof as if fully set forth
therein. All capitalized terms used herein shall have the same meaning ascribed
to such terms in the Venture Agreement except as otherwise defined herein.
The allocations to the Capital Account of each Partner for federal
income tax purposes of Net Income, Gain from a Capital Transaction, Net Loss,
Net Loss from a Capital Transaction and Depreciation or, where required, the
allocation of items or elements of any of the foregoing, and the allocation of
gross income, if required, shall be made in accordance with this Appendix. The
Partners wish to have the allocations made in accordance with Article I of this
Appendix but recognize that under certain circumstances such allocations may
diverge from allocations that may be required to be made for tax purposes.
Article II of this Appendix sets forth certain targets which must be met by the
allocations in Article I. To the extent that there is divergence between the
results of allocations under Article I and Article II, Article I is subject to
Article II. Article II prescribes the order in which the allocations in Article
I are to be adjusted if such adjustments are required to bring the Article I
allocations into conformity with the results mandated by Article II. Article III
sets forth certain provisions required by the Regulations and both Article I and
Article II are subject to Article III.
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I. ALLOCATIONS OF NET INCOME, NET LOSS, GAIN OR NET LOSS FROM A CAPITAL
TRANSACTION AND DEPRECIATION
1. NET INCOME: For each Fiscal Year with respect to which the
operations of the Partnership have produced Net Income, 65% of such Net Income
shall be allocated and credited to the Capital Accounts of the Class A Limited
Partners and the General Partner in proportion to their respective Class A
Residual Partnership Interests and the General Residual Partnership Interest in
such capacities and 35% of such Net Income shall be allocated and credited to
the Capital Accounts of the Class B Limited Partners in proportion to their
respective Class B Residual Partnership Interests in such capacities (the
foregoing allocation being referred to as the "65-35 ratio") provided that an
amount of Net Income up to the amount of the Preferred Return for such fiscal
year shall first be allocated and credited 70% to the Capital Accounts of the
Class A Limited Partners and the General Partner in proportion to their
Contribution Ratios and 30% to the Capital Account of the Class B Limited
Partners in proportion to their respective Contribution Ratios, and further
provided that allocations in the 65-35 ratio shall only exceed the amount of
Distributable Cash to be distributed in such ratio to the extent the Capital
Account of each of the Partners after giving effect to distributions of such Net
Income for the Fiscal Year in the 65-35 ratio would exceed its Unrecovered
Capital plus such Partner's Deferred Preferred Return.
2. NET LOSS: For each year of the Partnership with respect to
which the operations of the Partnership have produced a Net Loss such Net Loss
shall be allocated and charged to the Capital Accounts of the Partners in the
following manner:
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FIRST: 65% to the General Partner and the Class A Limited
Partners in proportion to their respective General Residual Partnership Interest
and Class A Residual Partnership Interests and 35% to the Class B Limited
Partners in proportion to their respective Class B Residual Partnership
Interests to the extent of the respective allocations to them of the excess of
(X) prior allocations of Net Income made in the 65-35 ratio plus current and
prior allocations of Gain from a Capital Transaction made in the 65-35 ratio
over the sum of (Y) distributions of Operating Cashflow and Extraordinary
Cashflow made in the 65-35 ratio and prior allocations made in the 65- 35 ratio
of (i) Net Loss, (ii) Net Loss from a Capital Transaction and (iii)
Depreciation;
SECOND: 70% to the General Partner and the Class A Limited
Partners in proportion to their respective Contribution Ratios and 30% to the
Class B Limited Partners in proportion to their respective Contribution Ratios
until the Capital Account of any Partner has been reduced to zero;
THIRD: to any Partner or Partners with a positive balance in
its Capital Account until each Partner's Capital Account has been reduced to
zero; and if more than one Partner has a Positive Capital Account as near as
possible to the ratio set forth in paragraph SECOND, until no Partner has a
Positive Capital Account;
FOURTH: 100% to the General Partner and the Class A Limited
Partners in the ratio of their respective Contribution Ratios up to the lesser
of an additional $14 million or the Partner Nonrecourse Debt in respect of
Deficiency Loans in accordance with and subject to the principals of Section 2
of Article III of this Appendix; and
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FIFTH: 100% to the General Partner.
Notwithstanding the foregoing, Nonrecourse Deductions shall be
allocated 70% to the General Partner and the Class A Limited Partners in
proportion to their respective Contribution Ratios and 30% to the Class B
Limited Partners in proportion to their respective Contribution Ratios.
3. GAIN FROM A CAPITAL TRANSACTION. Gain from a Capital
Transaction realized by the Partnership after giving effect to Sections 3 and 4
of Article III of this Appendix shall be allocated as follows after giving
effect for purposes of paragraph FOURTH of this Section to the distribution of
the Preferred Return and the Deferred Preferred Return but otherwise prior to
giving effect to any other distribution of Extraordinary Cashflow in respect of
such transaction:
FIRST: up to the deficit balance in each Partner's Capital
Account (i) in the ratio of 65% to the General Partner and the Class A Limited
Partners in proportion to their Contribution Ratios and 35% to the Class B
Limited Partners in proportion to their Contribution Ratios or such other ratio
as will cause the deficits in their Capital Accounts to be in the Prescribed
Ratio and (ii) thereafter in the ratio of 70% to the General Partner and the
Class A Limited Partners in proportion to their Contribution Ratios and 30% to
the Class B Limited Partners in proportion to their Contribution Ratios until
the Partners' Capital Accounts shall no longer be negative;
SECOND: to the General Partner and the Class A Limited
Partners in proportion to their Contribution Ratios to the extent their Capital
Accounts are less than the amounts distributable to them under Sections 7.2.1
and 7.2.2 of the Venture Agreement in respect of such transaction;
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THIRD: to the Class B Limited Partners in proportion to their
Contribution Ratios to the extent their Capital Accounts are less than the
amounts distributable to them under Sections 7.2.3 and 7.2.4 of the Venture
Agreement in respect of such transaction;
FOURTH: to either the General Partner and the Class A Limited
Partners on the one hand, or the Class B Limited Partners, on the other, the
amount or amounts, if any, necessary to cause the Capital Account of such
Partners to be in the same ratio to their Unrecovered Capital as the ratio of
the other Partners' Capital Accounts is to their Unrecovered Capital; and
thereafter 70% to the General Partner and the Class A Limited Partners in
proportion to their Contribution Ratios and 30% to the Class B Limited Partners
in proportion to their Contribution Ratios until each Partners' Capital Account
is equal to its Unrecovered Capital; and
FIFTH: to the Partners in accordance with their respective
Residual Partnership
Interests.
4. NET LOSS FROM A CAPITAL TRANSACTION. Net Loss from a
Capital Transaction shall be charged to the Capital Accounts of the Partners and
allocated as follows:
FIRST: 65% to the General Partners and the Class A Limited
Partners in proportion to their General Residual Partnership Interest and Class
A Residual Partnership Interests and 35% to the Class B Limited Partners in
proportion to their Residual Partnership Interests to the extent in the case of
each Partner of the excess of (X) current and prior allocations of Net Income
plus prior allocations of Gain from a Capital Transaction made in the 65-35
ratio over the sum of (Y) distributions made in the 65-35 ratio, current and
prior allocations of Net Loss made in the 65-35
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ratio, prior allocations of Net Loss from a Capital Transaction made in the
65-35 ratio and prior allocations of Depreciation made in the 65-35 ratio.
SECOND: 70% to the General Partner and the Class A Limited
Partners in proportion to their Contribution Ratios and 30% to the Class B
Limited Partners in proportion to their Contribution Ratios until the Capital
Account of any Partner shall be reduced to zero;
THIRD: to any Partner or Partners with a positive balance in
its Capital Account until each Partner's Capital Account has been reduced to
zero and if more than one Partner has a Positive Capital Account in proportion
to their respective Contribution Ratios or as near as possible to such ratios
until no Partner has a Positive Capital Account; and
FOURTH: to the General Partner, subject to Section 2 of
Article III of this Appendix.
5. ALLOCATION OF DEPRECIATION.
(A) For each Fiscal Year there shall be charged to the Capital
Account of each Partner, and allocated to each Partner for income tax purposes,
an amount of the Depreciation as follows:
FIRST: 65% to the General Partner and the Class A Limited
Partners in proportion to their General Residual Partnership Interest and Class
A Residual Partnership Interests and 35% to the Class B Limited Partners in
proportion to their Class B Residual Partnership Interests to the extent of the
excess in the case of each Partner of (X) current and prior allocations of Net
Income and Gain from a Capital Transaction made in the 65-35 ratio over the sum
of (Y) distributions of Operating Cashflow and Extraordinary Cashflow made in
the 65-35 ratio, current and prior
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allocations of Net Loss and Net Loss from a Capital Transaction made in the
65-35 ratio, and prior allocations under this paragraph FIRST;
SECOND: Depreciation shall be allocated to the Partners in the
ratio of 70% to the General Partner and the Class A Limited Partners in
proportion to their respective Contribution Ratios and 30% to the Class B
Limited Partners in proportion to their respective Contribution Ratios until the
Capital Account of any Partner shall be reduced to zero;
THIRD: to any Partner or Partners with a positive balance in
its Capital Account until each Partner's Capital Account has been reduced to
zero and if more than one Partner has a Positive Capital Account in proportion
to their Contribution Ratios or as near as possible to such ratios until no
Partner has a Positive Capital Account; and
FOURTH: subject to Section 2 of Article III of this Appendix,
any remaining Depreciation shall be allocated 70% to the General Partner and the
Class A Limited Partners in proportion to their Contribution Ratios and 30% to
the Class B Limited Partners in proportion to their Contribution Ratios.
Notwithstanding the foregoing paragraphs FIRST through FOURTH,
Depreciation which is a Nonrecourse Deduction shall be allocated 70% to the
General Partner and the Class A Limited Partners in proportion to their
respective Contribution Ratios and 30% to the Class B Limited Partners in
proportion to their respective Contribution Ratios.
(B) Recapture shall be allocated to the Partners as follows
(i.e., the portion of the gain allocated to a Partner which constitutes
Recapture shall be determined as follows): to the extent possible, there shall
be allocated to each Partner that portion of such Recapture which is equal to
the
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fraction, the numerator of which is the Depreciation deductions that generated
such Recapture (or other items of deduction that generated such Recapture)
allowable with respect to the Partnership property being sold theretofore
allocated to such Partner (or a predecessor in interest to such Partner), and
the denominator of which is the total Depreciation deductions that generated
such Recapture (or other items of deduction that generated such Recapture)
allowable with respect to the Partnership property being sold theretofore
allocated to all Partners; provided, however, that under no circumstances shall
there be allocated to any Partner Recapture in excess of the Gain from a Capital
Transaction allocated to such Partner (and such excess shall be allocated
instead to the other Partners).
II. ALLOCATIONS TO CONFORM TO TARGET CAPITAL ACCOUNTS.
If the Capital Account of a Partner at the end of any Fiscal
Year as determined by the application of Articles I and III differs from that
Partner's Target Capital Account, the allocations provided for in Article I of
this Appendix shall be modified so that each Partner's Capital Account shall
equal its Target Capital Account. Modification pursuant to the preceding
sentence shall be subject to the requirements that (i) the ceiling rule as set
forth in Code Section 1.704-1(c)(2) as it may be applied by the Internal Revenue
Service will not be violated and (ii) the provisions of Article III of this
Appendix may not be violated. Subject to the foregoing, the modifications
required hereunder shall be made by first reallocating Net Income or Net Loss,
as the case may be, and then reallocating Gain or Net Loss from a Capital
Transaction, as the case may be, and then by reallocating Depreciation.
III. EXCEPTIONS.
A-8
<PAGE>
<PAGE>
Notwithstanding anything to the contrary contained in this
Appendix, the following shall apply:
1. GENERAL LIMITATION. No allocation shall be made to a
Partner which would cause such Partner to have a deficit balance in its Adjusted
Capital Account which exceeds the sum of such Partner's share of Partnership
Minimum Gain and such Partner's Share of Minimum Gain Attributable to Partner
Nonrecourse Debt. If the limitation contained in the preceding sentence would
apply to cause an item of Net Loss or deduction to be unavailable for allocation
to all Partners then such item of Net Loss or deduction shall be allocated among
the Partners in accordance with the General Partner's best judgment as to the
manner in which the loss or deduction will be borne.
2. PARTNER NONRECOURSE DEDUCTIONS. Any and all items of Net
Loss and deduction and any and all expenditures described in Section
705(a)(2)(B) of the Code (or treated as expenditures so described pursuant to
Treas. Reg. ss. 1.704-1(b)(2)(iv)(i)) (collectively, "Partner Nonrecourse
Deductions") that are (in accordance with the principles set forth in Treas.
Reg. ss. 1.704-1T(b)(4)(iv)(h)(3)) attributable to Partner Nonrecourse Debt
shall be allocated to the Partner that bears the Economic Risk of Loss for such
Partner Nonrecourse Debt. If more than one Partner bears such Economic Risk of
Loss, such Partner Nonrecourse Deductions shall be allocated between or among
such Partners in accordance with the ratios in which they share such Economic
Risk of Loss.
3. PARTNERSHIP MINIMUM GAIN. If there is a net decrease in
Partnership Minimum Gain for any Fiscal Year, there shall be allocated to each
Partner for such Fiscal Year, before any other allocation is made of Partnership
items under Article I or Article II of this
A-9
<PAGE>
<PAGE>
Appendix, items of income and gain for such year (and, if necessary, for
subsequent years) in proportion to, and to the extent of, an amount equal to the
greater of: (i) the portion of such Partner's share of the net decrease in
Partnership Minimum Gain during such Fiscal Year that is allocable (in
accordance with the principles set forth in Treas. Reg. ss.
1.704-1T(b)(4)(iv)(e)(2)) to the sale or other disposition of Partnership
property subject to one or more Nonrecourse Liabilities of the Partnership; or
(ii) the deficit balance in such Partner's Adjusted Capital Account at the end
of such Fiscal Year. The amount of such deficit balance which needs to be
eliminated shall be reduced by the amount of such Partner's Share of Partnership
Minimum Gain and such Partner's Share of Minimum Gain Attributable to Partner
Nonrecourse Debt (computed, in each case, by reference to the amount of
Partnership Minimum Gain and Minimum Gain Attributable to Partner Nonrecourse
Debt after taking into account any changes thereto during such Fiscal Year).
Items of income and gain to be allocated pursuant to the foregoing provisions of
this paragraph shall consist first of gains recognized from the disposition of
items of Partnership property subject to one or more Nonrecourse Liabilities of
the Partnership to the extent of the decrease in Partnership Minimum Gain
attributable to the disposition of such items of Partnership property (or a
proportionate share of each such gain if such gains exceed the amount of income
and gain required to be allocated pursuant to the foregoing provisions of this
paragraph for such Fiscal Year), and then of a pro rata portion of the other
items of Partnership income and gain for that Fiscal Year.
4. MINIMUM GAIN ATTRIBUTABLE TO PARTNER NONRECOURSE DEBT. If
there is, for any Fiscal Year, a net decrease in the Minimum Gain Attributable
to Partner Nonrecourse Debt, there shall be allocated to each Partner that has a
share of Minimum Gain Attributable to Partner
A-10
<PAGE>
<PAGE>
Nonrecourse Debt at the beginning of such Fiscal Year before any other
allocation under Section 704(b) of the Code is made pursuant to this Appendix
(other than an allocation required pursuant to the provisions of Section 3 of
this Article III of this Appendix) items of income and gain for such Fiscal Year
(and, if necessary, for subsequent Fiscal Years) in proportion to, and to the
extent of, an amount equal to the greater of: (i) the portion of such Partner's
share of the net decrease in the Minimum Gain Attributable to Partner
Nonrecourse Debt that is allocable (in accordance with the principles set forth
in Treas. Reg. ss. 1.704-1T(b)(4)(iv)(h)(4)) to the sale or other disposition of
Partnership property subject to such Partner Nonrecourse Debt; or (ii) the
deficit balance in such Partner's Adjusted Capital Account at the end of such
Fiscal Year. The amount of such deficit balance which needs to be eliminated
shall be reduced by the amount of such Partner's Share of Partnership Minimum
Gain and such Partner's Share of Minimum Gain Attributable to Partner
Nonrecourse Debt (computed, in each case, by reference to the amount of
Partnership Minimum Gain and Minimum Gain Attributable to Partner Nonrecourse
Debt after taking into account any changes thereto during such Fiscal Year). The
determination of which items of income and gain to be allocated pursuant to the
foregoing provisions of this paragraph of this Section shall be made in a manner
that is consistent with the principles contained in Treas. Reg. ss.
1.704-1T(b)(4)(iv)(e)(2).
5. QUALIFIED INCOME OFFSET. In the event any Partner
unexpectedly receives any adjustments, allocations or distributions described in
Treas. Reg. ss. 1.704-1(b)(2)(ii)(d)(4), (5) or (6) (modified, as appropriate,
by Treas. Reg. ss. ss. 1.704-1T(b)(4)(iv)(e)(3) and (h)(4)), there shall be
specially allocated to such Partner such items of Partnership income and gain,
at such times and in such amounts as will eliminate as quickly as possible the
deficit balance (if any) in its Capital
A-11
<PAGE>
<PAGE>
Account (in excess of the sum of such Partner's Share of Partnership Minimum
Gain and such Partner's Share of Minimum Gain Attributable to Partner
Nonrecourse Debt) created by such adjustments, allocations and distributions. To
the extent permitted by the Code and the Regulations, any special allocations of
items of income or gain pursuant to this paragraph 5 shall be taken into account
in computing subsequent allocations of Net Income or Net Loss pursuant to this
Appendix, so that the net amount of any items so allocated and the subsequent
Net Income or Net Loss allocated to the Partners pursuant to Article I and
Article II of this Appendix shall, to the extent possible, be equal to the net
amounts that would have been allocated to each such Partner pursuant to the
provisions of Article I and Article II of this Appendix if such unexpected
adjustment, allocations or distributions had not occurred.
IV. SPECIAL ALLOCATION RULES AND PARTNERSHIP ELECTIONS.
1. Income, gain, loss and deduction with respect to property
contributed to the Partnership by a Partner (and with respect to other
circumstances for which Treas. Reg. ss. 1.704-1(b) requires Code Section 704(c)
principles to be applied) shall be allocated among the Partners for tax purposes
so as to take account of the variation between the basis (within the meaning of
Section 704(c) of the Code) of the property to the Partnership and its fair
market value at the time of contribution (or the variation between the basis and
value or applicable Capital Account at the time the principles of Section 704(c)
of the Code are to be applied).
2. In the event a Partner transfers all or part of its
Interest in the Partnership, or in the event an interest in a Partner that
itself is a partnership is transferred, the Partnership shall,
A-12
<PAGE>
<PAGE>
upon request of the transferee, elect, pursuant to Section 754 of the Code, to
adjust the basis of the property owned by the Partnership in accordance with
Section 743 of the Code.
3. The Partnership shall elect the straight line method of
depreciation and the shortest permissible recover periods (within the meaning of
Section 168 of the Code) with respect to the Resort.
4. Except as otherwise provided in the Venture Agreement, all
other elections required or permitted to be made by the Partnership under the
Code shall be made by the General Partner.
A-13
<PAGE>
<PAGE>
Exhibit 3.5
AMENDMENT
TO
CERTIFICATE OF LIMITED PARTNERSHIP
OF
EL CONQUISTADOR PARTNERSHIP L.P., S.E.
(A DELAWARE LIMITED PARTNERSHIP)
The undersigned, being the sole general partner of EL CONQUISTADOR
PARTNERSHIP L.P., S.E., a Delaware limited partnership (the "Partnership"), does
hereby certify as follows:
1. The name of the Partnership is EL CONQUISTADOR PARTNERSHIP L.P.,
S.E.
2. The Certificate of Limited Partnership (the "Certificate") was filed
in the Office of the Secretary of State of the State of Delaware on January 16,
1990, and was amended by Certificates of Amendment filed on March 21, 1991, on
March 5, 1992, on May 5, 1998, and on April 14, 1999.
3. This Certificate of Amendment is filed to (a) reflect the withdrawal
of WKA El Con Associates as a general partner of the Partnership, (b) reflect
the withdrawal of Conquistador Holding, Inc. as a general partner of the
Partnership and (c) reflect the admittance of Conquistador Holding (SPE), Inc.
as a general partner of the Partnership.
4. Item 3 of the Certificate is hereby amended to read as follows:
"3. The name and mailing address of the sole general partner of
the Partnership is:
Conquistador Holding (SPE), Inc.
c/o Patriot American Hospitality, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, Texas 75207".
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment of the Certificate of Limited Partnership this ____ day of __________,
1999.
CONQUISTADOR HOLDING (SPE), INC.
By:
_____________________________
Name:
Title:
2
<PAGE>
<PAGE>
Exhibit 3.6
ASSIGNMENT OF INTERESTS
AND
FOURTH AMENDMENT TO VENTURE AGREEMENT
ASSIGNMENT OF INTERESTS AND FOURTH AMENDMENT TO VENTURE
AGREEMENT ("Agreement"), dated as of _________ __, 1999, among WKA EL CON
ASSOCIATES, a New York general partnership ("WKA"), CONQUISTADOR HOLDING, INC.,
a Delaware corporation ("Holding"), WHG EL CON CORP., a Delaware corporation
("WHG El Con") and CONQUISTADOR HOLDING (SPE), INC., a Delaware corporation
("Sub").
W I T N E S S E T H:
WHEREAS, Holding and WKA are parties to that certain Venture
Agreement of El Conquistador Partnership L.P., a Delaware limited partnership
(the "Partnership"), dated January 12, 1990, as amended by (i) the First
Amendment Agreement dated May 4, 1992, (ii) the Second Amendment Agreement dated
March 31, 1998, (iii) the Third Amendment Agreement dated April 29, 1998 and as
heretofore amended (collectively, the "Venture Agreement"; capitalized terms
used herein and not otherwise defined shall have the same meaning ascribed to
such terms in the Venture Agreement); and
WHEREAS, the sole partners of WKA are Holding and WHG El Con;
and
WHEREAS, effective as of ___________ __, 1999 (the "Effective
Date"), WKA is assigning to its partners in complete liquidation of WKA, all of
its interests in any and all real and personal property, including, without
limitation, its interests as a general and limited partner of the Partnership by
assigning: (i) all of its interest as a General Partner in the Partnership
(representing a 15% Residual Partnership Interest) to Holding which interest
will be converted to a Class B limited Residual Partnership Interest; (ii)
33.51% of its interest as a Class B Limited Partner (representing
<PAGE>
<PAGE>
an 11.73% Residual Partnership Interest) to Holding; and (iii) 66.49% of its
interest as a Class B Limited Partner (representing a 23.27% Residual
Partnership Interest) to WHG El Con; and
WHEREAS, effective as of the Effective Date and immediately
after the liquidation of WKA, Holding is assigning to Sub all of its interests
as a general and limited partner of the Partnership, including the interests it
acquired in the liquidation of WKA; and
WHEREAS, the parties hereto desire to effect such assignments
and the substitution of Sub as the sole General Partner of the Partnership in
the place and stead of Holding and WKA, the substitution of Sub as the Class A
Limited Partner and Managing General Partner in the place and stead of Holding,
and the substitution of WHG El Con and Sub as the Class B Limited Partners in
the place and stead of WKA.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Assignment by WKA. WKA hereby confirms its assignment, as
of the Effective Date, of all of its right, title and interest in and to (i) a
15% general Residual Partnership Interest to Holding which Interest will be
converted to a Class B limited Residual Partnership Interest at such time, (ii)
an 11.73% Class B limited Residual Partnership Interest to Holding and (iii) a
23.27% Class B limited Residual Partnership Interest to WHG El Con. As of the
Effective Date, WKA hereby withdraws as a General Partner and Class B Limited
Partner. Holding and WHG El Con hereby confirm their acceptance of the foregoing
assignments, the conversion in the case of the general Residual Partnership
Interest to a Class B limited Residual Partnership Interest and the substitution
in the case of Holding as a Class B Limited Partner and in the case of WHG El
Con as a Class B Limited Partner.
2. Consent of Holding. Holding hereby consents pursuant to
ARTICLE NINE of the Venture Agreement to the assignment by WKA of its Residual
Partnership Interests, the conversion of the general Residual Partnership
Interest to a Class B limited Residual Partnership Interest and the withdrawal
of WKA as a General Partner and a Class B Limited Partner as described
2
<PAGE>
<PAGE>
in Section 1 hereof, and the admittance of Holding and WHG El Con as Class B
Limited Partners as of the Effective Date.
3. Assignment by Holding. Holding hereby confirms its
assignment to Sub, effective immediately following the assignments described in
Section 1 hereof, of all of its right, title and interest in and to (i) a 15%
general Residual Partnership Interest, (ii) a 35% Class A limited Residual
Partnership Interest and (iii) an 26.73% Class B limited Residual Partnership
Interest. Concurrently with such assignment, Holding hereby withdraws as a
General Partner, Class A Limited Partner and Class B Limited Partner and Sub
shall be substituted in the place and stead of Holding with respect thereto. Sub
hereby confirms the acceptance of the foregoing assignments and agrees to be
substituted as the sole General Partner and as a Class A Limited Partner and
Class B Limited Partner.
4. Consent of WHG El Con. WHG El Con hereby consents pursuant
to ARTICLE NINE of the Venture Agreement to the assignment by Holding of its
Residual Partnership Interests, the withdrawal of Holding as a General Partner,
Class A Limited Partner and Class B Limited Partner as described in Section 3
hereof and the admittance of Sub as a General Partner, Class A Limited Partner
and Class B Limited Partner at the time of such assignment.
5. Reconfirmation of the Partnership. WHG El Con and Holding
hereby reconfirm the continuance of the Partnership following the assignments,
conversion and substitutions described in Section 1 hereof. WHG El Con and Sub
hereby (i) reconfirm the continuance of the Partnership following the
assignments and substitutions described in Section 3 hereof, (ii) agree that the
Partnership shall continue its existence in accordance with the Venture
Agreement, as amended hereby, and (iii) reconfirm all of the rights and
obligations of the Partners and the Partnership, all of which shall remain in
full force and effect. From and after the assignments referred to in Section 1
hereof, Holding and WHG El Con hereby release WKA from any direct or indirect
obligations under the Venture Agreement. From and after the assignments referred
to in Section 3 hereof, WHG El Con and Sub hereby release Holding from any
direct or indirect obligations under the Venture Agreement.
3
<PAGE>
<PAGE>
6. Residual Interests. Following all of the assignments
described herein, the Residual Partnership Interests of the Partners in the
Partnership will be as follows:
<TABLE>
<CAPTION>
General Partner Residual Partnership Interest
- --------------- -----------------------------
<S> <C>
Conquistador Holding (SPE), Inc. 15%
c/o Patriot American Hospitality, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, Texas 75207
Class B Limited Partners
- ------------------------
WHG El Con Corp. 23.27%
c/o Wyndham International, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, Texas 75207
Conquistador Holding (SPE), Inc. 26.73%
c/o Patriot American Hospitality, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, Texas 75207
Class A Limited Partner
- -----------------------
Conquistador Holding (SPE), Inc. 35.00%
c/o Patriot American Hospitality, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, Texas 75207
</TABLE>
7. Change of Name. The Partnership has elected to be treated
as a Special Partnership for purposes of the tax laws of the Commonwealth of
Puerto Rico and accordingly, the name of the Partnership has been changed to El
Conquistador Partnership L.P., S.E.
8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
its rules of conflicts of laws.
4
<PAGE>
<PAGE>
9. Counterpart Signatures; Facsimiles. This Agreement may be
executed in counterparts, which will, when taken together, be deemed for all
purposes to be one and the same agreement. For all purposes, a signature
delivered by facsimile shall have the same force and effect as the original of
such signature.
IN WITNESS WHEREOF, the parties hereto have cause this
Agreement to be executed by their respective duly authorized officers or
representatives as of the date first above written.
WKA EL CON ASSOCIATES
By: WHG EL CON CORP.
By:
______________________________________
Name:
Title:
CONQUISTADOR HOLDING, INC.
By:
______________________________________
Name:
Title:
CONQUISTADOR HOLDING (SPE), INC.
By:
______________________________________
Name:
Title:
WHG EL CON CORP.
By:
______________________________________
Name:
Title:
5
<PAGE>
<PAGE>
STATE OF )
: ss.:
COUNTY OF )
On____________ __, 1999, before me personally came ,
to me known and known to me to be the of WHG EL CON CORP., in its
capacity as a general partner of WKA EL CON ASSOCIATES, the partnership
described in and which executed the foregoing instrument, and he acknowledged
to me that he executed the same by order of the Board of Directors of WHG EL
CON CORP. and consent of the Venturers Committee of WKA EL CON ASSOCIATES.
_________________________________________
Notary Public
STATE OF )
: ss.:
COUNTY OF )
On _____________ ___, 1999, before me personally came ,
to me known and known to me to be the of CONQUISTADOR HOLDING, INC.,
the corporation described in and which executed the foregoing instrument, and
he acknowledged to me that he executed the same by order of the Board of
Directors of such corporation.
_________________________________________
Notary Public
STATE OF )
: ss.:
COUNTY OF )
On ____________ ___, 1999, before me personally came ,
to me known and known to me to be the of CONQUISTADOR HOLDING (SPE), INC.,
the corporation described in and which executed the foregoing instrument, and
he acknowledged to me that he executed the same by order of the Board of
Directors of such corporation.
_________________________________________
Notary Public
6
<PAGE>
<PAGE>
STATE OF )
: ss.:
COUNTY OF )
On _________ ___, 1999, before me personally came ,
to me known and known to me to be the of WHG EL CON CORP., the
corporation described in and which executed the foregoing instrument, and he
acknowledged to me that he executed the same by order of the Board of Directors
of such corporation.
_________________________________________
Notary Public
7
<PAGE>
<PAGE>
Exhibit 4.1
----------------------------------------------------------------
LOAN AGREEMENT
BETWEEN
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL, MEDICAL AND
ENVIRONMENTAL CONTROL FACILITIES FINANCING AUTHORITY
AND
EL CONQUISTADOR PARTNERSHIP L.P., S. E.
DATED [ ], 1999
--------------------
[$105,200,000]
TOURISM REVENUE BONDS
1999 SERIES A
(EL CONQUISTADOR RESORT PROJECT)
----------------------------------------------------------------
This Loan Agreement has been assigned by Puerto Rico Industrial,
Tourist, Educational, Medical and Environmental Control Facilities Financing
Authority to the Trustee under the Trust Agreement as the same may be amended or
supplemented from time to time. A copy of the Trust Agreement may be inspected
at the Corporate Trust Office.
<PAGE>
<PAGE>
TABLE OF CONTENTS
(This Table of Contents is not a part of the Loan Agreement
but is for convenience of reference only.)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
Definitions and Rules of Construction
Section 1.01 Definitions............................................................................1
Section 1.02 Rules of Construction.................................................................10
ARTICLE II
Representations and Warranties
Section 2.01 Representations and Warranties by the Authority.......................................11
Section 2.02 Representations, Warranties and Covenants by the Borrower.............................11
ARTICLE III
Issuance of the Bonds
Section 3.01 Agreement to Issue the Bonds..........................................................15
Section 3.02 Disbursements from Project Fund.......................................................16
Section 3.03 Borrower Required to Pay Costs........................................................16
Section 3.04 Conditions Precedent to Issuance of the Bonds.........................................16
Section 3.05 Rating...............................................................................17
Section 3.06 The Reserve Fund......................................................................17
ARTICLE IV
Loan by the Authority to the Borrower; Repayment;
Maintenance; Indemnity
Section 4.01 Loan by the Authority; Repayment......................................................17
Section 4.02 No Set-Off...........................................................................19
Section 4.03 Prepayments...........................................................................19
Section 4.04 Covenant to Operate and Maintain Project..............................................19
Section 4.05 Expenses..............................................................................20
Section 4.06 Indemnification.......................................................................20
Section 4.07 Past Due Payments.....................................................................21
ARTICLE V
Further Agreements
Section 5.01 Covenant to Maintain Existence........................................................21
Section 5.02 Covenant to Cooperate.................................................................21
Section 5.03 No Warranty by Authority..............................................................22
Section 5.04 Right of Inspection...................................................................22
Section 5.05 Consent to Jurisdiction...............................................................22
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Section 5.06 Officers of Authority Not Liable......................................................22
Section 5.07 Indemnification with Respect to Government Obligations................................22
Section 5.08 Quarterly and Annual Reports..........................................................23
Section 5.09 Consent to Assignment.................................................................23
Section 5.10 Maintenance of Source of Income; Additional Interest..................................23
Section 5.11 Sale of Project.......................................................................24
Section 5.12 Compliance with Applicable Law; Environmental Laws....................................25
Section 5.13 Authority's Performance of the Borrower's Obligations.................................26
Section 5.14 No Purchase of Bonds by Borrower......................................................26
Section 5.15 Covenant to Notify....................................................................26
Section 5.16 No Interest of Authority in Project...................................................26
Section 5.17 Limitation of Liability..............................................................26
Section 5.18 Liens and Encumbrances; Additional Indebtedness; Claims and Demands...................27
Section 5.19 Payment of Other Charges..............................................................28
Section 5.20 Inspections; Reports; Repairs.........................................................28
Section 5.21 Insurance.............................................................................28
Section 5.22 Compliance With Insurance Requirements................................................31
Section 5.23 Damage or Destruction.................................................................31
Section 5.24 Taking of the Project.................................................................34
Section 5.25 Application of Proceeds Upon Casualty or Substantial Taking...........................35
Section 5.26 Further Assurances....................................................................35
Section 5.27 Performance of This Loan Agreement and Other Agreements...............................35
Section 5.28 Amendments to Partnership Agreement...................................................36
Section 5.29 Leases and Concessions................................................................36
Section 5.30 Distributable Cash Under Partnership Agreement........................................36
Section 5.31 Palominos Lease.......................................................................37
Section 5.32 Sole Business.........................................................................37
ARTICLE VI
Assignment
Section 6.01 Assignment by Borrower................................................................37
Section 6.02 Assignment by Authority...............................................................38
ARTICLE VII
Events of Default and Remedies
Section 7.01 Events of Default.....................................................................38
Section 7.02 Acceleration; Remedies................................................................40
Section 7.03 Remedies Not Exclusive................................................................40
Section 7.04 Attorneys' Fees and Expenses..........................................................40
Section 7.05 Waivers...............................................................................40
ARTICLE VIII
Prepayment of the Loan
Section 8.01 Option to Prepay Loan.................................................................41
Section 8.02 Mandatory Prepayment of Loan..........................................................41
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Section 8.03 Relative Position of Loan Agreement and Trust Agreement...............................42
ARTICLE IX
Miscellaneous
Section 9.01 Termination...........................................................................43
Section 9.02 Reference to Bonds Ineffective After Bonds Paid.......................................43
Section 9.03 No Additional Waiver Implied by One Waiver............................................43
Section 9.04 Authority Representative..............................................................43
Section 9.05 Authorized Borrower Representative....................................................43
Section 9.06 Confidential Information..............................................................43
Section 9.07 Notices...............................................................................44
Section 9.08 Binding Effect........................................................................44
Section 9.09 If Payment or Performance Date Not a Business Day.....................................44
Section 9.10 Severability..........................................................................44
Section 9.11 Amendments, Changes and Modifications.................................................44
Section 9.12 Execution in Counterparts.............................................................44
Section 9.13 Applicable Law........................................................................44
Section 9.14 No Charge Against Authority Credit....................................................44
Section 9.15 Authority Not Liable..................................................................44
Section 9.16 Loan Agreement Supersedes Prior Agreements............................................45
Section 9.17 Conflicts.............................................................................45
EXECUTION
Execution by Authority..................................................................................31
Execution by Borrower...................................................................................31
EXHIBITS
Exhibit A: Description of the Project
</TABLE>
<PAGE>
<PAGE>
LOAN AGREEMENT
This LOAN AGREEMENT, dated [ ], 1999, by and between
the parties appearing in the cover page hereof,
W I T N E S S E T H:
in consideration of the respective representations and agreements herein
contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.01 DEFINITIONS. In addition to the words and terms elsewhere
defined in this Loan Agreement, the following words and terms hereinbefore and
hereinafter used shall have the following meanings:
ACCRETED VALUE: as defined in the Trust Agreement.
ACT: Act No. 121 of the Legislature of Puerto Rico, approved June 27,
1977, as amended, and all future acts supplemental thereto or amendatory
thereof.
ADDITIONAL INDEBTEDNESS: capital leases and third party debt other than
the loan evidenced by this Loan Agreement and trade payables.
ADDITIONAL INDEBTEDNESS DEBT SERVICE COVERAGE RATIO: at the time of
calculation, the quotient resulting from dividing (i) the net operating income
(before income taxes and interest and excluding depreciation and other non/cash
items) of the Project for the last four full fiscal quarters (excluding any
fiscal quarter which ended less than thirty one (31) days prior to the date of
determination) by (ii) the aggregate principal and interest payments on the
Bonds and Additional Indebtedness scheduled for payment over the next full
twelve (12) month period, as certified by the Authorized Borrower Representative
which will include an agreed upon procedures report with respect to a
recomputation of the ratio in accordance with the Loan Agreement by the
Independent Accountant.
ADDITIONAL INDEBTEDNESS LOAN-TO-VALUE RATIO: at the time of
calculation, the quotient resulting from dividing (i) the total principal amount
of the Bonds then Outstanding, less the aggregate amount deposited to the credit
of the Bond Fund and the Reserve Fund, plus the principal amount of any
Additional Indebtedness, by (ii) the appraised value of the Project as
determined by the most recent appraisal made pursuant to Section 5.21, which
appraisal will be dated not more than
1
<PAGE>
<PAGE>
three (3) years prior to the date of calculation, as certified by the Authorized
Borrower Representative which will include an agreed upon procedures report with
respect to a recomputation of the ratio in accordance with the Loan Agreement by
the Independent Accountant.
ADDITIONAL INTEREST: an amount equal to (i) the Federal Taxes a
Qualifying Bondholder was required or will be required to pay with respect to
interest paid or accrued on the Bonds during a Taxable Year as a result of the
occurrence of an Event of Taxability, plus (ii) any Federal Taxes payable with
respect to the receipt of such amount, plus (iii) any penalties and interest
that have been or will be assessed against such Bondholder with respect to the
late payment of such Federal Taxes; provided, however, that the Additional
Interest cannot exceed the difference between (x) the amount that is obtained by
multiplying twelve percent (12%) times the principal amount of the Bonds held by
the Qualifying Bondholder prorated by the number of days the Qualifying
Bondholder owned the Bonds during the related Taxable Year and (y) the actual
interest paid or accrued on the Bonds held by the Qualifying Bondholder during
such period.
ADMINISTRATIVE FEE: the single fee to the Authority in the amount of
1/2 of 1% of the aggregate principal amount of the Bonds.
ADVANCES: shall have the meaning ascribed to such term in Section
5.30(b) hereof.
ASSIGNMENT AGREEMENTS: collectively, the Assignment of Leases and Rents
Agreement and Security Agreement and the Assignment of Hotel Management
Agreement and Security Agreement, dated the Date of Issuance by and between the
Borrower and the Trustee, together with all permitted agreements amendatory
thereof or supplemental thereto.
AUTHORITY: Puerto Rico Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Authority, a body corporate and
politic constituting a public corporation and governmental instrumentality of
Puerto Rico, or any successors thereto.
AUTHORITY REPRESENTATIVE: each of the Persons designated at the time to
act on behalf of the Authority by a certificate furnished to the Trustee and the
Borrower containing the specimen signatures of such Persons and signed on behalf
of the Authority by the Executive Director (as defined in the Trust Agreement).
AUTHORIZED BORROWER REPRESENTATIVE: each of the Persons designated at
the time to act on behalf of the Borrower by a certificate furnished to the
Trustee and the Authority containing the specimen signatures of such Persons and
signed on behalf of the Borrower by an authorized officer thereof.
AVAILABLE CASH: net cash provided by (used in) operating activities
reflected on the statement of cash flows included in the Borrower's regularly
prepared financial statements less
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principal paid on the Bonds, principal and other debt service, other than
interest, paid on any other indebtedness, and capital expenditures which have
not been financed.
BENEFICIAL OWNER: as defined in the Trust Agreement.
BOND FUND: the fund created by Section 501 of the Trust Agreement.
BONDHOLDER: the Person registered as owner of any Bonds in the Bond
Register.
BOND PURCHASE AGREEMENT: the Contract of Purchase relating to the Bonds
by and among the Authority, the Borrower, and the Underwriter, together with all
permitted agreements amendatory thereof or supplemental thereto.
BOND REGISTER: the register to be maintained by the Trustee, as
provided under Section 206 of the Trust Agreement.
BONDS: the bonds authorized to be issued under Section 208 of the Trust
Agreement.
BORROWER: El Conquistador Partnership L.P., S.E., a limited partnership
organized and existing under the laws of the State of Delaware and its
successors and permitted assigns, and any surviving, resulting or transferee
entity.
CAPITAL APPRECIATION BOND: as defined in the Trust Agreement.
CASUALTY: any damage to or destruction of the Project or any portion
thereof occurring after the Date of Issuance, the Restoration of which is
reasonably estimated by the Borrower to cost no less than $2,000,000.
CODE: the Federal Internal Revenue Code of 1986, and the regulations
issued thereunder, as amended or supplemented from time to time.
CONSTRUCTION CONSULTANT: an architectural or engineering firm
recognized as expert in the construction industry selected by the Borrower from
a list of three (3) Persons provided by the Trustee; the services of which will
be paid by the Borrower.
CORPORATE TRUST OFFICE: the principal office of the Trustee at 221
Ponce de Leon Avenue, Lobby, San Juan, Puerto Rico 00917, or any other address
at which its corporate trust business shall be administered at any particular
time.
COSTS: as defined in the Trust Agreement.
DATE OF ISSUANCE: the date appearing on the first line of page 1 of
this Loan Agreement.
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ENVIRONMENTAL LAW: any federal, state, Puerto Rico or local statute,
law, rule, regulation, ordinance, code, policy or rule now or hereafter in
effect and in each case as amended, and any judicial or administrative
interpretation thereof, including any judicial or administrative order, consent,
decree or judgment, relating to the environment, health, safety or Hazardous
Substance.
EVENTS OF DEFAULT: any one or more of the occurrences specified in
Section 7.01.
EVENT OF TAXABILITY: the receipt by the Authority and the Trustee of a
report of the Borrower's Independent Accountant pursuant to Section 5.10(d)(1)
to the effect that (i) the Borrower has failed to meet the requirements of
Section 5.10(a), (b) and (c) or the representations made in clause (xv) or (xvi)
of Section 2.02 are not true and correct, and (ii) as a consequence thereof,
under the Code, as in effect on the date of such report, the interest paid or
accrued on Bonds held by a Qualifying Bondholder is includable in gross income
and subject to the payment of Federal Taxes a credit for which payment is not
otherwise available to such Qualifying Bondholder.
FEDERAL: the United States of America and the government thereof.
FEDERAL TAXES: any income taxes imposed under the Code.
FINANCIAL CONSULTANT: the Independent Accountant or, if not available, a
Person recognized as expert in the financial industry selected by the Trustee
and paid by the Borrower.
FORCE MAJEURE: shall mean, without limitation, the following: (i) acts
of God; strikes, lockouts or other industrial disturbances; acts of public
enemies; orders or restraints of any kind of the government of the United States
or of Puerto Rico or any of their respective departments, agencies, political
subdivisions or officials, or any civil or military authority; war;
insurrections; civil disturbances; riots; epidemics; landslides; lightning;
earthquakes; fires; hurricanes; storms; droughts; floods; washouts; arrests;
restraint of government and people; explosions; breakage, malfunction or
accident to facilities, machinery, transmission pipes or canals; partial or
entire failure of utilities; or shortages of labor, materials, supplies or
transportation; or (ii) any cause, circumstance or event not reasonably within
the control of the Borrower.
GOVERNMENT OBLIGATIONS: as defined in the Trust Agreement.
GROSS REVENUES: for any period with respect to which Gross Revenues are
being determined, all revenues of any kind received or derived by the Borrower
from the ownership and operation of the Project for such period, including,
without limitation, room, food and beverage, and other facility revenues, casino
net wins, rentals or other payments from leases and concession agreements,
annual dues for golf memberships, revenues derived from the resale of golf
memberships, the proceeds of any business interruption insurance, and, except as
provided below, all revenues received by the Borrower from all other activities
of the Project, less in each case actual refunds made to customers, guests or
patrons for any of the foregoing. Gross Revenues shall not
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include the proceeds of the sales of any condominium units, revenues derived
from the initial sale of golf or country club memberships, tips, service charges
added to a customer's bill or statement in lieu of gratuities which are payable
to employees of the Project, value of complimentary rooms, food, beverages, or
use of Project facilities or services (except those purchased by the casino
forming a part of the Project), and any room, sales or other use or excise taxes
required by law to be collected with respect to the operations of the Project
and remitted to taxing authorities.
HAZARDOUS SUBSTANCE: asbestos, polychlorinated biphenyls, petroleum
products and any other substance or material that, whether by its nature or use,
is now or hereafter defined as hazardous waste, hazardous substance, pollutant
or contaminant under any Environmental Law, or which is toxic, explosive,
corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or
otherwise hazardous and which is now or hereafter regulated under any
Environmental Law.
HOLDER: the Person registered as owner of any Bonds in the Bond
Register.
INDEPENDENT ACCOUNTANTS: a nationally recognized firm of certified
public accountants, which may also be the firm which audits the financial
statements of the Borrower, which is independent with respect to the Borrower
within the meaning of the Code of Professional Ethics of the American Institute
of Certified Public Accountants.
INDUSTRIAL FACILITIES: shall have the meaning given to such term by
Section 3 of the Act as in effect on the Date of Issuance.
INSURANCE FUND: the fund created by Section 513 of the Trust Agreement.
INSURANCE POLICY(IES): the policies of insurance required to be
maintained pursuant to Section 5.21.
INSURANCE REQUIREMENT: all provisions of any Insurance Policy, all
requirements of the issuer of any Insurance Policy (including any which may
require repairs, modifications or alterations (structural or otherwise) in or to
the Project, or any portion thereof), and all orders, rules, regulations and
other requirements of any governmental authority (administrative or judicial)
having jurisdiction over the Project with respect to insuring the Project,
applicable to or affecting the Project, or any part thereof or any use or
condition of the Project, or any part thereof.
INTEREST PAYMENT DATE: the first day of each month commencing on [ ],
1999.
LEGAL REQUIREMENTS: collectively (i) all laws, statutes, codes, acts,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
permits, licenses, authorizations, directions and requirements of any
governmental authority (administrative or judicial) having jurisdiction over the
Project, the Borrower or any tenant or concessionaire of all or any of its
commercial spaces, foreseen or unforeseen, ordinary or extraordinary (including,
without limitation, fire, health, handicapped
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access, sanitation, ecological, historic, zoning, environmental protection,
wetlands, and building laws or regulations), which now or at any time hereafter
may be applicable to the Project or any part thereof, or any of the streets,
alleys, passageways, sidewalks, curbs, gutters, vaults or vault spaces adjoining
the Project or any part thereof, or any use or condition of the Project or any
part thereof and (ii) all material requirements of each permit, license,
authorization and regulation relating to the Project, or any portion thereof, or
to the ownership, leasing, use, occupancy, possession, operation or maintenance
thereof, and (iii) all requirements of the Puerto Rico Fire Department, the
Factual Mutual System or the Industrial Risk Insurers or other similar body
acting in and for Puerto Rico and all requirements of each insurance policy
covering or applicable to all or any portion of the Project, or the use thereof,
which are maintained or required to be maintained by the Borrower or of which
the Borrower has notice, and all requirements of the issuer of each such policy,
including any which may require repairs, modifications or alterations
(structural or otherwise) in or to the Project, or any portion thereof.
LETTER OF CREDIT: an irrevocable standby letter of credit issued by a
financial institution the long term obligations of which are rated Baa2 or
higher by the Rating Agency in favor of the Borrower and providing that the same
may be drawn (i) upon a statement by the Borrower that the amount of the Advance
secured by such Letter of Credit has been demanded and not paid and (ii) ten
(10) days prior to the expiration date of such Letter of Credit.
LIEN OR LIENS: any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind including, without limitation, any conditional sale
or other title retention agreement, any lease in the nature thereof, or the
filing of, or any agreement to give, any financing statement under the Uniform
Commercial Code of any jurisdiction (other than informational filings in respect
of equipment leased under any lease not intended as security, within the meaning
of such Uniform Commercial Code), including a financing statement under the laws
of Puerto Rico.
LOAN AGREEMENT: this Loan Agreement, together with all permitted
agreements amendatory hereof and supplemental hereto permitted by the Trust
Agreement.
MAJOR CASUALTY: a Casualty, the Restoration of which is reasonably
estimated by the Borrower to cost more than $50,000,000 .
MORTGAGES: collectively, the first mortgage on the Project, on parcel
#15,228 registered at page 29 of tome 354 of Fajardo, and the leasehold mortgage
on Palominos Island, constituted by deeds number [ ( ), ( ) and ( )],
respectively, dated the Date of Issuance, executed before Notary Public [ ],
to secure the Mortgage Notes.
MORTGAGE NOTES: collectively, the notes of the Borrower, dated the Date
of Issuance, in the principal amounts of ONE HUNDRED FIVE MILLION TWO HUNDRED
THOUSAND DOLLARS ([$105,200,000]), ONE HUNDRED THOUSAND DOLLARS ($100,000) and
TWO MILLION DOLLARS ($2,000,000) secured by the Mortgages.
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NET PROCEEDS: the amount of all insurance proceeds (excluding business
interruption insurance proceeds) paid pursuant to any Insurance Policy as the
result of a Casualty after deduction of the Trustee's costs and expenses
(including, without limitation, attorneys' fees and expenses), if any, in
collecting the same.
NET RESTORATION AWARD: the amount of all awards and payments received
from the condemner on account of a Taking, after deduction of the Trustee's
costs and expenses (including, without limitations, attorneys' fees and
expenses), if any, in collecting the same.
OFFICIAL STATEMENT: the Official Statement and Prospectus issued in
respect of the Bonds.
OPERATIVE DOCUMENTS: the Partnership Agreement and the Hotel Management
Agreement between the Partnership and Williams Hospitality Group Inc. effective
as of January 1, 1999.
PALOMINOS LEASE: the Deed of Lease executed by the Partnership, Lilliam
Bachman Umpierre and Alberto Bachman Umpierre on December fifteen (15) nineteen
ninety (1990), before Notary Public Silvestre M. Miranda, his deed number twelve
(12), together with all agreements amendatory thereof or supplemental thereto.
PARTNERSHIP AGREEMENT: the Amended and Restated Agreement of Limited
Partnership of the Borrower governed by the laws of the State of Delaware
executed on the Date of Issuance, between WHG El Con Corp. and Conquistador
Holding (SPE), Inc., together with all permitted agreements amendatory thereof
or supplemental thereto.
PAYMENT OF THE BONDS: full payment of the principal of, and premium, if
any, and interest on all the Bonds in accordance with their terms, whether
through payment at maturity, upon acceleration or redemption or provision for
such payment in such a manner that the Bonds shall be deemed to have been paid
under Article XIII of the Trust Agreement.
PERSON: any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
PERMITTED LIENS: the Liens created or permitted by the Related Documents
and the Liens created with respect to Additional Indebtedness permitted pursuant
to Section 5.18(b), including, without limitation, Liens with respect to capital
leases and purchase money security interests.
PLEDGE AGREEMENT: the Mortgage Notes Pledge and Security Agreement dated
the Date of Issuance by and between the Borrower and the Authority, together
with all permitted agreements amendatory thereof or supplemental thereto.
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PRELIMINARY OFFICIAL STATEMENT: the Preliminary Official Statement and
Prospectus issued in respect of the Bonds.
PRINCIPAL: when referring to the Bonds: (i) in the case of any Serial or
Term Bond, the principal of such Bond stated to be payable at maturity, and (ii)
in the case of a Capital Appreciation Bond, the Accreted Value thereof.
PROJECT: the Industrial Facilities described in Exhibit A attached
hereto and made a part hereof, including any modifications thereof,
substitutions therefor or additions thereto, and excluding deletions therefrom
(except those permitted in the Trust Agreement).
PROJECT FUND: the fund created by Section 401 of the Trust Agreement.
PUERTO RICO: the Commonwealth of Puerto Rico.
QUALIFYING BONDHOLDER: a Beneficial Owner who is (i) an individual who
was a bona fide resident of Puerto Rico during the entire taxable year in which
he received or accrued interest on the Bonds that due to the occurrence of an
Event of Taxability is not income from sources within Puerto Rico under the Code
or (ii) a Puerto Rico corporation or other foreign corporation (for purposes of
the Code) that is not engaged in trade or business in the United States.
RATING: the rating assigned from time to time to the Bonds by the Rating
Agency.
RATING AGENCY: Moody's Investors Service, Inc., a corporation organized
and existing under the laws of the State of Delaware, its successors and
assigns, or Standard & Poor's Rating Services, a division of The McGraw-Hill
Companies, Inc., its successors and assigns, or if neither is available, any
other nationally recognized statistical rating organization which shall have
been requested by the Borrower to provide a rating for the Bonds and which shall
then have a rating in effect with respect to the Bonds.
RELATED DOCUMENTS: the Trust Agreement, the Mortgages, the Mortgage
Notes, the Security Agreements, the Assignment Agreements, the Subordination
Agreements, and the Pledge Agreement, individually or collectively, as the case
may be.
RELEASE CONDITIONS: shall have the meaning ascribed thereto in Section
5.23(d).
RENEWAL AND REPLACEMENT FUND: the fund created pursuant to Section 509
of the Trust Agreement.
RENEWAL AND REPLACEMENT FUND AMOUNT: from the Date of Issuance through
the Taxable Year ending December 31, 2004, FOUR MILLION DOLLARS ($4,000,000);
from January 1, 2005 through December 31, 2009, the higher of FOUR MILLION
DOLLARS ($4,000,000) and an
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amount equal to four percent (4%) of the average gross revenues of the Borrower
for the three (3) Taxable Years immediately preceding January 1, 2005, as shown
in the Borrower's audited financial statements; from January 1, 2010 through
December 31, 2014, the higher of FOUR MILLION DOLLARS ($4,000,000) and an amount
equal to four percent (4%) of the average gross revenues of the Borrower for the
three (3) Taxable Years immediately preceding January 1, 2010, as shown in the
Borrower's audited financial statements; from January 1, 2015 through December
31, 2019, the higher of FOUR MILLION DOLLARS ($4,000,000) and an amount equal to
four percent (4%) of the average gross revenues of the Borrower for the three
(3) Taxable Years immediately preceding January 1, 2015, as shown in the
Borrower's audited financial statements; from January 1, 2020 through December
31, 2025, the higher of FOUR MILLION DOLLARS ($4,000,000) and an amount equal to
four percent (4%) of the average gross revenues of the Borrower for the three
(3) Taxable Years immediately preceding January 1, 2020, as shown in the
Borrower's audited financial statements; and from January 1, 2026 through
December 31, 2030, the higher of FOUR MILLION DOLLARS ($4,000,000) and an amount
equal to four percent (4%) of the average gross revenues of the Borrower for the
three (3) Taxable Years immediately preceding January 1, 2026, as shown in the
Borrower's audited financial statements.
RESERVE FUND: the fund created pursuant to Section 505 of the Trust
Agreement.
RESERVE FUND AMOUNT: NINE MILLION ONE HUNDRED THOUSAND DOLLARS
($9,100,000).
RESTORATION: in case of a Casualty or a Taking, the restoration,
replacement or rebuilding of the affected property forming part of the Project
such that when such restoration, replacement or rebuilding is completed the
affected property shall have been restored substantially to its condition prior
to such Casualty or Taking, with such alterations or additions as may otherwise
be consistent with the terms of the Loan Agreement and Trust Agreement, or in
the event that the foregoing requirement cannot be satisfied as a result of any
Legal Requirements, or, in the case of a Taking, as a result of the loss of the
use of the portion of the Project which was the subject of such Taking, the
Project, when such restoration, replacement or rebuilding shall have been
completed, shall be an integral unit substantially similar in condition,
character and scope to the Project prior to such Casualty or Taking.
SECURITY AGREEMENTS: the Master Security Agreement, the UCC Financing
Statement and the UCC Fixtures Filing dated the Date of Issuance by and between
the Borrower and the Trustee, together with all permitted agreements amendatory
thereof or supplemental thereto.
SERIAL BOND: as defined in the Trust Agreement.
SINGLE PURPOSE ENTITY: a Person, other than an individual, whose
organizational documents provide substantially to the effect that it (i) was
formed or organized solely for the purpose of owning and operating the Project;
(ii) shall not engage in any business unrelated to the Project;
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(iii) shall not own any assets other than those related to its interest in and
the operation of the Project; (iv) shall not incur any indebtedness other than
as permitted by this Loan Agreement and the Related Documents; (v) has its own
books and records and accounts separate and apart from any other Person; and
(vi) holds itself out as a legal entity separate and apart from any other
Person.
SUBORDINATION AGREEMENTS: collectively, the Deed of Subordination of
Mortgage and the Deed of Subordination of Leasehold Mortgage executed by the
Partnership on the Date of Issuance before Notary Public [ ],
his deed numbers [ ].
TAKING: any temporary or permanent taking by any public or quasi-public
authority of the Project or any part thereof through eminent domain or other
proceedings or by any settlement or compromise of such proceedings, or any
voluntary conveyance of such property in lieu of the commencement of any such
proceedings.
TAXABLE YEAR: the taxable year of the Borrower under the Code as in
effect on any date of its determination; the term will include the annual
accounting period for which the Borrower makes its income tax return, and will
include an accounting period of less than 12 months if the Borrower makes a
return for a period of less than 12 months.
TERM BOND: as defined in the Trust Agreement.
TITLE INSURANCE: [ ]
TRUST AGREEMENT: the Deed of Trust Agreement, dated the Date of
Issuance, between the Authority and the Trustee, together with all permitted
agreements amendatory thereof or supplemental thereto.
TRUSTEE: the bank, banking association or trust company at the time
serving as Trustee under the Trust Agreement.
UNDERWRITER: Citicorp Financial Services Corporation.
SECTION 1.02 RULES OF CONSTRUCTION.
(a) Words of the masculine gender shall be deemed and construed to
include correlative words of the feminine and neuter genders.
(b) Unless the context shall otherwise indicate, the words "Bonds,"
"Bondholder," "owner," "Holder," and "Person" shall include the plural as well
as the singular number.
(c) Words importing the redemption or calling for redemption of the
Bonds shall not be deemed to refer to or connote the payment of Bonds at their
stated maturity.
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(d) The captions or headings in this Loan Agreement are for convenience
only and in no way define, limit or describe the scope or intent of any
provisions or sections of this Loan Agreement.
(e) All references herein to particular articles, sections or exhibits
are references to articles, sections or exhibits of this Loan Agreement unless
some other reference is established.
(f) Except as provided in Section 8.03, any inconsistency between the
provisions of this Loan Agreement and the provisions of the Trust Agreement
shall be resolved in favor of the provisions of the Trust Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.01 REPRESENTATIONS AND WARRANTIES BY THE AUTHORITY. The
Authority represents and warrants that:
(i) It is a duly constituted and existing body corporate and politic
constituting a public corporation and governmental instrumentality of Puerto
Rico, established under the Act.
(ii) Under the provisions of the Act, the Authority has full power and
authority to enter into, execute, and deliver this Loan Agreement, and the
Related Documents to which it is a party, to undertake the transactions
contemplated hereby and thereby and to carry out its obligations hereunder and
thereunder.
(iii) By duly adopted resolution, the Authority has duly authorized the
execution, delivery, and performance of this Loan Agreement and the Related
Documents to which it is a party, and the issuance and sale of the Bonds.
(iv) Under existing law all payments received by the Authority pursuant
to this Loan Agreement are exempt from Puerto Rico taxation.
(v) It shall not submit the statement provided in Section 149 (e) (2) of
the Code as in effect on the Date of Issuance with respect to the Bonds.
SECTION 2.02 REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE BORROWER.
The Borrower represents and warrants that:
(i) It is a limited partnership duly organized and validly existing
under the laws of the State of Delaware, has duly elected special partnership
treatment under the laws of Puerto Rico, has all necessary power and authority
to own its properties and to conduct its business as presently conducted or
proposed to be conducted and to enter into and perform this Loan Agreement and
the
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Related Documents to which it is a party and possesses all material licenses and
approvals necessary for the conduct of its business.
(ii) The execution, delivery, and performance by the Borrower of this
Loan Agreement and the Related Documents to which it is a party, the
consummation of the transactions contemplated thereby and the fulfillment of or
compliance with the terms and conditions thereof, have been duly authorized by
all necessary action, and do not and will not violate any law or any regulation,
order, writ, injunction, or decree of any court or governmental body, agency or
other instrumentality applicable to the Borrower, or result in a breach of any
of the terms, conditions, or provisions of, or constitute a default under, or
result in the creation or imposition of any Lien upon any of the assets of the
Borrower (except those created by any of the Related Documents) pursuant to the
terms of the Partnership Agreement as now in effect, or any mortgage, indenture,
license, approval, agreement, instrument or document to which the Borrower is a
party or by which it or any of its properties is bound.
(iii) All authorizations, consents, and approvals of, notices to,
registrations or filings (other than filing and registration of the Mortgages,
the Subordination Agreements, any financing statement to be filed pursuant to
the Security Agreements and the Assignment Agreements) with, or other actions in
respect of or by, any governmental body, agency or other instrumentality or
court required in connection with the execution, delivery and performance by the
Borrower of this Loan Agreement and the Related Documents to which it is a party
have been duly obtained, given or taken and are in full force and effect.
(iv) This Loan Agreement and each Related Document to which the Borrower
is a party is a legal, valid, and binding obligation of the Borrower,
enforceable against the Borrower in accordance with its terms, except as may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally, from time to time in effect, and by
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(v) There is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties (including, without limitation, the value of the Project), business,
condition (financial or other) or results of operations of the Borrower or the
transactions contemplated by this Loan Agreement or the Related Documents to
which it is a party, or which would adversely affect the validity or
enforceability of, or the authority or ability of the Borrower to perform its
obligations under, this Loan Agreement (including, without limitation, the
payment of principal of and interest on the Bonds and other amounts due
hereunder) and the Related Documents to which it is a party.
(vi) The Borrower is not in default under any law or any regulation,
order, writ, injunction or decree of any court or governmental body
(administrative or judicial), agency or other
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instrumentality applicable to the Borrower which would adversely affect the
validity or enforceability of, or the authority of the Borrower to enter into,
or materially adversely affect the ability of the Borrower to perform its
obligation under, this Loan Agreement and the Related Documents to which it is a
party.
(vii) No default has occurred and is continuing under any material debt
or any indenture or other agreement or instrument governing outstanding material
debt of the Borrower, or any other material contract, agreement, or instrument
to which the Borrower is a party or by which it or its property is bound, and no
event has occurred which with the giving of notice or the passage of time or
both would constitute such a default where such default would have a material
adverse effect on the properties, condition (financial or other) or results of
operations of the Borrower or the transactions contemplated by this Loan
Agreement, or the Related Documents to which it is a party or which would
adversely affect the validity or enforceability of, or the authority of the
Borrower to enter into, or materially adversely affect the ability of the
Borrower to perform its obligations under, this Loan Agreement and the Related
Documents to which it is a party.
(viii) The Preliminary Official Statement as of its date and the
Official Statement as of the Date of Issuance, did not and do not contain any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that no representation is made
with respect to information contained under the headings "AFICA", "Government
Development Bank for Puerto Rico", "Tax Consequences" (other than matters
relating to, and representations, warranties and covenants made by, the
Borrower), "Legal Investment," "Underwriting," "Legal Matters," matters relating
to DTC<180>s book entry transfer system, as well as summaries of the
aforementioned information contained under the heading "Summary" or on the cover
page of the Preliminary Official Statement and the Official Statement.
(ix) The proceeds of the Bonds will be used exclusively to pay the
Costs.
(x) The Borrower is the owner in full dominium (pleno dominio) of the
personal property reflected as owned by it on its balance sheet and the real
estate comprising the Project, excluding the Palominos Island, subject to no
Liens except the Permitted Liens.
(xi) The Borrower has filed all tax returns required by law to be filed,
and has paid all taxes, assessments, and other governmental charges levied upon
the Borrower and its properties, assets, income and franchises, including,
without limitation, the Project, which are due and payable, other than those
presently payable without penalty or interest or being contested in good faith.
The charges, accruals and reserves on the books of the Borrower in respect of
taxes for all fiscal periods are adequate in the opinion of the Borrower.
(xii) The principal place of business and chief executive office of the
Borrower is located at the El Conquistador Resort & Country Club, Fajardo,
Puerto Rico.
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(xiii) All information previously furnished in writing by the Borrower
to the Authority is true and correct in all material respects (other than
financial projections or forecasts, budgets and documents prepared by anyone
other than the Borrower or on behalf of the Borrower).
(xiv) The Borrower hereby makes to the Authority each of the
representations and warranties made by the Borrower and contained in the Related
Documents to which it is a party as if such representations and warranties were
set forth in full herein.
(xv) For purposes of the Code as in effect on the Date of Issuance, at
all times during each Taxable Year of its existence up to and including the Date
of Issuance, (i) the Borrower: (A) has been a partnership; (B) has been engaged
in trade or business only in Puerto Rico; (C) has not been engaged, directly or
imputedly, in any trade or business in the United States or elsewhere outside
Puerto Rico; (D) has not derived, directly or imputedly, any gross income which
is, or is treated as effectively connected with, or attributable to, the conduct
of a trade or business outside Puerto Rico; and (ii) at least 80% of the
Borrower's gross income from all sources (A) has been derived from sources
outside the United States, or has been attributable to income so derived by a
subsidiary of the Borrower, and (B) has been attributable to the conduct of a
trade or business outside the United States by the Borrower, or by a subsidiary
(assuming, for clauses (ii)(A) and (B) above in this paragraph (xv), that the
Borrower is an association taxable as a corporation).
(xvi) All interest paid to, or accrued by, a Beneficial Owner on the
Bonds will constitute income from sources within Puerto Rico for purposes of the
Code as in effect on the Date of Issuance.
(xvii) The Borrower has caused and will at all times continue to cause
the Project to be operated as Industrial Facilities.
(xviii) The Borrower has duly and lawfully obtained or will obtain all
authorizations, licenses, consents, and orders of any governmental or public
agency or authority required to operate the Project.
(xix) The estimated useful life of the Project is equal to or exceeds
the final maturity of the Bonds.
(xx) The Project is free and clear of any physical damage that would
materially and adversely affect its value as security for the Bonds.
(xxi) The Borrower has not received notice (and is not otherwise aware)
of any proceeding pending for the total or partial condemnation of or affecting
the Project.
(xxii) To the Borrower's knowledge, all of the material improvements on
the Project lie wholly within the boundaries and building restriction lines
thereof, except for encroachments that
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are insured against by lender's title insurance or that do not materially and
adversely affect the value or marketability of the Project. No improvements on
properties adjacent to the Project materially encroach upon the Project so as to
materially and adversely affect the value or marketability of the Project.
(xxiii) An environmental site assessment was performed with respect to
the Project, a report of such assessment (the "Environmental Report") has been
delivered to the Authority, and either (x) the Environmental Report does not
reveal any known circumstances or conditions with respect to the Project that
rendered the Project, at the date of the Environmental Report, in material
violation of any applicable Environmental Law or (y) if the Environmental Report
does reveal any such circumstances or conditions and the same have not been
subsequently remediated in all material aspects, then either (A) the expenditure
of funds necessary to effect such remediation is not material in relation to the
principal amount of the Bonds, or (B) the Borrower is currently taking such
actions, if any, with respect to such circumstances or conditions as have been
required by the applicable governmental authority. To the Borrower's knowledge,
there are no circumstances or conditions with respect to the Project not
revealed in the Environmental Report that renders the Project in material
violation of any Environmental Law.
(xxiv) To the Borrower's knowledge, (x) the Project is free and clear of
any and all materialmen's preferences that are not bonded or escrowed for, and
(y) no rights are outstanding that under applicable law could give rise to any
such lien that would be prior or equal to the lien of the Mortgages. The
Borrower has not received notice that any mechanics' or materialmen's liens have
encumbered the Project which have not been released, bonded or escrowed for or
which are Permitted Liens.
(xxv) The Borrower is a Single Purpose Entity.
(xxvi) The Borrower (a) has analyzed its operations that could be
adversely affected by failure of the Borrower to become Year 2000 compliant
(that is, whether the Borrower's computer applications, imbedded microchips and
other systems will be able to perform date-sensitive functions prior to and
after December 31, 1999); (b) has developed a plan for becoming Year 2000
compliant in a timely manner, the implementation of which is on schedule in all
material respects; and (c) reasonably believes that it will become Year 2000
compliant for its operations on a timely basis except to the extent that a
failure to do so could not reasonably be expected to have a material adverse
effect upon its financial condition.
(xxvii) The Palominos Lease is in full force and effect; and no default
has occurred and is continuing by the Borrower or to its knowledge by the lessor
and no event has occurred which with the giving of notice or the passage of time
or both would constitute such a default.
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ARTICLE III
ISSUANCE OF THE BONDS
SECTION 3.01 AGREEMENT TO ISSUE THE BONDS. The Authority will use its
best efforts to issue, sell, and deliver to the purchasers thereof the Bonds for
the purpose of paying, in part, the Costs. The proceeds of the Bonds shall be
delivered to the Trustee for application in accordance with the Trust Agreement.
SECTION 3.02 DISBURSEMENTS FROM PROJECT FUND. The moneys in the Project
Fund shall be applied as provided in ARTICLE IV of the Trust Agreement and such
moneys shall be invested and reinvested in accordance with the Trust Agreement.
SECTION 3.03 BORROWER REQUIRED TO PAY COSTS. If the moneys in the
Project Fund available for the payment of the Costs should not be sufficient to
pay or cause to be paid the Costs, the Borrower shall pay all that portion of
the Costs as may be in excess of the moneys available therefor in the Project
Fund. The Authority does not make any warranty, either express or implied, that
the moneys which will be paid into the Project Fund will be sufficient to pay
the Costs. The Borrower agrees that if, after exhaustion of the moneys in the
Project Fund, it should pay or cause to be paid any portion of the Costs, it
shall not be entitled to any reimbursement therefor from the Authority or from
the Trustee, and it shall not be entitled to any abatement, diminution or
postponement of the payments to be made pursuant to Article IV and Section 5.10.
SECTION 3.04 CONDITIONS PRECEDENT TO ISSUANCE OF THE BONDS. The
obligation of the Authority to issue the Bonds is subject to the following
conditions precedent:
(1) The Authority shall have received on or before the Date of Issuance
the following, each in form and substance reasonably satisfactory to the
Authority:
(i) the Partnership Agreement certified by the general partner;
(ii) the opinions of counsel required under the Bond Purchase
Agreement;
(iii) an executed or simple copy of this Loan Agreement and each
of the Related Documents;
(iv) a letter from the Rating Agency issuing a Rating of Baa2.
(v) the Title Insurance; and
(vi) such other documents, instruments, opinions and approvals
as the Authority shall have reasonably requested.
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(2) There shall have been made and there shall be in full force and
effect, all applicable filings, recordings, and/or registrations, (except the
filing, recording or registration of the Mortgages, the Subordination
Agreements, the Assignment Agreements, and any financing statements to be filed
pursuant to the Security Agreements and the Assignment Agreements), there shall
have been paid, or provision shall have been made for the payment of, all
applicable mortgage recording fees or filing fees, if any, and there shall have
been given, or taken, any notice or any other similar action, as may be
necessary or, to the extent requested by the Authority, advisable, in order to
establish, perfect, protect and preserve the right, title and interest,
remedies, powers, privileges, liens and security interests of the Trustee
created by this Loan Agreement and the Related Documents and the Authority shall
have secured evidence reasonably satisfactory to it of all of the foregoing.
SECTION 3.05 RATING. After the Date of Issuance and until the Payment of
the Bonds, the Borrower covenants that it will deliver to the Rating Agency,
from time to time, such documents and other relevant information and take such
action as the Rating Agency may reasonably require for its due diligence in
order to maintain the Rating assigned to the Bonds, including payment of the
fees and expenses of the Rating Agency.
SECTION 3.06 THE RESERVE FUND. On the Date of Issuance, the Borrower
shall deposit with the Trustee to the credit of the Reserve Fund, the Reserve
Fund Amount.
ARTICLE IV
LOAN BY THE AUTHORITY TO THE BORROWER; REPAYMENT;
MAINTENANCE; INDEMNITY
SECTION 4.01 LOAN BY THE AUTHORITY; REPAYMENT.
(a) Upon the terms and conditions of this Loan Agreement the Authority
shall loan the Borrower the gross proceeds (including the Underwriter's
discount) of the sale of the Bonds. The principal amount of the loan shall be
equal to the aggregate principal amount of the Bonds.
(b) The Borrower agrees to repay the loan in accordance with the
provisions of this Loan Agreement and:
(i) with respect to each date on which the premium, if any,
principal of or the interest on the Bonds is payable (whether at maturity, upon
acceleration, by redemption or otherwise), the Borrower will pay such amounts
which, together with all other moneys available therefor in the Bond Fund, will
be sufficient to pay on such date:
(A) interest on the Bonds, and
(B) the principal amount of the Bonds and premium, if
any; and
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(ii) pay the amount, if any, notified by the Trustee pursuant to
Section 508 of the Trust Agreement; and
(iii) pay monthly installments in the amount of one twelfth
(1/12) of the Renewal and Replacement Fund Amount, as in effect from time to
time, until amounts deposited in the Renewal and Replacement Fund equal at least
the Renewal and Replacement Fund Amount then in effect, provided that the last
of such installments shall be in that amount which when added to the amounts on
deposit to the credit of the Renewal and Replacement Fund (excluding amounts so
on deposit paid pursuant to subsection (b)(v) of this Section) will equal at
least the Renewal and Replacement Fund Amount then in effect; and
(iv) pay the amounts, if any, notified by the Trustee pursuant to
Section 512 of the Trust Agreement; provided that the amount to be paid pursuant
to this paragraph (iv) shall be the amount so notified if less than one twelfth
(1/12) of the Renewal and Replacement Fund Amount then in effect, or otherwise,
in monthly installments of one twelfth (1/12) of the Renewal and Replacement
Fund Amount then in effect, provided that the last of such installments shall be
in that amount which when added to the amounts then on deposit to the credit of
the Renewal and Replacement Fund (excluding amounts so on deposit paid pursuant
to subsection (b)(v) of this Section) will equal at least the Renewal and
Replacement Fund Amount then in effect; and
(v) pay all net proceeds (excluding business interruption) of the
insurance claim filed by the Borrower relative to the damages and losses caused
by or as a consequence of hurricane Georges paid but not disbursed to vendors
and those paid after the Date of Issuance; and
(vi) pay the amounts it is required to deposit pursuant to
Section 5.21 (i).
Notwithstanding anything to the contrary herein, the maximum amount that
the Borrower will be required to pay on any given Interest Payment Date with
respect to Section 4.01 (b)(iii) and (iv) shall not exceed one twelfth (1/12) of
the Renewal and Replacement Fund Amount as in effect from time to time in the
aggregate.
(c) The Borrower will pay or cause to be paid directly to the Trustee
for deposit to the credit of the appropriate fund, in immediately available
funds, the amounts it is required to pay under:
(i) subsection (b)(i) of this Section, no later than 10:00 a.m.,
Atlantic standard time, on the Business Day immediately preceding the date on
which the corresponding amounts are due on the Bonds;
(ii) subsection (b)(ii) of this Section, no later than 10:00
a.m., Atlantic standard time, on the twentieth (20th) Business Day immediately
succeeding the date of receipt of notice from the Trustee pursuant to Section
508 of the Trust Agreement;
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(iii) subsection (b)(iii) of this Section, no later than 10:00
a.m., Atlantic standard time, on each Interest Payment Date;
(iv) subsection (b)(iv) of this Section, no later than 10:00
a.m., Atlantic standard time, on each Interest Payment Date commencing on the
Interest Payment Date immediately succeeding the date of receipt of notice from
the Trustee pursuant to Section 512 of the Trust Agreement;
(v) subsection (b)(v) of this Section, no later than 10:00 a.m.,
Atlantic standard time, on the fifth (5th) Business Day immediately succeeding
the date of receipt, in full or in part, of the insurance claim proceeds; and
(vi) subsection (b)(vi) of this Section, no later than 10:00
a.m., Atlantic standard time, no later than the ninety fifth (95th) day
immediately succeeding the end of each Taxable Year.
(d) Except as provided in Section 906 of the Trust Agreement, the
Trustee shall not use any of the amounts deposited in the Bond Fund pursuant to
this Section 4.01 for any purpose other than the payment of principal of,
premium, if any, and interest on the Bonds payable on the date with respect to
which such amounts were deposited.
SECTION 4.02 NO SET-OFF. The obligation of the Borrower to make the
payments required by Section 4.01 shall be absolute and unconditional. The
Borrower will pay without abatement, diminution or deduction (whether for taxes
or otherwise) all such amounts regardless of any cause or circumstance
whatsoever including, without limitation, any defense, set-off, recoupment or
counterclaim which the Borrower may have or assert against the Authority, the
Trustee, any Bondholder, or any other Person.
SECTION 4.03 PREPAYMENTS. The Borrower may at any time prepay all or any
part of the amounts it is required to pay under Section 4.01 to the extent
provided in Section 8.01, and the Borrower shall be obligated to prepay all of
the amounts payable under Section 4.01 as provided in Section 8.02.
SECTION 4.04 COVENANT TO OPERATE AND MAINTAIN PROJECT. The Borrower will
cause the Project: (i) to be operated at all times as Industrial Facilities; and
(ii) together with the appurtenances and every part and parcel thereof, to be
maintained, preserved and kept in good repair, working order and condition
(reasonable wear and tear excepted) and will from time to time cause to be made
all reasonably necessary and proper repairs, replacements and renewals;
provided, however, that the Borrower will have no obligation to cause to be
maintained, preserved, repaired, replaced or renewed any element or unit of the
Project the maintenance, repair, replacement or renewal of which, in the opinion
of the Borrower, becomes uneconomical to the Borrower because of damage or
destruction or obsolescence, or change in economic or business conditions, or
change in government standards and regulations, or the termination by the
Borrower of the operation of the Industrial Facilities to
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which such element or unit of the Project is an adjunct. For purposes of this
Section 4.04, the "opinion of the Borrower" upon the Authority's request, shall
be expressed to the Authority and the Trustee by delivery of a certificate of an
Authorized Borrower Representative specifying the circumstances, situations or
conditions described in this Section 4.04 the existence of which permits the
Borrower not to cause to be maintained any element or unit of the Project. The
Borrower covenants that it will promptly notify the Trustee and the Authority if
the Project ceases to be operated as Industrial Facilities or to be maintained
as required hereunder.
SECTION 4.05 EXPENSES. The Borrower will pay: (i) all reasonable fees
and expenses of the Trustee and the costs and expenses of indemnifying the
Trustee for, and holding the Trustee harmless against, any loss, liability or
expense (including the costs and expenses of defending against any claim of
liability) incurred without negligence or willful misconduct by the Trustee and
arising out of or in connection with its acting as Trustee under the Trust
Agreement; and (ii) the Administrative Fee and all reasonable expenses of the
Authority incurred at the request or with the consent of the Borrower in
connection with the financing of the Project.
SECTION 4.06 INDEMNIFICATION. The Borrower will at all times indemnify
and hold harmless the Authority and the Trustee against any and all losses,
costs, damages, expenses, and liabilities (collectively referred to hereinafter
as "Losses") of whatever nature (including but not limited to reasonable
attorneys' fees, litigation and court costs, amounts paid in settlement, and
amounts paid to discharge judgments) directly or indirectly resulting from,
arising out of, or related to one or more Claims, as hereinafter defined. The
word "Claims" as used herein shall mean all claims, lawsuits, causes of action
and other legal actions and proceedings, involving bodily or personal injury to
or death of any Person or damage to any property (including, but not limited to
Persons employed by the Authority, the Borrower or any other Person) brought
against the Authority or the Trustee or to which the Authority or the Trustee is
a party, that directly or indirectly result from, arise out of, or relate to (i)
the design, construction, transfer, sale, operation, use, occupancy, maintenance
or ownership of the Project or any part thereof or (ii) the execution, delivery
or performance of this Loan Agreement, the Related Documents to which the
Authority and the Trustee are a party or any related instruments or documents or
(iii) any untrue statement or alleged untrue statement of a material fact
contained in the Preliminary Official Statement or the Official Statement, or
any amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which
they were made; provided, however, that the Borrower will not be liable in any
such case to the extent that any such Loss or Claim arises out of or is based
upon the negligence or willful misconduct of the Authority or the Trustee or
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any of such documents in reliance upon and in conformity with
written information furnished to the Borrower by the Underwriter, the Trustee,
or the Authority specifically for use therein (it being understood that the
information in the Preliminary Official Statement and the Official Statement
under the headings "AFICA," "Government Development Bank for Puerto Rico," "Tax
Consequences" (other than matters relating to, and representations, warranties
and covenants made by, the Borrower), "Legal Investment,"
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"Underwriting," "Legal Matters," matters relating to DTC's book-entry transfer
system, as well as any summaries of the aforementioned information contained
under the heading "Summary" or on the cover page of the Preliminary Official
Statement and the Official Statement has been so furnished to the Borrower by
the Underwriter, the Trustee or the Authority specifically for use therein). The
obligations of the Borrower under this Section 4.06 shall apply to all Losses or
Claims or both, that result from, arise out of, or are related to any event,
occurrence, condition or relationship prior to termination of this Loan
Agreement, whether such Losses or Claims, or both are asserted prior to
termination of this Loan Agreement or thereafter. The Authority shall reimburse
the Borrower for payments made by the Borrower pursuant to this Section 4.06 to
the extent of any proceeds, net of all expenses of collection, actually received
by the Authority from any insurance covering such Claims with respect to the
Losses sustained. The Authority shall have the duty to claim any such insurance
proceeds and the Authority shall assign its rights to such proceeds, to the
extent of such required reimbursement, to the Borrower. In case any action shall
be brought against the Authority in respect of which indemnity may be sought
against the Borrower, the Authority shall promptly notify the Borrower in
writing and the Borrower shall have the right to assume the investigation and
defense thereof including the employment of counsel and the payment of all
expenses. The Authority shall have the right to employ separate counsel in any
such action and participate in the investigation and defense thereof, but the
fees and expenses of such counsel shall be paid by the Authority unless (i) the
employment of such counsel has been authorized by the Borrower, or (ii) the
Borrower is also a party to the proceeding and the Authority determines in good
faith that joint representation would be inappropriate, or (iii) the Borrower
fails to provide reasonable assurance to the Authority of its financial capacity
to defend the Claim and provide indemnification with respect thereto. The
Borrower shall not be liable for any settlement of any such action without its
consent but, if any such action is settled with the consent of the Borrower or
if there be a final judgment for the plaintiff in any such action, the Borrower
agrees to indemnify and hold harmless the Authority from and against any such
Losses or Claims. Nothing herein shall be construed as requiring the Authority
to acquire or maintain insurance of any form or nature with respect to the
Project or any portion thereof or with respect to any phrase, term, provision,
condition or obligation of this Loan Agreement or any other matter in connection
herewith. The provisions of this Section 4.06 shall survive the expiration or
termination of this Loan Agreement.
SECTION 4.07 PAST DUE PAYMENTS. In the event the Borrower shall fail to
pay amounts required to be paid under Section 4.01, any such amounts pertaining
to principal of or interest on the Bonds to which such defaulted amounts relate
shall continue to bear interest (to the extent permitted by law) until their
payment from the date they were payable, at the rate of interest on such Bonds.
ARTICLE V
FURTHER AGREEMENTS
SECTION 5.01 COVENANT TO MAINTAIN EXISTENCE. The Borrower covenants that
so long as any Bonds are outstanding it (i) will preserve and maintain its
authorizations, rights, and privileges
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in Puerto Rico; and (ii) will maintain its existence, will not dissolve and will
not consolidate with or merge into another entity. Anything herein to the
contrary notwithstanding, the Borrower may consolidate with or merge into
another entity, if (i) the successor or transferee entity (A) is organized under
the laws of any state of the United States or Puerto Rico, (B) shall comply with
the covenants contained in Section 5.10(a), (b) and (c), and (C) irrevocably and
unconditionally assumes in writing all the obligations of the Borrower herein
and under the Related Documents; and, (ii) the conditions of Section 6.01 are
complied with.
SECTION 5.02 COVENANT TO COOPERATE. In the event it may be necessary,
for the proper performance of this Loan Agreement, on the part of the Authority
or the Borrower, that any application or applications for any permit or license
to do or to perform certain things be made to any governmental or other agency
by the Borrower or the Authority, the Borrower and the Authority each agree to
cooperate in such matters; provided, however, that the Authority and the
Borrower are bound to the agreement of this Section 5.02 only in the case of
reasonable requests for assistance.
SECTION 5.03 NO WARRANTY BY AUTHORITY. The Authority makes no warranty,
either express or implied, as to the condition of the Project or its suitability
for the Borrower's purpose or needs or that the proceeds of the Bonds will be
sufficient to pay the Costs or to reimburse the Borrower for Costs incurred.
SECTION 5.04 RIGHT OF INSPECTION. The Borrower agrees that the
Authority, the Trustee, and their duly authorized agents shall have the right at
all reasonable times during business hours to enter upon and examine and inspect
the Project, subject to the provisions of Section 4.04, to determine whether the
Project continues to constitute Industrial Facilities. The Authority, and
Trustee shall also be permitted, at all reasonable times during business hours,
at their own expense, to examine the books and records of the Borrower with
respect to the Project in connection with the transactions contemplated by this
Loan Agreement and the Related Documents to which the Authority and the Trustee
are a party. The aforesaid rights of examination and inspection shall be
exercised only upon such reasonable and necessary terms and conditions as the
Borrower shall prescribe, which conditions shall be deemed to include, but not
be limited to, reasonable notice and those conditions necessary to protect the
Borrower's trade secrets and proprietary rights.
SECTION 5.05 CONSENT TO JURISDICTION. The Borrower consents to the
jurisdiction of the courts of Puerto Rico, San Juan Part, for causes of action
arising under or relating to the terms of this Loan Agreement.
SECTION 5.06 OFFICERS OF AUTHORITY NOT LIABLE. All covenants,
stipulations, promises, agreements, and obligations of the Authority contained
herein shall be deemed to be covenants, stipulations, promises, agreements, and
obligations of the Authority and not of any member of the governing body of the
Authority or any officer, agent, servant or employee of the Authority in his
individual capacity. No recourse shall be had for the payment of the principal
amount or interest on the Bonds or for any claim based thereon or hereunder
against any member of the governing body
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of the Authority or any officer, agent, servant or employee of the Authority or
any natural person executing the Bonds. Neither any member of the governing body
of the Authority nor any Person executing the Bonds on behalf of the Authority
shall be liable personally on the Bonds or be subject to any personal liability
or accountability by reason of the issuance of the Bonds.
SECTION 5.07 INDEMNIFICATION WITH RESPECT TO GOVERNMENT OBLIGATIONS. If
the Borrower shall elect to cause Government Obligations to be deposited with
the Trustee pursuant to Section 1301 of the Trust Agreement, the Borrower shall
pay and shall indemnify and hold harmless the Trustee, the Authority, and each
Bondholder against any tax, fee or other charge imposed upon or assessed against
such Government Obligations or the principal thereof, or premium, if any, and
interest received thereon.
SECTION 5.08 QUARTERLY AND ANNUAL REPORTS. The Borrower shall furnish
the Trustee and the Rating Agency (i) within forty five (45) days after the
close of each of the first three quarters of the Taxable Year, quarterly
unaudited financial statements of the Borrower and (ii) within ninety (90) days
after the end of the last quarter of each Fiscal Year, annual audited financial
statements of the Borrower. The said financial statements will (i) include (a)
balance sheets, income statements and cash flow statements, prepared according
to GAAP and (b) a calculation of Available Cash; and (ii) be accompanied by a
certificate signed by the Chief Financial Officer or Treasurer of the Borrower
identifying any Event of Default hereunder and/or any existing fact or
circumstance which, with the lapse of time or the giving of notice or both,
would result in an Event of Default hereunder, and certifying that no other
default has occurred under this Loan Agreement, and that no other fact or
circumstance exists which, with the lapse of time or the giving of notice or
both, would result in an Event of Default hereunder.
SECTION 5.09 CONSENT TO ASSIGNMENT. The Borrower approves all the terms
of the Trust Agreement and consents to the assignment made by the Authority to
the Trustee therein.
SECTION 5.10 MAINTENANCE OF SOURCE OF INCOME; ADDITIONAL INTEREST.
(a) The Borrower covenants that, for purposes of the Code, at all times
during the present Taxable Year and during each Taxable Year thereafter, up to
and including the Taxable Year when all interest on and principal of the Bonds
are paid in full (including after a defeasance of the Bonds under the Trust
Agreement, if the opinion of tax counsel pursuant to Section 1302 (A)(v) of the
Trust Agreement assumes compliance herewith) and so long as the Borrower is a
partnership under the Code, on any determination date, the Borrower will: (i) be
a partnership; (ii) be engaged in trade or business only in Puerto Rico; (iii)
not be engaged, directly or imputedly, in any trade or business outside Puerto
Rico; and (iv) not derive, directly or imputedly, any gross income which is, or
is treated as, effectively connected with, or attributable to, the conduct of a
trade or business outside Puerto Rico.
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(b) The Borrower covenants that, for purposes of the Code, for each
Taxable Year of its existence up to and including the Taxable Year when all
interest on and principal of the Bonds are paid in full (including after a
defeasance of the Bonds under the Trust Agreement, if the opinion of tax counsel
pursuant to Section 1302 (A)(v) of the Trust Agreement assumes compliance
herewith), if the Borrower is deemed an association taxable as a corporation for
purposes of the Code on any determination date: (i) at least 80% of the gross
income from all sources of the Borrower has been and will be (1) derived from
sources outside the United States, or attributable to income so derived by a
subsidiary of the Borrower, and (2) attributable to the active conduct of a
trade or business outside the United States by the Borrower or by a subsidiary
of the Borrower; and (ii) all interest on the Bonds will be paid by a trade or
business of the Borrower in Puerto Rico.
(c) The Borrower covenants that all interest paid to, or accrued by, a
Beneficial Owner on the Bonds will constitute income from sources within Puerto
Rico for purposes of the Code.
(d) The Borrower covenants, for each Taxable Year, up to and including
the Taxable Year when all interest on and principal of the Bonds are paid in
full, that it will cause an Independent Accountant to deliver to the Trustee and
the Authority, not later than the last day of the third month following the
close of each such Taxable Year, beginning with the Taxable Year ending next
after the Date of Issuance, a report ( made in accordance with generally
accepted auditing standards) addressed to the Trustee and the Authority stating,
for each such Taxable Year: (i) the percentage of the Borrower's gross income
that was derived from sources within Puerto Rico for purposes of the Code; (ii)
the percentage of the Borrower's gross income that was, or was treated as,
effectively connected with, or attributable to, the active conduct of a trade or
business in Puerto Rico for purposes of the Code; (iii) whether during the
Taxable Year for which the report is delivered the Borrower has failed to meet
the requirements of Section 5.10(a), (b) and (c) or the representations made in
(xv) and (xvi) of Section 2.02 are not true and correct, and if as a consequence
thereof (x) any portion of the interest paid to, or accrued by, a Qualifying
Bondholder on the Bonds constituted income from sources outside Puerto Rico for
purposes of the Code as in effect on the Date of Issuance and (y) in his
opinion, under the Code as in effect on the date of such report, interest paid
or accrued on Bonds held by a Qualifying Bondholder is includable in the gross
income and subject to the payment of Federal Taxes a credit for the payment of
which is not otherwise available to the Qualifying Bondholder.
(e) Upon the occurrence of an Event of Taxability, the Authority or the
Trustee shall promptly give notice of same to the Borrower and all Bondholders
during the taxable year affected by such occurrence, and the Borrower will pay
Additional Interest to each Beneficial Owner who demonstrates to the Borrower
that solely as a consequence of the occurrence of the Event of Taxability it has
paid or is required to pay Federal Taxes in respect of the interest paid or
accrued on the Bonds, provided that such Beneficial Owner, in the year with
respect to which such taxes were paid or are required to be paid, was or is a
Qualifying Bondholder. The obligation of the Borrower to make these payments
shall be separate and apart from any other obligations of the Borrower under
this Loan Agreement, shall survive the Payment of the Bonds and the termination
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of this Loan Agreement and the Trust Agreement, is undertaken herein by the
Borrower as an inducement to prospective purchasers of the Bonds to induce them
to purchase the Bonds and is intended to benefit the Beneficial Owners and is
enforceable by each Qualifying Bondholder as an independent and direct claim
against the Borrower.
(f) Any claim against the Borrower by a Beneficial Owner under
subsection (e) above must be filed with the Trustee and the Borrower no later
than two hundred seventy (270) days after receipt by said Bondholder of notice
of the occurrence of the Event of Taxability giving rise to the claim setting
forth in detail the basis for such claim and the calculation of the Additional
Interest. The Borrower agrees to pay any such claim to the related Qualifying
Bondholder within thirty (30) days of the receipt thereof.
SECTION 5.11 SALE OF PROJECT.
(a) The Borrower may not sell, or otherwise dispose of the Project
without the consent of the Authority and the Trustee.
(b) The consent of the Authority and the Trustee under (a) above shall
not be required if at least thirty (30) days prior to the proposed sale or
disposition: (1) the Borrower (i) notifies same to the Authority, the Trustee
and the Rating Agency, and (ii) provides to the Authority and the Trustee proof
reasonably satisfactory to them (which may include an opinion from counsel
approved by the Trustee and the Authority) that the payment of interest on the
Bonds after the consummation of the proposed sale or disposition will constitute
Puerto Rico source income, under the applicable provisions of the Code; (2) the
Rating Agency provides confirmation that the Rating then assigned to the Bonds
will not be withdrawn or downgraded below the rating assigned to the Bonds on
the Date of Issuance by the Rating Agency as a result of such sale or
disposition; and (3) the conditions of Section 6.01 (3) and (4) are also
complied with.
SECTION 5.12 COMPLIANCE WITH APPLICABLE LAW; ENVIRONMENTAL LAWS. (a) The
Bor rower covenants that, so long as any Bond is Outstanding, it shall, at its
sole cost and expense, comply or cause there to be compliance with all
applicable provisions of laws, ordinances, orders, rules, regulations and
requirements of all Federal, Commonwealth and municipal governments, and
appropriate departments, commissions, boards and officers thereof, whether or
not requiring structural repairs or alterations to, or relating to the use or
occupancy or manner of use of, the Project unless failure to so comply would not
have a material adverse effect on the Project or the business or operations
(financial or otherwise) of the Borrower. Nothing contained in this Section
shall prevent the Borrower from contesting in good faith the applicability or
validity of any law, ordinance, order, rule, regulation or requirement unless
the Authority and the Trustee shall receive an opinion of counsel, acceptable to
the Authority and the Trustee, to the effect that such failure to comply during
the period of such contest will materially impair the use of the Project.
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(b) The Borrower will comply with any and all Legal Requirements and
Environmental Laws with respect to the discharge, removal and disposal of
Hazardous Substance, and the Borrower shall pay immediately when due the costs
of removal and disposal of any such Hazardous Substance, and shall keep the
Project free of any Lien imposed pursuant to such Legal Requirements or
Environmental Laws. In addition to all other rights available to the Authority
in connection therewith, if the Borrower fails to comply with any requirement of
this paragraph, the Authority may, but shall not be obligated to, cause the
Project to be freed from the Hazardous Substance, with the cost of the removal
and disposal thereof being payable by the Borrower upon the Authority's demand
therefor. The Borrower further agrees not to release or dispose of any Hazardous
Substance at the Project except in compliance with all Legal Requirements and
Environmental Laws. The Authority shall have the right upon reasonable notice to
conduct an environmental audit of the Project at any time and at the Borrower's
sole cost and expense; provided, however, that if the Authority requests such
audit more often than once every three (3) calendar years, such additional audit
shall be conducted at the Authority's cost and expense, unless such additional
audit is requested by reason of the Authority having obtained knowledge or
information to the effect that contamination exists on the Project, in which
event the costs of the same shall be borne by the Borrower. The Borrower shall
cooperate in the conduct of any such environmental audit and shall give the
Authority and its agents and employees access to the Project to remove Hazardous
Substance. The Borrower agrees to indemnify and hold the Authority harmless from
and against all losses, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees and disbursements) that the Authority may
sustain by reason of the assertion against the Authority by any party of any
claim in connection with such Hazardous Substance.
SECTION 5.13 AUTHORITY'S PERFORMANCE OF THE BORROWER'S OBLIGATIONS. In
the event the Borrower at any time neglects, refuses or fails to perform any of
its obligations under this Loan Agreement, the Authority or the Trustee, at
their respective options and following at least 30 days' notice to the Borrower
(except where a shorter period of notice is necessary to avoid a default in the
Bonds or to avoid endangering the interest of the Authority or the Trustee in
the Project, or any part thereof, or to prevent any loss or forfeiture thereof),
may perform or cause to be performed such obligations, and all reasonable
expenditures incurred by the Authority or the Trustee thereby shall be promptly
paid or reimbursed by the Borrower to the Authority or the Trustee, as the case
may be.
SECTION 5.14 NO PURCHASE OF BONDS BY BORROWER. Borrower covenants that
none of the Bonds will be purchased by the Borrower or its subsidiaries or
affiliates, if any.
SECTION 5.15 COVENANT TO NOTIFY. In the event any officer of the
Borrower knows of any Event of Default which shall have occurred or knows of the
occurrence of any event which, upon notice or lapse of time or both would
constitute an Event of Default, the Borrower shall promptly notify the Authority
and the Trustee as to such occurrence, specifying the nature and extent thereof
and the action (if any) which is proposed to be taken with respect thereto.
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SECTION 5.16 NO INTEREST OF AUTHORITY IN PROJECT. The Authority shall
not have any ownership rights to or interest in the Project, which shall be the
sole and exclusive property of the Borrower.
SECTION 5.17 LIMITATION OF LIABILITY. Notwithstanding anything to the
contrary contained in this Loan Agreement, no recourse shall be had, whether by
levy or execution or otherwise, for the payment of the principal of or interest
on, or other amounts owed under this Loan Agreement or any Related Document, or
for any claim based on this Loan Agreement or any Related Document or in respect
thereof, against any partner of the Borrower or any predecessor, successor or
affiliate of any such partner or any of their assets (other than from the
interest of such partner in the Borrower), or against any principal, partner,
shareholder, officer, director, agent or employee of any such partner (other
than from the interest of any such person in such partner), nor shall any such
Persons be personally liable for any such amount or claims, or liable for any
deficiency judgment based thereon or with respect thereto. The sole remedies of
the Authority with respect to the hereinbefore mentioned amounts and claims
shall be against the Borrower, and all such liability of the aforesaid Persons,
except as expressly provided in this Section 5.17 is expressly waived and
released as a condition of and as consideration for the execution of this Loan
Agreement. Anything in this Section to the contrary notwithstanding (A) nothing
contained in this Loan Agreement (including, without limitation, the provisions
of this Section 5.17) shall constitute a waiver of any indebtedness of the
Borrower evidenced hereby or any of the Borrower's other obligations or shall be
taken to prevent recourse to and the enforcement against the Borrower of all the
liabilities, obligations and undertakings contained in this Loan Agreement; (B)
this Section 5.17 shall not be applicable to a breach by any Person of any
independent obligation to the Authority, and (C) this Section 5.17 shall not be
applicable to the active party in the event of (i) fraud by such party, (ii)
misappropriation of funds or other property by such party, or (iii) damage to
the Project or any part thereof intentionally inflicted in bad faith by such
party. For the purposes of the foregoing, the term "shareholder" shall be deemed
to include the shareholders of any corporation which is a shareholder of a
corporation and the term "partner" shall be deemed to include the partners of
any partnership which is a partner of a partnership.
Section 5.18 Liens and Encumbrances; Additional Indebtedness; Claims and
Demands.
(a) The Borrower covenants that it will not:
(i) create or suffer to be created any Lien, upon the Project or
any part thereof, except Permitted Liens, and
(ii) incur Additional Indebtedness, except as provided by
Subsection (b) below.
(b) The Borrower may incur Additional Indebtedness, provided that:
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(i) the Borrower maintains, after taking into consideration the
principal amount of and debt service for such Additional Indebtedness, an
Additional Indebtedness Loan-to-Value Ratio of no more than sixty five percent
(65%) and an Additional Indebtedness Debt Service Coverage Ratio of no less than
one point seventy five (1.75); and
(ii) in the case of Additional Indebtedness of more than TEN
MILLION DOLLARS ($10,000,000), the Borrower delivers to the Trustee a letter
from the Rating Agency, to the effect that it has reviewed the Additional
Indebtedness and after the incurrence of such Additional Indebtedness, the Bonds
will continue to have a rating not lower than the Rating assigned to the Bonds
immediately prior to such incurrence.
(c) The Borrower further covenants that it will satisfy or cause to be
discharged, or will make adequate provision to satisfy and discharge, within
sixty (60) days after the same shall accrue, all lawful claims and demands
(except such as may arise from or in connection with the Project and as may be
payable from the proceeds of the Bonds) for labor, materials, supplies or other
items which, if not satisfied, might by law become a lien upon the Project, its
revenues or any part thereof. If any such lien shall be filed or asserted
against the Project, its revenues or any part thereof, by reason of labor,
materials, supplies or other items supplied or claimed to have been supplied on
or to the Project at the request or with the permission of the Borrower or of
anyone claiming to act for the Borrower, then the Borrower shall, within thirty
(30) days after it receives notice of the filing or the assertion thereof, cause
the same to be discharged of record or effectively prevent the enforcement or
foreclosure thereof against the Project, by contest, payment, deposit, bond,
order of court or otherwise. Nothing in this Section shall require the Borrower
to satisfy or discharge any such lien, encumbrance, charge, claim or demand so
long as the validity thereof shall be contested in good faith and by appropriate
legal proceedings, and such contest does not jeopardize the interest of the
Authority, the Borrower or the Trustee in the Project and its revenues.
SECTION 5.19 PAYMENT OF OTHER CHARGES. The Borrower covenants and agrees
to pay directly to the appropriate party, when due, all assessments, levies,
taxes and insurance premiums of every kind and nature relating to the whole or
any part of the Project or any interest therein, and all costs, expenses,
liabilities and charges of every kind and nature, including wages, charges for
gas, electricity, water, sewer and other utilities, relating to the maintenance,
operation, repair, replacement and improvement of the Project or any part
thereof, or any facilities, machinery or equipment thereon, or to the operations
or services conducted or provided thereon in connection therewith which may
arise or accrue; provided, however, that with respect to the obligations imposed
upon it under this Section, the Borrower may exercise the right to contest them
to the same extent and in the same manner as is provided in Section 5.18.
SECTION 5.20 INSPECTIONS; REPORTS; REPAIRS. The Borrower covenants and
agrees that at its own expense it will, upon the request from time to time of
the Authority or the Trustee, but such request shall not be made more than once
in any fiscal year, cause an inspection of the Project to be made by a qualified
architect or engineer, and that the Borrower will file with the Authority and
the
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Trustee immediately following each such inspection a report of such architect or
engineer setting forth (i) findings as to whether the Project has been
maintained in good repair, working order and condition, and (ii) recommendations
as to the proper maintenance and repair of the Project during the remaining life
of the Bonds then outstanding. The Borrower covenants that if any such report
shall state that the Project has not been maintained in good repair, working
order and condition, it will restore the Project promptly to good repair,
working order and condition with all expedition practicable.
SECTION 5.21 INSURANCE. (a) The Borrower, at its sole cost and expense,
shall secure insurance to cover the Project including equipment thereof against
loss or damage by such risks as are customarily included in "All Risk" insurance
(including, without limitation, flood, earth movement and windstorm) covering
other property and buildings similar to the Project in nature, use, location,
height and type of construction, in an amount not less than the greater of (i)
full insurable value, or (ii) an amount sufficient to prevent the Borrower from
becoming a co-insurer within the terms of the applicable policies. The policy
evidencing said insurance shall include endorsements for demolition, contingent
liability and increased cost of construction. The term "full insurable value" as
used in this Section shall mean the cost of actual replacement of the Project
(excluding the land), without deduction for depreciation, and exclusive of
excavations, foundations and footings. Full insurable value shall be determined
by an appraisal made at least once every three (3) years, by a recognized
appraiser or appraisal company selected by and at the sole cost and expense of
the Borrower. The determination of full insurable value by any such appraisal
shall be binding and conclusive upon the parties hereto. If any insurance policy
covering flood, windstorm or earth movement shall contain annual aggregate
limits, such aggregate limits shall be replenished upon the occurrence of a loss
which reduces such aggregate limits. The insurance policies described in
subparagraphs (a)(i) and (a)(ii) above shall provide for deductions or self
insured retention of not more than $250,000 per occurrence for all perils except
flood, earth movement and windstorm, and deductions of not more than $500,000
per occurrence for flood, earth movement and windstorm.
(b) The Borrower, at its sole cost and expense shall maintain or cause
to be maintained, business interruption and/or loss of "rental income" coverage
in an amount sufficient to provide proceeds which will cover the maximum
aggregate amount of payments of interest on and principal of the Bonds for a
period of not less than twelve (12) months from the date of casualty or loss;
provided such insurance is available at commercially reasonable rates. The
term "rental income" means the sum of the total then ascertainable rents
(including, without limitation, from both retail space and nightly room rentals)
payable by third parties and the total ascertainable amount of all other amounts
to be received by Borrower from third parties, reduced to the extent such
amounts would not be received because of operating expenses not incurred during
a period of non-occupancy of that portion of the Project then not being
occupied.
(c) The Borrower, at its sole cost and expense, shall maintain or cause
to be maintained boiler and machinery liability coverage in such amounts as are
usually carried by Persons operating property and buildings similar to the
Project in nature, use, location, height and type of construction.
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(d) The Borrower, at its sole cost and expense, shall maintain or cause
to be maintained at all times (i) general public liability insurance, including,
without limitation, the broad form comprehensive general liability endorsement,
with the respective primary coverages as follows:
<TABLE>
<S> <C>
General Aggregate $1,000,000 Per Location
Personal & Advertising Injury $1,000,000
Each Occurrence (Bodily Injury and Property $1,000,000
Damage)
Fire Damage Legal $ 50,000
Stop Gap Liability $1,000,000;
</TABLE>
(ii) umbrella liability coverage in an amount of not less than $50,000,000 per
occurrence and in the aggregate; (iii) worker's compensation and
non-occupational disability insurance as required by applicable laws and
regulations of Puerto Rico; (iv) insurance covering marina operator's legal
liability, protection and indemnity and marina general liability; (v) insurance
covering pilings, piers, wharves and docks, and environmental impairment
coverage (if available at commercially reasonable rates) with respect to the
marina operation; and (vi) such other types and amounts of insurance with
respect to the Project and the operation thereof which are commonly maintained
in the case of other property and buildings similar to the Project in nature,
use, location, height and type of construction.
(e) All Insurance Policies shall be issued by an insurer admitted and
licensed to do business in Puerto Rico with a rating of A2 or better by Moody's
Investors Service, Inc. or a similar rating by any other Rating Agency. The
property and business interruption insurance policies shall contain the standard
mortgagee non-contribution clause endorsement or its equivalent endorsement and
shall name the Trustee as First Mortgagee. Such policies shall provide that all
payments made by such insurance company shall be paid to the Trustee (except
business interruption insurance, general liability and other liability and
worker's compensation) and all claims shall be adjusted directly with the
Borrower. All liability insurance policies shall name each of the Trustee and
the Authority with respect to the Project and their interest therein as
additional insured according to their respective interests. The Borrower shall
not carry separate or additional insurance coverage concurrent in form or
contributing in the event of loss with that required by this Loan Agreement. The
Borrower shall not name any Person as a named insured or loss payee under any
Insurance Policy with a preference or priority equal to or higher than that of
the Trustee and the Authority with respect to the Project and their interest
therein, except lessors and creditors on Additional Indebtedness permitted to be
incurred pursuant to the provisions of this Loan Agreement to the extent of
amounts owed thereto and only as to the specific property leased or financed.
The Borrower shall pay the premiums for the insurance policies as the same
become due and payable. The Borrower shall deliver to the Authority, within 10
days of such party's request, a certificate of insurance issued by the
Borrower's insurance agent/broker setting forth the particulars as to all such
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insurance policies, that all premiums due thereon have been paid and that the
same are in full force and effect. Upon the request of the Authority, Borrower
will make a certified copy of the insurance policies available for inspection.
(f) Each insurance policy to be carried hereunder shall contain a
provision whereby the insurer (i) agrees that such policy shall not be canceled
or modified, and shall not fail to be renewed, without at least 30 days'(10
days', in the case of failure to pay premiums when due) prior written notice to
the Authority and the Trustee, (ii) waives any right to claim any premiums and
commissions against the Authority and the Trustee and (iii) if such policy
relates only to the Borrower or the Project, provides that the Authority and the
Trustee are permitted to make payments to effect the confirmation of such policy
upon notice of cancellation due to nonpayment of premiums. In the event any
insurance policy (except for general public and other liability, boiler and
machinery liability and workers' compensation insurance) shall contain breach of
warranty provisions, such policy shall provide that with respect to the
interests of the Authority and the Trustee, such insurance policy shall not be
invalidated by and shall insure the Authority and the Trustee regardless of (A)
any foreclosure or other action or proceeding taken by the Authority or the
Trustee pursuant to any provision of this Loan Agreement, any or all of the
Mortgage Notes, or either or both of the Mortgages, or (B) any change in title
to or ownership of all or any of the Project.
(g) Any insurance maintained pursuant to this Section may be evidenced
by blanket insurance policies covering the Project and other properties or
assets of the Borrower or any affiliated Person, provided that any such policy
shall specify the portion, if less than all, of the total coverage of such
policy that is allocated to the Project and shall in all other respects comply
with the requirements of this Section.
(h) If at any time the Borrower fails after the Trustee's or the
Authority's request to provide the Authority or the Trustee written evidence
that all insurance required hereunder is maintained in full force and effect,
the Authority and the Trustee shall have the right, upon prior notice to the
Borrower, to take such action as the Authority or the Trustee deems appropriate
to obtain the insurance coverage described herein, and all expenses incurred by
the Authority and the Trustee in connection with such action or in obtaining
such insurance and keeping it in effect shall be paid by the Borrower promptly
after demand and be secured by this Loan Agreement and by the Mortgage.
(i) Anything herein to the contrary notwithstanding, in the event, and
as so long as, the Borrower is unable to secure the insurance provided for and
as required under this Section 5.21 or participate in an affiliate sponsored
self insurance program with a rating of A2 or better by Moody's Investors
Service, Inc. or a similar rating by any other Rating Agency, the Borrower
shall deposit with the Trustee, for deposit to the account of the Insurance
Fund, all of its Available Cash for the Taxable Year in question and all
succeeding Taxable Years up to an aggregate amount equal to the principal
amount of all Bonds then Outstanding (as defined in the Trust Agreement).
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(j) All costs and expenses incurred by the Authority and the Trustee in
connection with this Section 5.21 (including, without limitation, attorneys'
fees and expenses and fees and expenses of consultants), shall be paid by the
Borrower.
SECTION 5.22 COMPLIANCE WITH INSURANCE REQUIREMENTS. The Borrower, at
its sole cost and expense, will comply and cause compliance of the Project and
the operation, maintenance and use thereof with all Insurance Requirements,
whether or not compliance therewith shall require structural changes in or
interfere with the use and enjoyment of the Project or any part thereof.
SECTION 5.23 DAMAGE OR DESTRUCTION. (a) In case of a Casualty, the
Borrower will within twenty (20) Business Days after the occurrence give notice
thereof to the Trustee generally describing the nature and extent of such
Casualty and setting forth the Borrower's best estimate of the cost of
Restoration, and the Borrower shall, at its sole cost and expense, promptly
commence and diligently complete or cause to be commenced and diligently
completed, the Restoration in a good and workmanlike manner and in compliance
with all Legal Requirements.
(b) The Trustee shall be entitled to receive all Net Proceeds payable on
account of a Casualty. The Borrower hereby irrevocably assigns, transfers and
sets over to the Trustee all rights of the Borrower to any such proceeds, award
or payment and irrevocably authorizes and empowers the Trustee, in the name of
the Borrower or otherwise, to file for and prosecute in its own name what would
otherwise be the Borrower's claim for any such proceeds. Notwithstanding the
foregoing, so long as no Event of Default shall have occurred and shall then be
continuing and provided the Borrower promptly files all claims and diligently
prosecutes same, the Borrower shall have the right to file, adjust, settle and
prosecute any claim for such proceeds. The Borrower shall pay promptly after
demand all costs and expenses (including, without limitation, attorneys' fees
and expenses) incurred by the Authority and the Trustee in connection with a
Casualty and the seeking and obtaining of any insurance proceeds, award or
payment with respect thereto.
(c) The Net Proceeds shall be held by the Trustee as additional
collateral for the obligation under this Loan Agreement and the Related
Documents and in the case of a Major Casualty, shall be applied or dealt with by
the Trustee as follows:
(i) if the Release Conditions are satisfied, all Net Proceeds
shall be made available to the Borrower to be applied towards the cost of the
Restoration in accordance with paragraph (e) of this Section; and
(ii) if the Release Conditions are not satisfied, all Net
Proceeds shall be applied in accordance with Section 5.25.
(d) In the case of a Major Casualty, all Net Proceeds shall be applied
as provided in clause (i) of paragraph (c) of this Section if all of the
following conditions are satisfied or otherwise waived by the Trustee
(collectively, the "Release Conditions"):
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(i) no Event of Default shall have occurred and be continuing;
(ii) the Borrower shall have delivered to the Authority and the
Trustee within ninety (90) days after the occurrence of the Major Casualty, a
notice of the Borrower's desire to undertake the Restoration;
(iii) the Borrower shall have demonstrated to the satisfaction of
the Construction Consultant that the Restoration can be completed within the
number of months estimated by the Borrower therefor;
(iv) the Borrower shall have demonstrated to the satisfaction of
the Financial Consultant that sufficient funds are available to the Borrower
through revenues and/or business interruption insurance maintained pursuant to
Section 5.21, and/or a cash deposit, letter of credit (satisfactory to the
Trustee as to form and content) issued by a financial institution whose long
term obligations are rated in one of the three highest categories by the Rating
Agency or similar cash-equivalent security rated in one of the three highest
categories by the Rating Agency and which shall be for the benefit of the
Trustee, to pay an amount equal to one hundred and twenty five percent (125%) of
all amounts to be paid with respect to interest on and principal of the Bonds,
and all other estimated operating expenses with respect to the Project during
the construction period referred to in (iii) above; and
(v) to the extent, that the Net Proceeds are insufficient to pay
the costs of the Restoration, the Borrower shall have provided the Trustee with
a cash deposit, letter of credit (satisfactory to the Trustee as to form and
content) issued by a financial institution whose long term obligations are rated
in one of the three highest categories by the Rating Agency or similar
cash-equivalent security rated in one of the three highest categories by the
Rating Agency in the amount of such deficiency.
(e) Provided that no Event of Default shall have occurred and be
continuing, then, upon the occurrence of a Casualty that does not constitute a
Major Casualty or upon the occurrence of a Major Casualty in connection with
which the Release Conditions have been met, the Net Proceeds shall be paid
over to the Borrower for the Restoration. The Net Proceeds shall be disbursed
substantially in accordance with the requirements of Article IV of the Trust
Agreement such that the Net Proceeds shall be advanced in the same manner and
subject to the same conditions as the disbursement of the proceeds of the Bonds.
(f) All costs and expenses incurred by the Authority and the Trustee in
connection with this Section 5.23 (including, without limitation, attorneys'
fees and expenses and fees and expenses of consultants), shall be paid by the
Borrower. Any Net Proceeds or Net Restoration Awards remaining after the
Restoration and the payment in full of all costs incurred in connection with the
Restoration shall be applied to the repayment of any outstanding obligations of
the Borrower under the Related Documents, in such order as the Trustee shall
determine; provided, however, that any
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balance of the Net Proceeds or Net Restoration Awards remaining after such
application shall be applied as provided in Section 8.02 (c).
(g) In the event the Net Proceeds are not sufficient to pay in full the
costs of Restoration, except as set forth in clause (h) of this Section 5.23,
Borrower shall nonetheless complete the Restoration and shall pay that portion
of the costs thereof in excess of the amount of said Net Proceeds from its own
funds.
(h) In the event of a Major Casualty such that in the Borrower's
reasonable judgment or as a result of Legal Requirements it is impractical or
not reasonably feasible to undertake the Restoration, then the Borrower may
elect not to undertake the Restoration by giving written notice to the Trustee
of its election not to undertake the Restoration. In such event, Borrower shall
deposit or cause to be deposited with the Trustee all Net Proceeds in respect of
such Major Casualty and/or assign to the Trustee all rights Borrower may have
under any applicable insurance policies with respect to such Major Casualty. All
Net Proceeds shall be applied by the Trustee to the payment of any outstanding
obligations of the Borrower under this Loan Agreement and any balance of the net
Proceeds remaining after such application shall be applied as provided in
Section 8.02(c).
(i) Any proceeds from business interruption insurance shall be paid
directly to the Borrower.
SECTION 5.24 TAKING OF THE PROJECT. (a) In case of a Taking or the
commencement of any proceedings or negotiations that might result in a Taking,
the Borrower shall give notice thereof to the Trustee within twenty (20)
Business Days after such commencement generally describing the nature and extent
of such Taking or the nature of such proceedings or negotiations and the nature
and extent of the Taking which might result therefrom. The Trustee shall be
entitled to all awards or compensation payable on account of a Taking. The
Borrower hereby irrevocably assigns, transfers and sets over to the Trustee all
rights of the Borrower to any such awards or compensation and irrevocably
authorizes and empowers the Trustee, in the name of the Borrower or otherwise,
to collect and receive any such award or compensation and to file and prosecute
any and all claims for any such awards or compensation. Notwithstanding the
foregoing, so long as no Event of Default shall have occurred and shall then be
continuing and provided the Borrower promptly files and diligently prosecutes
such claim or claims, the Borrower shall have the right to prosecute and file
any such claim or claims and the Borrower shall cause any such award or
compensation to be collected and promptly paid over to the Trustee. The
Authority and the Trustee may participate in such proceedings or negotiations,
and the Borrower will deliver or cause to be delivered to the Authority and the
Trustee all instruments requested by the Authority and the Trustee to permit
such participation, provided that the Authority and the Trustee shall be under
no obligation to question the amount of the award or compensation. Although it
is hereby expressly agreed that the same shall not be necessary, in any event,
the Borrower shall, upon demand of the Authority and the Trustee, make, execute
and deliver any and all assignments and other instruments sufficient for the
purpose of assigning any such award or compensation to the Trustee, free and
clear of any encumbrances of
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any kind or nature whatsoever. The Borrower will pay promptly after demand all
costs and expenses (including, without limitation, attorneys' fees and expenses
and fees and expenses of the Authority's and the Trustee's consultants) incurred
by the Authority and the Trustee in connection with this Section 5.24.
(b) In the case of a Taking such that, in the Construction Consultant's
judgment, the Project can be restored substantially to its value and usefulness
as it existed prior to such Taking, then, the Borrower shall, at its sole cost
and expense, promptly commence and diligently complete the Restoration in a good
and workmanlike manner, and in compliance with all Legal Requirements.
(c) All Net Restoration Awards shall be held by the Trustee as
additional collateral for the Obligations under this Loan Agreement and the
Related Documents, and shall be applied or dealt with by the Trustee as follows:
(i) Provided that no Event of Default shall have occurred and be
continuing, then, in the case of a Taking of the nature referred to in paragraph
(b) of this Section, and, to the extent necessary thereunder, if the Release
Conditions are satisfied, all Net Restoration Awards shall be applied to pay the
cost of Restoration of the portion of the Project remaining after such Taking,
such application to be effected substantially in the same manner as provided in
clause (e) of Section 5.23 with respect to Net Proceeds and the balance, if any,
of such Net Restoration Awards shall be applied in the manner set forth in
Section 5.23 (f).
(ii) In the case of any Taking other than a Taking of the nature
referred to in paragraph (b) of this Section 5.24, all Net Restoration Awards
actually received by the Trustee shall be applied in accordance with Section
5.25.
(d) Notwithstanding anything to the contrary contained herein, in the
case of a Taking such that, in the Construction Consultant's judgment, the
Project is an economically viable architectural whole notwithstanding such
Taking, the Borrower shall have no obligation to commence or complete
Restoration and all Net Restoration Awards shall be applied in the order
specified in Section 5.25.
SECTION 5.25 APPLICATION OF PROCEEDS UPON CASUALTY OR SUBSTANTIAL
TAKING. (a) Upon a Casualty, if the disposition of the Net Proceeds is governed
by clause (ii) of paragraph (c) of Section 5.23 or upon a Taking, if the
disposition of the Net Restoration Awards is governed by clause (ii) of
paragraph (c) or paragraph (d) of Section 5.24, the Trustee shall apply such Net
Proceeds or Net Restoration Awards to the payment of any outstanding obligations
of the Borrower under this Loan Agreement or the Related Documents; provided
however that any balance of the Net Proceeds or Net Restoration Awards remaining
after such application shall be applied as provided in Section 8.02 (c).
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(b) If the Trustee shall receive and retain any Net Proceeds or Net
Restoration Awards, in trust or otherwise, the indebtedness secured by this Loan
Agreement shall be reduced only by the amount thereof received and retained by
the Trustee and actually applied by the Trustee in reduction of the indebtedness
secured by this Agreement.
(c) Notwithstanding anything contained in this Agreement to the
contrary, the Trustee shall release the proceeds of any business interruption
insurance maintained hereunder to the Borrower provided that the Borrower
satisfies the conditions set forth in Section 5.23(d)(i), (ii) and (iv).
SECTION 5.26 FURTHER ASSURANCES. The Borrower will execute, acknowledge
where appropriate, and deliver, and use its best efforts to cause others to
execute, acknowledge where appropriate, and deliver, from time to time promptly
at the request of the Trustee, all such instruments and documents as in the
reasonable opinion of the Trustee are necessary or advisable to carry out the
intent and purpose of this Loan Agreement and the Related Documents and will
execute and file of record, or use its best efforts to cause others to execute
and file of record, any financing statements, continuation statements or other
documents, and take such other action as may be reasonably necessary or
advisable to create, perfect, protect and preserve the Liens of the Related
Documents.
SECTION 5.27 PERFORMANCE OF THIS LOAN AGREEMENT AND OTHER AGREEMENTS.
The Borrower will take all action and do all things which it is authorized by
law to take and to do to perform and observe all covenants and agreements on its
part to be performed and observed under this Loan Agreement, the Related
Documents and the Operative Documents.
SECTION 5.28 AMENDMENTS TO PARTNERSHIP AGREEMENT. The Borrower will not
surrender, terminate, modify, amend or supplement in any material respect, or
give any consent to any surrender, termination, modification, amendment or
supplement or make any waiver with respect to any provision of the Partnership
Agreement (including any provision that will result in the transfer of an
interest in the Borrower or any partner of the Borrower that is prohibited by
this Loan Agreement, the Related Documents or the Operative Documents or would
result in a diminution in the scope and power of the general partner of the
Borrower) or any organizational document of any partner of the Borrower, any
Operative Document or any other material document relating to the use or
operation of the Project which would adversely affect the rights of the
Bondholders without the prior consent of the Authority in each instance.
SECTION 5.29 LEASES AND CONCESSIONS. To the extent that the Borrower
leases space in the Project (other than renting guests rooms to transient
guests), the Borrower shall lease and cause the lessee to operate the space to
be leased in a manner compatible with the operation of the Project. All such
leases shall be subordinate in all respect to the liens of the Related
Documents. The Borrower shall deliver to the Trustee an assignment of rents in
connection with any lease of any
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space in the Project within fifteen (15) Business Days after execution of any
such lease. For purposes of this paragraph the word "lease" shall include
concessions.
SECTION 5.30 DISTRIBUTABLE CASH UNDER PARTNERSHIP AGREEMENT. (a) The
Borrower shall have the right to use Available Cash with respect to any Taxable
Year in accordance with the Partnership Agreement; provided that Available Cash
with respect to such Taxable Year shall not be paid or distributed prior to the
expiration of 10 days after audited financial statements of the Borrower
demonstrating the existence and amount of Available Cash have been delivered to
the Trustee; provided further, that if the Borrower does not have in effect the
Insurance Policies required by Section 5.21 then Available Cash shall be
required to be deposited into the Insurance Fund as provided in Section 5.21(i).
Payments and distributions of Available Cash shall be deemed to be made first by
offset against any and all outstanding Advances made in respect thereof pursuant
to Section 5.30(b) below.
(b) Forty five (45) days following the end of each of the first three
quarters of each Taxable Year, the Borrower shall have the right to make
advances ("Advances") to the partners or their affiliates of any Available Cash
determined for the period from the beginning of the applicable Taxable Year to
the end of the applicable quarter; provided that no Advance can be made unless:
(i) the Borrower retains out of Available Cash an amount equal to the principal
amount of the Bonds payable on the next Principal Payment Date in the same
Taxable Year plus Two Million Five Hundred Thousand Dollars ($2,500,000); (ii)
no Event of Default or event which with the giving of notice or the passage of
time would become an Event of Default under Section 7.01(a) or (b) shall have
occurred and be continuing at the time such Advance is made; (iii) there shall
be on deposit to the credit of the Reserve Fund at least Nine Million One
Hundred Thousand Dollars ($9,100,000) at the time such Advance is made; (iv) the
amount of such Advance shall not exceed the amount of Available Cash from the
Project during the twelve (12) months ending at the end of the last quarter with
respect to which the Advance is being made; and (v) there shall be in effect the
Insurance Policies required by Section 5.21.
(c) The Borrower shall determine Available Cash as at the end of each of
the first three quarters during each Taxable Year. If at the end of any such
quarter the amount of Available Cash at the end of such quarter is less than
$2,500,000, then within 45 days after the end of the applicable quarter, the
Borrower shall demand repayment of any such outstanding Advances to the extent
necessary to provide the Borrower with Available Cash of $2,500,000; provided
that such repayments will only be required to the extent of any Advances made
during the same Taxable Year pursuant to Section 5.30(b). Additionally, if at
any time the Insurance Policies required by Section 5.21 are not in effect and
the Borrower is required to deposit Available Cash in the Insurance Fund under
Section 5.21(i), the Borrower shall demand repayment of any outstanding Advances
made during the same Taxable Year in order to satisfy its obligations under
Section 5.21(i).
(d) The Borrower shall have the right to make Advances in respect of
Available Cash at any time, provided the repayment of such Advance is secured by
a Letter of Credit in the amount
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of such Advance and at the time such Advance is made, no Event of Default or
event which with the giving of notice or the passage of time would become an
Event of Default under Section 7.01(a) or (b) shall have occurred and be
continuing.
(e) All Advances made pursuant to Section 5.30(b) shall be required to
be repaid within 120 days after the end of the Taxable Year in which it was
made.
SECTION 5.31 PALOMINOS LEASE. The Borrower shall (i) comply with all of
the material terms and conditions of the Palominos Lease, which shall remain in
full force and effect at all times in accordance with its terms and (ii) not
cause or suffer any event of default on its part to occur under the Palominos
Lease.
SECTION 5.32 SOLE BUSINESS. The Project is and shall be the only
business conducted by the Borrower at any time. Puerto Rico shall be the only
jurisdiction in which the Borrower owns real property.
ARTICLE VI
ASSIGNMENT
SECTION 6.01 ASSIGNMENT BY BORROWER. This Loan Agreement may not be
assigned by the Borrower without the consent of the Authority and the Trustee.
No such consent shall be required if at least 30 days prior to the proposed
assignment (1) the Borrower (i) notifies same to the Authority, the Trustee and
the Rating Agency, and (ii) provides to the Authority and the Trustee proof
reasonably satisfactory to them (which may include an opinion from counsel
approved by the Trustee and the Authority) that interest on the Bonds after the
consummation of the proposed assignment will constitute Puerto Rico source
income, under the applicable provisions of the Code; and (2) the Rating Agency
provides confirmation that the Rating then assigned to the Bonds will not be
withdrawn or downgraded below the rating assigned to the Bonds on the Date of
Issuance as a result of such assignment; (3) the assignee, in a certificate
delivered to the Authority and the Trustee, which certificate shall be in a
form reasonably satisfactory to the Authority and the Trustee, expressly
assumes, and agrees to pay and to perform, all of the obligations of the
Borrower under this Loan Agreement and the Related Documents and (4) the
assignee delivers to the Authority and the Trustee a certificate executed by
its chief financial officer or treasurer stating that none of the obligations
and covenants under this Loan Agreement and the Related Documents assumed by
it or the performance thereof will conflict with, or constitute on the part of
such assignee a breach of, or default under, any indenture, mortgage, agreement
or other instrument to which such assignee is a party or by which it is bound,
or any existing law, rule, regulation, judgment, order or decree to which such
assignee is subject.
SECTION 6.02 ASSIGNMENT BY AUTHORITY. By the provisions of the Trust
Agreement, the Authority will assign its rights under and interest in the Loan
Agreement and the Related Documents to which it is a party (except its rights to
receive notices, reports and other statements given both to
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the Authority and the Trustee, its rights under Sections 4.05, 4.06, 5.07 and
7.04 and corresponding sections or paragraphs of the Related Documents to which
it is a party, to payment of certain costs and expenses and indemnification, and
to individual and corporate rights to exemption from liability under Sections
5.06, 9.14 and 9.15 and corresponding sections and paragraphs of the Related
Documents to which it is a party), including its rights to any payments,
receipts, and revenues receivable by it (except as aforesaid) under or pursuant
to this Loan Agreement and the Related Documents to which it is a party, and any
income earned by the investment of funds under the Trust Agreement, to the
Trustee for the benefit of the Bondholders. Except as provided herein, the
Authority will not sell, assign, transfer, convey, or otherwise dispose of its
interest in this Loan Agreement and the Related Documents to which it is a party
or the payments, receipts, and revenues of the Authority derived hereunder or
under the Related Documents to which it is a party.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
SECTION 7.01 EVENTS OF DEFAULT. The following shall be "Events of
Default" under this Loan Agreement, and the term "Events of Default" shall mean,
whenever used with reference to this Loan Agreement, any one or more of the
following occurrences:
(a) failure by the Borrower to pay the amounts required to be paid with
respect to principal of and premium, if any, and interest on, the Bonds on or
prior to the date on which the same shall become due and payable in accordance
with the terms of the Bonds; or
(b) failure by the Borrower to pay when due any payment required to be
made under:
(i) this Loan Agreement, other than payments under Section
4.01(b)(i), (ii) and (iv), which failure shall continue for a period of thirty
(30) days after notice, specifying such failure and requesting that it be
remedied, is given to the Borrower by the Authority or the Trustee, unless the
Authority or the Trustee shall agree to an extension of such time prior to its
expiration, or
(ii) Section 4.01(b)(ii) pursuant to a notice under Section 508
of the Trust Agreement showing a deficiency amount equal to Four Million Five
Hundred Fifty Thousand Dollars ($4,550,000); or
(iii) Section 4.01(b)(iii) or Section 4.01(b)(iv), in the event
the Borrower shall fail to pay the amounts provided in such Section during four
(4) consecutive Interest Payment Dates or during six (6) Interest Payment Dates
within a twelve (12) month period; provided, however, to the extent that Section
4.01(b)(v) is applicable, the Borrower shall not be considered to have failed to
pay any amounts due under Section 4.01(b)(iii) or Section 4.01(b)(iv) to the
extent the maximum amount is paid pursuant to Section 4.01(b)(v); or
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(c) failure by the Borrower to observe or perform any covenant,
condition or agreement on its part to be observed or performed hereunder, other
than as referred to in (a) and (b) above, which failure shall continue for a
period of ninety (90) days after notice, specifying such failure and requesting
that it be remedied, is given to the Borrower by the Authority or the Trustee,
unless the Authority or the Trustee shall agree to an extension of such time
prior to its expiration; provided, however, that if such failure cannot be
corrected within such ninety (90) day period, it shall not constitute an Event
of Default if corrective action is instituted by the Borrower within such period
and diligently pursued until such failure is corrected; or
(d) the Borrower shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or shall
consent to the entry of an order for relief in an involuntary case under any
such law, or shall consent to the appointment of or taking possession by a
receiver, custodian, liquidator, assignee, trustee or sequestrator (or other
similar official) of itself or of any substantial part of its property, or shall
make a general assignment for the benefit of creditors, or shall fail generally
to pay its debts as they become due, or the Borrower or its general partners, or
partners owning a majority in interest in the Borrower shall take any action in
furtherance of any of the foregoing (except in connection with a consolidation
or a merger of the Borrower with or into another entity or transfer of all or
substantially all the assets of the Borrower not prohibited by Section 5.01).
The provisions of (b) and (c) above are subject to the following
limitations: if by reason of Force Majeure, the Borrower is unable in whole or
in part to carry out any of its agreements herein contained, failure of the
Borrower to carry out any such agreements other than the obligations on the part
of the Borrower contained in Sections 4.01 and 5.01 shall not be deemed an Event
of Default during the continuance of such inability, including a reasonable time
for the removal of the effect thereof. The Borrower agrees, however, to use its
best efforts to remedy with all reasonable dispatch any Force Majeure preventing
it from carrying out its agreements; provided, that the settlement of any
disputes of any nature, including without limitation strikes, lockouts and other
industrial disturbances, shall be entirely within the discretion of the
Borrower, and the Borrower shall not be required to make settlement of any such
disputes by acceding to the demands of the opposing party or parties when such
course is in the judgment of the Borrower unfavorable to the Borrower.
SECTION 7.02 ACCELERATION; REMEDIES. Whenever any Event of Default
hereunder shall have happened and be continuing, any one or more of the
following remedial steps may be taken, provided that notice of the default has
been given to the Borrower by the Authority or the Trustee, except that notice
need not be given to the Borrower in the case of an Event of Default specified
in clauses (a) and (d) of Section 7.01, and the default has not theretofore been
cured, and provided further that no remedial steps shall be taken by the
Authority the effect of which would be to entitle the Authority to funds
necessary for the payment of principal of, and interest on Bonds which have not
yet matured or otherwise become due unless such principal, and interest shall
have been declared due and payable in accordance with the Trust Agreement and
such declaration shall not have been rescinded:
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(i) declare all unpaid amounts payable under Section 4.01 hereof
to be immediately due and payable, whereupon the same shall become immediately
due and payable, and
(ii) take any action at law or in equity to collect the payments
then due and thereafter to become due, or to enforce performance and observance
of any obligation, agreement or covenant of the Borrower under this Loan
Agreement.
Any amounts collected pursuant to action taken under this Section shall
be applied in accordance with the Trust Agreement.
SECTION 7.03 REMEDIES NOT EXCLUSIVE. No remedy conferred upon or
reserved to the Authority in connection with the loan to the Borrower pursuant
to this Loan Agreement is intended to be exclusive of any other available remedy
or remedies, but each and every remedy shall be cumulative and shall be in
addition to every other remedy either given under this Loan Agreement or now or
hereafter existing at law or in equity. No delay or omission to exercise any
right or power accruing upon any default shall impair any such right or power or
shall be construed to be a waiver thereof, but any such right and power may be
exercised from time to time and as often as it may be deemed expedient. In order
to entitle the Authority to exercise any remedy reserved to it in this Article,
it shall not be necessary to give any notice, other than such notice as may be
herein expressly required.
SECTION 7.04 ATTORNEYS' FEES AND EXPENSES. If an Event of Default shall
occur and the Authority or the Trustee shall employ attorneys or incur other
expenses for the collection of payments due hereunder or for the enforcement of
performance or observance of any obligation or agreement on the part of the
Borrower contained herein, the Borrower will on demand therefor reimburse the
reasonable fees of such attorneys and such other reasonable expenses so
incurred.
SECTION 7.05 WAIVERS. In view of the assignment of the Authority's
rights under and interest in this Loan Agreement to the Trustee by the
provisions of the Trust Agreement, the Authority shall have no power to waive
any default hereunder or extend the time for the correction of any default which
could become an Event of Default by the Borrower without the consent of the
Trustee to such waiver.
ARTICLE VIII
PREPAYMENT OF THE LOAN
SECTION 8.01 OPTION TO PREPAY LOAN. (a) The Borrower shall have, and is
hereby granted an option, to prepay in whole or in part the amounts payable in
respect of the Bonds under Section 4.01 by taking, or causing the Authority to
take, the actions required for Payment of the Bonds, or (ii) to effect an
optional redemption of the Bonds, pursuant to the Trust Agreement. To exercise
the option granted in this Section, the Borrower shall give to the Authority and
the Trustee
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notice setting forth (i) the date to be fixed for redemption; (ii) the amount to
be prepaid and (iii) the principal amount of Bonds to be redeemed.
(b) The Borrower agrees to make the payment under paragraph (a) of this
Section to the Trustee for deposit to the credit of the Bond Fund in the amount
due in respect of principal, interest, and premium, if any, on a Business Day
that is not less than thirty one (31) days prior to the date to be fixed for
such prepayment or redemption.
SECTION 8.02 MANDATORY PREPAYMENT OF LOAN. (a) The Borrower shall be
obligated, and agrees, to prepay the entire amount payable under Section 4.01
upon cessation of operation of the Project. A cessation of operation of the
Project shall not be deemed to have occurred (i) until thirty (30) days shall
have elapsed after notice has been given to the Borrower by the Authority that
operations at the Project have ceased and the Borrower shall not have
demonstrated to the satisfaction of the Authority that the Project is being
operated as Industrial Facilities or that the Borrower is, in good faith,
seeking to cause the resumption of an economically reasonable operation of the
Project as Industrial Facilities, or (ii) until receipt by the Authority and the
Trustee of notice from the Borrower stating that operations at the Project have
ceased and that the Borrower has no present intention of causing the resumption
of operation of the Project as Industrial Facilities or of seeking, in good
faith, to cause the resumption of an economically reasonable operation of the
Project as Industrial Facilities. A cessation of operations of the Project shall
not be deemed to exist on account of the occurrence of any of the events set
forth in Paragraph (c) of this Section.
In any case described in this Section 8.02(a), the Borrower shall be
obligated to pay a sum sufficient, together with any other funds held by the
Trustee and available for such purpose, (i) to redeem, on the redemption date
specified pursuant to the Trust Agreement, all outstanding Bonds, at a
redemption price equal to the principal amount of the Bonds, (ii) to pay the
interest which will accrue on said Bonds to the date so fixed for their
redemption, and (iii) to make all other payments, if any, required hereunder
accrued and to accrue through the date fixed for such redemption. The Borrower
agrees to make the payments required by this Section 8.02(a) not later than
10:00 a.m., Atlantic standard time, on a Business Day that is not less than
thirty one (31) days prior to the redemption date set forth for the Bonds
pursuant to Section 301(B)(i) of the Trust Agreement.
(b) The Borrower shall be obligated, and agrees, to prepay the entire
amount payable under Section 4.01 upon the second occurrence of an Event of
Taxability. In any such case described in this Section 8.02(b), the Borrower
shall be obligated to pay a sum sufficient, together with any other funds held
by the Trustee and available for such purpose, (i) to redeem, on the date
specified pursuant to the Trust Agreement, all outstanding Bonds at a redemption
price equal to the principal amount thereof, (ii) to pay the interest which will
accrue on the Bonds to the date so fixed for their redemption, and (iii) to make
all other payments, if any, required hereunder accrued and to accrue through the
date fixed for such redemption. The Borrower agrees to make the payments
required by this paragraph (b) not later than 10:00 a.m., Atlantic standard
time, on the Business Day
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immediately prior to the redemption date set forth for the Bonds pursuant to
Section 301(B)(ii) of the Trust Agreement.
(c) The Borrower shall be obligated, and agrees, to prepay, without
premium, and shall be deemed to have prepaid a portion of the amount payable
under Section 4.01 upon the occurrence of a Taking or Casualty to the extent
such prepayment is required in and determined pursuant to Sections 5.23, 5.24
and 5.25. The Borrower shall deliver to the Trustee a notice stating that the
Borrower has become obligated to prepay a portion of the amount payable under
Section 4.01, setting forth the amount required to be paid pursuant to Section
301(C) of the Trust Agreement; and the Borrower shall be obligated to deposit or
cause to be deposited with the Trustee a sum sufficient together with any other
funds held by the Trustee and available for such purpose to redeem the principal
amount of the Bonds set forth in such notice. The Borrower agrees to make the
payments required by this paragraph (c) not later than 10:00 a.m., Atlantic
standard time, on a Business Day which is not less than thirty one (31) days
prior to the redemption date set for the Bonds pursuant to Section 301(C) of the
Trust Agreement. Any amount deposited with the Trustee as a consequence of a
Taking or Casualty for the redemption of Bonds pursuant to this clause which is
less than Five Thousand Dollars ($5,000) shall be used to pay interest on the
Bonds on any succeeding Interest Payment Date.
(d) To the extent that amounts are transferred from the Project Fund to
the Bond Fund and used to redeem Bonds pursuant to the Trust Agreement, the
Borrower shall be deemed to have prepaid the portion payable under Section 4.01
hereof in an amount equal to the amount of such transfer.
SECTION 8.03 RELATIVE POSITION OF LOAN AGREEMENT AND TRUST AGREEMENT.
(a) The rights and the obligations of the Borrower in this Article VIII shall be
and remain prior and superior to the Trust Agreement and may be exercised or
shall be fulfilled, as the case may be, whether or not the Borrower is in
default hereunder, provided that such default will not result in nonfulfillment
of any condition to the exercise of any such right or option.
(b) The obligations of the Borrower in Section 8.02 shall supersede the
rights and options of the Borrower in Section 8.01.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 TERMINATION. This Loan Agreement and all obligations of the
parties hereunder, other than the obligations of the Borrower under Sections
4.06, 5.07, and 5.10, shall terminate upon (i) Payment of the Bonds and (ii)
payment or satisfaction of all other obligations incurred by the Authority or
the Borrower under this Loan Agreement, including (without limitation) interest
and other charges, if any, thereon. Upon such termination any amounts remaining
in the
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Bond Fund and any other fund established under the Trust Agreement not needed
for payment of the aforesaid items shall belong to and be paid to the Borrower
by the Trustee in accordance with the provisions of the Trust Agreement.
SECTION 9.02 REFERENCE TO BONDS INEFFECTIVE AFTER BONDS PAID. Upon
Payment of the Bonds, and payment of all fees and charges of the Trustee, all
references in this Loan Agreement to the Bonds and the Trustee shall be
ineffective and the Trustee, the Authority, and the Holders shall not thereafter
have any rights hereunder, excepting those that shall have theretofore vested.
SECTION 9.03 NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In the event
any agreement contained in this Loan Agreement should be breached by either
party and thereafter waived by the other party, such waiver shall be limited to
the particular breach so waived and shall not be deemed to waive any other
breach hereunder.
SECTION 9.04 AUTHORITY REPRESENTATIVE. Whenever under the provisions of
this Loan Agreement the approval of the Authority is required or the Authority
is required to take some action at the request of the Borrower, such approval
shall be made or such action shall be taken by the Authority Representative; and
the Borrower and the Trustee shall be authorized to act on any such approval or
action.
SECTION 9.05 AUTHORIZED BORROWER REPRESENTATIVE. Whenever under the
provisions of this Loan Agreement the approval of the Borrower is required or
the Borrower is required to take some action at the request of the Authority,
such approval shall be made or such action shall be taken by the Authorized
Borrower Representative; and the Authority and the Trustee shall be authorized
to act on any such approval or action.
SECTION 9.06 CONFIDENTIAL INFORMATION. The Borrower shall not be
required to disclose, or to permit the Authority, the Trustee, or others to
acquire access to, any trade secrets of the Borrower or any other processes,
techniques or information deemed by the Borrower to be proprietary or
confidential.
SECTION 9.07 NOTICES. All notices, certificates, requests, consents,
demands, directions, agreements or other instruments or communications between
the Authority, the Borrower, and the Trustee required to be given hereunder
shall be given as provided in Section 1402 of the Trust Agreement.
SECTION 9.08 BINDING EFFECT. This Loan Agreement shall inure to the
benefit of and shall be binding upon the Authority, the Borrower and their
respective successors and assigns, subject, however, to the provisions contained
in Sections 5.01 and 6.01.
SECTION 9.09 IF PAYMENT OR PERFORMANCE DATE NOT A BUSINESS DAY. If the
date for making payment, or the last date of performance of any act or the
exercising of any right, as provided
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in this Loan Agreement, shall not be a Business Day (as such term is defined in
the Trust Agreement) such payment may be made or performed or right exercised on
the next succeeding Business Day with the same force and effect as if done on
the nominal date.
SECTION 9.10 SEVERABILITY. In the event any provision of this Loan
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof.
SECTION 9.11 AMENDMENTS, CHANGES AND MODIFICATIONS. Subsequent to the
issuance of the Bonds and prior to Payment of the Bonds, this Loan Agreement may
not be effectively amended, changed, modified, altered or terminated except in
accordance with the Trust Agreement.
SECTION 9.12 EXECUTION IN COUNTERPARTS. This Loan Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
SECTION 9.13 APPLICABLE LAW. This Loan Agreement shall be governed by
and construed in accordance with the laws of Puerto Rico.
SECTION 9.14 NO CHARGE AGAINST AUTHORITY CREDIT. No provisions hereof
shall be construed to impose a charge against the general credit of the
Authority or shall impose any personal or pecuniary liability upon any director,
official or employee of the Authority.
SECTION 9.15 AUTHORITY NOT LIABLE. Notwithstanding any other provision
of this Loan Agreement (a) the Authority shall not be liable to the Borrower,
the Trustee, any Holder, or any other Person for any failure of the Authority to
take action under this Loan Agreement unless the Authority (i) is requested in
writing by an appropriate Person to take such action and (ii) is assured of
payment of or reimbursement for any expenses in such action, and (b) except with
respect to any action for specific performance or any action in the nature of a
prohibitory or mandatory injunction, neither the Authority nor any director of
the Authority or any other official or employee of the Authority shall be liable
to the Borrower, the Trustee, any Holder of any of the Bonds, or any other
Person for any action taken by it or by its officers, servants, agents or
employees, or for any failure to take action under this Loan Agreement or the
Trust Agreement. In acting under this Loan Agreement, or in refraining from
acting under this Loan Agreement, the Authority may conclusively rely on the
advice of its legal counsel.
SECTION 9.16 LOAN AGREEMENT SUPERSEDES PRIOR AGREEMENTS. This Loan
Agreement supersedes any other prior agreements or understandings, written or
oral, between the parties with respect to the subject matter hereof.
SECTION 9.17 CONFLICTS. Subject to Section 8.03, (i) if any provision of
the Trust Agreement qualifies or conflicts with any provision in any of the
other Related Documents or the
45
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Loan Agreement, the provision contained in the Trust Agreement shall control and
(ii) if any provision of this Loan Agreement qualifies or conflicts with any
provision in any of the Related Documents (except the Trust Agreement), the
provision contained in this Loan Agreement shall control. This Section will not
apply to provisions relative to the constitution of the documents or the
remedies thereunder.
IN WITNESS WHEREOF, the Authority and the Borrower have caused this Loan
Agreement to be executed in their respective legal names and the Authority seal
to be hereunto affixed, and the signatures of its authorized persons, all as of
the date first above written.
PUERTO RICO INDUSTRIAL, TOURIST,
EDUCATIONAL, MEDICAL AND ENVIRONMENTAL
CONTROL FACILITIES FINANCING AUTHORITY
By:______________________________
Acting Executive Director
EL CONQUISTADOR PARTNERSHIP L.P., S.E.
BY:CONQUISTADOR HOLDING (SPE), INC.
ITS GENERAL PARTNER
By:_______________________________
[ ]
46
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EXHIBIT A
DESCRIPTION OF THE PROJECT
The Project consists of fee simple title to approximately 205 acres of
real property located in Las Croabas, Fajardo, Puerto Rico currently improved
and known as the El Conquistador Resort and Country Club and a leasehold estate
interest in and the development of approximately 90 acres (the "Palominos Island
Property") located on an island approximately three miles to the east of the
Fajardo property known as Palominos Island. El Conquistador Resort and Country
Club is a world- class destination resort complex consisting of approximately
751 guest rooms, an 18-hole championship golf course, a marina, tennis courts,
approximately 90,000 square feet of convention and meeting facilities, lounges
and one or more nightclubs, restaurants, a casino, retail shops, a fitness
center, pool areas, water sports facilities on the Palominos Island Property,
and related amenities and facilities.
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================================================================================
TRUST AGREEMENT
BETWEEN
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL,
MEDICAL AND
ENVIRONMENTAL CONTROL FACILITIES
FINANCING AUTHORITY
AND
BANCO SANTANDER PUERTO RICO,
TRUSTEE
DATED [ ], 1999
SECURING
[$105,200,000]
TOURISM REVENUE BONDS, 1999 SERIES A
(EL CONQUISTADOR RESORT PROJECT)
================================================================================
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TABLE OF CONTENTS
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TRUST AGREEMENT.................................................................-1
BEFORE ME.......................................................................-1
APPEAR..........................................................................-1
AS THE PARTY OF THE FIRST PART:............................................-1
AS PARTY OF THE SECOND PART: ..............................................-1
STATE...........................................................................-2
FIRST......................................................................-2
SECOND.....................................................................-2
THIRD......................................................................-2
FOURTH.....................................................................-2
FIFTH......................................................................-2
SIXTH......................................................................-2
SEVENTH....................................................................-2
EIGHTH.....................................................................-3
NINTH......................................................................-3
TENTH......................................................................-3
ELEVENTH...................................................................-4
ARTICLE I......................................................................-4
DEFINITIONS................................................................-4
Section 101. Definitions..............................................-4
Accreted Value....................................................-4
Act ..............................................................-5
Act of Bankruptcy.................................................-5
Additional Interest...............................................-5
Administrative Fee................................................-5
Affiliate.........................................................-5
Amortization Requirement..........................................-5
Aggregate Principal Amount........................................-5
Authority.........................................................-5
Authority Representative..........................................-6
Authorized Borrower Representative................................-6
Authorized Denominations..........................................-6
Beneficial Owner..................................................-6
Board.............................................................-6
Bond Fund.........................................................-6
Bondholder........................................................-6
Bond Register.....................................................-6
Bonds.............................................................-7
Borrower..........................................................-7
Business Day......................................................-7
Capital Appreciation Bonds........................................-7
Code..............................................................-7
Corporate Trust Office............................................-7
Costs.............................................................-7
Costs of Issuance.................................................-8
Date of Issuance..................................................-8
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Defaulted Interest................................................ -8
Defeasance Obligations............................................ -8
Defeased Municipal Obligations.................................... -8
DTC .............................................................. -9
DTC Representation Letter......................................... -9
Event of Taxability............................................... -9
Executive Director................................................ -9
Exhibit A......................................................... -9
Exhibit B......................................................... -9
Fair Market Value................................................. -9
Federal...........................................................-10
Government Obligations............................................-10
Grant.............................................................-10
Holder............................................................-10
Interest Payment Date.............................................-10
Interest Rate.....................................................-10
Insurance Consultant..............................................-10
Investment Obligations............................................-10
Loan Agreement....................................................-12
Majority Interest.................................................-12
Maturity Date.....................................................-13
Mortgages.........................................................-13
Mortgage Notes....................................................-13
Outstanding.......................................................-13
Participant.......................................................-13
Payment of the Bonds..............................................-13
Person............................................................-13
Pledge Agreement..................................................-14
Predecessor Bond..................................................-14
Principal.........................................................-14
Principal Payment Date............................................-14
Principal Payment Period..........................................-15
Project...........................................................-15
Project Fund......................................................-15
Puerto Rico.......................................................-15
Rating Agency.....................................................-15
Redemption Price..................................................-15
Regular Record Date...............................................-15
Related Documents.................................................-16
Reserve Fund......................................................-16
Reserve Fund Amount...............................................-16
Renewal and Replacement Fund......................................-16
Renewal and Replacement Fund Amount...............................-16
Secretary.........................................................-17
Securities Act....................................................-17
Securities Depository.............................................-17
Serial Bonds......................................................-17
Serial Bonds Aggregate Principal Amount...........................-17
Special Record Date...............................................-17
Term Bonds........................................................-17
Trust Agreement...................................................-18
Trustee...........................................................-18
Trust Estate......................................................-18
Twenty-Five Percent Interest......................................-18
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Underwriter.......................................................-18
Section 102. Miscellaneous............................................-18
ARTICLE II......................................................................-19
FORM, EXECUTION, AUTHENTICATION,
DELIVERY AND EXCHANGE OF BONDS..............................................19
Section 201. Limitation on Issuance of Bonds..........................-19
Section 202. Form of Bonds............................................-19
Section 203. Details of Bonds.........................................-19
Section 204. Authentication of Bonds..................................-23
Section 205. Exchange of Bonds........................................-23
Section 206. Registration of Transfer of Bonds........................-23
Section 207. Ownership of Bonds; Transfer of Title....................-24
Section 208. Authorization of Bonds...................................-25
Section 209. Temporary Bonds..........................................-28
Section 210. Mutilated, Destroyed or Lost Bonds.......................-29
Section 211. Book-Entry Bonds..........................................-29
ARTICLE III.....................................................................-33
REDEMPTION OF BONDS........................................................-33
Section 301. Redemption of Bonds......................................-33
Section 302. Redemption Notice........................................-35
Section 303. Effect of Calling for Redemption.........................-36
Section 304. Redemption of Portions of the Bonds......................-37
ARTICLE IV......................................................................-37
PROJECT FUND...............................................................-37
Section 401. Project Fund.............................................-37
Section 402. Payments from Project Fund...............................-38
Section 403. [Reserved]...............................................-38
Section 404. Requisites for Payments from Project Fund................-38
Section 405. Reliance on Requisitions.................................-39
Section 406. Balance in Project Fund..................................-39
ARTICLE V.......................................................................-40
BOND FUND, RESERVE FUND, RENEWAL AND
REPLACEMENT FUND, AND INSURANCE FUND.......................................-40
Section 501. Creation of Bond Fund....................................-40
Section 502. Payments into Bond Fund..................................-40
Section 503. Use of Moneys in Bond Fund...............................-41
Section 504. Moneys Withdrawn From Bond Fund..........................-41
Section 505. Creation of Reserve Fund.................................-42
Section 506. Payments into Reserve Fund...............................-42
Section 507. Application of Moneys in Reserve Fund....................-43
Section 508. Reserve Fund Maintenance of Margin,
Overage or Deficiency; Notice to Borrower................-43
Section 509. Creation of Renewal and Replacement Fund................-44
Section 510. Payments into Renewal and Replacement Fund...............-44
Section 511. Application of Moneys in Renewal and
Replacement Fund.........................................-44
Section 512. Renewal and Replacement Fund Maintenance
of Margin, Overage or Deficiency; Notice
to Borrower..............................................-45
Section 513. Creation of Insurance Fund...............................-45
Section 514. Payments into Insurance Fund.............................-45
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Section 515. Application of Moneys in Insurance Fund..................-46
Section 516. Insurance Fund Maintenance of Margin, Overage
or Deficiency; Notice to Borrower........................-46
Section 517. Cancellation of Bonds Upon Payment.......................-47
ARTICLES VI.....................................................................-48
DEPOSITORIES OF MONEYS, SECURITY FOR DEPOSITS
AND INVESTMENTS OF FUNDS...................................................-48
Section 601. Security for Deposits...................................-48
Section 602. Investment of Moneys...................................-49
ARTICLE VII.....................................................................-49
PARTICULAR COVENANTS AND PROVISIONS........................................-49
Section 701. Covenant to Pay Bonds; Bonds Limited
Obligations of Authority................................-49
Section 702. Covenant to Perform Obligations under this
Trust Agreement and the Related Documents...............-50
Section 703. Covenants to Perform Further Acts.......................-51
Section 704. Trustee May Enforce Authority's Rights Under
the Related Documents...................................-51
ARTICLE VIII....................................................................-51
DEFAULT AND REMEDIES.......................................................-51
Section 801. Extension of Interest Payment Dates.....................-51
Section 802. Defaults................................................-52
Section 803. Acceleration............................................-52
Section 804. Enforcement of Remedies.................................-53
Section 805. Trustee May File Claim in Bankruptcy....................-54
Section 806. Pro Rata Application of Funds...........................-55
Section 807. Effect of Discontinuance of Proceedings.................-57
Section 808. Majority Interest May Control Proceedings...............-58
Section 809. Restrictions Upon Actions by Individual
Bondholder..............................................-58
Section 810. Receiver................................................-59
Section 811. Actions by Trustee......................................-59
Section 812. No Remedy Exclusive.....................................-59
Section 813. No Delay or Omission Construed to Be
a Waiver................................................-60
Section 814. Waiver of Past Defaults.................................-60
Section 815. Notice of Default.......................................-60
Section 816. Notice of Acceleration..................................-61
ARTICLE IX......................................................................-61
CONCERNING THE TRUSTEE.....................................................-61
Section 901. Acceptance of Trusts.....................................-61
Section 902. Trustee Entitled to Indemnity............................-61
Section 903. Trustee Not Responsible for Insurance, Taxes
or Execution of this Trust Agreement.....................-62
Section 904. Trustee Not Responsible for Acts of the Authority
or Application of Moneys Applied in
Accordance with this Trust Agreement.....................-62
Section 905. Certain Duties and Responsibilities of the
Trustee..................................................-63
Section 906. Compensation.............................................-66
Section 907. Statement of Funds on Deposit............................-66
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Section 908. Notice of Default.......................................-67
Section 909. Trustee May Be Bondholder...............................-67
Section 910. Trustee Not Responsible for Recitals....................-67
Section 911. Trustee Not Responsible for Recording...................-68
Section 912. Qualification of the Trustee............................-68
Section 913. Resignation and Removal of Trustee......................-68
Section 914. Successor Trustee.......................................-70
Section 915. Money Held in Trust.....................................-71
ARTICLE X.......................................................................-71
EXECUTION OF INSTRUMENTS BY BONDHOLDERS
AND PROOF OF OWNERSHIP OF BONDS............................................-71
Section 1001. Execution of Instruments................................-71
Section 1002. Proof of Execution of Instrument and of
Ownership...............................................-71
Section 1003. Record Date.............................................-72
ARTICLE XI......................................................................-72
SUPPLEMENTS AND AMENDMENTS TO TRUST
AGREEMENT..................................................................-72
Section 1101. Supplements and Amendments Not
Requiring Bondholders' Consent...........................-72
Section 1102. Supplements and Amendments Requiring
Consent of the Majority Interest.........................-73
Section 1103. Supplements and Amendments Deemed Part
of Trust Agreement.......................................-75
Section 1104. Discretion of Trustee in Entering into
Supplements and Amendments...............................-76
Section 1105. Consent of Borrower Required.............................-76
ARTICLE XII.....................................................................-76
SUPPLEMENTS AND AMENDMENTS TO
THE RELATED DOCUMENTS .....................................................-76
Section 1201. Supplements and Amendments to
Related Documents Not Requiring Consent..................-77
Section 1202. Supplements and Amendments to Related
Documents Requiring Consent of the
Majority Interest........................................-77
Section 1203. Consent of Trustee Required..............................-77
ARTICLE XIII....................................................................-78
PAYMENT OF BONDS AND TERMINATION;
DEFEASANCE.................................................................-78
Section 1301. Payment of Bonds and Termination........................-78
Section 1302. Defeasance..............................................-79
ARTICLE XIV.....................................................................-80
MISCELLANEOUS PROVISIONS...................................................-80
Section 1401. Covenants of Authority Bind its Successors..............-81
Section 1402. Notices.................................................-81
Section 1403. Substitute Mailing......................................-83
Section 1404. Rights under Trust Agreement............................-83
Section 1405. Severability............................................-84
Section 1406. Covenants of Authority Not Covenants of
Officials Individually..................................-84
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Section 1407. Puerto Rico Law Governs.................................-85
Section 1408. Payments Due on a Non-Business Day......................-85
Section 1409. Headings Not Part of Trust Agreement....................-85
Section 1410. Trust Agreement Supersedes Prior Agreement..............-85
Section 1411. Conflicts...............................................-85
ACCEPTANCE......................................................................-85
EXHIBIT A
FORM OF THE BONDS
EXHIBIT B
SCHEDULE OF FEATURES OF THE BONDS
EXHIBIT C
DTC REPRESENTATION LETTER
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- -------------------------------- NUMBER [ ( )] -----------
- ---------------------------- TRUST AGREEMENT -----------------------------------
In the City of San Juan, Puerto Rico, on this [ ( th)] day of [
], nineteen hundred ninety-nine (1999). ----------------------
- ------------------------------------ BEFORE ME ---------------------------------
- ---[ ], Attorney-at-Law and Notary Public in and
for the Commonwealth of Puerto Rico with residence in [ ], Puerto
Rico and offices at 254 Munoz Rivera Avenue, Hato Rey, San Juan, Puerto
Rico 00918. --------------------------------------------------------------------
- ----------------------------------- APPEAR -------------------------------------
- -- AS THE PARTY OF THE FIRST PART: PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL,
MEDICAL AND ENVIRONMENTAL CONTROL FACILITIES FINANCING AUTHORITY (the
"Authority"), a public corporation and governmental instrumentality of the
Commonwealth of Puerto Rico ("Puerto Rico"), Employer Identification Number
66-0426994, and represented herein by its Executive Director, Carlos Colon de
Armas, of legal age, married and a resident of Trujillo Alto, Puerto Rico, who
has been duly authorized to appear herein on behalf of the Authority.-----------
- --- AS PARTY OF THE SECOND PART: BANCO SANTANDER PUERTO RICO (Employer
Identification Number 66-0312389), represented herein by the Luis Carlos
Fernandez Trinchet, Senior Vice President and Executive Trust Officer of the
Trustee, of legal age, single, and resident of San Juan, Puerto Rico, who has
been duly authorized to appear herein on behalf of the Trustee.-----------------
- -- I, the Notary, DO HEREBY CERTIFY that I personally know the appearing parties
herein and by their statements as to their respective ages, civil status,
professions and residences. They assure me that they have, and
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in my judgment they do have, the necessary legal capacity and knowledge of the
English language to execute this public instrument. Wherefore, they freely and
voluntarily. -------------------------------------------------------------------
- ---------------------------------------- STATE ---------------------------------
- --- FIRST: The Authority was created by the Act a body corporate and politic
constituting a public corporation and governmental instrumentality of Puerto
Rico. --------------------------------------------------------------------------
- --- SECOND: The Authority is authorized under the Act to borrow money and issue
bonds for the purpose of providing funds to pay all or any part of the cost of
refinancing any industrial, tourist, educational, medical, or environmental
control facility, the principal of and the premium, if any, and the interest on
which bonds shall be payable solely from the funds provided by the obligor under
the financing agreement in respect of such project. ----------------------------
- --- THIRD: The Authority has entered into the Loan Agreement with the Borrower
which provides that the (i) Authority shall issue the Bonds and lend the
proceeds thereof to the Borrower to pay all or part of the Costs, and (ii)
Borrower shall pay or cause to be paid to the Authority sufficient amounts to
pay the principal of, the premium, if any, and the interest on the Bonds.-------
- --- FOURTH: The Authority is entering into this Trust Agreement for the purpose
of authorizing the Bonds and securing the payment thereof by Granting the Trust
Estate to the Trustee. -------------------------------------------
- --- FIFTH: The Borrower will pledge the Mortgage Notes under the terms of the
Pledge Agreement, in order to further secure, among other things, the payment of
principal of and interest on the Bonds. ----------------------------------------
- --- SIXTH: The Authority has determined that the Bonds and the certificate of
authentication to be endorsed thereon by the Trustee shall be substantially in
the forms set forth in Exhibit A with such substitutions,
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omissions, and insertions as are required or permitted by this Trust Agreement.-
- --- SEVENTH: The execution and delivery of this Trust Agreement and the Related
Documents to which the Authority is a party, have been duly authorized by a
resolution of the Authority. ---------------------------------------------------
- --- EIGHTH: All acts, conditions and things required by the Constitution and
laws of Puerto Rico and the rules and regulations of the Authority to happen,
exist and be performed precedent to and in the execution and delivery of this
Trust Agreement and the Related Documents to which the Authority is a party have
happened, exist and have been performed as so required in order to make this
Trust Agreement and the Related Documents to which the Authority is a party
legal, valid and binding agreements in accordance with their terms.-------------
- --- NINTH: The Trustee has accepted the trusts created by this Trust Agreement
and in evidence thereof has joined in the execution hereof. --------------------
- --- TENTH: (A) The Authority Grants the Trust Estate to the Trustee IN TRUST,
subject to the rights of the Borrower under the Loan Agreement and to the
exceptions, reservations and matters therein and herein contained, for the equal
and proportionate benefit of all and singular present and future Bondholders,
without preference, priority or distinction, except as otherwise hereinafter
provided, of any one Bond over any other Bond, for reason of priority in the
issue, sale, negotiation or incurrence thereof or otherwise. -------------------
- ----- (B) This Trust Agreement and all covenants, agreements and other
obligations of the Authority hereunder (except with respect to such funds,
delivered to the Borrower pursuant to Section 504) shall cease and terminate
after the rights, title and interest of the Trustee in and to the Trust Estate
shall have ceased and terminated in accordance with Article XIII and the
principal of and interest on the Bonds shall have been paid to the
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Bondholders, or to the Borrower pursuant to Section 504(B). Thereupon, the
Trustee shall cancel and discharge this Trust Agreement and execute and deliver
to the Authority and the Borrower such instruments as shall be required to
evidence the discharge hereof. -------------------------------------------------
- --- ELEVENTH: The Bonds are to be issued, authenticated and delivered and the
payments under the Loan Agreement and other revenues and funds hereby Granted
are to be dealt with and disposed of under, upon and subject to the provisions
of this Trust Agreement. The Authority agrees and covenants with the Trustee and
with the Holders from time to time as follows: ---------------------------------
- ----------------------------------- ARTICLE I ----------------------------------
- ---------------------------------- DEFINITIONS ---------------------------------
- --- SECTION 101. DEFINITIONS. In addition to words and terms elsewhere defined
in this Trust Agreement, the following words and terms hereinbefore and
hereinafter used shall have the following meanings, unless some other meaning is
intended:-----------------------------------------------------------------------
- ----- ACCRETED VALUE: with respect to any Capital Appreciation Bond, (i) as of
any Interest Payment Date, an amount equal to the initial principal amount of
such Bond on the Date of Issuance plus the interest accrued on such Bond from
the Date of Issuance to such Interest Payment Date, compounded on each preceding
Interest Payment Date and on such Interest Payment Date and (ii) as of any date
other than an Interest Payment Date, the sum of (a) the Accreted Value of such
Bond on the preceding Interest Payment Date (or, if there is no preceding
Interest Payment Date, the initial principal amount) and (b) the product of (x)
a fraction, the numerator of which is the number of days having elapsed from the
preceding Interest Payment Date (or from the Date of Issuance if there is no
preceding Interest Payment Date) and the denominator of which is the number of
days from
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such preceding Interest Payment Date (or from the Date of Issuance if there
is no preceding Interest Payment Date) to the next succeeding Interest
Payment Date and (y) the difference between the Accreted Values for such
Interest Payment Dates (or between the initial principal amount and the
Accreted Value on the first Interest Payment Date). The Accreted Value per
Five Thousand Dollars ($5,000) amount due at maturity on each Interest
Payment Date is set forth in the Accretion Table contained in the form of
the Capital Appreciation Bonds. ------------------------------------------------
- ----- ACT: Act No. 121 of the Legislature of Puerto Rico, approved June
twenty-seven (27), nineteen hundred seventy-seven (1977), as amended, and all
future acts supplemental thereto or amendatory thereof. ------------------------
- ----- ACT OF BANKRUPTCY: the filing of a petition commencing a case under the
Federal Bankruptcy Code by or against the Borrower. ----------------------------
- ----- ADDITIONAL INTEREST: as defined in the Loan Agreement.--------------------
- ----- ADMINISTRATIVE FEE: the single fee to the Authority in the amount of
one-half of one percent (1/2 of 1%) of the aggregate principal amount of the
Bonds.--------------------------------------------------------------------------
- ----- AFFILIATE: a Person that directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control with the
Borrower. ----------------------------------------------------------------------
- ----- AMORTIZATION REQUIREMENT: with respect to the Term Bonds, the principal
amount fixed in item 5 of Exhibit B under "Amortization Requirements".----------
- ----- AGGREGATE PRINCIPAL AMOUNT: One Hundred Five Million Two Hundred Thousand
Dollars [($105,200,000)].-------------------------------------------------------
- ----- AUTHORITY: Puerto Rico Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Authority a body corporate and
politic constituting a public corporation and governmental instrumentality
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of Puerto Rico and any successor thereto. --------------------------------------
- ----- AUTHORITY REPRESENTATIVE: each of the Persons designated at the time to
act on behalf of the Authority by a certificate furnished to the Trustee and the
Borrower, containing specimen signatures of such Persons and signed on behalf of
the Authority by the Executive Director. ---------------------------------------
- ----- AUTHORIZED BORROWER REPRESENTATIVE: each of the Persons designated at the
time to act on behalf of the Borrower by a certificate furnished to the Trustee
and the Authority, containing the specimen signatures of such Persons and signed
on behalf of the Borrower by the general partner thereof. ----------------------
- ----- AUTHORIZED DENOMINATIONS: Five Thousand Dollars ($5,000) principal amount
(in the case of the Serial Bonds and the Term Bonds) or maturity amount (in the
case of the Capital Appreciation Bonds) or any integral multiple thereof.-------
- ----- BENEFICIAL OWNER: whenever used with respect to a Bond, the Person in
whose name such Bond is recorded as the beneficial owner thereof by a
Participant on the records of such Participant or such Person's subrogee.-------
- ----- BOARD: the board of directors of the Authority as constituted from time to
time and defined by the Act, or if said Board shall be abolished, then the
board, body or officer succeeding to the principal functions thereof or to whom
the powers of the Authority shall be given by law. -----------------------------
- ----- BOND FUND: the Tourism Revenue Bonds, 1999 Series A (El Conquistador
Resort Project) Bond Fund, a special fund created and designated by the
provisions of Section 501. -----------------------------------------------------
- ----- BONDHOLDER: the Person registered as owner of any Bond in the Bond
Register.-----------------------------------------------------------------------
- ----- BOND REGISTER: the register to be maintained by the Trustee, and which
shall provide for the registration, transfer and exchange of Bonds, as provided
under Section 206. -------------------------------------------------------------
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- ----- BONDS: the bonds designated by and issued pursuant to the provisions of
Section 208.--------------------------------------------------------------------
- ----- BORROWER: El Conquistador Partnership L.P., S.E., a limited partnership
organized and existing under the laws of the State of Delaware, and its
successors and permitted assigns and any surviving, resulting or transferee
partnership or other entity. ---------------------------------------------------
- ----- BUSINESS DAY: any day, other than a Saturday or Sunday, or a day on which
commercial banks in Puerto Rico or New York, New York are authorized or required
by law or executive order to close. --------------------------------------------
- ----- CAPITAL APPRECIATION BONDS: the Capital Appreciation Bonds authorized to
be issued under Section 208 and identified as such on Exhibit B.----------------
- ----- CODE: the Federal Internal Revenue Code of 1986 and the regulations issued
thereunder, as amended, and all future acts supplemental thereto or amendatory
thereof. -----------------------------------------------------------------------
- ----- CORPORATE TRUST OFFICE: the principal office of the Trustee at 221 Ponce
de Leon Avenue, Lobby, San Juan, Puerto Rico 00918, or any other address at
which its corporate trust business shall be administered at any particular time.
- ----- COSTS: as applied to the refinancing of the acquisition, development,
construction and equipping of the Project, shall have the meaning set forth in
the Act, including, without limitation: the repayment of advances made by
Citicorp Real Estate, Inc. to the Borrower pursuant to certain Assignment and
Modification Agreement dated as of August three (3) nineteen hundred ninety
eight (1998), as amended, in the principal amount of Ninety Million Dollars
($90,000,000), interest paid by the Borrower on the aforementioned advances from
the date thereof until the Date of Issuance, the Administrative Fee, the Costs
of Issuance and the Reserve Fund Amount.----------------------------------------
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- ----- COSTS OF ISSUANCE: all items of expense, not to exceed in the aggregate
two percent (2%) of the Aggregate Principal Amount, relating to the
authorization, sale and issuance of the Bonds (excluding the Administrative
Fee and all expenses of recordation of the Mortgages), including the fees,
commissions and expenses of the Trustee properly incurred under this Trust
Agreement prior to the Date of Issuance, the initial or acceptance fee of the
Trustee, legal, accounting and financial advisory fees and expenses,
underwriting fees and expenses, filing and rating agencies' fees and printing
and engraving costs incurred in connection with the authorization, sale and
issuance of the Bonds, the execution of this Trust Agreement, the Related
Documents, and all other documents in connection therewith, and payment
of all fees, costs and expenses for the preparation of this Trust Agreement,
the Bonds, the Related Documents and any other collateral or security taken
by the Trustee to secure the Borrower's obligations hereunder, and any
other fees and expenses necessary or incident to the issuance and sale of the
Bonds, the execution and delivery of the Related Documents and the
documents contemplated by any of the foregoing. --------------------------------
- ----- DATE OF ISSUANCE: the date appearing in the first page of this Trust
Agreement. ---------------------------------------------------------------------
- ----- DEFAULTED INTEREST: has the meaning specified in Section 203. -----------
- ----- DEFEASANCE OBLIGATIONS: (i) noncallable Government Obligations, (ii)
Defeased Municipal Obligations and (iii) evidences of ownership of a
proportionate interest in specified Defeased Municipal Obligations held by a
bank or trust company organized and existing under the Federal laws or the laws
of any state or territory thereof as custodian.---------------------------------
- ---- DEFEASED MUNICIPAL OBLIGATIONS: obligations of state, territory or local
government issuers which are rated in the highest rating category by the Rating
Agency, provision for the payment of the principal of and
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redemption premium, if any, and interest on which shall have been made by
deposit with a trustee or escrow agent of noncallable Government Obligations,
the maturing principal of and interest on which, when due and payable, shall
provide sufficient money to pay the principal of and redemption premium, if any,
and interest on such obligations of state, territory or local government
issuers. -----------------------------------------------------------------------
- ----- DTC: The Depository Trust Company, a limited purpose trust company
organized under the laws of the State of New York, and its successors and
assigns. -----------------------------------------------------------------------
- ----- DTC REPRESENTATION LETTER: the letter or letters from the Authority
and the Trustee to DTC with respect to the Bonds in the form appended
hereto as Exhibit C, which, so long as DTC shall be the Securities
Depository for the Bonds, shall be deemed to be part of this Agreement and
shall be a binding obligation of the Authority and the Trustee.---------------
- ----- EVENT OF TAXABILITY: as defined in the Loan Agreement. -------------------
- ----- EXECUTIVE DIRECTOR: the Executive Director, the Assistant Executive
Director or the Acting Executive Director of the Authority, or if there is no
Executive Director, Assistant Executive Director or Acting Executive Director,
then any Person designated by the Board or authorized by the by-laws of the
Authority to perform the functions of the Executive Director. ------------------
- ----- EXHIBIT A: the "FORM OF BOND" attached to this Trust Agreement and marked
Exhibit A. ---------------------------------------------------------------------
- ----- EXHIBIT B: the "Schedule of Features of the Bonds" attached to this
Trust Agreement and marked Exhibit B. ------------------------------------------
- ----- FAIR MARKET VALUE: on any date, (i) with respect to Investment Obligations
the bid and asked price of which are published in the Wall Street Journal, the
bid price thereof so published on or most recently prior to the valuation date;
(ii) with respect to Investment Obligations the bid and
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asked price of which are not published in the Wall Street Journal, the average
bid price therefor on the valuation date reported by any of the recognized
dealers at the time making a market in such Investment Obligations; and (iii)
with respect to any Investment Obligations for which no value can be established
under (i) or (ii) above, the principal amount thereof plus accrued and unpaid
interest thereon.---------------------------------------------------------------
- ----- FEDERAL: the United States of America and the government thereof. --------
- ----- GOVERNMENT OBLIGATIONS: (i) direct obligations of, or obligations the
principal of and the interest on which are unconditionally guaranteed by, the
United States of America, and (ii) any certificates or other evidences of an
ownership in obligations or in specified portions thereof (which may consist of
specified portions of the principal thereof or the interest thereon) of the
character described in clause (i).----------------------------------------------
- ----- GRANT: to convey, assign and transfer legal title.------------------------
- ----- HOLDER: the Person registered as owner of any Bond in the Bond Register.--
- ----- INTEREST PAYMENT DATE: the first day of each month, commencing on [ ],
nineteen hundred ninety-nine (1999) --------------------------------------------
- ----- INTEREST RATE: as of any date, the prevailing rates of interest on the
Bonds of each maturity. --------------------------------------------------------
- ---- INSURANCE CONSULTANT: a Person recognized as expert in the insurance
industry selected by the Trustee and paid by the Borrower. ---------------------
- ----- INVESTMENT OBLIGATIONS: Government Obligations and obligations of any
agency or instrumentality whose obligations are backed by the full faith and
credit of the United States of America and, to the extent from time to time
permitted by law, (A) the obligations of (i) Federal National Mortgage
Association, (ii) Federal Home Loan Banks, (iii) Federal Farm Credit System,
(iv) Federal Home Loan Mortgage Corporation, and
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(v) Government National Mortgage Association (to the extent not included in
Government Obligations); (B) repurchase agreements with financial institutions
which are members of the Federal Reserve System or primary dealers in the United
States Treasury market the short-term obligations of which institutions or
dealers are rated at least "A" by the Rating Agency (or any similar rating to
which it may be changed) or whose long-term obligations are rated in one of the
three highest rating categories by the Rating Agency secured by Government
Obligations or by securities described in clause (A); provided, that such
repurchase agreement must provide that the value of the underlying obligations
shall be maintained at a current market value, calculated at least weekly, of
not less than 104% of the repurchase price (or in the case such underlying
obligations are obligations of the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation, of not less than 105% of the repurchase
price), a legal opinion shall be furnished to the Trustee to the effect that the
repurchase agreement meets guidelines under the laws of Puerto Rico for the
legal investment of public funds, the Trustee shall be given a first priority
security interest, no independent third party shall have a lien, such
obligations purchased must be transferred to the Trustee or an independent third
party agent by physical delivery or by an entry made on the records of the
issuer of such obligations, in either case, the entity should receive
confirmation from the independent third party that those securities are being
held in a safe-keeping account in the name of the entity (the trust or safe-
keeping departments of broker-dealers or financial institutions selling
investments or pledging collateral or underlying securities, or their custodial
agents, are not considered independent third parties for the foregoing
purposes), such repurchase agreement shall constitute a "repurchase agreement"
within the meaning of Section 101 of the Federal Bankruptcy
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Code, as amended, and any investment in a repurchase agreement shall mature
within 30 days; (C) debt obligations and commercial paper rated "M-1" or better
by the Rating Agency; (D) U.S. Treasury Strips, REFCORP Strips and FICO Strips;
(E) money market funds registered under the Federal Investment Company Act of
1940, whose shares are registered under the Securities Act, and having a rating
of "P-1" by the Rating Agency; (F) certificates of deposit secured at all times
by Government Obligations or collateral described in (A) which certificates are
issued by commercial banks, savings and loan associations or mutual savings
banks; provided that the collateral must be held by a third party and the
Trustee must have a perfected first priority security interest in the
collateral; (G) certificates of deposit, savings accounts, deposit accounts or
money market deposits which are fully insured by FDIC, including BIF and SAIF;
(H) bonds or notes issued by any state, territory or municipality which are
rated by the Rating Agency in one of the two highest rating categories assigned
by such agencies; (I) federal funds or bankers' acceptances with a maximum term
of one year of any bank which has an unsecured, uninsured and unguaranteed
obligation rating of "A" or better by the Rating Agency; and (J) any Puerto Rico
administered pool investment fund in which the Authority is statutorily
permitted or required to invest. Any investment in Government Obligations or in
obligations described in (A) above may be made in the form of an entry made on
the records of the issuer of the particular obligation. ------------------------
- ----- LOAN AGREEMENT: the Loan Agreement, dated the Date of Issuance, by and
between the Authority and the Borrower, together with all permitted agreements
amendatory thereof or supplemental thereto. ------------------------------------
- ----- MAJORITY INTEREST: as of any date of calculation, the Bondholders (not
including the Borrower, any Affiliate or any Person holding Bonds on
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behalf of the Borrower or an Affiliate) of more than 50% of the aggregate
principal amount of Bonds then Outstanding. ------------------------------------
- ----- MATURITY DATE: with respect to any Bond, the date specified in such Bond
as the maturity date thereof.---------------------------------------------------
- ----- MORTGAGES: collectively, (i) the first mortgage on the Project and on
parcel #15,228 registered at page 29 of tome 354 of Fajardo and the leasehold
mortgage on Palominos Island, constituted by deeds number [____ (__), ______ ( )
and ___ ( )], respectively, dated the Date of Issuance, executed before Notary
Public [ ] to secure the Mortgage Notes.]-------------------
- ----- MORTGAGE NOTES: collectively, the notes of the Borrower dated the Date of
Issuance, in the principal amounts of [ONE HUNDRED FIVE MILLION TWO HUNDRED
THOUSAND DOLLARS ($105,200,000)], TWO MILLION DOLLARS ($2,000,000) and ONE
HUNDRED THOUSAND DOLLARS ($100,000) secured by the Mortgages.-------------------
- ----- OUTSTANDING: When used with reference to the Bonds, means, as of a
particular date, all Bonds theretofore issued and authenticated under this Trust
Agreement except: (i) Bonds paid or delivered to the Trustee for cancellation;
(ii) Bonds deemed to have been paid in accordance with Article XIII; and (iii)
Bonds in exchange for or in lieu of which other Bonds have been authenticated
and delivered pursuant to this Trust Agreement. --------------------------------
- ----- PARTICIPANT: each broker-dealer, bank or other financial institution for
which DTC or any other Securities Depository holds securities as a Securities
Depository.---------------------------------------------------------------------
- ----- PAYMENT OF THE BONDS: as defined in the Loan Agreement. ------------------
- ----- PERSON: any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
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government or any agency or political subdivision thereof. ---------------------
- ----- PLEDGE AGREEMENT: The Mortgage Notes Pledge and Security Agreement, dated
the Date of Issuance, by and between the Borrower and the Authority, together
with all permitted agreements amendatory thereof or supplemental thereto.-------
- ----- PREDECESSOR BOND: of any particular Bond means every previous Bond
evidencing all or a portion of the same debt as that evidenced by such
particular Bond; and, for purposes of this definition, any Bond authenticated
and delivered under Section 210 in lieu of a lost, destroyed, mutilated, or
stolen Bond shall be deemed to evidence the same debt as the lost, destroyed,
mutilated or stolen Bond.-------------------------------------------------------
- ----- PRINCIPAL: when referring to the Bonds (i) in the case of any Serial Bond
or Term Bond, the principal amount of such Bond stated to be payable at maturity
and (ii) in the case of any Capital Appreciation Bond, (A) the Accreted Value
thereof, when used in connection with determining whether the Holders of the
requisite principal amount of Bonds Outstanding have given any notice, consent,
request, direction, waiver or demand pursuant to this Trust Agreement, or for
the purposes of determining the principal amount of such Bond due at maturity,
redemption or other payment date thereof, and for all other purposes other than
for the purpose set forth in clause (B) and (C) below, (B) the initial principal
amount thereof for purposes of the order of payments under Section 806 (the
difference between the Accreted Value and the initial principal amount
constituting interest for purposes of the order of payment in Section 806), and
(C) the "maturity amount" for purposes of Sections 205, 209(B) and 210.---------
- ----- PRINCIPAL PAYMENT DATE: the Maturity Date and any date on which the
principal of the Bonds, in whole or in part, is due and payable by reason of
redemption, purchase, acceleration or otherwise. -------------------------------
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- ----- PRINCIPAL PAYMENT PERIOD: each period of 6 months commencing on each
Principal Payment Date and ending on the day preceding the next Principal
Payment Date, except that the first Principal Payment Period shall commence on
the Date of Issuance and the last Principal Payment Period shall end on the
Maturity Date. -----------------------------------------------------------------
- ----- PROJECT: the Industrial Facilities (as defined in the Act) described in
Exhibit A to the Loan Agreement, including any modifications thereof,
substitution therefor or additions thereto and excluding deletions therefrom
(others than those permitted hereunder), as may be permitted by the Loan
Agreement.----------------------------------------------------------------------
- ----- PROJECT FUND: the special fund created and designated by the provisions of
Section 401. -------------------------------------------------------------------
- ----- PUERTO RICO: the Commonwealth of Puerto Rico. ----------------------------
- ----- RATING AGENCY: Moody's Investors Service, Inc., a corporation organized
and existing under the laws of the State of Delaware, its successors and
assigns, or Standard & Poor's Rating Services, a division of The McGraw-Hill
Companies, Inc., its successors and assigns, or if neither is available, any
other nationally recognized statistical rating organization which shall have
been requested by the Borrower to provide a rating for the Bonds and which shall
then have a rating in effect with respect to the Bonds. ------------------------
- ----- REDEMPTION PRICE: with respect to any Bond to be redeemed in whole or in
part pursuant to this Trust Agreement, an amount equal to 100% of the principal
amount of the Bond to be so redeemed (or, in the case of a Bond to be redeemed
in part, 100% of the portion of the principal amount thereof to be redeemed),
together with interest on such amount at the Interest Rate from the preceding
Interest Payment Date to the date of redemption. -------------------------------
- ----- REGULAR RECORD DATE: the fifteenth day of the month immediately
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preceding an Interest Payment Date.---------------------------------------------
- ----- RELATED DOCUMENTS: the (i) Loan Agreement; (ii) Mortgages; (iii) Mortgage
Notes; and (iv) Assignment of Leases and Rents Agreement and Security Agreement,
Assignment of Hotel Management Agreement and Security Agreement, Master Security
Agreement, UCC Financing Statement and the UCC Fixtures Filing dated the Date of
Issuance by and between the Borrower and the Trustee, together with all
permitted agreements amendatory thereof or supplemental thereto, individually or
collectively, as the case may be. ----------------------------------------------
- ----- RESERVE FUND: the fund created and designated by Section 505.-------------
- ----- RESERVE FUND AMOUNT: NINE MILLION ONE HUNDRED THOUSAND DOLLARS
($9,100,000). ------------------------------------------------------------------
- ----- RENEWAL AND REPLACEMENT FUND: from fund created and designated by Section
509.----------------------------------------------------------------------------
- ----- RENEWAL AND REPLACEMENT FUND AMOUNT: on the Date of Issuance through the
Taxable Year ending December 31, 2004, FOUR MILLION DOLLARS ($4,000,000); from
January 1, 2005 through December 31, 2009, the higher of FOUR MILLION DOLLARS
($4,000,000) and an amount equal to four percent (4%) of the average gross
revenues of the Borrower for the three (3) Taxable Years immediately preceding
January 1, 2005, as shown in the Borrower's audited financial statements; from
January 1, 2010 through December 31, 2014, the higher of FOUR MILLION DOLLARS
($4,000,000) and an amount equal to four percent (4%) of the average gross
revenues of the Borrower for the three (3) Taxable Years immediately preceding
January 1, 2010, as shown in the Borrower's audited financial statements; from
January 1, 2015 through December 31, 2019, the higher of FOUR MILLION DOLLARS
($4,000,000) and an amount equal to four percent (4%) of the average gross
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revenues of the Borrower for the three (3) Taxable Years immediately preceding
January 1, 2015, as shown in the Borrower's audited financial statements; from
January 1, 2020 through December 31, 2025, the higher of FOUR MILLION DOLLARS
($4,000,000) and an amount equal to four percent (4%) of the average gross
revenues of the Borrower for the three (3) Taxable Years immediately preceding
January 1, 2020, as shown in the Borrower's audited financial statements; and
from January 1, 2026 through December 31, 2030, the higher of FOUR MILLION
DOLLARS ($4,000,000) and an amount equal to four percent (4%) of the average
gross revenues of the Borrower for the three (3) Taxable Years immediately
preceding January 1, 2026, as shown in the Borrower's audited financial
statements.---------------------------------------------------------------------
- ----- SECRETARY: the Secretary or any Assistant Secretary of the Authority, or
if there is no secretary or assistant secretary, then any Person designated by
the Board or authorized by the by-laws of the Authority to perform the functions
of the Secretary. --------------------------------------------------------------
- ----- SECURITIES ACT: the Federal Securities Act of 1933, as amended. ----------
- ----- SECURITIES DEPOSITORY: DTC, or any other depository trust company (or any
of its designees to the Trustee) appointed for the Bonds.-----------------------
- ----- SERIAL BONDS: the Serial Bonds authorized to be issued under Section 208
and identified as such on Exhibit B.--------------------------------------------
- ----- SERIAL BONDS AGGREGATE PRINCIPAL AMOUNT: the Serial Bonds Aggregate
Principal Amount as stated in item 2 of Exhibit B.------------------------------
- ----- SPECIAL RECORD DATE: the date fixed by the Trustee for determining the
Holders entitled to the payment of Defaulted Interest, pursuant to Section 203.-
- ----- TERM BONDS: the Term Bonds authorized to be issued under Section 208 and
identified as such on Exhibit B.------------------------------------------------
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- ----- TRUST AGREEMENT: this Trust Agreement together with all permitted
agreements amendatory hereof or supplemental hereto. ---------------------------
- ----- TRUSTEE: Banco Santander Puerto Rico (Employer Identification Number
66-0312389), a bank incorporated and existing under the laws of Puerto Rico and
having its principal corporate trust office in Hato Rey, Puerto Rico, which is
authorized under such laws to exercise corporate trust powers and any other
bank, banking association or trust company becoming successor trustee under this
Trust Agreement.----------------------------------------------------------------
- ----- TRUST ESTATE: (i) all right, title and interest of the Authority in and to
(a) the Loan Agreement and all amounts receivable thereunder (except its rights
under Sections 4.05, 4.06, 5.06, 5.07, 7.04, 9.14 and 9.15 of the Loan
Agreement, and its rights to receive notices), and (b) the other Related
Documents (except its rights under the sections of the other Related Documents
corresponding to Sections 4.05, 4.06, 5.06, 5.07 and 7.04 of the Loan Agreement,
and its rights to receive notices); (ii) all funds and accounts established
under this Trust Agreement and all moneys and securities from time to time held
by the Trustee hereunder until disbursement therefrom as provided herein; and
(iii) any and all real or personal property of every name and nature from time
to time, by delivery or by writing of any kind, Granted pursuant to the
provisions of this Trust Agreement. --------------------------------------------
- ----- TWENTY-FIVE PERCENT INTEREST: as of any date of calculation, the Holders
(not including the Borrower, any Affiliate or any Person holding Bonds on behalf
of the Borrower or an Affiliate) of not less than 25% of the aggregate principal
amount of Bonds then Outstanding. ----------------------------------------------
- ----- UNDERWRITER: Citicorp Financial Services Corporation.---------------------
- --- SECTION 102. MISCELLANEOUS. (A) Words of the masculine gender shall be
deemed and construed to include relative words of the feminine and
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neuter genders. ----------------------------------------------------------------
- ----- (B) Unless the context shall otherwise indicate, "Bond," "Bondholder,"
"Holder," "owner," and "Person" shall include the plural as well as the singular
number. ------------------------------------------------------------------------
- ----- (C) All references herein to particular articles, sections or exhibits,
are references to articles, sections or exhibits of this Trust Agreement unless
some other reference is established. -------------------------------------------
- ----- (D) Words importing the redemption or calling for redemption or the Bonds
shall not be deemed to refer to or connote the payment of the Bonds at their
Maturity Date. -----------------------------------------------------------------
- ----- (E) The captions or headings in this Trust Agreement are for convenience
only and in no way define, limit or describe the scope or intent of any
provisions of articles and sections of this Trust Agreement. -------------------
- ---------------------------------- ARTICLE II ----------------------------------
- ---------------------- FORM, EXECUTION, AUTHENTICATION, ------------------------
- ----------------------- DELIVERY AND EXCHANGE OF BONDS -------------------------
- --- SECTION 201. LIMITATION ON ISSUANCE OF BONDS. No Bonds may be issued under
the provisions of this Trust Agreement except in accordance with the provisions
of this Article. ---------------------------------------------------------------
- --- SECTION 202. FORM OF BONDS. The definitive Bonds are issuable as fully
registered Bonds without coupons, in Authorized Denominations, and substantially
in the form of Exhibit A. All Bonds may have endorsed thereon such legends or
text as may be necessary or appropriate to conform to any applicable rules and
regulations of any governmental authority or of any securities exchange on which
the Bonds may be listed or traded or any usage or requirement of law with
respect thereto or as may be authorized by the Authority and approved by the
Trustee.------------------------------------------------------------------------
- --- SECTION 203. DETAILS OF BONDS. (A) The Bonds shall be dated, shall bear
interest until their payment (in the case of the Serial Bonds and the
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Term Bonds), shall yield (in the case of the Capital Appreciation Bonds) and
shall be stated to mature (subject to the right of prior redemption) as provided
in Exhibit B. ------------------------------------------------------------------
- ------ (B) Each Bond shall bear interest from the Interest Payment Date next
preceding the date on which it is authenticated, unless authenticated on an
Interest Payment Date, in which case it shall bear interest from such Interest
Payment Date, or, unless authenticated prior to the first Interest Payment Date
in which case it shall bear interest from the Date of Issuance; provided,
however, that if at the time of authentication of any Bond interest thereon is
in default, such Bond shall bear interest from the date to which interest shall
have been paid. ----------------------------------------------------------------
- ------(C) Interest on the Bonds shall be computed on the basis of a 360-day year
of twelve 30-day months. -------------------------------------------------------
- ------ (D) The Bonds shall be signed by, or bear the facsimile signatures of,
the Executive Director and the Secretary. A facsimile of the corporate seal of
the Authority shall be imprinted on the Bonds. In case any officer whose
signature shall appear on any Bonds shall cease to be such officer before the
delivery of such Bonds, such signature or such facsimile shall nevertheless be
valid and sufficient for all purposes as if he had remained in office until such
delivery, and also any Bond may bear the facsimile signatures of or may be
signed by such Persons as at the actual time of the execution of such Bond shall
be the proper officers to sign such Bond although at the Date of Issuance of
such Bond such Persons may not have been such officers. ------------------------
- ------ (E) The principal of and premium, if any, and the interest on the Bonds
shall be payable in any Federal coin or currency which on the respective dates
of payment thereof is legal tender for the payment of public and private debts.
- ------ (F) Payment of the interest on each Bond which is payable and is
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punctually paid shall be made by the Trustee on each Interest Payment Date to
the Holders at the close of business on the Regular Record Date by check mailed
to such Bondholder or at the request of a Bondholder who initially purchases or
subsequently acquires at least ONE MILLION DOLLARS ($1,000,000) aggregate
principal amount of Bonds, by wire transfer to the bank account of such
Bondholder, provided he files his bank account number with the Trustee for such
purpose at least 15 Business Days prior to the first Interest Payment Date for
which such wire transfer is to be made. The Trustee may impose a reasonable
charge for each such wire transfer payment. The foregoing provisions as to
payment are subject to the provisions of Section 211 regarding book-entry Bonds.
- ------ (G) Except as provided in Section 209 and 210, payment of the principal
of all Bonds and any premium thereon shall be made at the Corporate Trust Office
upon the presentation and surrender of such Bonds as the same shall become due
and payable, and only to the Bondholder or his legal representative.------------
- ------ (H) Any interest on any Bond which is payable but is not punctually paid
or duly provided for within 5 days after the same shall become due and payable
on any Interest Payment Date for such Bond (herein called "Defaulted Interest"),
shall forthwith cease to be payable to the Bondholder on the relevant Regular
Record Date by virtue of his having been such Bondholder; and such Defaulted
Interest may be paid by the Authority, in its election in each case, as provided
in clause First or Second below: -----------------------------------------------
- -------- First: The Authority may elect to make payment of any Defaulted
Interest to the Holders at the close of business on a Special Record Date, which
shall be fixed in the following manner. The Authority shall notify the Trustee
of the amount of Defaulted Interest proposed to be paid on each such Bond and
the date of the proposed payment, and at the same time the
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Authority shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such deposit prior to
the date of the proposed payment, such money when deposited to be held in trust
for the benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date which
shall be not more than 15 days and not less than 10 days prior to the date of
the proposed payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify the
Authority of such Special Record Date and, in the name and at the expense of the
Authority, shall cause notice of the proposed payment of such Defaulted Interest
and the date therefor to be given to each Bondholder on the Special Record Date
not less than five (5) days prior to the date specified for payment of such
Defaulted Interest. Notice of the proposed payment therefor having been given as
aforesaid, such Defaulted Interest shall be paid on the date fixed for payment
to the Bondholder at the close of business on such Special Record Date and shall
no longer be payable pursuant to the following clause Second. ------------------
- -------- Second: The Authority may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Bonds affected may be listed, and upon such notice as may
be required by such exchange, if, after notice given by the Authority to the
Trustee of the proposed payment pursuant to this clause, such payment shall be
deemed practicable by the Trustee. ---------------------------------------------
- ----- (J) Subject to the foregoing provisions of this Section, each Bond
delivered under this Trust Agreement upon registration of transfer of or in
exchange for or in lieu of any other Bond shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Bond. ------
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- --- SECTION 204. AUTHENTICATION OF BONDS. Only such of the Bonds as shall have
endorsed thereon a certificate of authentication substantially in the form set
forth in Exhibit A, duly executed by the Trustee, shall be entitled to any
benefit or security under this Trust Agreement. No Bond shall be valid or become
obligatory for any purpose unless and until such certificate of authentication
shall have been duly executed by the Trustee, and such certificate of the
Trustee upon any such Bond shall be conclusive evidence that such Bond has been
duly authenticated and delivered under this Trust Agreement. The Trustee's
certificate of authentication on any Bond shall be deemed to have been duly
executed if signed by an authorized officer of the Trustee, but it shall not be
necessary that the same officer sign the certificate of authentication on all of
the Bonds that may be issued hereunder at any one time. ------------------------
- --- SECTION 205. EXCHANGE OF BONDS. Bonds, upon surrender thereof at the
Corporate Trust Office, together with an assignment duly executed by the
Bondholder or legal representative in such form as shall be satisfactory to the
Trustee, may, at the option of the Bondholder thereof, be exchanged for an equal
aggregate principal amount of Bonds of same tenor, of any Authorized
Denominations and of the same Maturity Date. -----------------------------------
- --- SECTION 206. REGISTRATION OF TRANSFER OF BONDS. (A) The Trustee shall keep
the Bond Register. The transfer of any Bond may be registered only in the Bond
Register upon surrender of such Bond to the Trustee together with an assignment,
duly executed by the Holder or legal representative in such form as shall be
satisfactory to the Trustee. Upon any such registration of transfer the
Authority shall execute and the Trustee shall authenticate and deliver in
exchange for such Bond a new Bond or Bonds registered in the name of the
transferee, for an equal aggregate principal amount, of any Authorized
Denominations and of the same Maturity Date. -----------------------------------
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- ------ (B) In all cases in which Bonds shall be exchanged or the transfer of
Bonds shall be registered hereunder, the Authority shall execute and the Trustee
shall authenticate and deliver at the earliest practicable time Bonds in
accordance with the provisions of this Trust Agreement. All Bonds surrendered in
any such exchange or registration of transfer shall forthwith be canceled by the
Trustee. The Authority or the Trustee may impose a reasonable fee or service
charge for every such exchange or registration of transfer of Bonds sufficient
to reimburse it for any tax or other governmental charge required to be paid
with respect to such exchange or registration of transfer. Neither the Authority
nor the Trustee shall be required to make any such exchange or registration of
transfer of Bonds during the 15 days immediately preceding the date of giving of
notice of any redemption of Bonds, or after such Bond or any portion thereof has
been selected for redemption. --------------------------------------------------
- --- SECTION 207. OWNERSHIP OF BONDS; TRANSFER OF TITLE. (A) As to any Bond, the
Holder shall be deemed and regarded as the absolute owner thereof for all
purposes. Payment of or on account of the principal of and the interest on any
Bond shall be made only to or upon the order of the Holder or his legal
representative, and shall be valid and effectual to satisfy and discharge the
liability upon such Bond to the extent of the sum or sums so paid. -------------
- ------ (B) The Holders are granted the power to transfer absolute title to their
Bonds, including by assignment thereof to a bona fide purchaser for value
(present or antecedent) without notice of prior defenses or equities or claims
of ownership enforceable against his assignor or any Person in the chain of
title and before the maturity of such Bond. Every prior Holder of any Bond shall
be deemed to have waived and renounced all of his equities or rights therein in
favor of every such bona fide purchaser, and every such bona fide
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purchaser shall acquire absolute title thereto and to all rights represented
thereby. -----------------------------------------------------------------------
- --- SECTION 208. AUTHORIZATION OF BONDS. (A) There shall be issued under and
secured by this Trust Agreement Bonds in the aggregate initial principal amount
specified in item 1 of Exhibit B for the purpose of providing funds for paying,
with other available funds, all or a portion of the Costs. The Bonds shall (i)
be designated "Tourism Revenue Bonds, 1999 Series A, (El Conquistador Resort
Project)", (ii) consist of three classes in the amounts and maturities specified
on Exhibit B; and (iii) dated the Date of Issuance and numbered from RA-0001
upwards .-----------------------------------------------------------------------
- ------ (B) The principal of the Bonds shall be payable on the corresponding
Principal Payment Date. --------------------------------------------------------
- ------ (C) The Bonds shall (i) be in the principal amounts, (ii) bear interest
(in the case of Serial Bonds and Term Bonds) or yield (in the case of Capital
Appreciation Bonds) at various rates per annum, payable on the Interest Payment
Dates commencing on the Initial Interest Payment Date, (iii) have Maturity
Dates, subject to the right of prior redemption, as set forth in Exhibit B. ----
- ------ (D) The Bonds shall be executed substantially in the form and manner set
forth in Exhibit A and shall be deposited with the Trustee for authentication,
but before the Trustee shall authenticate and deliver same there shall be filed
with the Trustee the following: ------------------------------------------------
- -------- (i) a copy, certified by the Secretary, of the resolution of the Board
awarding the Bonds, specifying the interest rate or rates (in the case of Serial
Bonds and Term Bonds) or yield (in the case of Capital Appreciation Bonds) and
the Amortization Requirements therefor, and directing their authentication and
delivery to or upon the order of the purchasers mentioned therein upon payment
of the purchase price therein set forth; ---------------------------------------
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- -------- (ii) an executed counterpart of the Loan Agreement; -------------------
- --------(iii) executed counterparts or simple copies (in the case of deeds) of
the other Related Documents; ---------------------------------------------------
- -------- (iv) an opinion of counsel to the Borrower that, as to each of the
Related Documents: (a) the Borrower has full power to enter there into, (b) the
execution and delivery thereof has been duly authorized by the Borrower, (c) it
has been duly executed by the Borrower in the form so authorized, and (d)
assuming proper authorization and execution thereof by the other parties
thereto, it is valid, binding and enforceable against the Borrower in accordance
with its terms, except to the extent that the enforceability thereof may be
limited by bankruptcy, insolvency or other laws affecting creditors' rights
generally and subject to general principles of equity (regardless of whether
said enforceability is considered in a proceeding in equity or at law); --------
- -------- (v) an opinion of counsel, who may be counsel for the Authority,
addressed to the Trustee, to the effect that (a) the Authority has the legal
right and power to enter into and has duly authorized, validly executed and
delivered, this Trust Agreement and the Related Documents to which it is a
party, and each of such agreements and documents is legally valid and binding
upon the Authority and enforceable against the Authority in accordance with its
terms, except to the extent that the enforceability thereof may be limited by
bankruptcy, insolvency or other laws affecting creditors' rights generally and
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law), (b) this
Trust Agreement creates a legally valid and effective Grant of the Trust Estate,
subject to the application thereof to the purposes and on the conditions
permitted by this Trust Agreement, and that no filing or recording of any
document is necessary in order to make such Grant
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effective or to continue it in effect (or specifying the place or places, if
any, where such filing or recording is necessary and furnishing any officially
authenticated certificates, or other documents, by which such filing or
recording is evidenced), (c) the issuance of the Bonds will not violate any
provision of law or of the by-laws of the Authority or result in the breach of,
or constitute a default under, any agreement, indenture or other instrument to
which the Authority is a party or by which it may be bound, (d) no
authorization, consent or approval or withholding of objection of any
governmental body or regulatory authority is requisite to the legal issue of
said Bonds (unless such opinion shall show that no such authorization, consent
or approval or withholding of objection is requisite to the legal issue of the
Bonds, it shall specify and furnish any officially authenticated certificates,
or other documents, by which such authorization, consent or approval or
withholding of objection is evidenced), (e) the Bonds are legally valid and
binding direct obligations of the Authority in accordance with their terms and
the terms of this Trust Agreement and have been duly and validly authorized and
issued in accordance with applicable law and this Trust Agreement, and (f) the
conditions precedent to the delivery of the Bonds have been fulfilled, and
covering such other matters as the Trustee may reasonably request; and ---------
- -------- (vi) such other opinions and certificates as the Trustee reasonably
requests. ----------------------------------------------------------------------
- --- When the documents mentioned above in this Section shall have been filed
with the Trustee and when the Bonds shall have been executed and authenticated
as required by this Trust Agreement, the Trustee shall deliver the Bonds at one
time or from time to time to or upon the order of the purchasers named in the
resolution mentioned in clause (i) of Section 208 (D), but only upon payment to
the Trustee of the purchase price of said
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Bonds. -------------------------------------------------------------------------
- ------ (E) The Trustee shall apply the proceeds of the Bonds (net of the
Underwriter's discount) as follows: ---(i) the Reserve Fund Amount to the credit
of the Reserve Fund; and (ii) the remainder to the credit of the Project Fund.--
- --- SECTION 209. TEMPORARY BONDS. (A) Until definitive Bonds are ready for
delivery, there may be executed, and upon request of the Authority the Trustee
shall authenticate and deliver, in lieu of definitive Bonds and subject to the
same limitations and conditions, one or more temporary printed, typewritten,
engraved or lithographed Bonds, in fully registered form without coupons in such
denomination(s), equal to the Aggregate Principal Amount, with payment record
attached for the notation of payments of interest, without presentation and
surrender of such Bond, as the Authority by resolution may provide,
substantially of the tenor hereinabove set forth and with such appropriate
omissions, insertions and variations as may be required. -----------------------
- ------ (B) If temporary Bonds shall be issued, the Authority shall cause the
definitive Bonds to be prepared and to be executed and delivered to the Trustee,
and the Trustee, upon presentation to it at the Corporate Trust Office, of any
temporary Bond, shall cancel the same and authenticate and deliver in exchange
therefor at the place designated by the Holder, without charge to the Holder
thereof, a definitive Bond or Bonds of an equal principal amount and Maturity
Date as the temporary Bond surrendered. Until so exchanged the temporary Bonds
shall in all respects be entitled to the same benefit of this Trust Agreement as
the corresponding definitive Bonds to be issued and authenticated hereunder. No
charge of any kind shall be made against the Holder upon an exchange of a
temporary Bond for a definitive Bond. ------------------------------------------
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- --- SECTION 210. MUTILATED, DESTROYED OR LOST BONDS. (A) A mutilated Bond may be
surrendered and thereupon the Authority shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Bond of like tenor and
principal amount. --------------------------------------------------------------
- ----- (B) If there be delivered to the Authority, the Borrower and to the
Trustee: -----------------------------------------------------------------------
- ------- (i) evidence to their satisfaction of the destruction or loss of any
Bond, and ----------------------------------------------------------------------
- ------- (ii) such security or indemnity as may be required by them to save each
of them harmless, then, in the absence of notice to the Authority or the Trustee
that such Bond has been acquired by a bona fide purchaser, the Authority shall
execute and upon its request the Trustee shall authenticate and deliver in lieu
of any such destroyed or lost Bond, a new Bond of like tenor and principal
amount. In case any such mutilated, destroyed or lost Bond has become or is
about to become due and payable, the Authority in its discretion, instead of
issuing a new Bond, may pay such Bond. -----------------------------------------
- ----- (C) Upon the issuance of any new Bond under this Section, the Authority
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.--
- --- SECTION 211. BOOK-ENTRY BONDS. (i) Except as provided in subparagraph (iii)
of this Section 211, the Holder of all Bonds shall be the Securities Depository
and, as long as the Securities Depository shall be DTC, the Holder shall be Cede
& Co., as nominee for DTC. Payment of interest for any Bond registered in the
name of Cede & Co. shall be made to the account of Cede & Co. at the address
indicated for Cede & Co. in the registration books kept by the Trustee. The
"Bonds" referred to in this
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Section 211 shall refer to all Book-Entry Bonds. -------------------------------
- -------(ii) The Bonds shall be initially issued in the form of separate, single,
authenticated fully-registered Bonds in the amount of each separately stated
maturity. As long as certificates for the Bonds are not issued pursuant to this
Section 211, the Trustee and the Authority may treat the Securities Depository
(or its nominee) as the sole and exclusive owner of the Bonds registered in its
name for the purposes of payment of the principal or Redemption Price (and
premium, if any) of or interest on the Bonds, selecting the Bonds or portions
thereof to be redeemed, giving any notice permitted or required to be given to
the owners of such Bonds hereunder, registering the transfer of Bonds, obtaining
any consent or other action to be taken by Bondholders and for all other
purposes whatsoever; and neither the Trustee nor the Authority shall have any
responsibility or obligation to any Participant, any Beneficial Owner or any
other Person claiming a beneficial ownership interest in the Bonds under or
through the Securities Depository or any Participant, or any other Person which
is not shown on the registration books of the Trustee as being an owner of
Bonds, with respect to the accuracy of any records maintained by the Securities
Depository or any Participant; the payment to the Securities Depository or any
Participant of any amount in respect of the principal or Redemption Price (and
premium, if any) of or interest on the Bonds; any notice which is permitted or
required to be given to the Bondholders; the selection by the Securities
Depository or any Participant of any Person to receive payment in the event of a
partial redemption of the Bonds; or any consent given or other action taken by
the Securities Depository as owner of Bonds. The Trustee shall pay all principal
and Redemption Price (and premium, if any) of and interest on the Bonds only to
or "upon the order of" the Securities Depository (as that term is used in the
Uniform Commercial Code as
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adopted in the State of New York), and all such payments shall be valid and
effective to fully satisfy and discharge the Authority's obligations with
respect to the principal or Redemption Price (and premium, if any) of and
interest on the Bonds to the extent of the sum or sums so paid. Except as
provided in (iii) below, no Person other than the Securities Depository shall
receive an authenticated Bond for each separate Maturity Date evidencing the
obligation of the Authority to make payments of the applicable principal amount.
Upon delivery by the Securities Depository to the Trustee of notice to the
effect that the Securities Depository has determined to substitute a new nominee
in place of Cede & Co., the Bonds will be transferable to such new nominee in
accordance with subparagraph (vi) below. ---------------------------------------
- -------(iii) In the event the Authority determines that it is in the best
interest of the Authority not to continue the book-entry system of transfer for
the Bonds or that the interest of the owners of the Bonds might be adversely
affected if the book-entry system of transfer is continued, the Authority may
notify the Securities Depository and the Trustee, whereupon the Securities
Depository will notify the Participants, of the availability through the
Securities Depository of certificates for the Bonds. In such event, the Trustee
shall issue, transfer and exchange certificates for the Bonds as requested by
the Securities Depository and any Participant or Beneficial Owner in appropriate
amounts in accordance with subparagraph (vi) below. The Securities Depository
may determine to discontinue providing its services with respect to the Bonds at
any time by giving notice to the Authority and the Trustee and discharging its
responsibilities with respect thereto under applicable law, or the Authority may
determine that the Securities Depository is incapable of discharging its
responsibilities and may so advise the Securities Depository. In either such
event, the Authority shall either establish its own book-entry system or use
reasonable efforts to
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locate another Securities Depository. Under such circumstances (if there is no
successor securities depository), the Authority and the Trustee shall be
obligated to deliver certificates for the Bonds with respect to such series of
Bonds as described in subparagraph (vi) below. In the event certificates for the
Bonds are issued, the provisions of this Agreement shall apply to, among other
things, the printing of certificates, the transfer and exchange of such
certificates and the method of payment of principal or Redemption Price (and
premium, if any) of and interest on such certificates. Whenever the Securities
Depository requests the Authority and the Trustee to do so, the Trustee and the
Authority will cooperate with the Securities Depository in taking appropriate
action after reasonable notice (A) to make available one or more separate
certificates evidencing the Bonds to any Participant having Bonds credited to
its account with the Securities Depository, or (B) to arrange for another
Securities Depository to maintain custody of certificates evidencing the Bonds.
- -------(iv) Notwithstanding any other provision of this Agreement to the
contrary, so long as any Bond is registered in the name of Cede & Co., as
nominee of DTC, all payments with respect to the principal or Redemption Price
(and premium, if any) of and interest on such Bond and all notices with respect
to such Bond shall be made and given, respectively, to DTC as provided in the
DTC Representation Letter.------------------------------------------------------
- -------(v) In connection with any notice or other communication to be provided
to owners of Bonds pursuant to this Agreement by the Authority or the Trustee or
with respect to any consent or other action to be taken by owners of Bonds, the
Authority or the Trustee, as the case may be, shall establish a record date for
such consent or other action and give the Securities Depository notice of such
record date not less than 15 calendar days in advance of such record date to the
extent possible. Such notice to
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the Securities Depository shall be given only when the Securities Depository is
the sole Bondholder. -----------------------------------------------------------
- -------(vi) In the event that any transfer or exchange of Bonds is permitted
under subparagraph (ii) or (iii) hereof, such transfer or exchange shall be
accomplished upon receipt by the Trustee from the registered owner thereof of
the Bonds to be transferred or exchanged and appropriate instruments of transfer
to the permitted transferee, all in accordance with the applicable provisions of
this Trust Agreement. Each Bond shall bear a legend substantially to the
following effect: "Except as otherwise provided in Section 211 of the Trust
Agreement, this bond may be transferred, in whole but not in part, only to
another nominee of the Securities Depository (as defined in the Trust Agreement)
or to a successor Securities Depository or to a nominee of a successor
Securities Depository." --------------------------------------------------------
- ----------------------------------- ARTICLE III --------------------------------
- ------------------------------ REDEMPTION OF BONDS; ----------------------------
- --- SECTION 301. REDEMPTION OF BONDS. (A) The Bonds shall not be subject to
redemption prior to their maturity except as provided in this Article III. -----
- ----- (B) The Bonds shall be called for redemption in whole at the Redemption
Price, without premium, in the event the Borrower shall have become obligated to
prepay the entire amount payable under Section 4.01 of the Loan Agreement in
accordance with: ---------------------------------------------------------------
- -------- (i) Section 8.02(a) of the Loan Agreement due to the cessation of
operation of the Project, on the next Interest Payment Date occurring not less
than 45 days after the Borrower becomes so obligated; or -----------------------
- -------- (ii) Section 8.02 (b) of the Loan Agreement, not later than 45 days
after the second occurrence of an Event of Taxability. -------------------------
- ----- (C) The Bonds shall be called for redemption in whole or in part, at the
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Redemption Price, without premium, in the event the Borrower shall have become
obligated to prepay any amount payable under Section 4.01 of the Loan Agreement
in accordance with Section 8.02(c) of the Loan Agreement due to the occurrence
of a Taking or a Casualty (both as defined in the Loan Agreement), on the next
Interest Payment Date occurring not less than 45 days after receipt by the
Trustee of the notice delivered pursuant to said Section 8.02(c) of the Loan
Agreement. ---------------------------------------------------------------------
- ----- (D) The Bonds shall be called for redemption in whole or in part, as
directed by the Borrower in the event that the Authority and the Trustee shall
have received notice pursuant to Section 8.01(a) of the Loan Agreement that the
Borrower has elected to prepay all or a portion of the amounts payable under
Section 4.01 of the Loan Agreement pursuant to Section 8.01(a) of the Loan
Agreement and the Borrower shall have complied with the provisions of Section
8.01 of the Loan Agreement, on any Interest Payment Date (which shall not be
less than 45 days from the date such notice is received by the Trustee) selected
by the Borrower, on or after [ ] one (1), two thousand nine (2009) at the
Redemption Price plus a premium of (i) two percent (2%) if redeemed prior to
[ ] one (1) two thousand ten (2010), (ii) one percent (1%) if redeemed on
or after [ ] one (1) two thousand ten (2010) and prior to [ ]
thirty [ (3)] two thousand eleven (2011), and without premium if redeemed on
or after [ ] one (1) two thousand eleven (2011). -----------------------
- -----(E) The Term Bonds shall be called for redemption in part on the dates
specified in Exhibit B under "Amortization Requirements"..----------------------
- ----- (F) Except in the case of a mandatory redemption of Term Bonds pursuant to
(E) above, if fewer than all of the Outstanding Bonds shall be called for
redemption, the Bonds shall be called in inverse order of maturity. If fewer
than all of the Outstanding Bonds of the same Maturity Date shall
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be called for redemption, the Bonds or portions thereof of such Maturity Date to
be redeemed shall be selected by the Trustee by such method as the Trustee shall
deem fair and appropriate; provided, however, that the portion of any Bond to be
redeemed shall be in Authorized Denominations, and that, in selecting Bonds for
redemption, the Trustee shall treat each Bond as representing that number of
Bonds that is obtained by dividing the principal amount of such Bond by Five
Thousand Dollars ($5,000). -----------------------------------------------------
- --- SECTION 302. REDEMPTION NOTICE. At least 30 days before the redemption date
of any Bonds the Trustee shall cause a notice, signed by it, of any such
redemption, either in whole or in part, to be given to all Bondholders whose
Bonds are to be redeemed. Each such notice shall set forth (i) the date fixed
for redemption, (ii) the Redemption Price (plus premium, if any) to be paid,
(iii) if less than all of the Outstanding Bonds shall be called for redemption,
the distinctive numbers and letters, if any, of such Bonds to be redeemed and,
in the case of Bonds to be redeemed in part only, the portion of the principal
amount thereof to be redeemed, (iv) that on the date fixed for redemption such
Redemption Price (plus premium, if any) will become due and payable upon each
Bond or portion thereof called for redemption, and that interest thereon shall
cease to accrue on and after said redemption date , (v) the place where such
Bonds are to be surrendered for payment of such Redemption Price (plus premium,
if any); and (vi) whether the redemption is effected by reason of the second
occurrence of an Event of Taxability; and shall otherwise comply with Securities
Exchange Act of 1934 Release No. 34-23856, dated December 3, 1986 (the
"Redemption Release"). In case any Bond is to be redeemed in part only, the
notice of redemption which relates to such Bond shall state also that on or
after the redemption date, upon surrender of such Bond, a new Bond or Bonds in a
principal amount equal to the unredeemed portion of such Bond
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will be issued. Failure to comply with the requirements of the Redemption
Release or any defect thereon shall not affect the validity of the proceedings
for the redemption of the Bonds. Failure to give redemption notice to any Holder
or any defect in any notice so given shall not affect the validity of the
proceedings for the redemption of the Bonds of any other Holders. --------------
- --- SECTION 303. EFFECT OF CALLING FOR REDEMPTION. On the date so designated for
redemption, notice having been given in the manner and under the conditions
hereinabove provided, the Bonds or portions of Bonds so called for redemption:
(i) shall become and be due and payable at the Redemption Price (plus premium,
if any) provided for redemption thereof on such date; and (ii) if sufficient
moneys for payment of the Redemption Price (plus premium, if any) are held in
separate accounts by the Trustee in trust for the Holders thereof, as provided
in this Trust Agreement, interest thereon shall cease to accrue, and said Bonds
shall cease to be entitled to any benefits or security under this Trust
Agreement or to be deemed Outstanding, and their Holders shall have no rights in
respect thereof, except to the extent provided in Section 304, to receive Bonds
for any unredeemed portions of the Bonds. Bonds and portions of Bonds for which
irrevocable instruction to pay or to call for redemption on one or more
specified dates have been given to the Trustee in form satisfactory to it shall
not thereafter be deemed to be Outstanding and shall cease to be entitled to the
security of or any rights under this Trust Agreement, other than rights to
receive payment of the Redemption Price thereof and premium, if any, and accrued
interest thereon, to be given notice of redemption in the manner provided in
Section 302, and, to the extent hereinafter provided, to receive Bonds for any
unredeemed portions of Bonds if moneys or Government Obligations, or a
combination of both, sufficient to pay the Redemption Price (plus premium, if
any) of such Bonds or portions thereof, are held in
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separate accounts by the Trustee in trust for the Holders thereof.--------------
- --- SECTION 304. REDEMPTION OF PORTIONS OF THE BONDS. In case part but not all
of an Outstanding Bond shall be selected for redemption, the Holder or his legal
representative shall present and surrender such Bond to the Trustee for payment
of the Redemption Price (plus premium, if any) thereof, and the Authority shall
execute and the Trustee shall authenticate and deliver to or upon the order to
such Holder or his legal representative, without charge therefor, for the
unredeemed portion of the principal amount of the Bond so surrendered, a new
Bond or Bonds of the same Maturity, of any Authorized Denomination and in an
amount equal to the unredeemed principal amount of the surrendered Bond. -------
- ------------------------------------ ARTICLE IV --------------------------------
- ---------------------------------- PROJECT FUND --------------------------------
- --- SECTION 401. PROJECT FUND. (A) A special fund is hereby created and
designated the "Tourism Revenue Bonds, 1999 Series A (El Conquistador Resort
Project) Project Fund", to the credit of which such deposits shall made as are
required by the provisions of Section 208 and Sections 5.23 and 5.24 of the Loan
Agreement. Any moneys received by the Trustee from any other source for the
Project shall also be deposited to the credit of the Project Fund. -------------
- ------ (B) Subject to the provisions of Sections 404, 406 and 602, the moneys in
the Project Fund shall be held by the Trustee in trust and shall be subject to a
lien and charge in favor of the Holders of the Outstanding Bonds, and for the
further security of such Holders, until paid out or transferred as herein
provided. ----------------------------------------------------------------------
- ------ (C) The Trustee shall establish a separate account or subaccount within
the Project Fund corresponding to the source of moneys specified in Section 5.23
and 5.24 of the Loan Agreement for each deposit made into the
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Project Fund so that the Trustee may at all times ascertain the source and date
of deposit of the funds in each such account or subaccount. The Project Fund and
its accounts and sub-accounts shall be held separate and apart from each other
and from all funds, accounts and subaccounts created by or pursuant to this
Trust Agreement. Amounts on deposit on said accounts or subaccounts shall not be
commingled with each other or with any other fund, account or subaccount created
by or pursuant to the provisions of this Trust Agreement. ----------------------
- --- SECTION 402. PAYMENTS FROM PROJECT FUND. Monies deposited to the credit of
the Project Fund (i) pursuant to Section 208 shall be disbursed for the payment
of the Costs and (ii) pursuant to Sections 5.23 and 5.24 of the Loan Agreement
shall be disbursed as provided thereunder. All payments form the Project Fund
shall be subject to the provisions and restrictions set forth in this Article.
- --- SECTION 403. [RESERVED]
- --- SECTION 404. REQUISITES FOR PAYMENTS FROM PROJECT FUND. --------------------
(A) Payments from the Project Fund pursuant to Section 402 (ii) shall be made by
the Trustee upon the order of the Borrower in accordance with the provisions of
this Section, but no such payment shall be made unless and until the Trustee
shall receive a requisition (up to a maximum of two (2) per calendar month),
prepared and signed by the Authorized Borrower Representative, stating: --------
- -------- (i) the item number of each such payment, -----------------------------
- -------- (ii) the name of the Person (including the Borrower) to whom each such
payment is due, ----------------------------------------------------------------
- -------- (iii) the respective amounts to be paid, ------------------------------
- --------(iv) a certification issued by the Department of the Treasury of Puerto
Rico granting a total waiver of the taxes required to be withheld pursuant
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to the provisions of Section 1143 of the Puerto Rico Internal Revenue Code of
1994, as amended, if applicable, and -------------------------------------------
- -------- (v) that obligations in the stated amounts have been incurred and are
presently due and payable, or reimbursable to the Borrower, and that each item
thereof is a proper charge against the Project Fund and has not been paid from
the Project Fund. --------------------------------------------------------------
- ------ (B) Within three (3) Business Days after receipt of any such order and
accompanying requisition, the Trustee shall pay such obligation from the Project
Fund. If prior to payment of any item in a requisition the Borrower should for
any reason desire not to pay such item, the Borrower shall give notice of such
decision to the Trustee. -------------------------------------------------------
- ------ (C) In making any disbursement, the Trustee shall pay each such
obligation directly to the Borrower or to any payee designated by the Authorized
Borrower Representative, as set forth in the order of the Borrower directing
such disbursement. -------------------------------------------------------------
- --- SECTION 405. RELIANCE ON REQUISITIONS. All requisitions and orders received
by the Trustee, as required in this Article as conditions of payment from the
Project Fund, may be relied upon by the Trustee, subject at all reasonable times
to examination by the Borrower, the Authority, any Bondholder and the agents and
representatives thereof. -------------------------------------------------------
- --- SECTION 406. BALANCE IN PROJECT FUND. --------------------------------------
- ------ (A) In the event that the Borrower exercises the option under Section
8.01 of the Loan Agreement to prepay in full the amounts payable under Section
4.01 of the Loan Agreement, the Trustee shall, upon the direction of the
Borrower, deposit into the Bond Fund, on the date the prepayment is made, any
moneys remaining in the Project Fund. ------------------------------------------
- ------ (B) If the principal amount of all Outstanding Bonds shall have become
due and payable pursuant to a declaration in accordance with
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Section 803 or the giving of a redemption notice pursuant to Section 301, the
Trustee shall deposit in the Bond Fund any balance remaining in the Project
Fund. --------------------------------------------------------------------------
- ----- (C) Any balance in the Project Fund derived from monies deposited pursuant
to Sections 5.23 and 5.24 of the Loan Agreement shall be applied as provided
thereunder. --------------------------------------------------------------------
- ---------------------------------- ARTICLE V -----------------------------------
- ------------------- BOND FUND, RESERVE FUND, RENEWAL AND -----------------------
- --------------------REPLACEMENT FUND, AND INSURANCE FUND -----------------------
- --- SECTION 501. CREATION OF BOND FUND. A special fund is hereby created and
designated "Tourism Revenue Bonds, 1999 Series A (El Conquistador Resort
Project) Bond Fund". The moneys in the Bond Fund shall be held by the Trustee in
trust and applied as hereinafter provided and, pending such application, shall
be subject to a lien and charge in favor, and for the further security, of the
Holders, until paid out or transferred as herein provided. ----
- --- SECTION 502. PAYMENTS INTO BOND FUND. --------------------------------------
- ------ (A) There shall be deposited to the credit of the Bond Fund:-------------
(i) accrued interest, if any, on the Bonds paid by the purchasers thereof; -----
(ii) all amount paid pursuant to Section 4.01, 8.01 and 8.02 of the Loan
Agreement; (iii) any amount in the Project Fund to be transferred to the Bond
Fund in accordance with the provisions of Section 406; (iv) all amounts derived
from the Related Documents, which are due and payable to the Trustee thereunder;
and (iv) all other moneys received by the Trustee under and pursuant to any of
the provisions of the Loan Agreement or otherwise which are permitted or
required, or are accompanied by directions from the Borrower or the Authority
that such moneys are to be paid into the Bond Fund. ----------------------------
- ------ (B) The Trustee shall establish a separate account or subaccount within
the Bond Fund corresponding to the source of moneys specified in
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Section 502 for each deposit made into the Bond Fund so that the Trustee may at
all times ascertain the source and date of deposit of the funds in each such
account or subaccount. The Bond Fund and its accounts and sub- accounts shall be
held separate and apart from each other and from all funds, accounts and
subaccounts created by or pursuant to this Trust Agreement. Amounts on deposit
on said accounts or subaccounts shall not be commingled with each other or with
any other fund, account or subaccount created by or pursuant to the provisions
of this Trust Agreement. -------------------------------------------------------
- ------ (C) The Trustee is authorized to receive at any time payments from the
Borrower pursuant to the Loan Agreement or otherwise for deposit in the Bond
Fund. --------------------------------------------------------------------------
- --- SECTION 503. USE OF MONEYS IN BOND FUND. -----------------------------------
- ------ (A) Except as otherwise provided in this Trust Agreement, moneys in the
Bond Fund shall be used solely for the payment of the principal (whether at
maturity or upon acceleration or redemption or otherwise) of and premium, if
any, and interest on the Bonds. On each Interest Payment Date and on each
Principal Payment Date, the Trustee shall withdraw from the Bond Fund sufficient
moneys and pay the amounts due and payable to the Bondholders pursuant to this
Trust Agreement. ---------------------------------------------------------------
- ------ (B) Any provision herein to the contrary notwithstanding, no payment of
the principal of and premium, if any, and interest on Bonds held by or on behalf
of the Borrower or any Affiliate shall be made by the Trustee. -----------------
- --- SECTION 504. MONEYS WITHDRAWN FROM BOND FUND. (A) All moneys which the
Trustee shall have withdrawn from the Bond Fund or shall have received from any
other source and set aside for the purpose of paying any of the Bonds, either at
the maturity thereof or upon call for redemption or otherwise shall be held in
the trust for the respective Holder of such Bonds.
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- ------ (B) Any moneys which shall be withdrawn or set aside under this Section
and which shall remain unclaimed by such Holder for a period of two years after
the date on which such Bond shall have become due and payable or deemed tendered
for purchase may, upon the request of the Borrower, be paid to the Borrower or
to such officer, board or body as may then be entitled by law to receive the
same. Thereafter the Holders of such Bonds shall look only to the Borrower or to
such officer, board or body, as the case may be, for payment and then only to
the extent of the amount so received without any interest thereon, and the
Authority and the Trustee shall have no responsibility with respect to such
moneys. Until paid as aforesaid, any moneys so withdrawn or set aside shall be
invested as the Trustee and the Borrower may agree. ----------------------------
- --- SECTION 505. CREATION OF RESERVE FUND. A special fund is hereby created and
designated "Tourism Revenue Bonds, 1999 Series A (El Conquistador Resort
Project) Reserve Fund". The moneys in the Reserve Fund shall be held by the
Trustee in trust for the benefit of the Bondholders, and applied as hereinafter
provided.-----------------------------------------------------------------------
- --- SECTION 506. PAYMENTS INTO RESERVE FUND. -----------------------------------
- ----(A) There shall be deposited to the credit of the Reserve Fund: (i) the
amount required to be deposited pursuant to Section 208; and (ii) all amounts
paid by the Borrower pursuant to Section 4.01(b) (ii) of the Loan Agreement and
Section 508; -------------------------------------------------------------------
- ----(B) The Trustee shall establish a separate account or subaccount within the
Reserve Fund corresponding to each source of the moneys specified in this
Section 506 for each deposit made into the Reserve Fund so that the Trustee may
at all times ascertain the source and date of deposits of the funds in each
account or subaccount.----------------------------------------------------------
- ----(C) The Trustee is authorized to receive at any time payments from the
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<PAGE>
Borrower pursuant to the Loan Agreement or otherwise for deposit in the Reserve
Fund. --------------------------------------------------------------------------
- ---- SECTION 507. APPLICATION OF MONEYS IN RESERVE FUND. (A) Except as provided
in Subsection (B) of this Section, moneys held to the credit of the Reserve Fund
shall be held in trust and applied by the Trustee and are charged with, the
payments provided in Section 503 (A) to the extent moneys held to the credit of
the Bond Fund are insufficient for the purposes established therein, provided
that moneys to the credit of the Reserve Fund shall not be applied to the
payment of any redemption premium. ---------------------------------------------
- ----(B) The Trustee shall, on each Payment Date, withdraw from the Reserve Fund
sufficient moneys and pay the amounts due and payable to the Bondholders, as
provided in this Trust Agreement, to the extent moneys held to the credit of the
Bond Fund are insufficient therefor.--------------------------------------------
- ----(C) Upon Payment of the Bonds and payment of all of the Borrower's
obligations under this Trust Agreement and the Related Documents, any moneys to
the credit of the Reserve Fund shall be promptly delivered to the Borrower. ----
- --- SECTION 508. RESERVE FUND MAINTENANCE OF MARGIN, OVERAGE OR DEFICIENCY;
NOTICE TO BORROWER.-------------------------------------------------------------
- ----(A) The sum of the Fair Market Value of the Investment Obligations and the
moneys held to the credit of the Reserve Fund will, at all times, be at least
equal to the Reserve Fund Amount.-----------------------------------------------
- --(B) Commencing [ ( )], nineteen ninety nine (1999), and on each
[ ( )] thereafter, the Trustee will determine the Fair Market Value
of the Investment Obligations then held to the credit of the Reserve Fund. -----
- ----(C) The Trustee on the Business Day immediately succeeding each such
[ ( )] shall: (i) if the moneys deposited, and the Fair
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Market Value of the Investment Obligations held to the credit of the Reserve
Fund shall be less than the Reserve Fund Amount, give notice thereof to the
Borrower and the Rating Agency, specifying therein the amount of the deficiency;
or (ii) if the moneys held to the credit of the Reserve Fund is in excess of the
Reserve Fund Amount, give notice thereof to the Borrower and transfer such
excess amount to the Bond Fund.-------------------------------------------------
- ----(D) The Trustee on the Business Day immediately succeeding each Payment
Date, if the moneys deposited to the credit of the Reserve Fund shall be less
than the Reserve Fund Amount as a result of moneys withdrawn from the Reserve
Fund, shall give notice thereof to the Borrower and the Rating Agency,
specifying therein the amount of deficiency.------------------------------------
- --- SECTION 509. CREATION OF RENEWAL AND REPLACEMENT FUND. A special fund is
hereby created and designated "Tourism Revenue Bonds, 1999 Series A (El
Conquistador Resort Project) Renewal and Replacement Fund". The moneys in the
Renewal and Replacement Fund shall be held by the Trustee in trust for the
benefit of the Bondholders, and applied as hereinafter provided. ---------------
- --- SECTION 510. PAYMENTS INTO RENEWAL AND REPLACEMENT FUND. -- There shall be
deposited to the credit of the Renewal and Replacement Fund all amounts paid by
the Borrower pursuant to Section 4.01(b) (iii), (iv) and (v) of the Loan
Agreement. ---------------------------------------------------------------------
- --- SECTION 511. APPLICATION OF MONEYS IN RENEWAL AND REPLACEMENT FUND. Moneys
held to the credit of the Renewal and Replacement Fund shall be held in trust
and applied by the Trustee and are charged with, the payment of repair, renewal
and replacement of furniture, fixture, equipment and maintenance for the
Project; and moneys to the credit thereof shall be paid by the Trustee to the
Borrower no later than two Business Days after the presentation of a letter
signed by the Authorized Borrower
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<PAGE>
Representative certifying the invoices therefor and the amount to be disbursed.
- --- SECTION 512. RENEWAL AND REPLACEMENT FUND MAINTENANCE OF MARGIN, OVERAGE OR
DEFICIENCY; NOTICE TO BORROWER. Commencing on the Interest Payment Date
immediately succeeding the Interest Payment Date in which amounts deposited to
the credit of the Renewal and Replacement Fund aggregate the Renewal and
Replacement Fund Amount, and on each Principal Payment Date thereafter, the
Trustee will determine the Fair Market Value of the Investment Obligations then
held to the credit of the Renewal and Replacement Fund. The Trustee on the
Business Day immediately succeeding each such determination date shall: (i) if
the moneys deposited, and the Fair Market Value of the Investment Obligations
held to the credit of the Renewal and Replacement Fund shall be less than the
Renewal and Replacement Fund Amount due to a decrease in such Fair Market Value,
give notice thereof to the Borrower and the Rating Agency, specifying therein
the amount of the deficiency; or (ii) if the moneys held to the credit of the
Renewal and Replacement Fund is in excess of the Renewal and Replacement Fund
Amount, give notice thereof to the Borrower and transfer such excess amount to
the Bond Fund.------------------------------------------------------------------
- --- SECTION 513. CREATION OF INSURANCE FUND. A special fund is hereby created
and designated "Tourism Revenue Bonds, 1999 Series A (El Conquistador Resort
Project) Insurance Fund". The moneys in the Insurance Fund shall be held by the
Trustee in trust for the benefit of the Bondholders, and applied as hereinafter
provided.-----------------------------------------------------------------------
- ---- SECTION 514. PAYMENTS INTO INSURANCE FUND. --------------------------------
- --------(A) There shall be deposited to the credit of the Insurance Fund all
amounts paid by the Borrower pursuant to Section 5.21 (i) of the Loan Agreement
and Section 516. ---------------------------------------------------------------
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<PAGE>
- ------ SECTION 515. APPLICATION OF MONEYS IN INSURANCE FUND. (A) Moneys held to
the credit of the Insurance Fund shall be held in trust and applied by the
Trustee and are charged with, the payment of (i) the payments provided in
Section 503 (A) to the extent moneys held to the credit of the Bond Fund and the
Reserve Fund are insufficient for the purposes established therein, provided
that moneys to the credit of the Insurance Fund shall not be applied to the
payment of any redemption premium; (ii) the repair, renewal and replacement of
furniture, fixture, equipment and maintenance for the Project to the extent that
moneys held to the credit of the Renewal and Replacement Fund are insufficient
for such purposes (in which case, moneys to the credit of the Insurance Fund
shall be paid by the Trustee to the Borrower no later than two Business Days
after the presentation of a letter signed by the Authorized Borrower
Representative certifying the invoices therefor and the amount to be disbursed),
and (iii) for the Restoration (as defined in the Loan Agreement) (in which case,
moneys held to the credit of the Insurance Fund shall be disbursed in accordance
with the provisions of 404 (A). ------------------------------------------------
- --- (B) Moneys to the credit of the Insurance Fund shall be paid by the Trustee
to the Borrower, no later than two (2) Business Days after the presentation of a
certificate executed by the Insurance Consultant evidencing that the Borrower is
in full compliance with the provisions of Section 5.21 of the Loan
Agreement.----------------------------------------------------------------------
- --- SECTION 516. INSURANCE FUND MAINTENANCE OF MARGIN, OVERAGE OR DEFICIENCY;
NOTICE TO BORROWER.-------------------------------------------------------------
- ----(A) The sum of the Fair Market Value of the Investment Obligations and the
moneys held to the credit of the Insurance Fund will at all times after the
amounts deposited to the credit thereof aggregate the principal amount of the
Bonds then Outstanding, be at least equal to the principal amount of the
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<PAGE>
Bonds Outstanding on any date of computation provided for in this Section
516.----------------------------------------------------------------------------
- ----(B) Commencing on the Interest Payment Date immediately succeeding the date
the amounts deposited to the credit of the Insurance Fund aggregate the
principal amount of the Bonds then Outstanding, and on each Principal Payment
Date thereafter, the Trustee will determine the Fair Market Value of the
Investment Obligations then held to the credit of the Insurance Fund. The
Trustee on the Business Day immediately succeeding each such determination date
shall: (i) if the moneys deposited, and the Fair Market Value of the Investment
Obligations held to the credit of the Renewal and Replacement Fund shall be less
than the aggregate principal amount of the Bonds then Outstanding, give notice
thereof to the Borrower and the Rating Agency, specifying therein the amount of
the deficiency; or (ii) if the moneys held to the credit of the Insurance Fund
is in excess of such aggregate principal amount, give notice thereof to the
Borrower and transfer such excess amount to the Bond Fund. ---------------------
- ----(C) Commencing on the Interest Payment Date immediately succeeding the date
the amounts deposited to the credit of the Insurance Fund aggregate the
principal amount of the Bonds then Outstanding, and thereafter on each Business
Day immediately succeeding each date moneys to the credit of the Insurance Fund
are disbursed in accordance with Section 515, if the moneys deposited to the
credit of the Insurance Fund shall be less than the aggregate principal amount
of the Bonds then Outstanding as a result of moneys withdrawn from the Insurance
Fund, the Trustee shall give notice thereof to the Borrower and the Rating
Agency, specifying therein the amount of deficiency. ---------------------------
- --- SECTION 517. CANCELLATION OF BONDS UPON PAYMENT. All Bonds paid or redeemed,
either at or before maturity shall be delivered to the Trustee
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<PAGE>
for cancellation and shall be canceled. All Bonds canceled under any of the
provisions of this Trust Agreement shall be held by the Trustee until such time
as they are destroyed by the Trustee. The Trustee shall execute a certificate in
triplicate describing the Bonds so destroyed, and an executed certificate shall
be filed with each of the Authority and the Borrower and the other executed
certificate shall be retained by the Trustee. ----------------------------------
- --------------------------------- ARTICLES VI ----------------------------------
- --------------- DEPOSITORIES OF MONEYS, SECURITY FOR DEPOSITS ------------------
- -------------------------- AND INVESTMENTS OF FUNDS ----------------------------
- --- SECTION 601. SECURITY FOR DEPOSITS. (A) All moneys deposited with the
Trustee under the provisions of this Trust Agreement or the Loan Agreement shall
be held in the trust and applied only in accordance with the provisions of this
Trust Agreement and the Loan Agreement and shall not be subject to the lien or
attachment by any creditor of the Authority or the Borrower. -------------------
- ------- (B) All moneys deposited with the Trustee under this Trust Agreement and
the Loan Agreement in excess of the amount guaranteed by a Federal agency shall
be continuously secured for the benefit of the Authority and the Bondholders
either (i) by lodging with a bank or trust company approved by the Authority and
the Trustee as custodian, or if then permitted by law, by setting aside under
the control of the trust department of the bank holding such deposit, as
collateral security, Government Obligations or, with the approval of the
Trustee, other marketable securities eligible as security for the deposit of
trust funds under regulations of the Comptroller of the Currency of the United
States of America, or applicable Puerto Rico or state law or regulations, having
a market value (exclusive of accrued interest) not less than the amount of such
deposit, or (ii) if the furnishing of security as provided in clause (i) of this
Section is not permitted by applicable law, in such other manner as may then be
required
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<PAGE>
or permitted by applicable Puerto Rico, state or Federal laws and regulations
regarding the security for, or granting a preference in the case of, the deposit
of trust funds. Provided, however, that it shall not be necessary for the
Trustee to give security for any moneys which shall be represented by the
investments purchased under the provisions of this Article as an investment of
such moneys. -------------------------------------------------------------------
- --- SECTION 602. INVESTMENT OF MONEYS. (A) Moneys held for the credit of all
funds and accounts established hereunder, except as provided in Article XIII
hereof, at the direction of an Authorized Borrower Representative shall be
invested and reinvested by the Trustee in Investment Obligations the income on
which constitutes income from sources within Puerto Rico under the Code,
selected by the Borrower, that mature or are subject to redemption (at the
option of the holder thereof) not later than the respective dates when moneys
held to the credit of such fund or account will be required for the purposes
intended and, in the case of the Insurance Fund, in short term obligations. ----
- ------ (B) Obligations purchased as an investment of moneys in any funds,
account or subaccount shall be deemed at all times to be part thereof and any
interest accruing and any profit realized therefrom shall be credited, and any
loss resulting from such investment shall be charged to such fund, account or
subaccount. Neither the Trustee nor the Authority shall be liable or responsible
for any loss resulting from any such investment. -------------------------------
- --------------------------------- ARTICLE VII ----------------------------------
- -------------------- PARTICULAR COVENANTS AND PROVISIONS -----------------------
- --- SECTION 701. COVENANT TO PAY BONDS; BONDS LIMITED
OBLIGATIONS OF AUTHORITY. (A) The Authority covenants that it will cause to be
paid promptly principal of, interest and all other amounts payable on every Bond
on the dates and in the manner provided herein and in said Bond, according
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<PAGE>
to the true intent and meaning thereof; provided, however, that any amount in
the Bond Fund available for any payment of principal of or interest and all
other amounts payable on the Bonds shall be credited against any amount required
to be caused by the Authority so to be paid. Except as in this Trust Agreement
otherwise provided, such principal amount, interest and other amounts are
payable solely from the payments required to be made by the Borrower under
Section 4.01 of the Loan Agreement and any other revenues and funds derived
under the Loan Agreement, this Trust Agreement and the other Related Documents
to the extent provided in this Trust Agreement, which payments under the Loan
Agreement, revenues and funds to the extent provided in this Trust Agreement are
hereby charged with the payment thereof in the manner and to the extent
hereinabove particularly specified. --------------------------------------------
- ----- (B) The Bonds and the interest and other amounts payable thereon, shall
not constitute an indebtedness of either Puerto Rico or any of its political
subdivisions, other than the Authority. The Bonds shall be payable solely from
the revenues and proceeds provided therefor, and the Authority is not obligated
to pay the Bonds or the interest thereon except from such revenues and proceeds
or other amounts and neither Puerto Rico nor any of such political subdivisions,
other than the Authority, shall be liable thereon. -----------------------------
- --- SECTION 702. COVENANT TO PERFORM OBLIGATIONS UNDER THIS TRUST AGREEMENT AND
THE RELATED DOCUMENTS. The Authority represents, warrants, and covenants that:
(i) it will faithfully perform at all times any and all covenants, undertakings,
stipulations and provisions on its part to be observed or performed contained in
this Trust Agreement, in the Bonds, in all proceedings of the Authority
pertaining thereto and filed with the Trustee and in the Related Documents to
which it is a party; (ii) is it duly authorized under the laws of Puerto Rico,
including particularly and without limitation
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<PAGE>
the Act, to issue the Bonds and to enter into this Trust Agreement and the
Related Documents to which it is a party, to assign the payments and other funds
derived from the Related Documents and otherwise in the manner and to the extent
herein set forth; (iii) all action on its part for the issuance of the Bonds,
the execution and delivery of this Trust Agreement and the Related Documents to
which it is a party and the Grant of the payments and other funds as provided
herein has been duly and effectively taken; and (iv) each Bond in the hands of
the owners thereof is and will be a valid and enforceable obligation of the
Authority according to the tenor and import thereof. ---------------------------
- --- SECTION 703. COVENANTS TO PERFORM FURTHER ACTS. The Authority covenants that
it will do, execute, acknowledge and deliver or cause to be done, executed,
acknowledged and delivered such agreements supplemental hereto and such further
acts, instruments and transfers as the Trustee may reasonably require to Grant
the Trust Estate in trust to the Trustee. --------------------------------------
- --- SECTION 704. TRUSTEE MAY ENFORCE AUTHORITY'S RIGHTS UNDER THE RELATED
DOCUMENTS. The Trustee, subject to the provisions of the Loan Agreement and this
Trust Agreement reserving certain rights to the Authority and respecting actions
by the Trustee in its name or in the name of the Authority, may enforce all
rights of the Authority and all obligations of the Borrower under and pursuant
to the Related Documents to which the Authority is a party and on behalf of the
Bondholders whether or not the Authority is in default hereunder. --------------
- --------------------------------- ARTICLE VIII ---------------------------------
- ----------------------------- DEFAULT AND REMEDIES -----------------------------
- --- SECTION 801. EXTENSION OF INTEREST PAYMENT DATES. In any case the time for
the payment of the interest on any Bond shall be extended, whether or not such
extension be by or with the consent of the Authority, such
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<PAGE>
interest shall not be entitled in case of default hereunder to the benefit of
this Trust Agreement except subject to the prior payment in full of the
aggregate principal amount and interest on all Outstanding Bonds, the time for
the payment of which shall not have been extended. -----------------------------
- --- SECTION 802. DEFAULTS. Each of the following events is hereby declared an
"event of default": ------------------------------------------------------------
- ----- (a) payment of the principal amount or premium, if any, of the Bonds shall
not be made when the same shall become due and payable; or ---------------------
- ----- (b) payment of any installment of interest on any of the Bonds shall not
be made when the same shall become due and payable; or -------------------------
- ----- (c) an event of default under the Loan Agreement other than under clause
(a) of Section 7.01 thereof. ---------------------------------------------------
- --- SECTION 803. ACCELERATION. (A) The Trustee (i) may, upon the happening and
continuance of any event of default specified in clause (c) of Section 802, and
(ii) shall, at the direction of the Twenty-Five Percent Interest, or upon the
happening of any other event of default specified in Section 802, by notice to
the Authority, declare the principal amount of the Bonds (if not then due and
payable) to be due and payable immediately after the date of receipt of such
notice, and upon such declaration the same shall become and be due and payable
immediately after the date of such notice anything contained in the Bonds or in
this Trust Agreement to the contrary notwithstanding. --------------------------
- ------ (B) Anything contained in Section 803(A) notwithstanding, other than in
the case of a default specified in clause (a) of Section 802, if at any time
after the principal of the Bonds shall have been so declared to be due and
payable, and before the entry of final judgment or decree in any suit, action or
proceeding instituted on account of such default, or before the completion of
the enforcement of any other remedy under this Trust Agreement,
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<PAGE>
sufficient moneys shall have accumulated in the Bond Fund to pay the principal
of all matured Bonds and all arrears of interest, if any, upon all Bonds then
Outstanding (except the principal of any Bonds not then due and payable by their
terms and the interest accrued on such Bonds since the last Interest Payment
Date) and the charges, compensation, expenses, disbursements, advances and
liabilities of the Trustee and all other amounts then payable by the Authority
hereunder shall have been paid or a sum sufficient to pay the same shall have
been deposited with the Trustee, and every other default known to the Trustee in
the observance or performance of any covenant, condition, agreement or provision
contained in the Bonds or in this Trust Agreement (other than a default in the
payment of the principal of such Bonds then due and payable only because of a
declaration under this Section 803) shall have been cured or waived as provided
in Section 814, then and in every such case the Trustee, may, and upon the
written direction of the Majority Interest, shall, by notice to the Authority,
rescind and annul such declaration and its consequences, but no such rescission
or annulment shall extend to or affect any subsequent default or impair any
right consequent thereon. ------------------------------------------------------
- --- SECTION 804. ENFORCEMENT OF REMEDIES. (A) Upon the happening and continuance
of any event of default specified in Section 802, then and in every such case
the Trustee, may, and upon the direction of the Twenty-Five Percent Interest
shall proceed, subject to the provisions of Section 902, to protect and enforce
its rights and the rights of the Bondholders under applicable laws, this Trust
Agreement and the Related Documents by such suits, actions or special
proceedings in equity or at law, or by proceedings in the office of any board or
officer having jurisdiction, either for the specific performance of any covenant
or agreement contained herein or in aid or execution of any power herein granted
or for the enforcement of any
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<PAGE>
proper legal or equitable remedy, as the Trustee, being advised by counsel,
shall deem most effectual to protect and enforce such rights. ------------------
- ------ (B) In the enforcement of any remedy under this Trust Agreement, the
Trustee in its own name and as Trustee of an express trust, shall be entitled to
sue for, enforce payment of and recover judgment for, any and all amounts then
or after any default becoming, and at any time remaining, due from the Authority
and unpaid for principal, premium, if any, and interest or otherwise under any
of the provisions of this Trust Agreement or of the Bonds, with interest on
overdue payments of principal and interest at the Interest Rate together with
any and all costs and expenses of collection and of all proceedings hereunder
and under the Bonds, without prejudice to any other right or remedy of the
Trustee, of the Bondholders, and to recover and enforce any judgment or decree
against the Authority, but solely as provided herein and in the Bonds, for any
portion of such amounts remaining unpaid, and interest, costs and expenses as
above provided, and to collect (but solely from moneys in the Bond Fund and any
other moneys available for such purpose), in any manner provided by law, the
moneys adjudged or decreed to be payable. --------------------------------------
- --- SECTION 805. TRUSTEE MAY FILE CLAIM IN BANKRUPTCY. (A) In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other similar judicial
proceeding relative to the Authority or the Borrower or to the property of the
Authority or the Borrower or the creditors of either of them, the Trustee
(irrespective of whether the principal of the Bonds shall then be due and
payable or the Trustee shall have made any demand on the Borrower for the
payments equal to overdue principal), shall be entitled and empowered, by
intervention in such proceeding or otherwise: ----------------------------------
- ------- (i) to file and prove a claim for the whole amount of principal
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amount and any premium or interest owing and unpaid in respect of the Bonds and
to file such other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and of the Bondholders allowed in such judicial proceedings; and --
- ------- (ii) to collect and receive any moneys or other property payable or
delivered on any such claims and to distribute the same. -----------------------
- ------ (B) Any receiver, custodian, assignee, trustee, liquidator, sequestrator
(or other similar official) in any such judicial proceeding is hereby authorized
by each Bondholder to make such payments to the Trustee, and in the event that
the Trustee shall consent to the making of such payments directly to the
Bondholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 902. ----------
- ------ (C) Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Bondholder any plan
of reorganization, arrangement, adjustment or composition affecting the Bonds or
the rights of any Holder, or to authorize the Bonds or the rights of any Holder,
or to authorize the Trustee to vote in respect of the claim of any Bondholder in
any such proceeding. -----------------------------------------------------------
- --- SECTION 806. PRO RATA APPLICATION OF FUNDS. (A) Anything in this Trust
Agreement to the contrary notwithstanding, if at any time the moneys in the Bond
Fund shall not be sufficient to pay the principal of or interest on the Bonds as
the same shall become due and payable, such moneys, together with any moneys
then available or thereafter becoming available for such purpose, whether
through the exercise of the remedies provided for in this
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<PAGE>
Article or otherwise, shall be applied, following the satisfaction of any
payments due to the Trustee under the provisions of Sections 902 and 906, as
follows: -----------------------------------------------------------------------
- ------- (i) if the principal of all the Bonds shall not have become due and
payable or shall not have been declared due and payable, all such moneys shall
be applied to the payment of all installments of interest then due and payable
in the order in which such installments become due and payable, and, if the
amount available shall not be sufficient to pay in full any particular
installment, then to the payment of such installments, ratably, according to the
amounts due on such installment, without any discrimination or preference; -----
- ------- (ii) if the principal of all the Bonds shall have become due and payable
or shall have been declared due and payable, all such moneys shall be applied to
the payment of the principal, interest and premium, if any, then due upon the
Bonds, without preference or priority of principal over interest or premium or
of interest or premium over principal, or of any installment of interest over
any other installment of interest, or of any Bond over any other Bond, ratably,
according to the amounts due respectively for principal, interest and premium,
if any, to the Persons entitled thereto without any discrimination or privilege;
and ----------------------------------------------------------------------------
- ------- (iii) if the principal of all the Bonds shall have been declared due and
payable and if such declaration shall thereafter have been rescinded and
annulled under the provisions of Section 803, then, subject to the provisions of
(ii) above in the event that the principal of all the Bonds shall later become
due and payable or be declared due and payable, the moneys remaining in and
thereafter accruing to the Bond Fund shall be applied in accordance with the
provisions of (i) above. -------------------------------------------------------
- ----- (B) Whenever moneys are to be applied by the Trustee pursuant to the
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provisions of this Section, such moneys shall be applied by the Trustee at such
times, and from time to time, as the Trustee in its sole discretion shall
determine, having due regard to the amount of such moneys available for
application and the likelihood of additional moneys becoming available for such
application in the future. The setting aside of such moneys in trust for the
proper purpose shall constitute proper application by the Trustee. The Trustee
shall incur no liability whatsoever to the Authority, to any Bondholder or to
any other Person for any delay in applying any such moneys, so long as the
Trustee acts with reasonable diligence, having due regard to the circumstances,
and ultimately applies the same in accordance with the then applicable
provisions of this Trust Agreement. Whenever the Trustee shall exercise such
discretion in applying such moneys, it shall fix the date (which shall be an
Interest Payment Date unless the Trustee shall deem another date more suitable)
upon which such application is to be made and upon such date interest on the
principal amount to be paid on such date shall cease to accrue. The Trustee
shall give notice as it may deem appropriate of the fixing of any such date, and
shall not be required to make payment to the Holder of any Bond until such Bond
shall be surrendered to the Trustee for appropriate endorsement, or for
cancellation if fully paid. ----------------------------------------------------
- ----- (C) The provisions of subsection (A) and (B) of this Section are in all
respects subject to the provisions of Section 801. -----------------------------
- --- SECTION 807. EFFECT OF DISCONTINUANCE OF PROCEEDINGS. In case any proceeding
taken by the Trustee on account of any default shall have been discontinued or
abandoned for any reason, then, and in every such case, the Authority, the
Trustee, the Borrower, and the Bondholders shall be restored to their former
positions and rights hereunder, respectively, and all rights, remedies, powers
and duties of the Trustee shall continue as though no proceeding had been taken.
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- --- SECTION 808. MAJORITY INTEREST MAY CONTROL PROCEEDINGS. Anything in this
Trust Agreement to the contrary notwithstanding, the Majority Interest shall
have the right, subject to the provisions of Sections 902 and 906, by an
instrument or concurrent instruments executed and delivered to the Trustee, to
direct the time, method and place of conducting all remedial proceedings to be
taken by the Trustee hereunder or exercising any trust or power conferred upon
the Trustee, provided that (i) such direction shall not be otherwise than in
accordance with law and the provisions of this Trust Agreement, and (ii) subject
to the provisions of Sections 902 and 906, that the Trustee may take any other
action deemed proper by the Trustee which is not inconsistent with such
direction. ---------------------------------------------------------------------
- --- SECTION 809. RESTRICTIONS UPON ACTIONS BY INDIVIDUAL BONDHOLDER. Except as
to indemnity provided in Section 5.10 of the Loan Agreement, no Bondholder shall
have any right to institute any suit, action or proceeding in equity or at law
on any Bond or for the execution of any trust hereunder or for any other remedy
hereunder unless: (i) he previously shall have given to the Trustee notice of
the event of default on account of which such suit, action or proceeding is to
be instituted, (ii) the Twenty-Five Percent Interest shall have requested the
Trustee after the right to exercise such powers or right of action, as the case
may be, shall have accrued, and shall have afforded the Trustee a reasonable
opportunity, either to proceed to exercise the powers hereinabove granted or to
institute such action, suit or proceeding in its or their name, (iii) there
shall have been offered to the Trustee reasonable security and indemnity against
the costs, expenses and liabilities to be incurred therein or thereby, and (iv)
the Trustee shall have refused or neglected to comply with such request within a
reasonable time. Such notification, request and offer of indemnity are declared
in every such case, at the option of the Trustee, to be conditions precedent to
the
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execution of the powers and trusts of this Trust Agreement or to any other
remedy hereunder. Except as otherwise above provided, it is understood and
intended that: (i) no one or more Holders shall have any right in any manner
whatever by his or their action to affect, disturb or prejudice any rights under
this Trust Agreement, or to enforce any right hereunder except in the manner
provided herein, (ii) all suits, actions and proceedings shall be instituted,
had and maintained in the manner herein provided and for the benefit of all
Bondholders, and (iii) any individual right of action or other right given to
one or more Bondholders by law is restricted by this Trust Agreement to the
rights and remedies herein provided. -------------------------------------------
- --- SECTION 810. RECEIVER. Upon the occurrence of an event of default and upon
the filing of a suit or other commencement of judicial proceedings to enforce
the rights of the Trustee and of the Bondholders under this Trust Agreement, the
Trustee shall be entitled, as a matter of right, to the appointment of a
receiver or receivers of the payments under the Related Documents pending such
proceedings, with such powers as the court making such appointment shall confer,
whether or not any such amount payable shall be deemed sufficient ultimately to
satisfy the amounts due and payable on the Outstanding Bonds. ------------------
- --- SECTION 811. ACTIONS BY TRUSTEE. All rights of action and claims under this
Trust Agreement or under any of the Bonds, enforceable by the Trustee, may be
prosecuted and enforced by the Trustee or the Bondholders without the possession
of any of the Bonds or the production thereof in the trial or other proceeding
relative thereto, and any such suit, action or proceeding instituted by the
Trustee shall be brought in its name for the benefit of all of the Bondholders
subject to the provisions of this Trust Agreement. -----------------------------
- --- SECTION 812. NO REMEDY EXCLUSIVE. No remedy herein conferred upon or
reserved to the Trustee or the Bondholders is intended to be exclusive of
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any other remedy or remedies herein provided, and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or by law. -----------------------------------------------------------
- --- SECTION 813. NO DELAY OR OMISSION CONSTRUED TO BE A WAIVER. No delay or
omission of the Trustee or any Bondholder to exercise any right or power
accruing upon any default shall impair any such right or power or shall be
construed to be a waiver of any such default or any acquiescence therein. Every
power and remedy given by this Trust Agreement to the Trustee and the
Bondholders, respectively, may be exercised from time to time and as often as
may be deemed expedient. -------------------------------------------------------
- --- SECTION 814. WAIVER OF PAST DEFAULTS. The Majority Interest may on behalf of
all the Holders waive any past default hereunder and its consequences except a
default: (i) in the payment of principal of, premium, if any, and interest on
any Bonds; or (ii) in respect of a covenant or provision hereof which under
Article XI hereof cannot be amended or modified without the consent of each
Bondholder affected. Upon such waiver, such default shall cease to exist, and
any event of default arising therefrom shall be deemed to have been cured, for
every purpose of this Trust Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereon. ------------
- --- SECTION 815. NOTICE OF DEFAULT. The Trustee shall give notice to the
Bondholders of the occurrence of any Event of Default set forth in Section 802
within 30 days after the Trustee shall have notice, pursuant to the provisions
of Section 908, that any such event of default shall have occurred, unless such
default shall have been cured or waived. Anything herein to the contrary
notwithstanding, in the case of an event of default specified in Section 802
arising out of a default specified in clause (c) of Section 7.01 of the Loan
Agreement, the Trustee shall be protected in
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withholding such notice if and so long as the board of directors or a designated
committee of the Trustee in good faith determines that the withholding of such
notice is in the best interests of the Bondholders. The Trustee shall not,
however, be subject to any liability to any Bondholder by reason of its failure
to give any such notice. ---------------------------------------
- --- SECTION 816. NOTICE OF ACCELERATION. The Trustee, promptly after any
declaration under Section 803(A), shall give notice thereof to all Bondholders.
Failure to give such notice, or any defect in any notice as given, shall not
affect the proceedings for such declaration. -----------------------------------
- --------------------------------- ARTICLE IX -----------------------------------
- --------------------------- CONCERNING THE TRUSTEE -----------------------------
- --- SECTION 901. ACCEPTANCE OF TRUSTS. The Trustee accepts and agrees to execute
the trusts imposed upon it by this Trust Agreement for the benefit of the
Bondholders, but only upon the terms and conditions set forth in this Article
and subject to the provisions of this Trust Agreement. The Trustee also accepts,
and agrees to do and perform, the duties and obligations imposed upon it by and
under the Related Documents, but only upon the terms and conditions set forth
therein and herein. ------------------------------------------------------------
- --- SECTION 902. TRUSTEE ENTITLED TO INDEMNITY. With the exception of its
obligations under Section 803 (A) (ii), the Trustee shall be under no obligation
to institute any suit, or to take any remedial proceedings under this Trust
Agreement or the Related Documents, or to enter any appearance in or in any way
defend against any suit, in which it may be made a defendant, or to take any
steps in the execution of the trusts hereby created or in the enforcement of any
rights and powers hereunder or under the Loan Agreement until it shall be
indemnified to its satisfaction against any and all costs and expenses, outlays
and counsel fees and other reasonable disbursements, and against all liability.
The Trustee may, nevertheless,
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begin suit, or appear in and defend suit, or do anything else in its judgment
proper to be done by it as such Trustee, without prior indemnity, and in such
case the Trustee shall be entitled to be reimbursed and indemnified, under
Section 4.06 of the Loan Agreement. If the Borrower shall fail to make such
reimbursement or indemnification, the Trustee may reimburse or indemnify itself
from any moneys in its possession under the provisions of this Trust Agreement,
except from moneys held in trust for the benefit of the Bondholders, and shall
be entitled to a preference over any of the Bonds. -----------------------------
- --- SECTION 903. TRUSTEE NOT RESPONSIBLE FOR INSURANCE, TAXES OR EXECUTION OF
THIS TRUST AGREEMENT. The Trustee shall not be under any obligation to effect or
maintain insurance or to renew any policies of insurance or to inquire as to the
sufficiency of any policies of insurance carried by the Borrower, or to report,
or make or file claims or proof of loss for, any loss or damage insured against
or which may occur, or to keep itself informed or advised as to the payment of
any taxes or assessments, or to require any such payment to be made. The Trustee
makes no representation and shall have no responsibility in respect of the
validity, sufficiency, due execution or acknowledgment of this Trust Agreement
or the Loan Agreement by the Authority or, except as to the authentication
thereof, in respect of the validity of the Bonds or the due execution or
issuance thereof. The Trustee shall not be under any obligation to see that any
duties herein imposed upon any party other than itself, or any covenants herein
contained on the part of any party other than itself shall be done or performed,
and the Trustee shall be under no obligation for failure to see that any such
duties or covenants are so done or performed. ----------------------------------
- --- SECTION 904. TRUSTEE NOT RESPONSIBLE FOR ACTS OF THE AUTHORITY OR
APPLICATION OF MONEYS APPLIED IN ACCORDANCE WITH THIS TRUST AGREEMENT. The
Trustee shall not be liable or responsible because of the
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failure of the Authority or of any of its employees or agents to make any
collections or deposits or to perform any act herein required of the Authority
or because of the loss of any moneys arising through the insolvency or the act
or default or omission of any other depositary in which such moneys shall have
been deposited under the provisions of this Trust Agreement. The Trustee shall
not be responsible for the application of any of the proceeds of the Bonds or
any other moneys deposited with it and paid out, withdrawn or transferred
hereunder, if such application, payment, withdrawal or transfer shall be made in
accordance with the provisions of this Trust Agreement. The immunities and
exemptions from liability of the Trustee hereunder shall extend to its
directors, officers, employees and agents. -------------------------------------
- --- SECTION 905. CERTAIN DUTIES AND RESPONSIBILITIES OF THE TRUSTEE. (A) Except
during the continuance of an event of default specified in Section 802: (i) the
Trustee undertakes to perform such duties and only such duties as are
specifically set forth in this Trust Agreement and the Related Documents, and no
implied covenants or obligations shall be read into this Trust Agreement or the
Loan Agreement against the Trustee; and (ii) in the absence of bad faith on its
part, the Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this Trust
Agreement and the Related Documents. -------------------------------------------
- ----- (B) In case an event of default specified in Section 802 of this Trust
Agreement has occurred and is continuing, the Trustee shall exercise such of the
rights and powers vested in it by this Trust Agreement, and use the same degree
of care and skill in their exercise, as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs. ---------------------
- ----- (C) None of the provisions of this Trust Agreement shall be construed
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to relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that: (i) this
subsection shall not be construed to limit the effect of Section 905(A), (ii)
the Trustee shall not be liable for any error of judgment made in good faith by
an officer or officers of the corporate trust department of the Trustee, unless
it shall be proved that the Trustee was negligent in ascertaining the pertinent
facts, (iii) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of the
Majority Interest relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under the provisions of this Trust Agreement;
and (iv) no provision of this Trust Agreement or the Related Documents shall
require the Trustee 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 any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it. ----------------------------------
- ----- (D) Except as otherwise above provided in this Section: (i) the Trustee
may rely and shall be protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, waiver, affidavit, requisition or
other paper or document believed by it to be genuine and to have been adopted,
signed or presented by the proper board or Person or to have been prepared and
furnished pursuant to this Trust Agreement or the Related Documents; (ii)
whenever in the administration of this Trust Agreement, prior to the occurrence
of an event of default specified in Section 802, the Trustee shall deem it
desirable that a matter be proved or established prior to taking or
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suffering any action hereunder, such matters (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate of an Authorized Borrower Representative
and such certificate, in the absence of bad faith on the part of the Trustee,
shall be full warrant to the Trustee for any action taken or suffered by it
under the provisions of this Trust Agreement or the Related Documents upon the
faith thereof; (iii) the Trustee may consult with counsel, accountant, engineer
and other experts and the written advice of such expert, believed by the Trustee
to be qualified in relation to the subject matter, shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon; (iv) the Trustee shall
not be bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Borrower, personally or by agent or attorney;
provided, however, that the aforesaid right of examination shall be exercised
only upon such reasonable and necessary terms and conditions as the Borrower
shall prescribe, which conditions shall be deemed to include, but not be limited
to, reasonable notice and those conditions necessary to protect the Borrower's
trade secrets and proprietary rights; and (v) the Trustee may execute any of the
trusts or powers hereunder or perform any duties hereunder either directly or by
or through attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any attorney appointed with due care by it
hereunder. ---------------------------------------------------------------------
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- ------ (E) Whether or not therein expressly so provided, every provision of this
Trust Agreement and the Related Documents relating to the conduct or affecting
the liability of or affording protection to the Trustee shall be subject to the
provisions of this Section. ----------------------------------------------------
- --- SECTION 906. COMPENSATION. The Authority shall cause the Borrower to pay to
the Trustee its reasonable fees and expenses in accordance with Section 4.05 of
the Loan Agreement. Upon the occurrence of an event of default under Section
802, if the Borrower shall fail to make any payment required by this Section,
the Trustee may, but shall be under no obligation to, make such payment from any
moneys in its possession under the provisions of this Trust Agreement and from
moneys held in trust for the benefit of the Bondholders, and shall be entitled
to a preference therefor over any Outstanding Bonds. ---------------------------
- --- SECTION 907. STATEMENT OF FUNDS ON DEPOSIT. (A) It shall be the duty of the
Trustee, on or before the fifteenth day after each Principal Payment Date, to
file with the Authority and the Borrower a statement setting forth in respect of
the preceding Principal Payment Period: ----------------------------------------
- ------- (i) the amount withdrawn or transferred by it and the amount deposited
with it on account of each fund and account held by it under the provisions of
this Trust Agreement; ----------------------------------------------------------
- ------- (ii) a brief description of all the Investment Obligations held by it as
an investment of moneys in each such fund and account; -------------------------
- ------- (iii) the amount applied to the payment of principal amount of Bonds; --
- ------- (iv) the amount applied to the payment of interest on the Bonds and the
applicable Interest Rate; and --------------------------------------------------
- ------- (v) any other information which the Authority or the Borrower may
reasonably request. ------------------------------------------------------------
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- ------ (B) All records and files pertaining to the Project and the trusts
hereunder in the custody of the Trustee shall be open at all reasonable times to
the inspection of the Authority and the Borrower and their agents and
representatives. ---------------------------------------------------------------
- --- SECTION 908. NOTICE OF DEFAULT. The Trustee shall not be obliged to take
notice or be deemed to have notice of any event of default under clause (c) of
Section 802, unless specifically notified of such event of default by the
Twenty-Five Percent Interest. --------------------------------------------------
- --- SECTION 909. TRUSTEE MAY BE BONDHOLDER. The Trustee and its directors,
officers, employees or agents, may in good faith buy, sell, own, hold and deal
in the Bonds, and may join in the capacity of Bondholder in any action which any
Bondholder may be entitled to take with like effect as if it were not the
Trustee, may engage, as principal or agent, or be interested in any financial or
other transaction with the Authority or the Borrower, or may maintain any and
all other general banking and business relations with the Authority or the
Borrower, with like effect and in the same manner as if the Trustee were not a
party to this Trust Agreement, and may act as depository, trustee or agent for
any committee or body of Bondholders or other obligations of the Authority with
like effect and in the same manner as if the Trustee were not a party to this
Trust Agreement; and no implied covenant shall be read into this Trust Agreement
against the Trustee in respect of such matters. --------------------------------
- --- SECTION 910. TRUSTEE NOT RESPONSIBLE FOR RECITALS. The recitals, statements
and representations contained herein and in the Bonds (excluding the Trustee's
certificates of authentication on the Bonds) shall be taken and construed as
made by and on the part of the Authority and not by the Trustee, and the Trustee
shall not be under any responsibility for the correctness of the same. ---------
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- --- SECTION 911. TRUSTEE NOT RESPONSIBLE FOR RECORDING. The Trustee shall not be
under any obligation to see to the recording or filing of this Trust Agreement,
the Related Documents or any other instrument or otherwise to the giving to any
Person of notice of the provisions hereof or thereof. --------------------------
- --- SECTION 912. QUALIFICATION OF THE TRUSTEE. There shall at all times be a
Trustee hereunder which shall be a corporation organized and doing business
under the Federal laws, or the laws of any state thereof, or of Puerto Rico,
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of at least FIFTY MILLION DOLLARS ($50,000,000), subject to
supervision or examination by Federal, Puerto Rico or state authority, and
having its principal trust office in Puerto Rico or in one of the states of the
United Stated of America. If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus and the reported deposits of such corporation shall
be deemed to be its combined capital and surplus and reported deposits,
respectively, as set forth in its most recent report of condition so published.
If at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect specified in Section 913 hereof. ------------------------------------
- --- SECTION 913. RESIGNATION AND REMOVAL OF TRUSTEE. (A) No resignation or
removal of the Trustee and no appointment of a successor Trustee pursuant to
this Article shall become effective until the acceptance of appointment by the
successor Trustee under Section 914. -------------------------------------------
- ----- (B) The Trustee may resign at any time by giving notice thereof to the
Authority and the Borrower. If an instrument of acceptance by a successor
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Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the retiring Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee. ----
- ----- (C) The Trustee may be removed at any time by demand given to the Trustee,
the Authority and the Borrower by the Majority Interest. -----------------------
- ----- (D) If at any time: (i) the Trustee shall cease to be eligible under
Section 912 hereof and shall fail to resign after request therefor by the
Borrower or by any Bondholder who shall have been a bona fide Bondholder for at
least six months, or (ii) the Trustee shall become incapable of acting or shall
be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or control
of the Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then, in any such case, the Authority or the
Borrower may remove the Trustee, or subject to Section 902, any Bondholder who
has been a bona fide Bondholder for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee. -----------------------------------------------------------------------
- ----- (E) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the
Authority, with the approval of the Borrower, shall promptly appoint a successor
Trustee. If, within one year after such resignation, removal or incapability, or
the occurrence of such vacancy, a successor Trustee shall be appointed by an
instrument or concurrent instruments executed by the Majority Interest delivered
to the Authority, the Borrower, and the retiring Trustee, the successor Trustee
so appointed shall, forthwith upon its acceptance of such appointment, become
the successor Trustee and supersede the successor Trustee appointed by the
Authority and approved
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by the Borrower. If no successor Trustee shall have been so appointed by the
Authority and approved by the Borrower, and accepted its appointment in the
manner hereinafter provided, any Bondholder who shall have been a bona fide
Bondholder for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee. --------------------------------------------
- ----- (F) The Authority shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to all Bondholders.
Each notice shall include the name and address of the corporate trust office of
the successor Trustee. ---------------------------------------------------------
- --- SECTION 914. SUCCESSOR TRUSTEE. (A) Every successor Trustee appointed
hereunder shall execute, acknowledge and deliver to its predecessor, to the
Authority and the Borrower, an instrument accepting such appointment hereunder,
and thereupon such successor Trustee without any further act, shall become fully
vested with all the rights, immunities, powers and trusts, and subject to all
the duties and obligations, of its predecessors. The predecessor Trustee shall,
nevertheless, on the request of its successor or of the Authority and upon
payment of the expenses, charges and other disbursements of such predecessor
which are payable pursuant to the provisions of Section 906, execute and deliver
an instrument transferring to such successor Trustee all the rights, immunities,
powers and trusts of such predecessor hereunder. Every predecessor Trustee shall
deliver all property and moneys held by it hereunder to its successor, subject,
nevertheless, to its preference, if any, provided for in Sections 902 and 906.
Should any instrument from the Authority be required by any successor Trustee
for more fully and certainly vesting such Trustee the rights, immunities, powers
and trusts hereby vested or intended to be vested the predecessor Trustee, any
such instrument shall and will, on request, be
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executed, acknowledged and delivered by the Authority. -------------------------
- ----- (B) Notwithstanding any of the foregoing provisions of this Article, any
bank, national association or trust company acting as Trustee may be converted,
merged or consolidated, or to which the corporate trust business assets as a
whole or substantially as a whole of such bank, national association or trust
company may be sold, shall be deemed the successor of the Trustee. -------------
- --- SECTION 915. MONEY HELD IN TRUST. Money held by the Trustee in trust under
this Trust Agreement need not be segregated from other funds except to the
extent required by law or by the express provisions hereof. Subject to the
provisions of Section 602, the Trustee shall be under no liability for interest
on any money received by it under this Trust Agreement except as otherwise
agreed with the Authority or the Borrower. -------------------------------------
- ------------------------------------ ARTICLE X ---------------------------------
- ------------------- EXECUTION OF INSTRUMENTS BY BONDHOLDERS --------------------
- ----------------------- AND PROOF OF OWNERSHIP OF BONDS ------------------------
- --- SECTION 1001. EXECUTION OF INSTRUMENTS. Any request, direction, consent or
other instrument required or permitted by this Trust Agreement to be signed or
executed by Bondholders may be in any number of concurrent instruments of
similar tenor and may be signed or executed by such Bondholders or their legal
representatives. ---------------------------------------------------------------
- --- SECTION 1002. PROOF OF EXECUTION OF INSTRUMENT AND OF OWNERSHIP. Proof of
the execution of any instrument mentioned in Section 1001 and of the ownership
of Bonds shall be sufficient for any purpose of this Trust Agreement and shall
be conclusive in favor of the Trustee with regard to any action taken by it
under such instrument if made in the following manner: (i) the fact and date of
the execution by and the authority of the Person executing any such instrument
may be proved by the verification of any officer in any jurisdiction who, by the
laws thereof, has power to take
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affidavits within such jurisdiction, to the effect that such instrument was
subscribed to before him, or by an affidavit of a witness to such execution; and
(ii) the ownership of Bonds shall be proved by the Bond Register. Nothing
contained in this Section shall be construed as limiting the Trustee to such
proof, it being intended that the Trustee may accept any other evidence of the
matters herein stated which may be sufficient. Any request or consent of any
Bondholder shall bind every future Holder of the same Bond or any Bond issued in
place thereof in respect of anything done by the Trustee in pursuance of such
request or consent. ------------------------------------------------------------
- --- SECTION 1003. RECORD DATE. If the Authority shall solicit from the Holders
any request, direction, consent or other instrument required or permitted by
this Trust Agreement to be signed or executed by Bondholders, the Authority may,
at its option, fix in advance a record date for the determination of Holders
entitled to give such request, direction, consent or other instrument, but the
Authority shall have no obligation to do so. If such a record date is fixed,
such request, direction, consent or other instrument may be given before or
after such record date, but only the Holders at the close of business on such
record date shall be deemed to be Holders for the purposes of determining
whether Holders of the requisite proportion have authorized or agreed or
consented to such request, direction, consent or other instrument, and for that
purpose the Outstanding Bonds shall be computed as of such record date. No such
consent by the Holders on such record date shall be deemed effective unless it
shall become effective pursuant to the provisions of this Trust Agreement no
later than six months after the record date. -----------------------------------
- ----------------------------------- ARTICLE XI ---------------------------------
- ----------------- SUPPLEMENTS AND AMENDMENTS TO TRUST AGREEMENT ----------------
- --- SECTION 1101. SUPPLEMENTS AND AMENDMENTS NOT REQUIRING
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BONDHOLDERS' CONSENT. The Authority and the Trustee may, without the consent or
approval of, or notice to, any of the Bondholders, at any time and from time to
time, enter into such supplements and amendments to this Trust Agreement, in
form reasonably satisfactory to the Trustee, as shall not, in the reasonable
opinion of the Trustee, be detrimental to the interest of the Bondholders (which
supplements and amendments shall thereafter form a part hereof): (i) to cure any
ambiguity or formal defect or omission, to correct or supplement any provision
herein that may be inconsistent with any other provision herein, or to make any
other provisions with respect to matters or questions arising under this Trust
Agreement that shall not be inconsistent with the provisions of this Trust
Agreement; or (ii) to grant to or confer upon the Trustee for the benefit of the
Bondholders any additional rights, remedies, powers, authority or security that
may lawfully be granted to or conferred upon the Bondholders or the Trustee; or
(iii) to correct any description of, or to reflect changes in, any properties
comprising the Project; or (iv) to add to the covenants of the Authority for the
benefit of the Bondholders or to surrender any right or power herein conferred
upon the Authority. ------------------------------------------------------------
- --- SECTION 1102. SUPPLEMENTS AND AMENDMENTS REQUIRING CONSENT OF THE MAJORITY
INTEREST. (A) With the consent of the Majority Interest, the Authority and the
Trustee may, from time to time and at any time, enter into supplements and
amendments to this Trust Agreement for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Trust
Agreement or of any supplement or amendment to this Trust Agreement or of
modifying in any manner the rights of the Bondholders. Nothing herein contained
shall permit, or be construed as permitting, without the consent of each
Bondholder affected, (i) an extension of the time for the payment of principal
of or interest on any
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Bond; or (ii) a reduction in the principal amount of any Bond or the redemption
premium, if any, or the Interest Rate; or (iii) the creation of any lien or
security interest with respect to the Loan Agreement or the payments thereunder;
or (iv) a preference or priority of any Bond or Bonds over any other Bond or
Bonds; or (v) a reduction in the aggregate principal amount of the Bonds
required for consent to such supplement or amendment or any waiver hereunder.---
- ----- (B) Nothing herein contained, however, shall be construed as making
necessary the approval by Bondholders of the execution of any supplemental
agreement as authorized in Section 1101. ---------------------------------------
- ----- (C) It shall not be necessary for the consent of the Bondholders under
this Section to approve the particular form of any proposed supplement or
amendment but it shall be sufficient if such consent shall approve the substance
thereof. -----------------------------------------------------------------------
- ----- (D) If at any time the Authority shall request the Trustee to enter into
any supplement or amendment to this Trust Agreement for any of the purposes of
this Section, the Trustee shall, at the expense of the Authority, cause notice
of the proposed execution of such supplement or amendment to be given to the
Bondholders. Such notice shall briefly set forth the nature of the proposed
supplement or amendment and shall state that copies thereof are on file at the
Corporate Trust Office for inspection by the Bondholders. The Trustee shall not,
however, be subject to any liability to any Bondholder by reason of its failure
to give the notice required by this Section, and any such failure or any defect
in such notice shall not affect the validity of such supplement or amendment
when consented to as provided in this Section. ---------------------------------
- ----- (E) Whenever, at any time within one year after the date of the giving of
such notice, the Authority shall deliver to the Trustee an instrument or
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instruments in writing purporting to be executed by the Majority Interest, which
instrument or instruments shall refer to the proposed supplement or amendment
described in such notice and shall specifically consent to and approve the
execution thereof in substantially the form of the copy thereof referred to in
such notice, thereupon, but not otherwise, the Trustee may execute such
supplement or amendment in substantially such form, without liability or
responsibility to any Bondholder whether or not such Bondholder shall have
consented thereto. -------------------------------------------------------------
- ----- (F) If the Majority Interest at the time of the execution of such
supplement or amendments or any record date established in connection therewith
pursuant to Article X shall have consented to and approved the execution thereof
as herein provided, no Holder shall have any right to object to the execution of
such supplement or amendment, or to object to any of the terms and provisions
contained therein or the operation thereof or in any manner to question the
propriety of the execution thereof, or to enjoin or restrain the Trustee or the
Authority from executing the same or from taking any action pursuant to the
provisions thereof. ------------------------------------------------------------
- --- SECTION 1103. SUPPLEMENTS AND AMENDMENTS DEEMED PART OF TRUST AGREEMENT. The
Trustee is authorized to join with the Authority in the execution of any
supplement or amendment herein provided. Any supplement or amendment to this
Trust Agreement executed in accordance with the provisions of this Article shall
thereafter form a part of this Trust Agreement, and all of the terms and
conditions contained in any such supplement or amendment as to any provision
authorized to be contained therein shall be and shall be deemed to be part of
the terms and conditions of this Trust Agreement for any and all purposes. Upon
the execution of any supplement or amendment to this Trust Agreement pursuant to
the provisions of this Article, this Trust Agreement shall be and be deemed to
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<PAGE>
be modified and amended in accordance therewith, and the respective rights,
duties and obligations under this Trust Agreement of the Authority, the Trustee
and the Bondholders shall thereafter be determined, exercised and enforced
hereunder, subject in all respects to such modifications and amendments. In case
of the execution and delivery of any supplement or amendment, express reference
may be made thereto in the text of any Bonds issued thereafter, if deemed
necessary or desirable by the Trustee. -----------------------------------------
- --- SECTION 1104. DISCRETION OF TRUSTEE IN ENTERING INTO SUPPLEMENTS AND
AMENDMENTS. (A) In each and every case provided for in this Article, the Trustee
shall not be obligated to execute any proposed supplement or amendment, if the
rights, obligations and interests of the Trustee would be thereby affected, and
the Trustee shall not be under any responsibility or liability to the Authority,
the Borrower or to any Bondholder or to anyone whomsoever for its refusal in
good faith to enter into any such supplement or amendment if such supplement or
amendment is deemed by it to be contrary to the provisions of this Article. ----
- ----- (B) The Trustee shall be entitled to receive, and shall be fully protected
in relying upon, an opinion of any counsel, as conclusive evidence that any such
proposed supplement or amendment does or does not comply with the provisions of
this Trust Agreement, and that it is or is not proper for it, under the
provisions of this Article, to join in the execution of such supplement or
amendment. ---------------------------------------------------------------------
- --- SECTION 1105. CONSENT OF BORROWER REQUIRED. Anything in this Trust Agreement
to the contrary notwithstanding, any amendment or supplement to this Trust
Agreement shall not become effective unless and until the Borrower shall have
consented thereto. -------------------------------------------------------------
- --------------------------------- ARTICLE XII ----------------------------------
- ----------------------- SUPPLEMENTS AND AMENDMENTS TO --------------------------
- ---------------------------THE RELATED DOCUMENTS -------------------------------
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<PAGE>
<PAGE>
- --- SECTION 1201. SUPPLEMENTS AND AMENDMENTS TO RELATED DOCUMENTS NOT REQUIRING
CONSENT. The Authority and the Borrower may enter into, and the Trustee may
consent to, from time to time and at any time, such amendments and supplements
to the Related Documents, in form reasonably satisfactory to the Trustee, as
shall not be inconsistent with the terms and provisions thereof and, in the
reasonable opinion of the Trustee, shall not be detrimental to the interests of
the Bondholders (which supplements and amendments shall thereafter form a part
thereof): (i) to make changes in the description of or identify more precisely
the Project; or (ii) to cure any ambiguity or formal defect or omission in the
Related Documents or in any supplement thereto; or (iii) to grant to or confer
upon the Authority or the Trustee for the benefit of the Bondholders any
additional rights, remedies, powers, authority or security that may lawfully be
granted to or conferred upon any of them; or (iv) to add to the covenants of the
Borrower for the benefit of the Bondholders or to surrender any right or power
therein conferred upon the Borrower. -------------------------------------------
- --- SECTION 1202. SUPPLEMENTS AND AMENDMENTS TO RELATED DOCUMENTS REQUIRING
CONSENT OF THE MAJORITY INTEREST. Except for supplements or amendments provided
for in Section 1201, the Authority shall not enter into and the Trustee shall
not consent to any supplements or amendments to the Related Documents unless
notice of the proposed execution of such supplement or amendment shall have been
given to, and the Majority Interest shall have consented to and approved the
execution thereof, all as provided for in Section 1102. The Trustee shall be
entitled to exercise its discretion in consenting or not consenting to any such
supplement or amendment in the same manner as provided for in Section 1104 in
the case of supplements and amendments to this Trust Agreement. ----------------
- --- SECTION 1203. CONSENT OF TRUSTEE REQUIRED. Anything in this Trust
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<PAGE>
<PAGE>
Agreement to the contrary notwithstanding, any supplement or amendment to the
Related Documents shall not become effective unless and until the Trustee shall
have consented thereto. --------------------------------------------------------
- -------------------------------- ARTICLE XIII ----------------------------------
- --------------- PAYMENT OF BONDS AND TERMINATION; DEFEASANCE -------------------
- --- SECTION 1301. PAYMENT OF BONDS AND TERMINATION. If there is paid or caused
to be paid from the Bond Fund in accordance with the provisions of Sections 503
and 504 to the Holders of all of the Outstanding Bonds the principal amount of,
premium, if any, and interest which is and shall thereafter become due and
payable thereon, together with all other sums payable hereunder by the
Authority, then and in that case the rights, title and interest of the Trustee
hereunder shall cease and terminate, and such Bonds shall cease to be entitled
to any benefit under this Trust Agreement. In such event, the Trustee shall
transfer and assign to the Borrower all property Granted to the Trustee
hereunder and then held by the Trustee (including, without limitation, the
Mortgages, Mortgage Notes, Assignment of Leases and Rents Agreement and Security
Agreement, Assignment of Hotel Management Agreement and Security Agreement,
Master Security Agreement, UCC Financing Statement and the UCC Fixtures Filing),
and shall execute such documents as may be reasonably required by the Authority
or the Borrower to evidence such transfer and assignment and shall promptly turn
over to the Borrower any surplus in the Bond Fund and any balance remaining in
the Project Fund, Reserve Fund, Renewal and Replacement Fund, and Insurance
Fund. If the Authority shall pay or cause to be paid to the Holders of less than
all of the Outstanding Bonds the principal amount of, premium, if any, and
interest which is and shall thereafter become due and payable upon such Bonds,
such Bonds or portions thereof, shall cease to be entitled to any benefit or
security under
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<PAGE>
this Trust Agreement. ----------------------------------------------------------
- --- SECTION 1302. DEFEASANCE. (A) Any Outstanding Bond, or any portion thereof,
shall be deemed to have been paid within the meaning and with the effect
expressed in Section 1301 when the whole amount of the principal of, premium, if
any, and interest on such Bond shall have been paid and the conditions set forth
in clauses (iv) and (v) below shall have been satisfied or when (i) if such Bond
or portion thereof shall have been selected for redemption in accordance with
Section 301, the Borrower shall have given to the Trustee irrevocable
instructions to give in accordance with the provisions of Section 302 notice of
redemption thereof; (ii) there shall be on deposit with the Trustee moneys or
Defeasance Obligations, which shall not contain provisions permitting the
redemption thereof other than at the option of the holder, the principal of and
the interest on which when due and without any reinvestment thereof, will
provide moneys which shall be sufficient to pay when due the principal of, and
interest due and to become due on said Bond; (iii) in the event the Maturity
Date of said Bond will not occur or said Bond is not to be redeemed within the
next succeeding 60 days, the Borrower shall have given the Trustee irrevocable
instructions to give notice, as soon as practicable in the same manner as a
notice of redemption is given pursuant to Section 302, to the Holder of said
Bond or portion thereof, stating that the deposit of such Moneys or Defeasance
Obligations required by clause (ii) of this paragraph has been made with the
Trustee and that said Bond is deemed to have been paid in accordance with this
Section and stating such payment or redemption date or dates upon which moneys
are to be available for the payment of the principal of and interest on said
Bond; (iv) the Trustee shall have received an opinion of counsel, which counsel
is experienced in bankruptcy matters, reasonably satisfactory to the Trustee and
the Authority, to the effect that the payment
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<PAGE>
to the Bondholder of the moneys described in clause (ii) of this paragraph would
not constitute a transfer which may be avoided under any provision of the
Federal Bankruptcy Code in the event of an Act of Bankruptcy; and (v) the
Trustee shall have received an opinion of counsel experienced in tax matters
under the Code, reasonably satisfactory to the Trustee and the Authority, to the
effect that, assuming, if necessary, that the Borrower will continue to comply
with the covenants contained in Section 5.10 (a) and (b) of the Loan Agreement,
the deposit described in clause (ii) of this paragraph and the payments to be
made to the Bondholders therefrom would not adversely affect the treatment of
the interest received by the Bondholders as income from sources within Puerto
Rico under the Code. -----------------------------------------------------------
- ----- (B) Neither the moneys nor the Defeasance Obligations deposited with the
Trustee pursuant to this Section nor principal or interest payments on any such
obligations shall be withdrawn or used for any purpose other than, and shall be
held in trust for, the payment of the principal of and interest on said Bond. --
- ----- (C) If payment of less than all of the Bonds is to be provided for in the
manner and with the effect described in this Article, the Trustee shall select
such Bonds, or portions thereof, by such method as the Trustee shall deem fair
and appropriate. ---------------------------------------------------------------
- ----- (D) If Bonds (or portions thereof) are deemed to have been paid in
accordance with the provisions of this Article by reason of the deposit with the
Trustee of moneys or Defeasance Obligations, no amendment to the provisions of
this Section which would adversely affect the Holders of such Bonds (or portions
thereof) shall be made without the consent of each Holder affected thereby. ----
- ---------------------------------- ARTICLE XIV ---------------------------------
- --------------------------- MISCELLANEOUS PROVISIONS ---------------------------
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<PAGE>
<PAGE>
- --- SECTION 1401. COVENANTS OF AUTHORITY BIND ITS SUCCESSORS. ------------------
In the event of the dissolution of the Authority, all of the covenants,
stipulations, obligations and agreements contained in this Trust Agreement by or
on behalf of or for the benefit of the Authority shall bind or inure to the
benefit of the successor or successors of the Authority from time to time and
any officer, board, commission, authority, agency or instrumentality to whom or
to which any power or duty affecting such covenants, stipulations, obligations
and agreements shall be transferred by or in accordance with law. --------------
- --- SECTION 1402. NOTICES. (A) All notices, demands, directions, requests,
consents or other instruments and communications authorized or required by this
Trust Agreement to be requested from, given by or to, or filed with the
Bondholders, the Authority, the Trustee, or the Borrower shall be in writing and
shall be (i) mailed by first-class mail, registered or certified, return receipt
requested, or express mail, postage prepaid, or private courier service, next
day delivery, or sent by telex, telecopy or other similar form of rapid
transmission confirmed by mailing (by first-class mail, registered or certified,
or express mail, postage prepaid, or by private courier, next day delivery)
confirmation at substantially the same time as such rapid transmission; or (ii)
personally delivered to the receiving party or, if not an individual, to an
officer of the receiving party. All such communications shall be mailed, sent or
delivered addressed as follows: ------------------------------------------------
- --- If to the Bondholder: To the address appearing in the registration books
kept by the Trustee, -----------------------------------------------------------
- --- If to the Authority: Puerto Rico Industrial, Tourist, Educational, ------
- ------------------------ Medical and Environmental Facilities----------------
- ------------------------ Financing Authority---------------------------------
- ------------------------ c/o Government Development Bank for Puerto
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<PAGE>
- ------------------------ Rico, Minillas Government Center,-------------------
- ------------------------ De Diego Avenue and Baldorioty de-------------------
- ------------------------ Castro, Stop 22, Santurce, Puerto Rico, 00911------
- ------------------------ Attention: Executive Director ----------------------
- ------------------------ Telephone : (787) 722-1425-----------------------
- ------------------------ Telefax : (787) 726-1440-----------------------
- -- If to the Trustee: Banco Santander Puerto Rico-------------------------
- ------------------------ Trust Department------------------------------------
- ------------------------ 221 Ponce de Leon Avenue----------------------------
- ------------------------ Lobby-----------------------------------------------
- ------------------------ Hato Rey, Puerto Rico 00918-------------------------
- ------------------------ Attention: Executive Trust Officer------------------
- ------------------------ Telephone : (787) 250-5478-----------------------
- ------------------------ Telefax : (787) 250-5484-----------------------
- -- If to the Borrower: El Conquistador Partnership L.P., S.E.--------------
- ------------------------ c/o El Conquistador Resort & Country Club ----------
- ------------------------ 1000 El Conquistador Avenue-------------------------
- ------------------------ Fajardo, P.R. 00913---------------------------------
- ------------------------ Attention : President------------------------------
- ------------------------ Telephone : (787) 863-1000-----------------------
- ------------------------ Telefax : (787) 863-3200-----------------------
- --- With copy to:------- Shack & Siegel, P.C.--------------------------------
- ------------------------ 530 Fifth Avenue------------------------------------
- ------------------------ New York, NY 10036 ---------------------------------
- ------------------------ Attention: Pamela E. Flaherty, Esq. ---------------
- ------------------------ Telephone : (212) 782-0708-----------------------
- ------------------------ Telefax : (212) 730-1964-----------------------
- --- and to: ------------ Patriot American Hospitality, Inc. -----------------
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<PAGE>
- ------------------------ 1950 Stemmons Freeway, Suite 6001-------------------
- ------------------------ Dallas, TX 75207------------------------------------
- ------------------------ Attention : General Counsel-------------------------
- ------------------------ Telephone : (214) 863-1000--------------------------
- ------------------------ Telefax : (214) 863-1986----------------------------
- ----- (B) All documents received by the Trustee under the provisions of this
Trust Agreement, or photographic copies thereof, shall be retained in its
possession until this Trust Agreement shall be released in accordance with the
provisions of the Trust Agreement, subject at all reasonable times to the
inspection of the Authority, the Borrower and the Bondholders and the agents and
representatives thereof. -------------------------------------------------------
- ----- (C) A duplicate copy of each notice, certificate, request or other
communication given hereunder to the Authority, the Borrower, or the Trustee
shall also be concurrently given to each of the others. The Authority, the
Trustee, and the Borrower may, by notice given hereunder, designate any further
or different addresses to which subsequent notices, certificates or other
communications shall be sent. --------------------------------------------------
- ----- (D) All such notices and other communications shall be effective when
received. ----------------------------------------------------------------------
- --- SECTION 1403. SUBSTITUTE MAILING. In case, by reason of the suspension of
regular mail service and private courier service as a result of a strike, work
stoppage or similar activity, it shall be impractical to mail notice of any
event to the Bondholders when such notice is required to be given pursuant to
any provision of this Trust Agreement, any manner of giving notice as shall be
satisfactory to the Trustee and the Authority shall be deemed to be a sufficient
giving of such notice. ---------------------------------------------------------
- --- SECTION 1404. RIGHTS UNDER TRUST AGREEMENT.---------------------------------
Except as herein otherwise expressly provided, nothing in this Trust
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<PAGE>
Agreement expressed or implied is intended or shall be construed to confer upon
any Person, other than the parties hereto, the Borrower, and the Bondholders and
the Beneficial Owners any right, remedy or claim, legal or equitable, under or
by reason of this Trust Agreement or any provision hereof. This Trust Agreement
and all of its provisions is intended to be and is for the sole and exclusive
benefit of the parties hereto, the Borrower and the Bondholders. ---------------
- --- SECTION 1405. SEVERABILITY. In case any one or more of the provisions of
this Trust Agreement or of the Bonds shall for any reason be held to be illegal
or invalid, such illegality or invalidity shall not effect any other provision
of this Trust Agreement or of the Bonds, but this Trust Agreement and the Bonds
shall be construed and enforced as if such illegal or invalid provision had not
been contained therein. In case any covenant, stipulation, obligation or
agreement contained in the Bonds or in this Trust Agreement shall for any reason
be held to be in violation of law, then such covenant, stipulation, obligation
or agreement shall be deemed to be the covenant, stipulation, obligation or
agreement of the Authority to the full extent permitted by law. ----------------
- --- SECTION 1406. COVENANTS OF AUTHORITY NOT COVENANTS OF OFFICIALS
INDIVIDUALLY. No covenant, stipulation, obligation or agreement contained herein
shall be deemed to be a covenant, stipulation, obligation or agreement of any
present or future member, agent or employee of the Authority in his individual
capacity, and neither the members of the Board nor any other officer of the
Board of the Authority executing the Bonds shall be liable personally on the
Bonds or be subject to any personal liability or accountability by reason of the
issuance thereof. No member, officer, agent or employee of the Authority shall
incur any personal liability in acting or proceeding or in not acting or not
proceeding, in good faith,
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<PAGE>
reasonably and in accordance with the terms of this Trust Agreement. -----------
- --- SECTION 1407. PUERTO RICO LAW GOVERNS. This Trust Agreement shall be
governed by and construed in accordance with the laws of Puerto Rico. ----------
- --- SECTION 1408. PAYMENTS DUE ON A NON-BUSINESS DAY. In any case where a
Principal Payment Date or an Interest Payment Date shall not be a Business Day,
then payment of principal or interest need not be made on such date but may be
made on the next succeeding Business Day with the same force and effect, and no
interest on such payment shall accrue for the period after such date. ----------
- --- SECTION 1409. HEADINGS NOT PART OF TRUST AGREEMENT. Any heading preceding
the text of the Articles and Sections, and any table of contents or marginal
notes appended to copies hereof, shall be solely for convenience or reference
and shall not affect its meaning, construction or effect. ----------------------
- --- SECTION 1410. TRUST AGREEMENT SUPERSEDES PRIOR AGREEMENT. This Trust
Agreement supersedes any other prior agreement written or oral, between the
parties hereto with respect to the Bonds. --------------------------------------
- --- SECTION 1411. CONFLICTS If any provision of (i) the Trust Agreement,
qualifies or conflicts with any provision in any of the Related Documents , the
provision contained in the Trust Agreement shall control and (ii) if any
provision of the Loan Agreement qualifies or conflicts with any provision in any
of the Related Documents (except the Loan Agreement), the provision contained in
the Loan Agreement shall control. This Section will not apply to provisions
relative to the constitution of the documents or the remedies thereunder. ------
- ---------------------------------- ACCEPTANCE ----------------------------------
- --- The appearing parties accept this Deed as drafted and confirm that the same
has been drawn in accordance with their instructions. --------------------------
- --- I, the Notary, hereby certify that the appearing parties read this Deed,
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<PAGE>
and I advised the appearing parties of their right to have witnesses present at
its execution, which right they waived, and that I advised them of the legal
effect of this Deed; and they acknowledged that they understood the contents of
this Deed and such legal effect, and thereupon they signed this Deed before me,
affixing their initials to each and every page thereof. ------------------------
- --- I further certify as to everything stated or contained herein. -------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --- I, the Notary, DO HEREBY ATTEST.--------------------------------------------
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<PAGE>
EXHIBIT A
FORM OF SERIAL BOND
1999 SERIES A
FRONT SIDE OF BOND
UNDER EXISTING LAWS OF THE COMMONWEALTH OF PUERTO RICO INTEREST ON THIS
BOND IS EXEMPT FROM INCOME TAX. SUCH INTEREST IS NOT EXEMPT FROM INCOME TAX
UNDER THE UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE");
HOWEVER, SUCH INTEREST IS NOT SUBJECT TO INCOME TAX UNDER THE CODE IF RECEIVED
BY ANY PERSON WHOSE INCOME FROM PUERTO RICO SOURCES IS NOT SUBJECT TO INCOME TAX
UNDER THE CODE.
No. RA- ______ $_____________________
United States of America
Commonwealth of Puerto Rico
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL, MEDICAL AND
ENVIRONMENTAL CONTROL FACILITIES FINANCING AUTHORITY
Tourism Revenue Bond,
1999 Series A
(El Conquistador Resort Project)
Serial Bonds
Interest Rate:__ per annum Maturity Date:
Registered Owner: ______________________________
Principal Amount: ____________________ Dollars
Interest Payment Dates: the 1st day of each month
Initial Interest Payment Date: [ ] 1, 1999
Original Issue Date:[ ] 1, 1999
Cusip No.:
Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Financing Authority (the "Authority"), a body corporate and
politic constituting a public corporation and governmental instrumentality of
the Commonwealth of Puerto Rico ("Puerto Rico") for value received, promises to
pay, solely from the special fund provided therefor as hereinafter set forth, to
the registered owner mentioned above, or registered assigns (collectively, the
Registered Owner),
<PAGE>
<PAGE>
the Principal Amount set forth above on the Maturity Date set forth above, and
to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the unpaid principal amount of this bond outstanding from time to
time, from the Interest Payment Date (stated above) next preceding the date of
authentication to which interest shall have been paid, unless such date of
authentication is an Interest Payment Date to which interest shall have been
paid, in which case from said date, or unless such date of authentication is
prior to the Initial Interest Payment Date (stated above), in which case this
bond will bear interest from the Original Issue Date (stated above), until the
principal amount of this bond is paid in full, such interest being payable on
the Interest Payment Dates in each year set forth above, commencing on the
Initial Interest Payment Date, in any coin or currency of the United States of
America which on the date of payment thereof is legal tender for the payment of
public and private debts. Interest on this bond shall be payable to the
Registered Owner on the close of business on the 15th day of the month (whether
or not a Business Day) immediately preceding each Interest Payment Date by check
mailed to such Registered Owner at his address as it appears on the Bond
Register, or by wire transfer in immediately available funds to any Registered
Owner owning ONE MILLION DOLLARS ($1,000,000) or more in principal amount of the
Bonds, if such Registered Owner shall so elect; provided, however, that payments
due and payable on the Maturity Date (set forth above) shall be made upon
presentation and surrender hereof at the corporate trust office of the Trustee
(hereinafter mentioned), in the Municipality of San Juan, Puerto Rico. Any
interest not punctually paid shall forthwith cease to be payable to the
Registered Owner on such regular record date, and may be paid to the person in
whose name this bond (or one or more predecessor bonds) is registered at the
close of business on a special record date, or may be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Bonds may be listed and upon such notice as may be
required by such exchange, all as more fully provided in the Trust Agreement.
The date for the payment of such defaulted interest shall be fixed by the
Trustee, notice whereof being given to the Registered Owners not less than 5
days prior thereto.
This bond shall not be deemed to constitute an indebtedness of either
Puerto Rico or any of its political subdivisions, other than the Authority, and
neither Puerto Rico nor any of its political subdivisions, other than the
Authority, shall be liable thereon. This bond shall be payable as to principal
and interest solely from the special fund provided therefor as hereinafter set
forth.
ADDITIONAL PROVISIONS OF THIS BOND ARE SET FORTH ON THE REVERSE HEREOF AND
SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH HERE.
This bond shall not be valid or become obligatory for any purpose or be
entitled to any benefit under the Trust Agreement until this bond shall have
been authenticated by the execution by the Trustee of the certificate of
authentication endorsed hereon. All acts, conditions and things required by the
Constitution and laws of Puerto Rico, and the resolutions, rules and regulations
of the Authority to happen, exist and be performed precedent to and in the
issuance of this bond have happened, exist and have been performed as so
required.
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<PAGE>
IN WITNESS WHEREOF, Puerto Rico Industrial, Tourist, Educational, Medical
and Environmental Control Facilities Financing Authority has caused this bond to
bear the facsimile signatures of the Assistant Executive Director of the
Authority and the Secretary of the Authority, and a facsimile of its corporate
seal to be imprinted hereon, all as of the Original Issue Date.
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL,
MEDICAL AND ENVIRONMENTAL POLLUTION
CONTROL FACILITIES FINANCING AUTHORITY
By: _____________________________________
Assistant Executive Director
By: _____________________________________
Secretary
[Facsimile of corporate seal] -----------
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<PAGE>
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is one of the Bonds of the series designated herein and issued under
the provisions of the Trust Agreement mentioned herein.
BANCO SANTANDER PUERTO RICO, as Trustee
By: _____________________________________
Authorized Officer
Date of
authentication: _________________________
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<PAGE>
EXHIBIT A
FORM OF TERM BOND
1999 SERIES A
FRONT SIDE OF BOND
UNDER EXISTING LAWS OF THE COMMONWEALTH OF PUERTO RICO INTEREST ON THIS
BOND IS EXEMPT FROM INCOME TAX. SUCH INTEREST IS NOT EXEMPT FROM INCOME TAX
UNDER THE UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE");
HOWEVER, SUCH INTEREST IS NOT SUBJECT TO INCOME TAX UNDER THE CODE IF RECEIVED
BY ANY PERSON WHOSE INCOME FROM PUERTO RICO SOURCES IS NOT SUBJECT TO INCOME TAX
UNDER THE CODE.
No. RA- ______ $_____________________
United States of America
Commonwealth of Puerto Rico
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL, MEDICAL AND
ENVIRONMENTAL CONTROL FACILITIES FINANCING AUTHORITY
TOURISM Revenue Bond,
1999 Series A
(El Conquistador Resort Project)
Term Bonds
Interest Rate:__ per annum Maturity Date:
Registered Owner: ______________________________
Principal Amount: ____________________ Dollars
Interest Payment Dates: the 1st day of each month
Initial Interest Payment Date: [ ] 1, 1999
Original Issue Date:[ ] 1, 1999
Cusip No.:
Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Financing Authority (the "Authority"), a body corporate and
politic constituting a public corporation and governmental instrumentality of
the Commonwealth of Puerto Rico ("Puerto Rico") for value received, promises to
pay, solely from the special fund provided therefor as hereinafter set forth, to
the registered owner mentioned above, or registered assigns (collectively, the
"Registered Owner"), the Principal Amount set forth above on the Maturity Date
set forth above, and to pay interest
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<PAGE>
(computed on the basis of a 360-day year of twelve 30-day months) on the unpaid
principal amount of this bond outstanding from time to time, from the Interest
Payment Date (stated above) next preceding the date of authentication to which
interest shall have been paid, unless such date of authentication is an Interest
Payment Date to which interest shall have been paid, in which case from said
date, or unless such date of authentication is prior to the Initial Interest
Payment Date (stated above), in which case this bond will bear interest from the
Original Issue Date (stated above), until the principal amount of this bond is
paid in full, such interest being payable on the Interest Payment Dates in each
year set forth above, commencing on the Initial Interest Payment Date, in any
coin or currency of the United States of America which on the date of payment
thereof is legal tender for the payment of public and private debts. Interest on
this bond shall be payable to the Registered Owner on the close of business on
the 15th day of the month (whether or not a Business Day) immediately preceding
each Interest Payment Date by check mailed to such Registered Owner at his
address as it appears on the Bond Register, or by wire transfer in immediately
available funds to any Registered Owner owning ONE MILLION DOLLARS ($1,000,000)
or more in principal amount of the Bonds, if such Registered Owner shall so
elect; provided, however, that payments due and payable on the Maturity Date
(set forth above) shall be made upon presentation and surrender hereof at the
corporate trust office of the Trustee (hereinafter mentioned), in the
Municipality of San Juan, Puerto Rico. Any interest not punctually paid shall
forthwith cease to be payable to the Registered Owner on such regular record
date, and may be paid to the person in whose name this bond (or one or more
predecessor bonds) is registered at the close of business on a special record
date, or may be paid at any time in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Bonds may be
listed and upon such notice as may be required by such exchange, all as more
fully provided in the Trust Agreement. The date for the payment of such
defaulted interest shall be fixed by the Trustee, notice whereof being given to
the Registered Owners not less than 5 days prior thereto.
This bond shall not be deemed to constitute an indebtedness of either
Puerto Rico or any of its political subdivisions, other than the Authority, and
neither Puerto Rico nor any of its political subdivisions, other than the
Authority, shall be liable thereon. This bond shall be payable as to principal
and interest solely from the special fund provided therefor as hereinafter set
forth.
ADDITIONAL PROVISIONS OF THIS BOND ARE SET FORTH ON THE REVERSE HEREOF AND
SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH HERE.
This bond shall not be valid or become obligatory for any purpose or be
entitled to any benefit under the Trust Agreement until this bond shall have
been authenticated by the execution by the Trustee of the certificate of
authentication endorsed hereon. All acts, conditions and things required by the
Constitution and laws of Puerto Rico, and the resolutions, rules and regulations
of the Authority to happen, exist and be performed precedent to and in the
issuance of this bond have happened, exist and have been performed as so
required.
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<PAGE>
IN WITNESS WHEREOF, Puerto Rico Industrial, Tourist, Educational, Medical
and Environmental Control Facilities Financing Authority has caused this bond to
bear the facsimile signatures of the Assistant Executive Director of the
Authority and the Secretary of the Authority, and a facsimile of its corporate
seal to be imprinted hereon, all as of the Original Issue Date.
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL,
MEDICAL AND ENVIRONMENTAL POLLUTION
CONTROL FACILITIES FINANCING AUTHORITY
By: _____________________________________
Assistant Executive Director
By: _____________________________________
Secretary
[Facsimile of corporate seal] -----------
-7-
<PAGE>
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is one of the Bonds of the series designated herein and issued under
the provisions of the Trust Agreement mentioned herein.
BANCO SANTANDER PUERTO RICO, as Trustee
By: _____________________________________
Authorized Officer
Date of
authentication: _________________________
-8-
<PAGE>
<PAGE>
EXHIBIT A
FORM OF CAPITAL APPRECIATION BOND
1999 SERIES A
FRONT SIDE OF BOND
This is a Capital Appreciation Bond. Interest accrues on this Bond but is
not due and payable until the maturity date set forth below or upon earlier
redemption. The Accreted Value (as defined herein) of this Bond at any time may
be significantly different from the Initial Principal Amount shown on the face
hereof.
UNDER EXISTING LAWS OF THE COMMONWEALTH OF PUERTO RICO INTEREST ON THIS BOND IS
EXEMPT FROM INCOME TAX. SUCH INTEREST IS NOT EXEMPT FROM INCOME TAX UNDER THE
UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"); HOWEVER,
SUCH INTEREST IS NOT SUBJECT TO INCOME TAX UNDER THE CODE IF RECEIVED BY ANY
PERSON WHOSE INCOME FROM PUERTO RICO SOURCES IS NOT SUBJECT TO INCOME TAX UNDER
THE CODE.
No. RA- ______ $_____________________
United States of America
Commonwealth of Puerto Rico
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL, MEDICAL AND
ENVIRONMENTAL CONTROL FACILITIES FINANCING AUTHORITY
TOURISM REVENUE BOND,
1999 Series A
(El Conquistador Resort Project)
Capital Appreciation Bonds
Yield: _____
Maturity Date: _____________________
Registered Owner: __________________
Initial Principal Amount Per $5000 Maturity Amount: ________________ Dollars
Maturity Amount:__________________ Dollars
Initial Valuation Date: [ ] 1, 1999
Original Issue Date:[ ] 1, 1999
Cusip No.:
-9-
<PAGE>
<PAGE>
Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Financing Authority, a body corporate and public constituting
a public corporation and governmental instrumentality of the Commonwealth of
Puerto Rico (the "Authority"), for value received, hereby promises to pay,
solely from the special fund provided therefor as hereinafter set forth, to the
registered owner mentioned above or registered assigns (collectively, the
"Registered Owner"), the Maturity Amount ("Maturity Amount") set forth above (or
the Accreted Value, as hereinafter defined, on the date of earlier payment if
this Bond is redeemed or paid prior to the Maturity Date), on the Maturity Date
set forth above, which Maturity Amount consists of the Initial Principal Amount
set forth above and interest (computed on the basis of a year of three hundred
sixty (360) days, consisting of twelve (12) thirty-day months) thereon at the
yield set forth above from the Original Issue Date set forth above, compounded
on the first day of each month (each such date, a "Valuation Date" or an
"Interest Payment Date"), commencing on the Initial Valuation Date, during the
period from the Original Issue Date to the Maturity Date. The Initial Principal
Amount of this Bond plus the interest accrued to any given date, based upon the
yield stated above, as so compounded, is its "Accreted Value". The Accreted
Value per $5,000 Maturity Amount on each Valuation Date is set forth in the
Table of Accreted Values herein. The Accreted Value as of any date other than a
Valuation Date is equal to the sum of (a) the Accreted Value on the preceding
Valuation Date and (b) the product of (i) a fraction, the numerator of which is
the number of days having elapsed from the preceding Valuation Date and the
denominator of which is the number of days from such preceding Valuation Date to
the next succeeding Valuation Date and (ii) the difference between the Accreted
Values for such Valuation Dates (or between the Initial Principal Amount and the
Accreted Value on the Initial Valuation Date). The payment of the Accreted Value
of and redemption premium, if any, on this Bond is payable in any coin or
currency of the United States of America which on the date of payment thereof is
legal tender for the payment of public and private debts.
This bond shall not be deemed to constitute an indebtedness of either
Puerto Rico or any of its political subdivisions, other than the Authority, and
neither Puerto Rico nor any of its political subdivisions, other than the
Authority, shall be liable thereon. This bond shall be payable as to principal
and interest solely from the special fund provided therefor as hereinafter set
forth.
ADDITIONAL PROVISIONS OF THIS BOND ARE SET FORTH ON THE REVERSE HEREOF AND
SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH HERE.
This bond shall not be valid or become obligatory for any purpose or be
entitled to any benefit under the Trust Agreement until this bond shall have
been authenticated by the execution by the Trustee of the certificate of
authentication endorsed hereon. All acts, conditions and things required by the
Constitution and laws of Puerto Rico, and the resolutions, rules and regulations
of the Authority to happen, exist and be performed precedent to and in the
issuance of this bond have happened, exist and have been performed as so
required.
-10-
<PAGE>
<PAGE>
IN WITNESS WHEREOF, Puerto Rico Industrial, Tourist, Educational, Medical
and Environmental Control Facilities Financing Authority has caused this bond to
bear the facsimile signatures of the Executive Director or Assistant Executive
Director of the Authority and the Secretary of the Authority, and a facsimile of
its corporate seal to be imprinted hereon.
Puerto Rico Industrial, Tourist,
Educational, Medical and
Environmental Control Facilities
Financing Authority
By:______________________________
Executive Director
By:______________________________
Secretary
-11-
<PAGE>
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is one of the Bonds issued under the provisions of the
within-mentioned Trust Agreement.
Banco Popular de Puerto Rico
By:______________________________
Authorized Representative
Date of Authentication
_____________________________
-12-
<PAGE>
<PAGE>
EXHIBIT A
FORM OF BOND
1999 SERIES A
REVERSE SIDE
This bond is one of a duly authorized series of revenue bonds of the
Authority in the aggregate principal amount of One Hundred Five Million Two
Hundred Thousand Dollars ($105,200,000), known as "Tourism Revenue Bonds, 1999
Series A (El Conquistador Resort Project)" (the "Bonds"). The issue consists of
three classes: Serial Bonds in the aggregate principal amount of [$ ]; four
groups of Term Bonds in the aggregate principal amounts of [$ , $ ,
$ , and $ ,] due on the following dates, respectively, the 1st day of
[ ]of the years 2014, 2019, 2024, and 2029; and Capital Appreciation Bonds
in the aggregate principal amount of [$ ] due on the 1st day of [ , ].
The Bonds are issued for the purpose of providing funds for paying all or a
portion of the refinancing of the acquisition, development, construction and
equipping of certain tourism facilities (the "Project"), to fund certain
reserves, and pay certain costs and expenses of issuing the Bonds.
The Bonds are parity obligations, except for differences in interest rates
(yield in the case of the Capital Appreciation Bonds), and are issued under and
pursuant to a Deed of Trust Agreement (said agreement, together with all
permitted agreements supplemental thereto or amendatory thereof, the "Trust
Agreement"), executed on the Date Of Issuance by and between the Authority and
Banco Santander Puerto Rico, in the Municipality of San Juan, Puerto Rico (said
bank and any bank, banking association or trust company becoming successor
trustee under the Trust Agreement, being herein called the "Trustee"). A copy of
the Trust Agreement is on file at the corporate trust office of the Trustee.
Reference is hereby made to the Trust Agreement for the provisions, among
others, with respect to the custody and application of the proceeds of the
Bonds, the collection and disposition of payments under the Loan Agreement
(hereinafter mentioned) and other revenues, a description of the funds charged
with and assigned for the payment of the principal of and interest on the Bonds,
the terms and conditions under which the Bonds are or may be issued, the rights,
duties and obligations of the Authority and of the Trustee and the rights of the
Registered Owners. By the acceptance of this bond, the holder hereof assents to
all of the provisions of the Trust Agreement and the Loan Agreement.
-13-
<PAGE>
<PAGE>
This bond is issued and the Trust Agreement was made and entered into under
and pursuant to the Constitution and laws of Puerto Rico, including Act Number
121 of the Legislature of Puerto Rico, approved June 27, 1977, as amended (the
"Act"), and under and pursuant to resolutions duly adopted by the Authority. All
capitalized terms used in the front and reverse sides of this bond that are
defined in the Trust Agreement shall have the respective meanings assigned to
them in the Trust Agreement.
The Authority has entered into a Loan Agreement (the "Loan Agreement") with
El Conquistador Partnership L.P., S.E., a limited partnership organized and
existing under the laws of the State of Delaware (the "Borrower"), under the
provisions of which the Authority has agreed to lend to the Borrower the
proceeds of the Bonds for the purposes herein before mentioned. The Loan
Agreement provides that: (i) the Borrower shall pay, or cause to be paid,
amounts sufficient to pay the principal of and interest on all the Bonds as the
same shall become due and payable, and certain fees and expenses of the
Authority and the Trustee; (ii) any payments in respect of the Bonds shall be
made directly to the Trustee for the account of the Authority; and (iii) the
Borrower's obligation to make such payments shall be absolute and unconditional.
Under the Trust Agreement, the Authority, for the benefit of the Registered
Owners, has assigned and conveyed to the Trustee, in trust, the Authority's
interests in the Loan Agreement (subject to the reservation of certain rights of
the Authority under the Loan Agreement, including its rights to payment of
certain expenses and to indemnity) and the payments thereunder and other
revenues derived therefrom. The Trust Agreement provides that any payments under
the Loan Agreement in respect of the Bonds and all such revenues are to be
deposited with the Trustee to the credit of a special fund designated "Tourism
Revenue Bonds, 1999 Series A (El Conquistador Resort Project) Bond Fund", which
special fund is equally and ratably charged with the payment of the principal of
and interest on all the Bonds. In addition, $9,100,000 of the Bonds proceeds
will be initially deposited with the Trustee to the credit of a special fund
designated "Tourism Revenue Bonds, 1999 Series A (El Conquistador Resort
Project) Reserve Fund", which special fund is equally and ratably charged with
the payment of the principal of and interest on all the Bonds whenever moneys
held in the Bond Fund are insufficient for such purposes.
To secure the obligations under the Loan Agreement and the Trust Agreement,
the Borrower has executed the following documents (the "Security Documents"):
(i) the Mortgages creating a first lien on the Project and on the Palominos
island leasehold; (ii) the Pledge Agreement whereby the Mortgage Notes secured
by the Mortgages have been pledged to the Trustee; (iii) the Security Agreements
(as defined in the Loan Agreement) whereby a lien and security interest is
created on all the personal property of the Project owned by the Borrower; and
(iv) the Assignment Agreements (as defined in the Loan Agreement) whereby the
Project's leases and rents and hotel management agreement are assigned to the
Trustee.
The Bonds are issuable only as registered Bonds without coupons, in
denominations (Maturity Amount, in the case of the Capital Appreciation Bonds)
of $5,000, and any integral
-14-
<PAGE>
<PAGE>
multiples thereof, may be exchanged for an equal aggregate principal amount or
Maturity Amount, as the case may be, of bonds of the same series and authorized
denominations, at the corporate trust office of the Trustee in the Municipality
of San Juan, Puerto Rico, in the manner and subject to the limitations and
conditions provided in the Trust Agreement and upon payment of any taxes, fees
or other governmental charges provided in the Trust Agreement.
The Bonds are subject to mandatory redemption at a redemption price equal
to the principal amount thereof, and accrued interest to the redemption date in
the case of the Serial Bonds and the Terms Bonds, and the Accreted Value as of
the date of redemption in the case of the Capital Appreciation Bonds (the
"Redemption Price") (a) in whole: (i) if the operation of the Project ceases,
under the conditions set forth in the Loan Agreement, (ii) upon the second
occurrence of an Event of Taxability (as defined in the Loan Agreement); and (b)
in whole or in part upon the occurrence of an event of condemnation, damage to
or destruction of the Project.
The Bonds are subject to redemption, at the option of the Borrower, in
whole or in part, as directed by the Borrower, on any Interest Payment Date on
or after [ ] 1, 2009, at the Redemption Price, plus a premium of (i) 2%
if redeemed prior to [ ] 1, 2010, (ii) 1% if redeemed on or after [ ],
2010 and prior to [ ] 1, 2011, or without premium if redeemed on or after
[ ] 1, 2011.
The Term Bonds are subject to mandatory redemption as follows:
<TABLE>
<CAPTION>
TERM BONDS DUE [_________] ____ , 2014
YEAR [_________ ] 1 [________ ] 1
<S> <C> <C>
2009 $ $
2010
2011
2012
2013
</TABLE>
<TABLE>
<CAPTION>
TERM BONDS DUE [_________] ____ , 2019
YEAR [_________ ] 1 [________ ] 1
<S> <C> <C>
2014 $ $
2015
2016
2017
2018
</TABLE>
<TABLE>
<CAPTION>
TERM BONDS DUE [_________] ____ , 2024
YEAR [_________ ] 1 [________ ] 1
<S> <C> <C>
2019 $ $
2020
2021
2022
2023
</TABLE>
-15-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TERM BONDS DUE [_________] ____ , 2029
YEAR [_________ ] 1 [________ ] 1
<S> <C> <C>
2024 $ $
2025
2026
2027
2028
</TABLE>
If fewer than all of the Outstanding Bonds: (i) shall be called for
redemption, the Bonds shall be called in inverse order of maturity; or (ii) of
the same Maturity Date shall be called for redemption, the Bonds or portions
thereof of such Maturity Date to be redeemed shall be selected by the Trustee by
such method as the Trustee shall deem fair and appropriate; all as provided in
the Trust Agreement. If a Bond is delivered for partial redemption, then the
Trustee shall deliver to or upon the order of the Registered Owner, without
charge therefor, in exchange for the unredeemed portion of such Bond, a new Bond
of the same maturity and of any denomination or denominations authorized by the
Trust Agreement.
Any such redemption shall be made upon at least 30 days prior notice to all
Registered Owners, in the manner, and under the terms and conditions provided in
the Trust Agreement. On the date designated for redemption, such notice having
been given, the Bonds shall become and be due and payable at the redemption
price established in the Trust Agreement, and, if sufficient moneys for payment
of the said redemption price are held by the Trustee, as provided in the Trust
Agreement, interest on the Bonds shall cease to accrue, the Bonds shall cease to
be entitled to any benefit under the Trust Agreement and the Registered Owners
shall have no rights in respect of the Bonds except to receive payment of the
redemption price held by the Trustee.
If any Bonds are not presented for payment of principal when due, the
Registered Owners thereof shall look only to the moneys set aside for such
purpose by the Trustee. After two years, such moneys, including any earnings
thereon, will be paid to the Borrower, and the Registered Owners of such Bonds
shall thereafter look only to the Borrower for payment thereof.
The Registered Owner of this bond shall have no right to enforce the
provisions of the Trust Agreement or to institute action to enforce the
covenants therein, or take any action with respect to any event of default under
the Trust Agreement or to institute, appear in or defend any suit or other
proceeding with respect thereto, except as provided in the Trust Agreement. The
Trustee is not required to enforce the Trust Agreement unless it receives
reasonable security and indemnity.
The Bonds shall be deemed to have been paid if there shall have been
deposited with the Trustee sufficient moneys or certain prescribed investment
obligations to provide, without reinvestment, together with any other available
funds, sufficient moneys, to pay when due the principal of and interest, in the
case of the Serial Bonds and the Term Bonds, and the Accreted
-16-
<PAGE>
<PAGE>
Value, in the case of the Capital Appreciation Bonds. Thereafter, the Registered
Owners must look only to such moneys or investment obligations for payment.
Modifications or alterations of the Trust Agreement or of any agreement
supplemental thereto may be made by the Authority and the Trustee only to the
extent and in the circumstances permitted by the Trust Agreement.
The Trustee is required to keep at its principal corporate trust office the
books of the Authority for the registration, transfer and exchange of Bonds. The
transfer of this bond may be registered only upon such books and as otherwise
provided in the Trust Agreement upon the surrender hereof to the Trustee
together with an assignment duly executed by the registered owner hereof or his
legal representative in the form set forth on this bond or such other form as
shall be satisfactory to the Trustee. Upon each registration of transfer, the
Trustee shall deliver in exchange for this bond a new bond or bonds of the same
series, registered in the name of the transferee, of authorized denominations,
in an aggregate principal amount equal to the principal amount or the Maturity
Amount, as the case may be, of this bond.
As declared by the Act, this bond, notwithstanding the provisions for the
registration of transfer contained in the Trust Agreement, shall at all times
have, and shall be understood to have, all the qualities and incidents
(including negotiability) of a negotiable instrument under the laws of Puerto
Rico.
This bond is issued with the intent that the laws of Puerto Rico shall
govern its construction.
Pursuant to the Act, the Authority as agent for Puerto Rico, hereby
includes Puerto Rico's pledge to and agreement with the Registered Owners and
with those persons or entities who may enter into contracts with the Authority
pursuant to the Act that Puerto Rico shall not limit or alter the rights vested
in the Authority pursuant to the Act until the Bonds and interest thereon are
fully met and discharged and such contracts are fully performed and fulfilled on
the part of the Authority; provided, however, that nothing contained in this
pledge shall affect or alter such limitation if adequate measures are provided
by the law for the protection of the Registered Owners or those who have entered
into such contracts with the Authority.
-17-
<PAGE>
<PAGE>
[Form of Assignment]
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
- --------------------------------------------------------------------------------
_________________________________________________________________ this bond and
all rights thereunder, and hereby irrevocably constitutes and appoints
______________________________ attorney to register the transfer of this bond on
the books kept for registration thereof with full power of substitution in the
premises.
Date: ____________________
Signature: _______________________________________
NOTICE: The signature of this assignment
must correspond with the name as it appears
on the face of the within note in every
particular, without alteration or enlargement
or any change whatever.
Social Security Number or
Employer Identification Number
of Transferee: _______________
-18-
<PAGE>
<PAGE>
TABLE OF ACCRETED VALUES
[To come]
-19-
<PAGE>
<PAGE>
EXHIBIT B
SCHEDULE OF FEATURES OF THE BONDS
1. Aggregate Principal Amount of Bonds: $
2. Serial Bonds:
Maturity Date Principal Amount Interest Rate
------------- ---------------- -------------
Serial Bonds Aggregate Principal Amount: $
3. Term Bonds:
Maturity Date Principal Amount Interest Rate
------------- ---------------- -------------
4. Capital Appreciation Bonds:
Maturity Initial Principal Maturity Yield to
Date Amount Amount Maturity
-------- ----------------- -------- --------
5. Amortization Requirements for Term Bonds:
(a) Term Bonds Due 20__:
Year Amortization Requirements
---- -------------------------
(b) Term Bonds Due 20__:
Year Amortization Requirements
---- -------------------------
(c) Term Bonds Due 20__:
Year Amortization Requirements
---- -------------------------
<PAGE>
<PAGE>
6. First Call Date:
7. Optional Redemption Premium:
Optional Redemption
Redemption Date Premium
--------------- -------
8. Interest Payment Dates: The first day of each month, commencing ____________.
9. Date of Bonds, from which interest starts accruing: (i) __________ ___,1999,
in the case of the Serial Bonds and the Term Bonds, and (ii) the date of
issuance of the Bonds, in the case of the Capital Appreciation Bonds.
-2-
<PAGE>
<PAGE>
Exhibit 5.1
SHACK & SIEGEL, P.C.
530 Fifth Avenue
New York, New York 10036
May 12, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: El Conquistador Partnership L.P., S.E.
Registration Statement on Form S-11 (File No. 333-65889)
Ladies and Gentlemen:
We have acted as United States counsel to El Conquistador Partnership
L.P., S.E., a Delaware limited partnership (the "Partnership"), in connection
with the filing with the Securities and Exchange Commission of its Registration
Statement on Form S-11 (File No. 333-65889) filed October 20, 1998, as amended
on December 31, 1998 and April 16, 1999 (the "Registration Statement"), relating
to the undivided interests in the loan agreement (the "Loan Agreement") between
Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control
Facilities Financing Authority ("AFICA") and the Partnership in connection with
the issuance by AFICA of $105,200,000 of its Revenue Bonds, 1999 Series A (El
Conquistador Resort Project) (the "Bonds"), which undivided interests will be
registered under the Securities Act of 1933, as amended. The Bonds will be
issued pursuant to a trust agreement by and between AFICA and Banco Santander
Puerto Rico, as trustee. The proceeds of the Bonds will be loaned by AFICA to
the Partnership pursuant to the Loan Agreement.
We advise you that we have examined originals or copies, certified or
otherwise identified to our satisfaction, of: (i) the Certificate of Limited
Partnership dated January 16, 1990, as amended on March 21, 1991, March 5, 1992,
May 5, 1998 and April 14, 1999, and the Amendment to the Certificate of Limited
Partnership to be entered into upon the closing of the above-referenced
transactions; (ii) the Partnership's Venture Agreement dated January 12, 1990,
as amended on May 4, 1992, March 31, 1998 and April 29, 1998, and both the
amendment to the Venture Agreement and the Amended and Restated Venture
Agreement, each to be entered into upon the closing of the above-referenced
transactions; (iii) the Loan Agreement; and (iv) such other documents,
instruments and certificates of officers and representatives of the Partnership
and public officials, and we have made such examination of law as we have deemed
appropriate as the basis for the opinion hereinafter expressed. In making such
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals and the conformity to original
documents of documents submitted to us as certified or photostatic copies.
<PAGE>
<PAGE>
We have also assumed that the Amended and Restated Venture Agreement
shall have been duly authorized, executed and delivered by each of the partners
of the Partnership.
This opinion is based solely upon facts, documents, undertakings,
representations, laws, rules, regulations and interpretations as they exist on
the date hereof.
Based upon the foregoing and subject to the qualifications set forth
herein, we are of the opinion that:
1. The Partnership is a limited partnership duly organized and in good
standing under the laws of the State of Delaware.
2. The Partnership has all requisite power and authority to enter into
the Loan Agreement and to assume, pay and perform its obligations thereunder.
3. Upon the closing of the above-referenced transactions, the execution
and delivery by the Partnership of the Loan Agreement and the performance by the
Partnership of its obligations thereunder will have been duly authorized by all
necessary action of the Partnership and no further action or approval will be
required in order to constitute the Loan Agreement as a valid and binding
obligation of the Partnership.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and we further consent to the reference made to us under
the caption "Legal Matters" in the Registration Statement and the Official
Statement and Prospectus.
The law covered by the opinions expressed herein is limited to the
Delaware Revised Uniform Limited Partnership Act. Without limitation, we are not
opining as to (i) any laws, rules or regulations of any other jurisdiction,
including the Commonwealth of Puerto Rico, the applicability of the laws of any
other jurisdiction, domestic or foreign, to the Loan Agreement, the transactions
contemplated by the Loan Agreement or the effect of such laws thereon or (ii)
any requirement of or rule, ordinance, regulation, writ, judgment, injunction or
decree of any governmental body, agency, authority, instrumentality or court of
the Commonwealth of Puerto Rico.
This opinion may be relied upon by McConnell Valdes and Fiddler
Gonzalez & Rodriguez, LLP only in connection with the Registration Statement.
Very truly yours,
SHACK & SIEGEL, P.C.
By: /s/ Jeffrey N. Siegel
______________________________
Jeffrey N. Siegel
<PAGE>
<PAGE>
Exhibit 5.2
[MCCONNELL VALDES LETTERHEAD]
May 12, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: El Conquistador Partnership L.P., S.E.
Registration Statement on Form S-11 (File No. 333-65889)
Dear Sir or Madam:
Reference is made to the Registration Statement on Form S-11 (File No.
333-65889) dated as of the date hereof (the "Registration Statement") filed by
El Conquistador Partnership L.P., S.E., a Delaware limited partnership (the
"Partnership"), relating to the undivided interests in a loan agreement to be
entered into by and between Puerto Rico Industrial, Tourist, Educational,
Medical and Environmental Control Facilities Financing Authority ("AFICA") and
the Partnership in connection with the issuance by AFICA of $105,200,000 of its
Tourism Revenue Bonds, 1999 Series A (El Conquistador Resort Project) (the
"Bonds"), which undivided interests (the "Securities") will be registered under
the Securities Act of 1933, as amended. The Bonds will be issued pursuant to a
trust agreement to be entered into by and between AFICA and Banco Santander
Puerto Rico, as trustee (the "Trustee"). The proceeds of the Bonds will be
loaned by AFICA to the Partnership pursuant to such loan agreement, and the loan
agreement will be assigned to the Trustee under the trust agreement.
We advise you that we have examined originals or copies, certified or
otherwise identified to our satisfaction, of: (i) the Certificate of Limited
Partnership dated January 16, 1990, as amended on March 21, 1991, March 5, 1992,
May 5, 1998 and April 14, 1999, and the draft Amendment to the Certificate of
Limited Partnership filed as an exhibit to the Registration Statement; (ii) the
draft Amended and Restated Venture Agreement filed as an exhibit to the
Registration Statement (the "Venture Agreement"); (iii) the draft loan agreement
filed as an exhibit to the Registration Statement (the "Loan Agreement"); (iv)
the draft trust agreement filed as an exhibit to the Registration Statement (the
"Trust Agreement"); and (v) such other documents, instruments and certificates
of officers and representatives of the Partnership and public officials, and we
have made such examination of law, as we have deemed appropriate as the basis
for the opinion hereinafter expressed. In making such examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity to original documents
<PAGE>
<PAGE>
of documents submitted to us as certified or photostatic copies.
We have assumed that the Venture Agreement shall have been duly authorized,
executed and delivered by all parties thereto. We have also assumed that the
Loan Agreement shall have been duly authorized, executed and delivered by the
Partnership and AFICA and that the Trust Agreement shall have been duly
authorized, executed and delivered by AFICA and the Trustee, all to be completed
timely in the manner presently proposed in the Registration Statement.
In expressing the opinions set forth below, we have obtained and relied
upon an Opinion of Shack & Siegel, P.C., United States counsel for the
Partnership (to be filed as Exhibit 5.1 to the Registration Statement), as to
the matters set forth therein which are governed by the laws of the State of
Delaware, and our opinion is subject to any assumptions, exceptions,
qualifications or limitations set forth in such opinion. We have also assumed
that AFICA and the Trustee shall be duly organized, validly existing and in good
standing under the laws of their respective jurisdiction and duly qualified to
engage in the activities contemplated by the Loan Agreement and the Trust
Agreement, respectively. We have also assumed that the Loan Agreement and the
Trust Agreement constitute the legally valid, binding and enforceable
obligations of AFICA enforceable against AFICA in accordance with their terms
and that the Trust Agreement constitutes the legally valid, binding and
enforceable obligation of the Trustee enforceable against the Trustee in
accordance with its terms.
Based upon the foregoing, and upon the taking of the actions described
above, it is our opinion that the Securities will have been duly authorized by
the Partnership and upon the due execution and delivery of the Loan Agreement
and the Trust Agreement by all parties thereto in the form filed as an exhibit
to the Registration Statement, the beneficial owners of the Securities will be
entitled to the benefits of the Loan Agreement pursuant to the provisions of the
Trust Agreement, and the Loan Agreement will constitute a valid and legally
binding obligation of the Partnership enforceable against the Partnership in
accordance with its terms, except as limited by bankruptcy, insolvency and other
laws affecting creditors' rights generally and by equitable principles limiting
the availability of remedies and the discretion of the court before which any
proceeding therefor may be brought.
We are attorneys admitted to practice in the Commonwealth of Puerto Rico.
We express no opinion herein concerning the laws of any jurisdiction other than
the laws of the United States of America and the Commonwealth of Puerto Rico.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and we further consent to the reference made to us under
the caption "Legal Matters" in the Official Statement and Prospectus.
Very truly yours,
/s/ McConnell Valdes
MCCONNELL VALDES
XXXXXXXXXXXXX
<PAGE>
<PAGE>
EXHIBIT 8
[Letterhead of Fiddler Gonzalez & Rodriguez, LLP]
May 12, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: El Conquistador Partnership L.P., S.E.
Registration Statement on Form S-11 (File No. 333-65889)
Dear Sir or Madam:
Reference is made to the Registration Statement on Form S-11 (File No.
333-65889) dated as of the date hereof (the "Registration Statement") filed by
El Conquistador Partnership L.P., S.E., a Delaware limited partnership (the
"Partnership"), relating to the undivided interests in a loan agreement (the
"Loan Agreement) to be entered into by and between Puerto Rico Industrial,
Tourist, Educational, Medical and Environmental Control Facilities Financing
Authority ("AFICA") and the Partnership in connection with the issuance by AFICA
of $105,200,000 of its Tourism Revenue Bonds, 1999 Series A (El Conquistador
Resort Project) (the "Bonds"), which undivided interests (the "Securities") will
be registered under the Securities Act of 1933, as amended. The Bonds will be
issued pursuant to a trust agreement (the "Trust Agreement") to be entered into
by and between AFICA and Banco Santander Puerto Rico, as trustee (the
"Trustee"). The proceeds of the Bonds will be loaned by AFICA to the Partnership
pursuant to the Loan Agreement, which will be assigned to the Trustee pursuant
to the Trust Agreement.
We advise you that we have examined originals or copies, certified or
otherwise identified to our satisfaction, of: (i) the draft of the Loan
Agreement filed as an exhibit to the Registration Statement; (ii) the draft of
the Trust Agreement filed as an exhibit to the Registration Statement; and (iii)
such other documents, instruments and certificates of officers and
representatives of the Partnership and public officials, and we have made such
examination of law, as we have deemed appropriate as the basis for the opinion
hereinafter expressed. In making such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity to original documents of documents submitted to
us as certified or photostatic copies.
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We have assumed that the Loan Agreement shall have been duly
authorized, executed and delivered by the Partnership and AFICA and that the
Trust Agreement shall have been duly authorized, executed and delivered by AFICA
and the Trustee, all to be completed timely in the manner presently proposed in
the Registration Statement.
In expressing the opinions set forth below, we have obtained and relied
upon an Opinion of Shack & Siegel, P.C., United States counsel for the
Partnership (to be filed as Exhibit 5.1 to the Registration Statement), as to
the matters set forth therein which are governed by the laws of the State of
Delaware, and our opinion is subject to any assumptions, exceptions,
qualifications or limitations set forth in such opinion. We have also assumed
that the Partnership and the Trustee shall be duly organized, validly existing
and in good standing under the laws of their respective jurisdiction and duly
qualified to engage in the activities contemplated by the Loan Agreement and the
Trust Agreement, respectively. We have also assumed that the Loan Agreement
constitutes the legally valid, binding and enforceable obligations of the
Partnership enforceable against the Partnership in accordance with its terms and
that the Trust Agreement constitutes the legally valid, binding and enforceable
obligation of the Trustee enforceable against the Trustee in accordance with its
terms.
All capitalized words and terms used in this opinion letter and not
otherwise defined herein will have the meanings ascribed to them in the Trust
Agreement.
Based upon the foregoing, and upon the taking of the actions described
above, it is our opinion that:
1. The Bonds, and the transfer of the Bonds, including any gain
derived upon the sale of the Bonds, are exempt from Puerto Rico
income tax pursuant to Article 8(b) of the Act.
2. Interest on the Bonds is (i) excluded from the gross income of
the recipient thereof for Puerto Rico income tax purposes
pursuant to Section 1022(b)(4)(B) of the Puerto Rico Internal
Revenue Code of 1986, as amended (the " PR-Code"); (ii) exempt
from Puerto Rico income tax and alternative minimum tax pursuant
to Section 1022(b)(4)(B) of the PR-Code, Article 8(b) of the Act,
and Section 3 of the Puerto Rican Federal Relations Act (the
"PRFRA"); and (iii) exempt from Puerto Rico municipal license tax
pursuant to Section 9(25) of the Puerto Rico Municipal License
Tax Act of 1974, as amended, and Section 3 of the PRFRA.
3. The Bonds are exempt from Puerto Rico personal property tax
pursuant to Section 3.11 of the Puerto Rico Municipal Property
Tax Act of 1991, as amended, and Section 3 of the PRFRA.
2
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4. The Bonds are exempt from Puerto Rico (i) gift tax with respect
to donors who are residents of Puerto Rico at the time the gift
is made and (ii) estate tax with respect to estates of decedents
who are residents of Puerto Rico at the time of death, excluding
in each case United States citizens who acquired their United
States citizenship other than by reason of birth or residence in
Puerto Rico.
5. Assuming that the Partnership complies with the source of income
representations, warranties and covenants contained in the Loan
Agreement, then:
(A) Interest received or accrued on the Bonds is excludable
from gross income pursuant to Section 933(1) of the Code
if the holder of the Bonds is an individual who is a bona
fide resident of Puerto Rico during the entire taxable
year in which the interest is received or accrued.
(B) Interest received or accrued on the Bonds is not subject
to United States federal income tax if the holder of the
Bonds is a corporation organized under the laws of Puerto
Rico or any foreign country and such interest is not
effectively connected with the conduct of a trade or
business in the United States by such corporation.
6. Interest on the Bonds is not excluded from the gross income of
the recipient thereof for United States federal income tax
purposes under Section 103(a) of the Code.
7. The Bonds will be considered an obligation of an instrumentality
of Puerto Rico for purposes of (i) the non-recognition of gain
rules of Section 1112(f)(2)(A) of the PR- Code applicable to
certain involuntary conversions and (ii) the exemption from
surtax imposed by Section 1102 of the PR-Code available to
corporations and partnerships that have certain percentage of
their net income invested in obligations of instrumentalities of
Puerto Rico and certain other investments.
United States taxpayers, other than individuals who are bona fide
residents of Puerto Rico during the entire taxable year, will be subject to
United States federal income tax on gain realized upon the sale or exchange of
the Bonds. Pursuant to Notice 89-40, 1989-1 CB 681, gain on the sale of the
Bonds (not including original issue discount accruing under the Code as of the
date of such sale or exchange) by an individual who is a bona fide resident of
Puerto Rico for purposes of Section 865(g)(1) of the Code will constitute income
from sources within Puerto Rico and will qualify for the exclusion provided in
Section 933(1) of the Code, provided that the Bonds do not constitute inventory
property in such individual's hands.
Ownership of the Bonds may result in having a portion of the interest
expense allocable to interest on the Bonds disallowed for purposes of computing
the regular tax and the alternative minimum tax for Puerto Rico income tax
purposes.
3
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This opinion is limited to the above, and we express no other opinion
regarding Puerto Rico or United States tax consequences arising from ownership
or disposition of the Bonds.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the inclusion of the form of this firm's opinion as
Appendix A to the official statement and prospectus included in the Registration
Statement. We further consent to the reference made to us under the captions
"Summary-Tax Consequences," "Tax Consequences" and "Legal Matters" in the
official statement and prospectus.
Very truly yours,
/s/ Fiddler Gonzalez & Rodriguez, LLP
4
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EXHIBIT 10.26
CONTINUING DISCLOSURE AGREEMENT
This Continuing Disclosure Agreement, dated ________ __, 1999 (the
"Disclosure Agreement"), is executed and delivered by El Conquistador
Partnership L.P., S.E. (the "Borrower") and Banco Santander Puerto Rico (the
"Trustee"), in connection with the issuance of $105,200,000 Puerto Rico
Industrial, Tourist, Educational, Medical and Environmental Control Facilities
Financing Authority Tourism Revenue Bonds, 1999 Series A (El Conquistador Resort
Project) (the "Bonds"). The Bonds have the CUSIP Numbers set forth in Schedule A
attached hereto. The Bonds are being issued pursuant to a Trust Agreement, dated
as of _______ __, 1999 (the "Trust Agreement"), between Puerto Rico Industrial,
Tourist, Educational, Medical and Environmental Control Facilities Financing
Authority (the "Issuer") and the Trustee. The proceeds of the Bonds are being
loaned by the Issuer to the Borrower pursuant to a Loan Agreement, dated as of
________ ___, 1999 (the "Loan Agreement"), between the Issuer and the Borrower.
The Borrower covenants and agrees as follows:
SECTION 1. PURPOSE OF THE DISCLOSURE AGREEMENT. This Disclosure
Agreement is being executed and delivered by the Borrower and the Trustee for
the benefit of the Beneficial Owners of the Bonds and in order to assist the
Participating Underwriters in complying with the Rule. The Borrower and the
Trustee acknowledge that the Issuer has assumed no responsibility with respect
to any reports, notices or disclosures provided or required under this
Disclosure Agreement, and has no liability to any person, including any
Beneficial Owner, with respect to any such reports, notices or disclosures.
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2
SECTION 2. DEFINITIONS. In addition to the definitions set forth in the
Trust Agreement, which definitions apply to any capitalized term used in this
Disclosure Agreement unless otherwise defined in this Section, the following
capitalized terms shall have the following meanings:
"ANNUAL REPORTS" means the Annual Reports provided by the Borrower
pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.
"BENEFICIAL OWNER" means the person in whose name a Bond is
recorded as the beneficial owner thereof by a broker-dealer, bank or other
financial institution for which The Depository Trust Company or any other
securities depository appointed as such for the Bonds holds securities.
"DISCLOSURE REPRESENTATIVE" means any officer of the Borrower or
each other person designated to act on behalf of the Borrower by written
certificate furnished to the Dissemination Agent from time to time containing
the specimen signatures of such person and signed on behalf of the Borrower by
an authorized officer thereof.
"DISSEMINATION AGENT" means the Trustee, acting in its capacity as
Dissemination Agent hereunder, or any successor Dissemination Agent designated
in writing by the Borrower and which has filed with the Trustee a written
acceptance of such designation, or the Borrower if no other entity is acting as
Dissemination Agent.
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3
"LISTED EVENTS" means any of the events listed in Section 5(a) of
this Disclosure Agreement (other than the failure to comply with Section 3
hereof).
"MSRB" means the Municipal Securities Rulemaking Board, organized
under the Securities Exchange Act of 1934, as the same may be amended from time
to time.
"NATIONAL REPOSITORY" means any Nationally Recognized Municipal
Securities Information Repository then recognized by the Securities and Exchange
Commission for purposes of the Rule. As of the date of this Disclosure Agreement
the following are National Repositories:
Bloomberg Municipal Repository
PO Box 840
Princeton, New Jersey 08542-0840
Phone: (609) 279-3200
Fax: (609) 279-5962
Kenny Information Systems, Inc.
Attn: Kenny Repository Service
65 Broadway
16th Floor
New York, New York 10006
Phone: (212) 770-4595
Fax: (212) 797-7994
Thomson NRMSIR
Attn: Municipal Disclosure
395 Hudson Street
New York, New York 10004
Phone: (212) 807-3814
Fax: (212) 989-9282
DPC Data Inc.
One Executive Drive
Fort Lee, New Jersey 07024
Phone: (201) 346-0701
Fax: (201) 947-0107
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4
"PARTICIPATING UNDERWRITERS" means each broker, dealer or
municipal securities dealer acting as an underwriter in the primary offering of
the Bonds.
"REPOSITORY" means each National Repository and each State
Repository.
"RULE"means Rule 15c2-12 adopted by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as the same may be amended
from time to time.
"STATE REPOSITORY" means any public or private repository or
entity designated by the Commonwealth as a state repository for the purpose of
the Rule and recognized as such by the Securities and Exchange Commission. As of
the date of this Disclosure Agreement, there is no State Repository.
SECTION 3. PROVISION OF ANNUAL REPORTS.
(a) The Borrower shall, or shall cause the Dissemination Agent,
to, not later than one hundred twenty (120) days after the end of its fiscal
year (currently December 31), commencing with the report for the fiscal year
ending December 31, 1998, provide to each Repository an annual report containing
the information set forth in Section 4 of this Disclosure Agreement. Not later
than fifteen (15) Business Days prior to said date, the Borrower shall provide
the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is
not the Dissemination Agent). In each case, the Annual Report may be submitted
as a single document or as separate documents comprising a package, and may
cross-reference other information as provided in Section 4 of this Disclosure
Agreement. The foregoing
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5
notwithstanding, while the audited financial statements of the Borrower are
expected to be available within one hundred twenty (120) days after the end of
the Borrower's fiscal year, such financial statements may be submitted
separately from the balance of the Annual Report, and later than the date
required above for the filing of the Annual Report if not available by that
date.
(b) If the Dissemination Agent has not received a copy of the
Annual Report by the fifteenth (15th) Business Day prior to the date specified
in subsection (a) for providing the Annual Report to the Repositories, the
Dissemination Agent shall contact the Borrower to determine if the Borrower is
in compliance with subsection (a).
(c) If the Dissemination Agent is unable to verify that an Annual
Report has been provided to the Repositories by the date required in subsection
(a), the Trustee shall send a notice to each Repository or to the MSRB in
substantially the form attached as Exhibit A.
(d) The Dissemination Agent shall:
(i) prior to the date for providing each Annual Report
determine the name and address of each National Repository and each State
Repository, if any; and
(ii) file a report with the Borrower, the Issuer and (if the
Dissemination Agent is not the Trustee) the Trustee certifying that the Annual
Report has been provided pursuant to this Disclosure Agreement, stating the date
it was provided, and listing all the Repositories to which it was provided.
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6
SECTION 4. CONTENT OF ANNUAL REPORTS. The Annual Report shall contain
or incorporate by reference the following:
(i) Core financial information and operating data for such
fiscal year, including (i) audited financial statements, prepared in accordance
with generally accepted accounting principles in effect from time to time, and
(ii) operating data and revenues, expenditures, financial operations and
indebtedness generally found in the Official Statement and Prospectus relating
to the Bonds, dated ___________ __, 1999.
Any or all of the items listed above may be included by specific
reference to other documents, including official statements of debt issues with
respect to which the Borrower is an "obligated person" (as defined by the Rule)
which have been filed with each of the Repositories or the Securities and
Exchange Commission. If the document incorporated by reference is a final
official statement, it must be available from the MSRB. The Borrower shall
clearly identify each such documents so incorporated by reference in any Annual
Report.
SECTION 5. REPORTING OF SIGNIFICANT EVENTS. In accordance with the
provisions of this Section 5, the Dissemination Agent shall file notice of any
failure of the Borrower to comply with Section 3 hereof and the Borrower shall
file, or shall cause the Dissemination Agent to file, notice of the occurrence
of any of the following events with respect to the Bonds, if material, within
the meaning of the Securities Exchange Act of 1934, as the same may be amended
from time to time, with the MSRB and with each Repository:
1. principal or interest payment delinquencies;
<PAGE>
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7
2. non-payment related defaults;
3. unscheduled draws on debt service reserves reflecting
financial difficulties;
4. unscheduled draws on credit enhancements reflecting
financial difficulties;
5. substitution of credit or liquidity providers, or their
failure to perform;
6. adverse tax opinions or events affecting the tax-exempt
status of the Bonds;
7. modifications to rights of the holders (including
Beneficial Owners) of the Bonds;
8. Bond calls;
9. defeasances;
10. release, substitution, or sale of property securing
repayment of the Bonds; and
11. rating changes.
The Borrower does not undertake to provide notice of the Listed Event
in item 8 above with respect to any scheduled redemption, not otherwise
contingent upon the occurrence of an event, if the terms, dates and amounts of
such redemption are set forth in the Official Statement and Prospectus relating
to the Bonds.
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8
(b) The Trustee shall, within three (3) Business Days of obtaining
actual knowledge of the occurrence of any of the Listed Events (other than the
Listed Event in item 8 above with respect to a scheduled redemption) notify the
Disclosure Representative of such occurrence, and request that the Borrower
promptly notify the Dissemination Agent in writing whether or not to report the
event pursuant to subsection (f) of this Section.
(c) Whenever the Borrower obtains knowledge of the occurrence of a
Listed Event, because of a notice from the Trustee pursuant to subsection (b) of
this Section or otherwise, the Borrower shall as soon as possible determine if
the occurrence of such Listed Event is material.
(d) If the Borrower has determined that such Listed Event is
material, the Borrower shall promptly notify the Dissemination Agent and the
Trustee, if it is not the Dissemination Agent, in writing. Such notice shall
instruct the Dissemination Agent to report the occurrence pursuant to subsection
(f) of this Section and shall provide the text of such report.
(e) If in response to a request under subsection (b) of this
Section, the Borrower determines that the occurrence of the particular Listed
Event would not be material, the Borrower shall so notify the Trustee and
Dissemination Agent (if other than the Trustee) in writing and instruct the
Dissemination Agent not to report the occurrence pursuant to subsection (f).
(f) If the Dissemination Agent has been instructed by the Borrower
to report the occurrence of a Listed Event, the Dissemination Agent shall file a
notice of such occurrence with the
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9
MSRB and each Repository. Concurrently with any filing, the Dissemination Agent
shall file a copy with the Borrower and the Trustee, if it is not the
Dissemination Agent.
SECTION 6. TERMINATION OF REPORTING OBLIGATION. The obligations of the
Borrower under this Disclosure Agreement shall terminate upon the defeasance or
provision for payment, prior redemption or payment in full of all of the Bonds.
If El Conquistador Partnership L. P., S.E. ceases to be an "obligated person"
(as such term is defined in the Rule) with respect to the Bonds and the
Borrower's obligations under the Loan Agreement and this Disclosure Agreement
are assumed in full in writing by an entity other than El Conquistador
Partnership L. P., S.E., such other entity shall become the Borrower under this
Disclosure Agreement and the obligations of the Borrower hereunder shall
terminate upon such assumption.
SECTION 7. DISSEMINATION AGENT. The Borrower may, from time to time,
appoint or engage a Dissemination Agent to assist it in carrying out its
obligations under this Disclosure Agreement, and may discharge any such Agent,
without appointing a successor Dissemination Agent. If at any time there is not
any other designated Dissemination Agent, the Borrower shall be the
Dissemination Agent.
SECTION 8. AMENDMENT; IMPOSSIBILITY OF PERFORMANCE. Notwithstanding
any other provision of this Disclosure Agreement, the Borrower and the Trustee
may amend or the Trustee may waive the covenants set forth in this Disclosure
Agreement (and the Trustee shall agree to any amendment so requested by the
Borrower), only if each of the following conditions have been met:
<PAGE>
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10
(a) the amendment or waiver is made in connection with a change in
circumstances that arises from a change in legal requirements, change in law, or
change in the identity, nature, or status of any obligated person (as defined in
the Rule), or the type of business conducted thereby; the covenants, as amended,
would have complied with the requirements of the Rule at the time of issuance of
the Bonds, after taking into account any amendments or change in circumstances;
and the amendment does not materially impair the interests of bondholders or
Beneficial Owners, as determined by an opinion of counsel of recognized
expertise in federal securities laws, acceptable to both the Borrower and the
Trustee; or
(b) all or any part of the Rule, as interpreted by the Staff of
the Securities and Exchange Commission at the date of the adoption of such Rule,
ceases to be in effect for any reason and the Borrower elects that the covenants
shall be deemed amended accordingly.
The Borrower and the Trustee further agree that with any such
amendment the Annual Report containing amended operating data or financial
information will explain, in narrative form, the reasons for the amendment and
the impact of the change in the type of operating data or financial information
being provided.
If any part of the financial or operating data or information
required by Section 4 hereof to be in an Annual Report can no longer be
generated because the operations to which it is related have been materially
changed or discontinued, the Borrower will disseminate a statement to such
effect as part of its Annual Report for the year in which such event first
occurs.
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11
SECTION 9. ADDITIONAL INFORMATION. Nothing in this Disclosure Agreement
shall be deemed to prevent the Borrower from disseminating any other
information, using the means of dissemination set forth in this Disclosure
Agreement or any other means of communication, or including any other
information in any Annual Report or notice of occurrence of a Listed Event, in
addition to that which is required by this Disclosure Agreement. If the Borrower
chooses to include any information in any Annual Report or notice of occurrence
of a Listed Event, in addition to that which is specifically required by this
Disclosure Agreement, the Borrower shall have no obligation under this
Disclosure Agreement to update such information or include it in any future
Annual Report or notice of occurrence of a Listed Event.
SECTION 10. DEFAULTS. In the event of a failure of the Borrower to
comply with any provision of this Disclosure Agreement, the Trustee may (and, at
the request of any Participating Underwriter or the Beneficial Owners of at
least 25% in aggregate principal amount of outstanding Bonds, shall), or (if
such Beneficial Owner stipulates that no challenge is made to the adequacy of
any information provided) any Beneficial Owner may, take such actions as may be
necessary and appropriate, including seeking mandamus or specific performance by
court order, to cause the Borrower or the Trustee to comply with its obligations
under this Disclosure Agreement; provided that any such action may be instituted
only in the federal court located in the Commonwealth or in any Commonwealth
court located in the Municipality of San Juan. In addition, holders of not less
than a majority in aggregate principal amount of Bonds outstanding may take such
actions as may be permitted by law, to challenge the adequacy of any information
provided pursuant to this Disclosure Agreement, or to enforce any other
obligation of the
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12
Borrower hereunder. A default under this Disclosure Agreement shall not be
deemed an Event of Default under the Trust Agreement or the Loan Agreement or
any other related instrument, and the sole remedy under this Disclosure
Agreement in the event of any failure by the Borrower to comply with this
Disclosure Agreement shall be an action to compel specific performance. Nothing
in this Section shall be deemed to restrict the rights or remedies of any holder
pursuant to the Securities Exchange Act of 1934, the rules and regulations
promulgated thereunder, or other applicable laws, as the same may be amended
from time to time.
SECTION 11. DUTIES, IMMUNITIES AND LIABILITIES OF DISSEMINATION AGENT.
Article IX of the Trust Agreement is hereby made applicable to this Disclosure
Agreement as if this Disclosure Agreement were (solely for this purpose)
contained in the Trust Agreement. The Dissemination Agent (if other than the
Trustee or the Trustee in its capacity as Dissemination Agent) shall have only
such duties as are specifically set forth in this Disclosure Agreement, and the
Borrower agrees to indemnify and save the Dissemination Agent, its officers,
directors, employees and agents, harmless against any loss, expense and
liability which it may incur arising out of or in the exercise or performance of
its powers and duties hereunder, including the costs and expenses (including
reasonable attorneys' fees) of defending against any claim of liability, but
excluding liabilities due to the Dissemination Agent's gross negligence or
wilful misconduct. The obligations of the Borrower under this Section shall
survive resignation or removal of the Dissemination Agent and payment of the
Bonds.
The Dissemination Agent (if other than the Trustee or the Trustee in
its capacity as Dissemination Agent) shall not have any
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13
responsibility, nor shall it render any services directed to the substance and
content of the Annual Report or other reports or disclosures pursuant to this
Disclosure Agreement. In all respects, the Borrower shall retain full and
complete responsibility for the content, accuracy and completeness of all
disclosures, irrespective of the Dissemination Agent's (if other than the
Trustee or the Trustee in its capacity as Dissemination Agent) contribution to
the physical or electronic preparation or filing of materials required for the
efficient distribution of the disclosures.
SECTION 12. BENEFICIARIES. This Disclosure Agreement shall inure solely
to the benefit of the Issuer, the Borrower, the Trustee, the Dissemination
Agent, the Participating Underwriters, and the Beneficial Owners from time to
time of the Bonds, and shall create no rights in any other person or entity.
SECTION 13. COUNTERPARTS. This Disclosure Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
SECTION 14. RECORD KEEPING. The Borrower shall maintain records of all
Annual Reports and reports pursuant to Section 5 hereof including the content
thereof, the names of the entities with whom the same was filed and the date of
filing thereof.
SECTION 15. FEES. The Borrower agrees to compensate the Dissemination
Agent in accordance with the Fee Schedule attached hereto as Exhibit B. This
compensation is unrelated to and may be in addition to any fees previously
agreed upon for fiduciary and agency services which may be provided to the
Borrower by the Dissemination Agent in its capacity as Trustee or otherwise.
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14
SECTION 16. OUT-OF POCKET EXPENSES. The Borrower agrees to pay the
Dissemination Agent's reasonable out-of-pocket expenses, as incurred.
SECTION 17. TERMINATION OF DISSEMINATION AGENT'S OBLIGATIONS. This
Disclosure Agreement shall terminate as provided in Section 6 hereof. The
Dissemination Agent may also resign from its duties and obligations hereunder
upon not less than 60 days' prior written notice to the Borrower. All reasonable
fees and expenses incurred and invoiced by the Dissemination Agent shall be paid
by the Borrower prior to the termination of the Dissemination Agent's
obligations hereunder. If the Trustee resigns or is removed from the office of
trustee under the Trust Agreement, its duties and obligations hereunder shall
terminate effective upon the acceptance of appointment of trustee by a successor
trustee in accordance with the provisions of the Trust Agreement.
SECTION 18. MISCELLANEOUS. The Dissemination Agent may act directly, or
through agents, in the delivery of its services to the Borrower.
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15
SECTION 19. GOVERNING LAW. This Disclosure Agreement shall be governed
by, and construed in accordance with, the laws of the Commonwealth.
EL CONQUISTADOR PARTNERSHIP L.P., S.E.
By: Conquistador Holding (SPE), Inc.
By:_________________________________
Name:
Title:
BANCO SANTANDER PUERTO RICO
By:_________________________________
Name:
Title:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EL CONQUISTADOR
RATIO OF EARNINGS TO FIXED CHARGES
--------------------------------------------------------------------------
FISCAL
FISCAL FISCAL FISCAL YEAR
YEAR YEAR YEAR (9 MONTHS)
ENDING ENDING ENDING ENDING
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31,
1995 1996 1997 1997
EARNINGS AUDITED AUDITED AUDITED AUDITED
-------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRETAX INCOME (LOSS) FROM $(27,476,720) $(12,241,033) $(9,403,173) $(15,042,122)
CONTINUING OPERATIONS
CURRENT PERIOD AMORTIZATION OF
INTEREST CAPITALIZED IN PREVOIUS PERIODS $ 237,320 $ 237,343 $ 237,343 $ 178,007
INTEREST EXPENSE $ 16,136,755 $ 17,021,764 $17,162,132 $ 13,156,711
LESS INTEREST CAPITALIZED DURING PERIOD $ (1,138) $ 0 $ 0 $ 0
NET AMORTIZATION OF DEBT ISSUANCE $ 978,007 $ 978,012 $ 978,002 $ 733,509
INTEREST PORTION
OF RENTAL EXPENSE $ 0 $ 0 $ 0 $ 0
EARNINGS $(10,125,776) $ 5,996,086 $ 8,974,304 $ (973,895)
------------ ------------ ----------- ------------
FIXED CHARGES
INTEREST EXPENSE $ 16,136,755 $ 17,021,764 $17,162,132 $ 13,156,711
NET AMORTIZATION OF DEBT ISSUANCE $ 978,007 $ 978,012 $ 978,002 $ 733,502
INTEREST PORTION
OF RENTAL EXPENSE $ 0 $ 0 $ 0 $ 0
------------ ------------ ----------- ------------
TOTAL FIXED CHARGES $ 17,114,762 $ 17,999,776 $18,140,134 $ 13,890,213
RATIO OF EARNINGS TO FIXED $(27,240,538) $(12,003,690) $(9,165,830) $(14,864,107)
CHARGES(1) ------------ ------------- ----------- ------------
</TABLE>
(1) Earnings were insufficient to cover fixed charges by the amount set forth.
1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EL CONQUISTADOR
RATIO OF EARNINGS TO FIXED CHARGES
------------------------------------------------------------------------------------
PRO FORMA
FISCAL PRO FORMA
YEAR THREE MONTHS THREE MONTHS
MARCH 1 TO JANUARY 1 TO MARCH 1 TO ENDING ENDED ENDED
DECEMBER 31, FEBRUARY 28, MARCH 31 DECEMBER 31, MARCH 31, MARCH 31,
EARNINGS 1998 1998 1998 1998 1999 1999
-------- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRETAX INCOME (LOSS) FROM $(6,050,961) $4,112,898 $2,498,339 $ 8,626,906 $10,826,762 $11,485,227
CONTINUING OPERATIONS
CURRENT PERIOD AMORTIZATION OF
INTEREST CAPITALIZED IN PREVOIUS PERIODS $ 197,786 $ 39,557 $ 19,779 $ 237,343 $ 59,336 $ 59,336
INTEREST EXPENSE $12,341,454 $3,300,966 $1,259,868 $11,199,881 $ 3,119,157 $ 2,681,648
LESS INTEREST CAPITALIZED DURING PERIOD $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
NET AMORTIZATION OF DEBT ISSUANCE $ 845,205 $ 163,004 $ 81,502 $ 166,667 $ 262,622 $ 41,667
INTEREST PORTION
OF RENTAL EXPENSE $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
EARNINGS $ 7,333,484 $7,616,425 $3,859,488 $20,230,797 $14,267,877 $14,267,878
----------- ---------- ---------- ----------- ----------- -----------
FIXED CHARGES
INTEREST EXPENSE $12,341,454 $3,300,966 $1,259,868 $11,199,881 $ 3,119,157 $ 2,681,648
NET AMORTIZATION OF DEBT ISSUANCE $ 845,205 $ 163,004 $ 81,502 $ 166,667 $ 262,622 $ 41,667
INTEREST PORTION
OF RENTAL EXPENSE $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
----------- ---------- ----------- ----------- ----------- -----------
TOTAL FIXED CHARGES $13,186,659 $3,463,970 $1,341,370 $11,366,548 $ 3,381,779 $ 2,723,315
RATIO OF EARNINGS TO FIXED CHARGES(1) 2.2 2.9 1.8 4.2 5.2
$(5,853,175) TO 1 TO 1 TO 1 TO 1 TO 1
------------ ---------- ----------- ----------- ----------- -----------
</TABLE>
(1) Earnings were insufficient to cover fixed charges by the amount set forth.
2
<PAGE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption 'Experts' in the
Third Amendment to the Registration Statement on Form S-11 and the related
Preliminary Official Statement and Prospectus for the Offering of the Undivided
Interests in the Loan Agreement between Puerto Rico Industrial, Tourist,
Educational, Medical and Environmental Control Facilities Financing Authority
and El Conquistador Partnership L.P., S.E. and to the use of our reports: (a)
dated February 5, 1999 (except for the second paragraph of Note 18 as to which
the date is March 31, 1999) with respect to the Financial Statements of El
Conquistador Partnership L.P.; (b) dated April 8, 1999 with respect to the
Consolidated Balance Sheet of WKA El Con Associates; and (c) dated April 8, 1999
with respect to the Consolidated Balance Sheet of WHG El Con Corp.; all of which
are included in the Third Amendment to the Registration Statement on Form S-11
and the related Preliminary Official Statement and Prospectus of El Conquistador
Partnership L.P., S.E. to be filed with the Securities and Exchange Commission
on or about May 12, 1999.
/S/ ERNST & YOUNG LLP
San Juan, Puerto Rico
May 6, 1999
<PAGE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption 'Experts' in the
Third Amendment to the Registration Statement on Form S-11 and the related
Preliminary Official Statement and Prospectus for the Offering of the Undivided
Interests in the Loan Agreement between Puerto Rico Industrial, Tourist,
Educational, Medical and Environmental Control Facilities Financing Authority
and El Conquistador Partnership L.P., S.E. and to the use of our report dated
April 12, 1999 with respect to the Balance Sheet of Conquistador Holding, Inc.
which is included in the Third Amendment to the Registration Statement on Form
S-11 and the related Preliminary Official Statement and Prospectus of El
Conquistador Partnership L.P., S.E. to be filed with the Securities and Exchange
Commission on or about May 12, 1999.
/S/ ERNST & YOUNG LLP
Dallas, Texas
May 6, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 10-MOS 2-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 FEB-28-1998 MAR-31-1999
<PERIOD-START> APR-1-1997 MAR-1-1998 JAN-1-1998 JAN-1-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 FEB-28-1998 MAR-31-1999
<CASH> 4,608,716 11,847,584 5,019,287 18,472,305
<SECURITIES> 0 0 0 0
<RECEIVABLES> 6,197,830 7,554,465 5,738,459 9,423,249
<ALLOWANCES> 346,436 146,482 352,586 203,230
<INVENTORY> 1,673,266 1,461,757 1,792,471 1,515,521
<CURRENT-ASSETS> 13,953,344 27,051,969 13,803,479 34,864,868
<PP&E> 207,070,810 236,133,473 207,343,686 237,826,050
<DEPRECIATION> 25,944,072 6,274,591 27,031,689 8,386,013
<TOTAL-ASSETS> 200,421,664 262,367,740 199,046,936 269,074,489
<CURRENT-LIABILITIES> 151,661,696 148,569,380 144,554,258 145,950,283
<BONDS> 120,000,000 0 0 0
<COMMON> 0 0 0 0
0 0 0 0
0 0 0 0
<OTHER-SE> 0 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 200,421,664 262,367,740 199,046,936 269,074,489
<SALES> 0 0 0 0
<TOTAL-REVENUES> 60,126,627 76,902,387 24,753,186 39,307,658
<CGS> 0 0 0 0
<TOTAL-COSTS> 62,139,878 69,136,783 17,382,622 25,452,483
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 119,000 87,265 24,567 56,748
<INTEREST-EXPENSE> 13,156,711 12,341,454 3,300,966 3,119,157
<INCOME-PRETAX> (15,042,122) 4,374,348 4,112,898 10,826,762
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> (15,042,122) 4,374,348 4,112,898 10,826,762
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 1,676,613 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (15,042,122) (6,050,961) 4,112,898 10,826,762
<EPS-PRIMARY> 0 0 0 0
<EPS-DILUTED> 0 0 0 0
<PAGE>
