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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1995 COMMISSION FILE NUMBER 1-8300
WMS INDUSTRIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-2814522
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3401 NORTH CALIFORNIA AVE., CHICAGO, IL 60618
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 312-961-1111
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH
EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock, $.50 par value New York Stock
5 3/4% Convertible Subordinated Exchange
Debentures Due 2002 New York Stock
Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the 24,010,010 shares of Common Stock held by
non-affiliates of the registrant on August 31, 1995 was $546,227,728. On such
date, the closing price of the Common Stock on the New York Stock Exchange,
Inc. was $22.75 per share and the number of shares of Common Stock outstanding
(excluding 56,312 shares held as treasury shares) was 24,109,300 shares.
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DOCUMENTS INCORPORATED BY REFERENCE: PART
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Annual Report to Stockholders of Registrant for year ended June 30,
1995 I, II, IV
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PART I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
WMS Industries Inc. (the "Registrant") was incorporated in Delaware on
November 20, 1974 under the name Williams Electronics, Inc. Registrant's
principal executive offices are located at 3401 North California Avenue,
Chicago, Illinois 60618. The Registrant, through its subsidiaries and
affiliates (hereinafter, the "Company"), is engaged in the design, manufacture
and sale of coin-operated amusement games, video lottery terminals and gaming
devices, the design and sale of home video games and the ownership and
operation of hotels and casinos in Puerto Rico.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information about industry segments for the years ended June 30,
1995, 1994 and 1993 appears at Note 15 of the Notes to Consolidated Financial
Statements in the Company's 1995 Annual Report to Stockholders (the "1995
Annual Report") which information is incorporated herein by reference.
AMUSEMENT GAME OPERATIONS
GENERAL
The Company is a designer, manufacturer and marketer of coin-operated
amusement games consisting of pinball, video, shuffle-alley, novelty games and
video lottery terminal and casino gaming devices. The Company also designs and
markets games playable on home video game systems and on personal computers.
Coin-operated amusement games and video lottery terminal and gaming devices are
designed to accept coins and/or currency. The Company conducts this business
segment through its wholly-owned subsidiaries Williams Electronics Games, Inc.
("Williams"), Midway Manufacturing Company ("Midway"), Williams Innovative
Technologies, Inc., Lenc-Smith Inc., WMS Games Parts & Service Inc., Williams
Entertainment Inc. and WMS Gaming Inc. Games are marketed under the
"Williams(R)," "Bally(R)," "Midway(R)" and "Tradewest(R)" trademarks. The
Company acquired the license to use the "Bally" trademark in the Company's
amusement game operations in connection with the 1988 purchase by the Company
of the amusement game operations of Bally Entertainment Corporation. In 1994,
the Company acquired the assets of The Leland Corporation and Tradewest, Inc.,
companies engaged in the business of designing, developing, programming,
publishing and distributing interactive entertainment software playable on home
video games and personal computers. The Company also derives revenue from
licensing its games to others, including the merchandising of audio and visual
aspects of such games for motion pictures, television and consumer products.
Revenues of the amusement game operations of the Company for each of its last
three fiscal years appear at Note 15 of the Notes to Consolidated Financial
Statements in the 1995 Annual Report which information is incorporated by
reference herein. Revenues from the principal products included in the
amusement game segment for the year ended June 30, 1995, the first year more
than one product in the segment accounted for in excess of 10% of consolidated
revenue, is as follows:
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Coin Operated Games......................................... $231,464,000
Home Video and Personal Computer Games, including licensing
fees & royalties........................................... 60,858,000
Gaming Equipment............................................ 22,172,000
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Total amusement game segment.............................. $314,494,000
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COIN-OPERATED GAMES ("COIN-OP GAMES")
Pinball Games: Based on industry awards with respect to the Company's Coin-Op
Games and the number of such Games sold in comparison to its competitors, the
Company believes it is the world's leading
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manufacturer of pinball games, producing pinball games under both the Williams
and Bally trade names. Coin-operated pinball games utilize electromechanical
devices such as flippers to propel steel balls on an intricately designed
playing field. These games are generally designed by members of the Company's
internal design staff but may be designed by outside consultants. During the
fiscal year ended June 30, 1995, the Company introduced eight new pinball game
models--four for the Williams product line and four for the Bally product line.
The American Amusement Machine Association ("AAMA") 1995 Diamond Sales
Achievement Award--the highest category of award presented in any given year--
was given to the Williams' pinball game Star Trek(TM); The Next Generation and
Platinum and Gold Sales Achievement Awards were won by six of the Company's
pinball games. Star Trek(TM) also received the Play Meter Magazine Award of
Excellence for the Best Pinball Game of the Year. Williams and Midway pinball
games have received four of the five nominations for the Amusement and Music
Operators Association ("AMOA") Most Played Pinball Game Award to be decided at
the AMOA September 21-23, 1995 trade show ("AMOA Trade Show").
Video Games: Coin-operated electronic video games utilize computer-age
electronics and may permit up to four players or more simultaneously to play
games displayed on a video screen. During fiscal 1995, three video games were
introduced under the Midway name--Mortal Kombat(R) 3, Cruis'n USA(TM) and
Killer Instinct(TM). All three video games received the AAMA 1995 Diamond Sales
Achievement Award. Platinum and Gold awards went to two other Midway games.
Midway video games have received four of the five nominations for the Most
Played Video Game to be awarded at the AMOA Trade Show; Mortal Kombat(R) II and
Mortal Kombat(R) 3 have been nominated for the Most Played Conversion Kit
Award; and Killer Instinct(TM) has been nominated for the Most Innovative New
Technology Award. Cruis'n USA(TM) manufactured by the Company under license
from Nintendo of America Inc. utilizes an advanced video arcade game platform
in which digital images are mapped to computer generated polygons. This new
system permits highly realistic simulations at a significantly lower cost than
competing systems. Cruis'n USA(TM) also benefits from the Company's development
of its first full-motion simulator. These new technologies along with the
Company's proven software design capabilities will enable it to continue its
expansion in the coin-operated video game market.
Shuffle-Alley and Novelty Games: Coin-operated shuffle-alley games offer a
simulation of bowling with varied scoring options and novelty games dispense
redemption tickets when a certain level of skill is achieved. During fiscal
1995, Williams continued to produce Strike Master(TM), a shuffle-alley game
first introduced in 1992 and Midway continued the manufacture of the redemption
game Addams Family Values(TM). Midway also introduced a new redemption game
Screamin' Slopes(TM).
HOME VIDEO AND PERSONAL COMPUTER GAMES ("HOME GAMES")
Since the acquisition of The Leland Corporation and Tradewest, Inc. in 1994,
the Company has engaged in developing and marketing interactive entertainment
software for use in the home on several game-play hardware systems and on
personal computers. The Company develops original as well as licensed
properties at its studios in San Diego, California. Additionally, the Company
sub-contracts software developers both domestically and internationally to
develop original and licensed entertainment software. The Company is licensed
to publish software for all the major video game hardware system manufacturers,
including Nintendo, Sega, Atari, Sony and 3DO, and maintains the in-house
technical capability to develop software for all of these systems as well as
for personal computer applications, including those with "CD-ROM" (Compact
Disc-Read Only Memory) capability. Historically, home video game systems have
been the product of continuous technological enhancements. Through
participation in a variety of these systems, the Company believes it has well
positioned itself for involvement in this evolving technology. The Company
endeavors to comply with the rules established by a domestic ratings board
voluntarily established by the home video game industry and certain foreign
countries' ratings boards and properly displays the ratings received for its
products. The Company believes that ratings as to the violence contained in
home video games will not have an adverse effect upon the Company so long as
such ratings are consistently applied throughout the industry. During fiscal
1995, Williams Entertainment Inc. published Kyle Petty's No Fear Racing(TM) and
Fun 'N
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Games(TM), two home video games for the Super Nintendo Entertainment System,
and Double Dragon(TM) V and Troy Aikman Football(TM) for the Super Nintendo
Entertainment System, Sega Genesis System and Atari Jaguar Multimedia
Entertainment System.
In fiscal 1995, the Company entered into strategic relationships for
distribution of Home Games. In December 1994, the Company appointed GT
Interactive Software Corp. ("GT Interactive") as a distributor of certain of
its games as adapted for personal computers worldwide except in Japan. In March
1995, the Company also appointed GT Interactive as an international distributor
(excluding the U.S., Canada, Mexico and Japan) of certain of the Company's
domestically distributed home video games on a number of the advanced platforms
now being introduced, such as Sega Saturn(R) and Sony PlayStation(R). In June
1995, the Company appointed Panasonic Software Company, a Division of
Matsushita Electric Corporation of America, and Interactive Media, a Division
of Matsushita Electric Industrial Co., Ltd. ("Matsushita") as worldwide
distributors of certain of the Company's games adapted for the 3DO Interactive
Multiplayer(R). These relationships support the Company's efforts to maximize
its Home Game profits through improved access to worldwide markets for its
games, especially in territories and on platforms that have not been
historically exploited directly by the Company.
GAMING EQUIPMENT
Video Lottery Terminal Games: Video lottery terminals are coin-operated video
games on which games, including blackjack, poker, bingo, keno and other games,
can be played for low-stakes entertainment in age-controlled establishments
such as restaurants serving alcoholic beverages and bars. The Williams' Midas
Touch(TM) features touchscreen technology and is available in three different
model configurations--one of which provides unique player comfort through a
combination of a slant-top playing surface and built-in seating. Video lottery
represents a source of revenue for jurisdictions in addition to taxes. Video
lottery terminals may be operated as stand-alone units or may interface with
central monitoring computers operated by governmental agencies. To date, video
lottery terminal operations are conducted or planned in Australia, Louisiana,
Montana, Oregon, Rhode Island, South Carolina, South Dakota, West Virginia and
the Alberta, Manitoba, Maritime, Quebec and Saskatchewan Provinces of Canada.
WMS Gaming Inc. has been approved as a manufacturer and has delivered video
lottery terminals into eight of such jurisdictions. The Company intends to
sell, lease or operate on a revenue-sharing basis, video lottery terminals in
all legalized jurisdictions in North America and elsewhere subject to receipt
of necessary licensing approvals. The Company has not been denied any such
licensing approval to date and the Company does not anticipate that any such
denial will occur in the future. However, there can be no assurance that all
required licenses, permits or approvals will be obtained or renewed in the
future.
Gaming Machines: The Company has designed and developed a series of gaming
machines for casinos located in established gaming jurisdictions including
jurisdictions permitting casino gaming on riverboats and Indian reservations.
The Williams Platinum FX Series(R) casino mechanical slot machines are designed
to attract players with innovative concepts including stunning visuals, high-
quality audio from the Company's proprietary DCS(R) sound system, back-lit
reels for exciting game play and several programs designed for interactive
play. The Williams Quantum XL Series(R) casino 19-inch slant top is the first
video touch screen multi-game casino slant-top gaming product. Players can play
a variety of games chosen from a full menu of games including blackjack, poker,
bingo, keno and video slot games, without ever needing to leave the comfort of
their seats. The Company is licensed in Colorado, Illinois, Minnesota,
Mississippi, Nevada and Wisconsin and Victoria, Australia and has license
applications pending before gaming jurisdictions in Arizona, Connecticut,
Delaware, Indiana, Iowa, Louisiana, Missouri, New Jersey, South Dakota, Greece,
and New South Wales, Australia. On August 24, 1995, the Company and certain of
its subsidiaries and Mr. Louis J. Nicastro, Mr. Neil D. Nicastro and Mr. Harold
H. Bach, Jr. were licensed or found suitable by the Nevada Gaming Control Board
and the Nevada Gaming Commission, as applicable, as a registered publicly
traded corporation, as registered holding companies, for licensure as a
manufacturer and distributor of gaming devices and as directors, officers and
stockholders of such entities, as applicable. Such licensure and findings
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of suitability are effective for a period of two years and terminate in August
1997. Prior to such time the Company, its subsidiaries, officers and directors
will be required to submit new applications in order to obtain such licenses
and findings to continue conducting business in Nevada after August 1997. There
can be no assurance that such license will be granted or such persons will be
found suitable as licensees. Sales may be made to casinos in Atlantic City, New
Jersey and to riverboats in Missouri under transactional waivers and through
distributors in certain other jurisdictions where no license is required. To
date, the Company has not been denied any required license, permit or approval
to sell or distribute gaming machines and the Company does not anticipate that
any such denial will occur in the future. However, there can be no assurance
that all required licenses, permits or approvals will be obtained or renewed in
the future.
BUSINESS STRATEGY
The Company's overall business strategy is to expand and diversify its
amusement games operations through forming strategic relationships to promote,
and by investing in businesses which complement, existing product lines in
order to provide substantial growth opportunities in future years. In
accordance with this strategy, during fiscal 1995, the Company formed
relationships with GT Interactive and the Matsushita companies as described
under "Home Games" and entered into a Merger Agreement dated as of June 21,
1995 with Bally Gaming International, Inc. ("BGII"). Under the terms of the
merger proposed to be consummated subject to the approval of both the Company's
and BGII's stockholders, BGII will merge with a newly formed, wholly-owned
subsidiary of the Company with BGII being the surviving corporation. The
details of the proposed merger will be fully set forth in a Schedule 14A Proxy
Statement which the Company intends to mail to stockholders on or about
September 30, 1995. The Company believes that the merger with BGII will enable
the Company to enter the casino gaming machine business more rapidly than
otherwise possible, and will create synergies and cost efficiencies that will
enable the combined businesses to compete more successfully with the industry
market leader. These actions will support the Company's strategy of adding new
revenue and income sources which take advantage of existing strengths as well
as increasing game sales by increasing its market share and expanding existing
products and geographic markets.
The Company believes that younger video game players mature into pinball game
players due to the increasing sophistication and appeal of pinball games. The
Company believes it will be able to maintain its share of the pinball games
market because of its leadership in design and engineering which is evidenced
by the continued annual achievement awards bestowed by the AMOA and AAMA. Such
leadership enables the Company to offer its distributors a broad variety of
innovative pinball games which result in greater operator profit through
increased player interest, mechanical reliability and serviceability.
Generally, the Company introduces eight new pinball machines per year which
helps sustain player interest while spreading research, development and
manufacturing expenses to maintain competitive pricing. The Company's design
and engineering staff has been the industry leader in innovations such as music
and other sound effects, multi-level playing fields, multi-ball releases and in
reliability improvements such as solid state technology and sophisticated
diagnostic testing to quickly locate any malfunction. Many of the Company's
games use common parts, creating manufacturing efficiencies and assisting
customers in servicing machines and controlling parts inventory costs.
The Company's strategy for coin-operated video games is to increase market
share by designing and introducing a broad array of new video games utilizing
state of the art interactive technology and licensing attractive, topical
themes for its games. Similar to its pinball strategy, the Company strives to
take advantage of its design and engineering leadership acknowledged by
industry awards each year to provide a broad product line of technologically
advanced games using common parts to increase reliability and serviceability.
Historically, when a Company coin-operated video game was fully exploited in
the coin-op market, the design was licensed to home video game companies as a
source of additional income. In fiscal 1994, the Company made a major shift in
this strategy by forming Williams Entertainment Inc. through acquisitions. In
fiscal 1995, the Company augmented its acquisitions by establishing new
strategic relationships with GT Interactive and Matsushita which will promote
the worldwide distribution of the Company's video games and boost its
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exploitation of the personal computer and 3DO formats. Such relationships will
complement the Company's established relationship with Nintendo Co., Ltd. for
the manufacture of coin-operated video games utilizing technology developed by
Silicon Graphics and for the marketing of home video games based on the
Company's coin-operated video games for Nintendo's new Ultra 64 system.
These actions position the Company to become a major supplier of software for
Home Games and provides the Company with established development capabilities,
worldwide distribution and industry licenses. The Company intends to sell games
for use on Nintendo, Sega, Atari, Sony, 3DO and other video game platforms as
well as for personal computer applications including IBM, Macintosh and
compatibles.
The Company continues to provide coin-operated video lottery terminal games
to the limited number of jurisdictions which have authorized such gaming. The
Company believes its success in designing, manufacturing and selling video
lottery terminal games will facilitate its recent entry into the gaming machine
market for casinos. The Company is confident that by combining its expertise in
video lottery game design with innovative new gaming machine product concepts
being developed by its designers and by increasing its employee base to include
experienced casino/gaming machine personnel, it can successfully expand into
the casino gaming machine market while continuing to expand its portion of the
video lottery terminal game market as new jurisdictions legalize such gaming.
The Williams' Platinum FX Series(R) slot machine line offers casinos a variety
of game themes, all with original soundtracks, art and varying paytables. Like
amusement games, gaming machines for casinos emphasize innovation, reliability,
price and player appeal all of which are expected to translate into substantial
earnings for casino owners. The Company's new gaming machines have more
advanced technological features than existing machines which are expected to
elevate excitement for end-users.
MARKETING AND DISTRIBUTION
Pinball, video, shuffle-alley and novelty amusement games are sold under the
"Williams(R)" and "Midway(R)" trademarks, as well as under the "Bally(R)"
trademark which is exclusively licensed for such games from Bally Entertainment
Corporation. Coin-Op Games are marketed through approximately 50 independent
distributors worldwide. Distributors sell these products to operators who own
and operate the machines and place them in amusement arcades, restaurants, bars
and other commercial locations. Distributors are primarily responsible for the
sale and distribution of these products in designated territories and are
generally expected to provide replacement parts and service and to arrange for
installment financing. The Company has entered into exclusive pinball
distribution arrangements which require its distributors to handle only the
Company's pinball games and also require minimum pinball game purchase
commitments. It is customary for distributors of the Company's video games also
to distribute games produced by other manufacturers.
The video lottery terminal market is different from both the casino market
and the traditional lottery market. Most video lottery terminals are located in
places where gaming is not the principal attraction and the stakes and payoffs
are relatively low. In Louisiana, Montana, South Dakota, West Virginia and New
Brunswick, Canada, video lottery terminals are privately owned either by the
owners of the establishments in which the terminals are placed or by route
operators or distributors who contract with establishment owners to install,
service and maintain the terminals. In other jurisdictions, video lottery
terminals may be owned by or leased to the government or its appointed agent or
may be provided by the Company to the governmental agency on a revenue-sharing
basis.
Home Games are sold under the "Williams(R)" and "Tradewest(R)" trademarks.
Home Games are marketed through independent sales representatives to national
and regional retailers, mass merchants, discount store chains, video rental
retailers and entertainment software distributors. These channels then make
available to consumers the Company's entertainment software product through
over 15,000 stores domestically. Consumers buy the Home Games to play on their
personal game systems (Nintendo, Sega,
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Sony, etc.) and on their personal computers. It is customary for the sales
representatives and the distributors of the Company's Home Games who are
assigned specific territories to also distribute games produced by other
manufacturers. The Company exploits the worldwide markets for these games
through direct distribution channels and market licensing agreements. These
distribution efforts are supported by marketing programs which emphasize
product awareness, brand recognition, dealer merchandising opportunities and
established personality endorsements.
The Gaming Machine market is composed of casinos located in hotels and other
establishments and on riverboats and Indian Reservations. Casinos feature
gaming as their primary attraction. Gaming machines designed for the casino
market are normally sold directly to the casino and on occasion they may be
sold to or through casino management companies or through specialized gaming
machine distributors. Sales may be made in return for full payment or financed
through machine revenue as well as provided on a revenue-sharing basis.
Export sales of amusement games, primarily to Western Europe, were
approximately $138,530,000 (44% of net sales) for the fiscal year ended June
30, 1995 compared with $144,080,000 (51% of net sales) for the fiscal year
ended June 30 1994 and $143,843,000 (55% of net sales) for the fiscal year
ended June 30, 1993. Substantially all foreign sales are made in United States
dollars and, therefore, the Company is not generally subject to the risk of
fluctuation of the value of foreign currencies in relation to the dollar. In
the fiscal year ended June 30, 1995, Nova Games Import-Export GmbH & Co. KG
("Nova Games") and affiliates accounted for approximately 17% ($52,343,000) of
the Company's net sales compared with approximately 21% ($58,844,000) of the
Company's net sales for the fiscal year ended June 30, 1994, and approximately
22% ($58,400,000) for the fiscal year ended June 30, 1993. Nova Games and its
affiliates are major manufacturers and distributors of gaming machines in
Germany. In the opinion of the Company, while the loss of a single distributor
could temporarily affect the distribution of a particular model, it would not
have a material adverse effect on the business of the Company. In any such
event, the Company believes it could make arrangements with alternate
distributors for the distribution of the Company's games.
Revenues earned on international sales of Home Games, outside of North
America, are primarily in the form of royalties earned under licensing
agreements with third party companies. The royalties are contracted in United
States dollars and, therefore, the Company is not generally subject to the risk
of fluctuation of the value of foreign currencies in relation to the dollar.
Each of these licensing agreements is specific as to game title, game format
and sales area.
MANUFACTURING
The Company's Coin-Op Games and Gaming Equipment are manufactured in its
factories in Illinois. The Company believes such facilities are adequate for
its current and planned production needs. Game production is generally based on
advance purchase orders from distributors with respect to Coin-Op Games and
from governmental agencies and casinos with respect to Gaming Equipment and no
significant inventory of finished goods is customarily maintained. Home Games
are not manufactured by the Company and are traditionally manufactured by the
developer of the game platform (i.e., Nintendo or Sega). Platform developers
typically retain the right to determine the number of games and timing of
release under manufacture and licensing arrangements with the Company. Home
Game production is based upon estimated demand for each specific title; the
level of the inventory of finished goods depends upon the variance in market
demand during the life of a specific game title.
Coin-Op Games and Gaming Equipment had a backlog of orders at fiscal year end
June 30, 1995, valued at approximately $9,848,000. Since the amount of backlog
orders varies from the beginning to the end of a normal two- to three-month
production process of a game, meaningful comparison of backlog orders can only
be made at the same period during a production cycle and not at the end of
fiscal years. Home Games traditionally have no backlog of orders.
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Coin-Op Games are warranted for a period of 60 days; Home Games and gaming
machines are warranted for a period of 90 days; and video lottery terminals are
warranted for a period of up to one year. No substantial costs have been
incurred by the Company in connection with such warranties.
The raw materials used in manufacturing Coin-Op Games and Gaming Equipment
includes various metals, plastics, wood and glass obtained from numerous
sources of supply. In addition, numerous component parts, including electronic
subassemblies and video monitors, are purchased from suppliers. Wood cabinets
for amusement games are manufactured by the Company's subsidiary Lenc-Smith
Inc., as well as by outside suppliers. The Company believes that the sources of
supply of component parts and raw materials are adequate and that substitute
sources of materials are available.
GOVERNMENT REGULATION
The manufacture and distribution of gaming machines is subject to extensive
Federal, state, local and foreign regulation. Although the laws and regulations
of the various jurisdictions in which the Company operates vary in their
technical requirements and are subject to amendment from time to time,
virtually all of these jurisdictions require licenses, permits, documentation
of qualification, including evidence of financial stability, and other forms of
approval for companies engaged in the manufacture and distribution of gaming
devices as well as for the officers, directors, major stockholders and key
personnel of such companies.
NEVADA REGULATIONS
The manufacture and distribution of gaming devices in Nevada are subject to
the Nevada Gaming Control Act and the regulations promulgated thereunder
(collectively, "Nevada Act"). The Company's manufacturing and distribution of
gaming devices are subject to licensing and regulatory control of the Nevada
Gaming Commission ("Nevada Commission") and the Nevada State Gaming Control
Board ("Nevada Board"). The Nevada Commission and the Nevada Board are
collectively referred to as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs, and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (iv) the prevention of
cheating and fraudulent practices; and (v) to provide a source of state and
local revenues through taxation and licensing fees. Change in such laws,
regulations and procedures could have an adverse effect on the Company's future
Nevada operations.
Certain of the Company's subsidiaries (each a "Gaming Subsidiary" and
collectively the "Gaming Subsidiaries"), which manufacture and distribute
gaming devices, are required to be licensed by the Nevada Gaming Authorities.
The licenses require periodic payments of fees and taxes and are not
transferable. No person may become a stockholder of, or receive any percentage
of profits from, the Gaming Subsidiaries without first obtaining licenses and
approvals from the Nevada Gaming Authorities. The Company is registered by the
Nevada Commission as a publicly traded corporation ("Registered Corporation")
and as such, it is required periodically to submit detailed financial and
operating reports to the Nevada Commission and furnish any other information
which the Nevada Commission may require. On August 24, 1995, the Company and
certain of its subsidiaries and Mr. Louis J. Nicastro, Mr. Neil D. Nicastro and
Mr. Harold H. Bach, Jr. were licensed or found suitable by the Nevada Gaming
Control Board and the Nevada Gaming Commission, as applicable, as a registered
publicly traded corporation, as registered holding companies, for licensure as
a manufacturer and distributor of gaming devices and as directors, officers and
stockholders of
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such entities as applicable. Such licensure and findings of suitability are
effective for period of two years and terminate in August 1997. Prior to such
time the Company, its subsidiaries, officers and directors will be required to
submit new applications in order to obtain such licences and findings to
continue conducting business in Nevada after August 1997. There can be no
assurance that such licenses will be granted or such persons will be found
suitable as licensees.
The Nevada Commission may investigate any individual who has a material
relationship to, or material involvement with, the Company or the Gaming
Subsidiaries in order to determine whether such individual is suitable or
should be licensed as a business associate of a licensee. Officers, directors
and certain key employees of the Gaming Subsidiaries must file license
applications with the Nevada Gaming Authorities. Officers, directors and key
employees of the Company which are actively and directly involved in activities
of the Gaming Subsidiaries may be required to be licensed or found suitable by
the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an
application for licensing for any cause which they deem reasonable. A finding
of suitability is comparable to licensing, and both require submission of
detailed personal financial information followed by a thorough investigation to
be found suitable. The applicant for licensing or a finding of suitability must
pay all the costs of the investigation. Changes in licensed positions must be
reported to the Nevada Gaming Authorities and, in addition to their authority
to deny an application for a finding of suitability or license, the Nevada
Commission has jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company or the Gaming Subsidiaries, the companies
involved would have to sever all relationship with such person. In addition,
the Nevada Commission may require the Company or any of the Gaming Subsidiaries
to terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.
The Company and the Gaming Subsidiaries are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing transactions
by the Gaming Subsidiaries must be reported to, or approved by, the Nevada
Commission.
If it were determined that the Nevada Act was violated by the Gaming
Subsidiaries, the licenses they hold could be limited, conditioned, suspended
or revoked, subject to compliance with certain statutory and regulatory
procedures. In addition, the Gaming Subsidiaries, the Company and the persons
involved could be subject to substantial fines for each separate violation of
the Nevada Act at the discretion of the Nevada Commission. The limitation,
conditioning or suspension of any gaming license or the appointment of a
supervisor could and the revocation of any license would, materially adversely
affect the Company's future operations in Nevada.
Any beneficial holder of the voting securities of the Company, regardless of
the number of shares owned, may be required to file applications, be
investigated and have his suitability as a beneficial holder of the Company's
voting securities determined if the Nevada Commission has reason to believe
that such ownership would otherwise be inconsistent with the declared policies
of the State of Nevada. The applicant must pay all costs of investigation
incurred by the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires beneficial ownership of more
than 5% of the Company's voting securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more than
10% of the Company's voting securities apply to the Nevada Commission for a
finding of suitability within 30 days after the chairman of the Nevada Board
mails the written notice requiring such filing. Under certain circumstances, an
"institutional investor," as defined in the Nevada Act, which acquires more
than 10% but not more than 15% of the Company's voting securities may apply to
the
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Nevada Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment purposes
only. An institutional investor shall not be deemed to hold voting securities
for investment purposes unless the voting securities were acquired and are held
in the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Company, any change in the Company's
corporate charter, bylaws, management, policies or operations, or any of its
gaming affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Company's voting securities for investment
purposes only. Activities which are not deemed to be inconsistent with holding
voting securities for investment purposes only include: (i) voting on all
matters voted on by stockholders; (ii) making financial and other inquiries of
management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management policies or operations;
and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder of voting
securities who must be found suitable is a corporation, partnership or trust,
it must submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of
a Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The Company is subject
to disciplinary action if, after it receives notice that a person is unsuitable
to be a stockholder or to have any other relationship with the Company or the
Gaming Subsidiaries, the Company: (i) pays that unsuitable person any dividend
or interest upon voting securities of the Company; (ii) allows that person to
exercise, directly or indirectly, any voting rights conferred through
securities held by that person; (iii) pays remuneration in any form to that
person for services rendered or otherwise; or (iv) fails to pursue all lawful
efforts to require the unsuitable person to relinquish voting securities for
cash at fair market value.
The Nevada Commission may in its discretion, require holders of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if, without the prior approval of the
Nevada Commission, it: (i) pays to the unsuitable person any dividend, interest
or any distribution whatsoever; (ii) recognizes any voting right by such
unsuitable person in connection with such securities; (iii) pays the unsuitable
person remuneration in any form; or (iv) makes any payment to the unsuitable
person by way of principal, redemption, conversion, exchange, liquidation or
similar transaction.
The company is required to maintain a current stock ledger in the State of
Nevada which may be examined by the Nevada Gaming Authorities at any time. If
any securities are held in trust by an agent or by a nominee, the record holder
may be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for
finding the record holder unsuitable. The Company is also required to render
maximum assistance in determining the identity of the beneficial owner. The
Nevada Commission has the power to require that the Company's stock
certificates bear a legend indicating that the securities are subject to the
Nevada Act. However, to date, the Nevada Commission has not imposed such a
requirement of the Company.
The Company may not make public offering of its securities without the prior
approval of the Nevada Commission if the securities or the proceeds therefrom
are intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. Such
approval, if given, does not constitute a finding, recommendation or approval
by the Nevada Commission or the Nevada
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Board as to the accuracy or adequacy of the prospectus or the investment merits
of the securities. Any representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby he obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and the Nevada Commission
in a variety of stringent standards prior to assuming control of such
Registered Corporation. The Nevada Commission may also require controlling
stockholders, officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process relating to the
transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licenses, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate licensees and their affiliates; (ii) preserve
the beneficial aspects of conducting business in the corporate form; and (iii)
promote a neutral environment for the orderly governance of corporate affairs.
Approvals are, in certain circumstances, required from the Nevada Commission
before the Company can make exceptional repurchases of voting securities above
the current market price thereof and before a corporate acquisition opposed by
management can be consummated. The Nevada Act also requires prior approval of a
plan of recapitalization proposed by the Company's Board of Directors in
response to a tender offer made directly to the Registered Corporation's
stockholders for the purpose of acquiring control of the Registered
Corporation.
License fees and taxes computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either quarterly or annually.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"licensees"), and who proposes to become involved in a gaming venture outside
of Nevada is required to deposit with the Nevada Board, and thereafter
maintain, a revolving fund in the amount of $10,000 to pay the expenses of
investigation of the Nevada Board of their participation in such foreign
gaming. The revolving fund is subject to increase or decrease in the discretion
of the Nevada Commission. Thereafter, licensees are required to comply with
certain reporting requirements imposed by the Nevada Act. A licensee is also
subject to disciplinary action by the Nevada Commission if any such licensee
knowingly violates any laws of the foreign jurisdiction pertaining to the
foreign gaming operation, fails to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required of Nevada
gaming operations, engages in activities that are harmful to the State of
Nevada or its ability to collect gaming taxes and fees, or employs a person in
the foreign operation who has been denied a license or finding of suitability
in Nevada on the ground of personal unsuitability.
NEW JERSEY REGULATION
The Company and two Gaming Subsidiaries have license applications pending
with the New Jersey Casino Control Commission ("New Jersey Commission") as
gaming-related casino service industry licensees in accordance with the New
Jersey Casino Control Act ("Casino Control Act"). Prior to final licensure, the
Company and the Gaming Subsidiaries may conduct business in New Jersey pursuant
to transactional waivers with respect to specific transactions. The Company and
its Gaming Subsidiaries are currently conducting business with New Jersey
casinos pursuant to transactional waivers. In the event the Company and its
Gaming Subsidiaries have opportunities to enter into additional transactions
with casino licensees prior to licensure, the Company and its Gaming
Subsidiaries will apply for additional transactional waivers.
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In addition to requiring the licensure or qualification of the officers,
directors and key employees of the Company and its Gaming Subsidiaries, the New
Jersey Commission may require the qualification under the Casino Control Act of
the Company's officers, directors and stockholders who hold in excess of 5% of
the publicly-traded equity securities of the Company. In the discretion of the
New Jersey Commission, any holder of the voting securities of the Company
regardless of the number of securities owned, may be required to file an
application, be investigated and demonstrate his or her qualifications if the
New Jersey Commission has reason to believe that such ownership may be
inconsistent with the declared policies of the Casino Control Act.
LOUISIANA REGULATION
The manufacture, distribution, ownership and operation of video lottery
terminals in Louisiana are subject to the Louisiana Video Draw Poker Devices
Control Law and the Rules and Regulations promulgated thereunder (the "Video
Poker Act"), and to licensing and regulatory control by the Video Gaming
Division of the Gaming Enforcement Section of the Office of State Police within
the Department of Public Safety and Corrections (the "Video Gaming Division").
The Video Poker Act is based upon declarations of policy which are concerned
with protecting the video gaming industry from elements of organized crime,
illegal gambling activities and other harmful elements, and protection of the
public from illegal and unscrupulous gaming to ensure the fair play of devices.
Every person who has or controls more than a 5% ownership, income or profit
interest in an entity which has or applies for a license in accordance with the
provision of the Video Poker Act, or has the ability, in the opinion of the
Video Gaming Division, to exercise a significant influence over the activities
of a licensee, must meet all suitability requirements and qualifications for
licenses. Thus, any holder of more than 5% of the equity securities of the
Company will be required to meet such suitability requirements and
qualifications. The Video Gaming Division may deny an application for licensing
for any cause which they deem reasonable. The Video Gaming Division requires
the submission of detailed financial information and other information followed
by a thorough investigation. Determinations of suitability or of questions
pertaining to licensing are subject to review under the provisions of
Louisiana's Administrative Procedures Act.
In addition, Louisiana regulates riverboat casinos under the Louisiana
Riverboat Economic Development and Gaming Control Act (the "Riverboat Act") and
the land-based casino under the Louisiana Economic Development and Gaming
Corporation Law (the "LEDGC Act"). Both the Riverboat Act and the LEDGC Act
require approval of manufacturers by the Riverboat Gaming Division and the
LEDGC, respectively. Such approval is based upon compliance with the
requirements of the Riverboat Act and the LEDGC Act. The standards for
licensure of manufacturers and suppliers under the Riverboat Act and the LEDGC
are similar to those for video lottery terminals.
The Company has met such requirements for video lottery terminal approval in
1992, which approval was renewed in 1994 and 1995. The Company and the Gaming
Subsidiaries have license applications pending with the Riverboat Gaming
Division and with the LEDGC. Currently the Company and the Gaming Subsidiaries
are operating under a temporary license granted by the Indian Casino Gaming
Division of the Office of the State Police and under licenses granted by the
Coushatta Tribal Gaming Commission and the Tunica-Biloxi Gaming Commission,
which permit the Company and the Gaming Subsidiaries to sell gaming machines to
such Indian tribes.
FEDERAL REGISTRATION
Any subsidiaries of the Company that are involved in gaming activities in
Nevada, such as the Gaming Subsidiaries, are required to file documents
annually with the United States Department of Justice, Criminal Division, in
connection with the sale, distribution or operation of slot machines.
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REGULATION IN FOREIGN JURISDICTIONS
Certain foreign countries permit the importation, sale or operation of slot
machines. Where importation is permitted, some countries prohibit or restrict
the payout feature of the traditional slot machine or limit the operation of
slot machines to a controlled number of casinos or casino-like locations.
Certain jurisdictions in which the Company operates require the licensing of
gaming devices, gaming device operators and manufacturers. The Company, and its
products, have been properly licensed or have applied for licensure in all
jurisdictions where the Company's operations require such licensure, including
without limitation, Australia, Canada, Greece and the Czech Republic.
REGULATORY CHANGES AND LICENSE STATUS
The laws and regulations of the numerous jurisdictions, foreign and domestic,
in which the Company and its subsidiaries do business are subject to change
from time to time. In addition, the license status of the Company and its
subsidiaries with respect to these jurisdictions is subject to change. The
information set forth in this document represents the most current available at
the time of filing. Thus far the Company has never been denied any such
necessary governmental licenses, permits or approvals. No assurances, however,
can be given that such required licenses, permits or approvals will be given or
renewed in the future.
COMPETITION
Competition in the amusement game market for all of the Company's products is
intense and is based primarily on the design and player appeal of the models
manufactured. Player appeal is a highly subjective quality related to the
interaction of machine and player and is a function of design, hardware,
software and play features. The success of the Company's amusement games
operations depends, among other things, upon its ability to design and sell
models of amusement games which are accorded market acceptance. The Company
believes that it is the world's leading manufacturer of pinball games and a
leading manufacturer of coin-operated video amusement games and video lottery
terminal games. With its new expansion into the home video game market, the
Company believes it will increase its overall profit from the development of
Home Games based on the Company's Coin-Op Video Games. Some competitors in the
amusement games business are substantially larger and have substantially
greater financial resources than the Company.
DESIGN, RESEARCH AND PRODUCT DEVELOPMENT
The amusement games which are sold by the Company may be designed by members
of its internal design staff or by independent designers under contract to the
Company. The Company also evaluates Coin-Op Games designed by others with a
view toward obtaining licenses authorizing it to manufacture and sell such
games as well as for purposes of performing the contract manufacture of such
games for sale under the tradename of others. Home Games designed by or for the
Company are manufactured by others for sale by the Company. At June 30, 1995,
the Company employed approximately 215 persons in its research and product
development departments. During the fiscal years ended June 30, 1995, 1994 and
1993, approximately $26,779,000, $20,178,000, and $13,769,000 respectively,
were expended on research and development with respect to amusement games.
Certain features of the Company's products are protected by patents of 17-year
duration, trademarks and copyrights. The Company is both a licensor and
licensee of these proprietary rights.
EMPLOYEES
At June 30, 1995, the Company employed approximately 1,500 persons in its
amusement games operations. Approximately 850 of such employees were
represented by the International Brotherhood of
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Electrical Workers (the "IBEW") and approximately 200 of such employees were
represented by the United Furniture Workers union (the "UFW"). None of the
employees engaged in the Home Games business is represented by a union.
Collective bargaining agreements with the IBEW relating to the Chicago and
Gurnee, Illinois manufacturing facilities expire February 15, 1997 (subject to
automatic renewal) and March 31, 1998, respectively. A new collective
bargaining agreement was entered into effective July 1, 1995 with the UFW
relating to the Cicero, Illinois manufacturing facility and expires June 30,
1998. The Company's relations with its union employees are satisfactory.
HOTEL & CASINO OPERATIONS
GENERAL
The Company, through its subsidiaries as detailed below, owns and operates
two of the leading hotels and casinos in San Juan, Puerto Rico--the Condado
Plaza Hotel & Casino (the "Condado Plaza") and the El San Juan Hotel & Casino
(the "El San Juan")--and has a 23.3% ownership interest in and manages the El
Conquistador Resort and Country Club (the "El Conquistador Resort") in Las
Croabas, Puerto Rico. Hereinafter, references to the "Hotel/Casino Business"
include the full fiscal year operations of the El San Juan and Condado Plaza
through June 30, 1995 and the first seventeen months of operations through
March 31, 1995 of the El Conquistador Resort. On September 5, 1995, the Company
announced that it is evaluating its options for maximizing stockholder values
in the Company's hotel and casino business. The options being evaluated include
possible spin-off of that business to the Company's stockholders, sale of all
or a portion of that business or joint ventures. There can be no assurances
that the Company will proceed with any such options.
In all, during the fiscal year ended June 30, 1995, the Company owned and
managed 1,870 suites and hotel rooms, 39,300 square feet of casino floor space
containing 130 gaming tables and 891 slot machines and approximately 146,000
square feet of convention and meeting space. These properties also include a
total of 22 restaurants, 36 shops, one showroom, three health and fitness
centers and 25 cocktail and entertainment lounges.
In fiscal 1995, the Condado Plaza casino achieved the second highest table
game play and the highest slot machine play and the El San Juan casino achieved
the highest table game play and the second highest slot machine play in Puerto
Rico. The El Conquistador Resort Casino began operations in November of 1993.
At August 31, 1995, there were 25 hotels in the San Juan area designated as
"tourist hotels" by the Tourism Company of Puerto Rico offering a total of
approximately 5,205 rooms, of which only ten hotels offered more than 200
rooms; approximately 3,210 additional rooms were offered in 21 tourist hotels
elsewhere on the island of Puerto Rico. The island also has numerous commercial
hotels and guest houses. Approximately 31 cruise ships operate out of Puerto
Rico in the winter with 16 sailing directly from Puerto Rico and approximately
15 ships include San Juan as a port of call.
Revenues of the hotel and casino operations for each of the Company's last
three fiscal years appear at Notes 3 and 15 of the Notes to Consolidated
Financial Statements in the 1995 Annual Report which information is
incorporated by reference herein.
STRATEGY AND MARKETING
The Company directs its marketing to three distinct hotel guest customers--
the corporate-executive traveler, the individual vacation traveler and the
group and convention traveler. The Company has also directed its efforts toward
local business people and residents of Puerto Rico for its casino, convention,
restaurant, nightclub and bar facilities.
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The Company believes the Condado Plaza and the El San Juan are attractive to
the corporate-executive traveler because they are easily accessible from the
San Juan International Airport and from Hato Rey, San Juan's business and
commercial center and include an aggregate of 56,000 square feet of convention
and meeting space. The individual vacation traveler is attracted to all
facilities by the Caribbean climate and resort amenities including casinos,
swimming pools, whirlpools and spas, tennis, golf and water sports facilities,
health clubs and entertainment lounges. The group and convention traveler is
attracted by the combination of business and resort amenities at all
facilities. Because of their emphasis on business-related services and
facilities, the Condado Plaza and the El Conquistador Resort attract groups and
conventions meeting to conduct business in Puerto Rico. The El San Juan, a
luxury resort hotel, attracts small groups and conferences interested in a
combination of business, recreational and social activities while in Puerto
Rico. Corporate incentive groups comprise a significant portion of the El San
Juan and El Conquistador Resort's clientele in this market.
The Company's business strategy includes attracting to its hotel and casino
facilities members of the local business community, residents of Puerto Rico
and vacation travelers who are staying at other hotel and lodging
accommodations. The Company believes a substantial percentage of the
restaurant, nightclub and bar revenues at all facilities are from local
clientele. Local business people entertain in the hotels' restaurants and
lounges on a regular basis. Residents of Puerto Rico frequently utilize the
casinos, shops and recreational facilities. Many local social events and
receptions are held in the ballrooms and banquet facilities of the Company's
properties.
The Company's hotel and casino facilities are marketed primarily in the
United States, as well as in Canada, Mexico, Europe and South America. In
addition to its in-house marketing staff of 35 employees, an outside marketing
service which employs 25 employees located primarily in Miami and New York
promotes sales. This combined marketing effort promotes the hotels and casinos
to tour operators, meeting planners, corporate incentive groups, wholesale and
retail travel agencies and airlines, as well as to individuals. In addition,
the marketing staff solicits casino business by identifying and contacting
individual players and through the efforts of commissioned sales
representatives. The activities of the sales force include direct sales
promotions, telephone and direct mail solicitations, participation in trade
shows and public relations.
The Condado Plaza Hotel & Casino
The Condado Plaza is owned by Posadas de Puerto Rico Associates, Incorporated
("Posadas de Puerto Rico"), which is owned 95% by the Company. Such ownership
interest was increased from 92.5% effective July 13, 1994. Acquired by the
Company in 1983, the Condado Plaza has since become one of the leading hotels
in the Caribbean. Located on the Atlantic Ocean in the Condado area of San
Juan, the Condado Plaza is a ten-minute drive from Hato Rey, the city's
business and commercial center. The Condado Plaza has 569 rooms and consists of
two separate structures on a five-acre site, the 13-story main building, which
is owned by Posadas de Puerto Rico, and the 11-story Laguna Wing, which is
leased from the owners of the minority interest in Posadas de Puerto Rico. In
fiscal 1995 the American Automobile Association awarded the Condado Plaza a
"Four Diamond" rating for the eighth consecutive year. Since 1993 the Condado
Plaza has been a member of the "Preferred Hotels(R) & Resorts Worldwide"
system, a selective world-wide association of independent luxury hotels and
resorts.
During the fiscal years ended June 30, 1995, 1994 and 1993, the Condado
Plaza's capital expenditures for the purchase of property, plant and equipment
were $2,487,000, $7,745,000 and $4,411,000, respectively.
The Condado Plaza guest accommodations are geared to the needs of traveling
executives and include "The Plaza Club," a hotel-within-a-hotel with 72 deluxe
guest rooms and suites, private lounges and a specially-trained staff providing
concierge services. The Condado Plaza has an executive service center which
offers all necessary business-related services and facilities, conference
facilities which can accommodate groups of up to 1,000, a health and fitness
center and dual pools with spas.
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Most restaurants and all of the shops located in the Condado Plaza are owned
and operated by unaffiliated concessionaires which pay the Company rentals
based primarily on a percentage of their revenues. In addition, the water
sports and valet parking are operated as concessions.
The Condado Plaza maintained an average occupancy rate during the fiscal year
ended June 30, 1995 of 84.5% compared with a rate of 85.4% for the fiscal year
ended June 30, 1994 and 84.9% for the fiscal year ended June 30, 1993.
Occupancy rates are based upon available rooms excluding immaterial numbers of
rooms under renovation or otherwise unavailable for occupancy from time to
time.
The El San Juan Hotel & Casino
The El San Juan is owned by Posadas de San Juan Associates ("Posadas de San
Juan"), a partnership which is 50% owned by a wholly-owned subsidiary of the
Company and 50% owned by, among others, the owners of the minority interest in
Posadas de Puerto Rico. The Company accounts for its investment in Posadas de
San Juan on the equity method. The El San Juan is located in the Isla Verde
area of metropolitan San Juan on a 13-acre oceanfront site twenty-five minutes
from the shopping and historic sights of Old San Juan. The hotel consists of
four structures of from one to nine stories and contains 388 guest rooms and
suites and conference and meeting space of 36,000 square feet with a seating
capacity of 3,000. With its marble floors, elaborate chandeliers and carved
mahogany ceilings and walls, the El San Juan combines the ambience of a
European-style hotel with the atmosphere of an informal Caribbean resort. The
El San Juan is also a member of the "Preferred Hotels(R) & Resorts Worldwide"
system and was the first in Puerto Rico so designated. In fiscal 1995 the El
San Juan continued to maintain its designation, first made in 1990, as a member
of "The Leading Hotels of the World(R)" and was awarded a "Four Diamond" rating
by the American Automobile Association for the ninth year in a row.
During the fiscal years ended June 30, 1995, 1994 and 1993, the El San Juan's
capital expenditures for the purchase of property, plant and equipment were
$3,310,000, $2,737,000 and $2,764,000, respectively.
The El San Juan caters to individual vacation travelers, as well as to small
groups and conferences and corporate-executive travelers. El San Juan guest
rooms and suites have luxury appointments and amenities and, in many of the
guest rooms, private balconies, whirlpools and spas. The Roof Top Health Spa,
two swimming pools and beach area contribute to the attractiveness of this
property.
The El San Juan maintained an average room occupancy rate during the fiscal
year ended June 30, 1995 of 82.4% compared with a rate of 84.6% for the fiscal
year ended June 30, 1994 and a rate of 85.4% for the fiscal year ended June 30,
1993.
The El San Juan also features an indoor shopping arcade designed to resemble
a European village, which features 12 fashionable stores serving resort guests
and community residents. All of the stores in the El San Juan, the dance club
and all of the restaurants except "La Veranda" are owned and operated by
unaffiliated concessionaires which pay the El San Juan rentals based primarily
on a percentage of their revenues. In addition, the watersports and valet
parking are operated as concessions.
Williams Hospitality Group Inc.
Williams Hospitality Group Inc. ("Williams Hospitality") is owned 62% by the
Company and 38% by the owners of the minority interest in Posadas de Puerto
Rico. The Company interest in Williams Hospitality increased from 57% to 62%
effective July 13, 1994. Williams Hospitality, the Company's subsidiary which
provides hotel and casino management services, has managed the Condado Plaza
since 1983, the El San Juan since 1985 and the El Conquistador Resort since its
opening in 1993. Williams Hospitality has management contracts with all such
facilities expiring in 2003 (Condado Plaza), 2005 (El San Juan) and 2013 (El
Conquistador Resort). It earns basic management fees based on gross revenues
and incentive management fees based on gross operating profits. Williams
Hospitality is reimbursed for certain administrative expenses
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incurred in connection with its management of such properties and receives fees
with respect to certain centralized services being rendered for all hotel and
casino properties. In addition to supervising the daily operations of each of
the properties it manages, Williams Hospitality supervises marketing, sales and
promotions and recommends long-term policies.
El Conquistador Resort
On January 12, 1990, Williams Hospitality entered into an agreement with the
El Conquistador Partnership L.P. ("El Con LP") for the management of the El
Conquistador Resort. The El Con LP is 23.3% owned by the Company, 26.7% owned
by certain of the owners of the minority interest in Posadas de San Juan and
50% owned by Kumagai Caribbean, Inc. ("Kumagai"), an affiliate of Kumagai Gumi
Co., Ltd., one of the world's leading construction companies. The El Con LP
developed the El Conquistador Resort with Kumagai acting as construction
manager and Williams Hospitality rendering technical development services
during the construction phase. The completed Resort opened in November of 1993.
The El Conquistador Resort has 750 guest rooms, an 18-hole championship golf
course, a marina, tennis courts, 90,000 square feet of convention and meeting
facilities, six lounges and night clubs, eight restaurants, a 13,000 square
foot casino, a fitness center and five dramatic pool areas, all situated on a
bluff overlooking the convergence of the Atlantic Ocean and the Caribbean Sea.
The Resort also features a secluded beach located on a private island three
miles offshore. In addition, the El Conquistador Resort manages 90 condominium
units known as the Las Casitas. The Las Casitas provides another 163 rooms to
the inventory of luxury rooms available to the Resort.
The El Conquistador Resort finished its first full fiscal year ended March
31, 1995 with an average occupancy rate of 73.3%. In less than two years the
Resort has received the prestigious Gold Key Award by Meetings and Conventions
Magazine and the Paragon Award by Corporate Meetings and Incentives Magazine
for excellence in meeting and conventions.
CASINO CREDIT POLICY
All of the Company's casinos extend credit to qualified players that satisfy
its credit review procedures. The procedures include external credit
verification and internal management level approvals.
Credit play at the Condado Plaza for the fiscal years ended June 30, 1995,
1994 and 1993 represented 32%, 46% and 50%, respectively, of total play. Casino
credit receivables, net of allowance for doubtful accounts, at the Condado
Plaza at each of the fiscal years ended June 30, 1995, 1994 and 1993 were
$1,330,000, $1,956,386 and $2,644,000, respectively, representing 3.9%, 3.4%
and 3.7% of annual credit play.
Credit play at the El San Juan for the fiscal years ended June 30, 1995, 1994
and 1993 represented 60%, 72%, and 69%, respectively, of total play. Casino
credit receivables, net of allowance for doubtful accounts, at the El San Juan
at each of the fiscal years ended June 30, 1995, 1994 and 1993 were $2,265,000,
$5,859,000 and $6,604,000, respectively, representing 2.9%, 4.5% and 5.6% of
annual credit play.
Credit play at the El Conquistador Resort has not been significant since its
opening in November 1993.
The credit players represent a significant portion of total play at the El
San Juan and Condado Plaza casinos and the Company believes that collection
losses have not been unusual or material to the results of operations, except
for the El San Juan casino where the losses for fiscal 1995 were $3.7 million
compared with $4.2 million in fiscal 1994 and $2.6 million in fiscal 1993.
Gaming debts are enforceable in Puerto Rico and the majority of States in the
United States. Those States that do not enforce gaming debts will nonetheless
generally allow enforcement of a judgment obtained in a jurisdiction such as
Puerto Rico. Due to the
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<PAGE>
unenforceability generally of gaming debts in Latin America, where a
significant number of the Company's players reside, procedures have been
established to obtain promissory notes from most Latin American credit casino
clients.
GOVERNMENT REGULATION AND LICENSING
In 1948, Puerto Rico legalized gambling and the ownership and operation of
casino gaming facilities in Puerto Rico is heavily regulated. The Office of the
Commissioner of Banks and Financial Institutions of Puerto Rico is responsible
for investigating and licensing casino owners. The Gaming Division of the
Tourism Development Company of Puerto Rico (the "Gaming Division") regulates
and supervises casino operations. A government inspector must be on-site
whenever a casino is open. Among its responsibilities, the Gaming Division
licenses all casino employees and enforces regulations relating to method of
play and hours of operation (a maximum of 16 hours per day).
The casinos at the Condado Plaza, the El San Juan and the El Conquistador
Resort are subject to strict internal controls imposed by the Company over all
facets of their operations, including the handling of cash and security
measures. The casino control procedures are similar to those followed by Nevada
and New Jersey casinos. All slot machines at these and all other casinos on the
island are owned and maintained by the Commonwealth of Puerto Rico. Of the
profits from the slot machines, 34% is received by the casino and the remaining
66% is allocated to Puerto Rico government agencies and educational
institutions. Each casino pays the Government a license fee depending on total
play or drop in the casino, which ranges from $100,000 to $200,000. The Condado
Plaza and the El San Juan each pay an annual license fee of $200,000 and the El
Conquistador Resort pays an annual license fee of $100,000 in quarterly
installments. Each casino is required to renew its license each year; and,
unless a change of ownership of the licensee has occurred or the gaming
authorities have reason to believe that reinvestigation of the licensee is
necessary, renewal is generally automatic.
The hotels and casinos are also subject to various local laws and regulations
affecting their business, including provisions relating to fire safety,
sanitation, health and the sale of alcoholic beverages.
SEASONALITY
Tourism in Puerto Rico is at its peak during the months of December through
April. Most hotels, in spite of reducing their room rates during the off-season
months, experience decreased occupancy and lower revenues. By attracting
business travelers and residents of Puerto Rico on a year-round basis, the
Condado Plaza has reduced, to some extent, the seasonality of its operations.
The El San Juan and the El Conquistador Resort expect that group business
developed during the off- and shoulder-seasons will reduce the effect of
seasonality.
Seasonal fluctuations in the tourism industry do not have as much of an
effect on the Condado Plaza as they have on other Caribbean hotels since
approximately 40% of the Condado Plaza's accommodations are booked by business
travelers. As a result, the Condado Plaza's monthly occupancy rates for the
fiscal year ended June 30, 1995 ranged from 73.4% to 94.7%, with an average
occupancy rate of 84.5%. The in-season average occupancy figure for December
1994 to April 1995 was 87.6% compared to 87.2% and 86.8% for such period in the
fiscal years 1994 and 1993, respectively. The Condado Plaza, like other
Caribbean hotels, reduces its rates during the off-season months but, unlike
many other Caribbean hotels, occupancy rates remain at relatively high levels.
During the fiscal year ended June 30, 1995, the El San Juan's monthly occupancy
rates ranged from 72.4% to 95.3%, with an average occupancy rate of 82.4%. The
in-season average occupancy figure for December 1994 to April 1995 was 88.3%
compared to 87.7% and 89.4% for such period in the fiscal years 1994 and 1993,
respectively.
17
<PAGE>
The El Conquistador Resort's monthly occupancy rates for the first seventeen
full months of operations ranged from 51.2% to 90.3%, with an average occupancy
rate of 73.3% for the year ended March 31, 1995.
COMPETITION
The hotel and casino business in the Caribbean region is highly competitive.
The Company's facilities compete with each other and with numerous hotels and
resorts on the island of Puerto Rico (including 13 other hotels and resorts
with casinos) and on other Caribbean islands and in the southeastern United
States and Mexico. The Company also competes for hotel and casino customers to
a lesser extent with the Nevada and New Jersey hotels and casinos as well as
other casinos now operating in the United States. The principal methods of
competition for casino players include maintaining promotional allowance
packages that are comparable to other casinos and providing outstanding service
to players in the hotel and casino. The promotional allowance package will vary
depending upon the size of the play and may include reduced or complimentary
hotel and restaurant charges and air fares. Some of these competing properties
are owned or managed by hotel chains possessing substantially greater financial
resources than those of the Company.
The Company believes that Puerto Rico offers many advantages over
geographical areas in which competing properties are located. Unlike most other
Caribbean Islands, Puerto Rico is served by many direct air flights from the
continental United States and has a highly developed economy and a well-
educated population. Moreover, Puerto Rico is a Commonwealth of the United
States, freeing mainland visitors from concerns about foreign currencies or
customs and immigration laws. Unlike resort areas in the southeastern United
States, Puerto Rico enjoys a mild subtropical climate throughout the year and
offers legalized gambling.
EMPLOYEES
At June 30, 1995, the Condado Plaza employed approximately 1,040 persons, 718
of whom are represented by two labor unions (543 employees belong to the hotel
union and 175 employees belong to the casino union). The Condado Plaza's
contract with the Hotel and Restaurant Employees International Union ("EIU")
was renewed September 1, 1994 and expires August 31, 1997. The Condado Plaza's
contract with the Puerto Rico Association of Casino Employees ("ACE"), expired
July 15, 1994, and a new contract is being negotiated.
The El San Juan employs approximately 838 persons of which 228 are casino
employees. The Teamsters Union was certified by the National Labor Relations
Board on May 12, 1995 to represent the 111 non-managerial casino employees and
a contract with such union is under negotiation.
The El Conquistador Resort employs approximately 1,503 persons and Williams
Hospitality employs approximately 88 persons, including the executive office
staff and the centralized accounting and reservation staffs for all operations,
none of whom is represented by a labor union.
The Company considers its current relationships with all employees, union and
non-union, to be satisfactory.
ITEM 2. PROPERTIES.
The table and footnotes on the next pages set forth, with respect to the
Company's principal properties, the location, principal use, approximate floor
space and the annual rental and lease expiration date, where leased, or
encumbrances, where owned by the Company, at June 30, 1995.
18
<PAGE>
PROPERTIES
AMUSEMENT GAMES
<TABLE>
<CAPTION>
LEASE
PRINCIPAL APPROXIMATE EXP.
LOCATION USE SQUARE FEET ANNUAL RENT ($) DATE ENCUMBRANCES
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3401 N. Principal Office & 129,400 100% Owned -- --
California Games Mfg. by Company
Chicago,
IL
----------------------------------------------------------------------------------
2704 W. Games Mfg. 28,500 100% Owned -- --
Roscoe by Company
Chicago,
IL
----------------------------------------------------------------------------------
2727 W. Games Mfg. 47,500 117,600(1) 06/30/96 --
Roscoe
Chicago,
IL
----------------------------------------------------------------------------------
1910 Games Mfg. 72,000 275,309(1) 12/31/95 --
Swanson
Ct.
Gurnee, IL
----------------------------------------------------------------------------------
1949 Games Mfg. 14,400 82,080 03/31/96 --
Swanson
Ct.
Gurnee, IL
----------------------------------------------------------------------------------
Cicero, IL Games Mfg. 105,000 109,422(1) 06/30/96 --
----------------------------------------------------------------------------------
Waukegan, Games Mfg. 186,000 100% Owned -- --
IL by Company
----------------------------------------------------------------------------------
2400 S. Office/ Warehouse 5,000 30,000 05/01/99 --
Business
45
Corsicana,
TX
----------------------------------------------------------------------------------
1800 S. Office 6,000 38,400 09/01/97 --
Business
45
Corsicana,
TX
----------------------------------------------------------------------------------
San Diego, R & D 27,512 241,000 06/01/02 --
CA
HOTELS AND CASINOS
<CAPTION>
LEASE
PRINCIPAL APPROXIMATE EXP.
LOCATION USE SQUARE FEET ANNUAL RENT ($) DATE ENCUMBRANCES
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Las El Conquistador 854,000 23.3% Owned -- (2)
Croabas, Resort by Company
PR
----------------------------------------------------------------------------------
San Juan, Condado Plaza 136,081 95% Owned -- (3)
PR Hotel/Casino by Company
----------------------------------------------------------------------------------
San Juan, Condado Plaza 60,500 684,000(4) 03/31/04 (3)
PR Laguna Wing
----------------------------------------------------------------------------------
San Juan, Condado Plaza 28,611 95% Owned -- (5)
PR Parking Lots by Company
----------------------------------------------------------------------------------
San Juan, Condado Plaza 8,343 95% Owned -- (5)
PR Parking Lot by Company
----------------------------------------------------------------------------------
San Juan, El San Juan 162,500 50% Owned -- (6)
PR Hotel/Casino by Company
----------------------------------------------------------------------------------
San Juan, El San Juan 10,663 62% Owned -- (7)(5)
PR Parking Lot by Company
----------------------------------------------------------------------------------
San Juan, El San Juan 210,000 150,000 11/16/97 --
PR Parking Lot
----------------------------------------------------------------------------------
San Juan, Williams Hosp. 10,000 62% Owned -- (8)
PR Admin. Offices by Company
</TABLE>
(Footnotes on next page)
19
<PAGE>
FOOTNOTES TO PROPERTIES TABLES:
(1) Under such leases which contain renewal options, additional rentals may be
payable for taxes, insurance, utilities and maintenance.
(2) Subject to a first mortgage lien in the amount of $146,612,000 securing (i)
a $120,000,000 loan from the Puerto Rico Industrial, Medical, Educational
and Environmental Pollution Control Facilities Financing Authority; (ii) a
$120,000,000 letter of credit issued by The Mitsubishi Bank, Limited which
serves as collateral for the loan referred to in (i) above; and (iii)
termination liability up to $20,000,000 under an Interest Rate Swap
Agreement with respect to interest due on the loan referred to in (i)
above; subject to a second mortgage lien securing a $25,000,000 loan from
the Government Development Bank for Puerto Rico; and subject to a third
mortgage lien securing an $8,000,000 loan from the Government Development
Bank of Puerto Rico.
(3) Subject to mortgage liens to secure a $35,500,000 borrowing from Scotiabank
de Puerto Rico under the terms of an Operating Credit and Term Loan
Agreement dated August 30, 1988.
(4) Annual rent of $684,000 is fixed through September 30, 1998; thereafter,
$752,000 to September 30, 2003 and $827,000 to March 31, 2004.
(5) Subject to a mortgage in favor of the Government Development Bank for
Puerto Rico to secure a $4,000,000 loan to WKA El Con Associates.
(6) Subject to a first mortgage lien to secure a loan of $34,000,000 from The
Bank of Nova Scotia under the terms of a Credit Agreement dated as of
January 20, 1993.
(7) Subject to first mortgage liens in the amount of $424,600 to certain
individuals.
(8) Subject to a first mortgage lien to secure a loan of $800,000 from
Scotiabank de Puerto Rico.
Management believes that all of the facilities listed in the foregoing table
are in good repair and are adequate for their respective purposes. The
manufacturing facilities used in the amusement games business are suitable and
adequate for the design and production of the Company's products. The Home
Games business operates year-round. Except during the July vacation shutdown,
the facilities of the Coin-Op Games business are generally operated on a one-
shift basis; however, during periods of increased production, certain portions
of the facilities are operated on multiple shifts. The production levels can be
increased or decreased on a periodic basis to match the level of incoming
customer orders.
The Company owns substantially all of the machinery, equipment, tools and
dies, furnishings, goods and fixtures used in its businesses, all of which are
well maintained and satisfactory for the purposes intended. The Company's
personal property utilized in the Condado Plaza, the El San Juan and the El
Conquistador Resort operations is subject to security interests.
ITEM 3. LEGAL PROCEEDINGS.
The actions which were commenced December 13, 1993 derivatively on behalf of
the Company in the Court of Chancery of the State of Delaware for New Castle
County against the directors of the Company by the following three
shareholders--Gerald D. Broder, Burton K. Stopnik and Sheila Schrank--were
dismissed May 10, 1995 by the Court with leave to plaintiffs to amend their
complaint. Plaintiffs advised the Court June 6, 1995 that they would not submit
an amended complaint. In substance, the complaints had alleged that the
Company's directors breached fiduciary duties to the Company in authorizing the
purchase by the Company of Class B common shares of Viacom International, Inc.
("Viacom"); that such purchases were made to assist Viacom's bid for the common
stock of Paramount Communications Inc; and that an officer of the Company
profited from his sale of shares of the Company's common stock in October 1993
at a price which plaintiffs allege was attributable to a Hart-Scott-Rodino
filing made by stockholders currently holding approximately 25% of the
Company's outstanding common stock. The complaints sought judgements declaring
that the defendants breached their fiduciary duty, directing an accounting for
profits obtained by defendants and damages sustained by the Company and
awarding plaintiffs their costs and expenses in bringing the legal actions
including attorneys' fees.
20
<PAGE>
On or about July 25, 1995, Alliance Gaming Corp. ("Alliance") filed an action
in the Delaware Court of Chancery against Bally Gaming International, Inc.
("BGII"), its directors and the Company (the "Alliance Action"). The Alliance
Action alleged that in their actions vis-a-vis Alliance, their preferential
treatment of the Company and their acceptance of the Merger Agreement dated as
of June 21, 1995, between the Company and BGII (the "Merger Agreement") (which
Alliance alleged to be inferior to its tender offer for approximately 45% of
the shares of BGII Common Stock not owned by Alliance), the members of the BGII
Board of Directors, aided and abetted by the Company, had violated their
fiduciary duties of care, loyalty and candor. The complaint sought damages and
an order requiring that BGII hold an annual meeting, requiring the directors to
give Alliance a fair and equal opportunity to acquire BGII, setting aside the
Merger Agreement and its breakup fee and enjoining sales of assets (including
BGII's German operations) out of the ordinary course of business and actions
impeding the operation of market forces in an open bidding contest for the
acquisition of BGII.
On July 27, 1995, the Court heard motions by Alliance for expedited
discovery, an expedited scheduling of a preliminary injunction hearing, an
immediate setting of a date for a stockholder meeting to elect BGII directors
and the immediate granting to Alliance of due diligence with respect to BGII.
The Court denied the requests for expedited scheduling of a preliminary
injunction hearing and expedited general discovery. The Court ruled that the
request for an order granting Alliance immediate due diligence was without
legal support in the Court's cognizance and denied the request without
prejudice to being renewed on a showing of legal entitlement to such relief. On
August 3, 1995, Alliance renewed its request for an order requiring immediate
due diligence.
On August 14, 1995, BGII, the Company and Alliance entered into an agreement
which provided, among other things, (i) for the scheduling of a meeting of BGII
stockholders for consideration of the Merger Agreement and the election of
directors to be held on October 30, 1995, (ii) that all parties would refrain
from initiating litigation until September 1, 1995 and (iii) that all current
activities in the Alliance Action would be held in abeyance until September 1,
1995.
On or about September 5, 1995, BGII filed an action against Alliance and its
wholly-owned subsidiary, BGII Acquisition Corp. ("Sub"), in the United States
District Court, District of Delaware (the "BGII Action"). The BGII Action
alleged that Alliance and Sub have falsely led BGII's stockholders and the
securities markets to believe that the tender offer made by Alliance (the
"Alliance Offer"), is the first step in the acquisition of the entire equity
interest in BGII for the same consideration as pursuant to a proposed future
merger. The BGII Action also alleged that Alliance and Sub have filed with the
Commission, and caused to be publicly disseminated, documents that contain
material misrepresentations and omissions relating to the Alliance Offer and
the possible Alliance consent solicitation (which was subsequently commenced).
The complaint sought to enjoin Alliance and Sub from proceeding with the
Alliance Offer until they have made adequate corrective disclosures and to
enjoin Alliance and Sub from soliciting consents from BGII stockholders until
they have complied with the applicable law.
On or about September 6, 1995, the Company commenced an action in the United
States District Court, Southern District of New York (the "WMS Action"),
seeking to enjoin Alliance's and Sub's tender offer for BGII common stock and
to prevent continuing and threatened violations by Alliance of the Federal
securities laws and other violations. The WMS Action alleged that Alliance has
made untrue statements and has omitted to state material facts in its tender
offer documents. The Company also alleged that Alliance illegally and
improperly interfered with the Merger Agreement.
On or about September 12, 1995, Alliance and Sub filed an Answer and
Counterclaims with respect to the BGII Action. The Answer and Counterclaims
alleged that BGII violated Section 14(d) and 14(e) of the Exchange Act of 1934,
as amended, by failing to make full and accurate disclosure with respect to,
inter alia, (i) the possible sale of BGII's German operations to a group of
management investors, (ii) compensation to be provided to the directors and
officers of BGII in the event of the merger with the Company, (iii) the
21
<PAGE>
arrangements between BGII and Ladenburg Thalmann & Co. Inc., financial advisors
to BGII, and (iv) the role played by FMR Corp., holders of BGII's Senior
Secured Notes, in connection with the Company and the sale of BGII's German
operations. The Answer and Counterclaims seek corrective disclosure and an
order barring BGII from soliciting its stockholders to support or oppose any
merger or takeover. The Company has been informed by BGII that they deny the
allegations set forth in the Answer and Counterclaims and intend to defend the
action vigorously.
On or about September 13, 1995 the WMS Action was transferred to the United
States District Court, District of Delaware for the purpose of consolidation
with the BGII Action and the Company's request for expedited discovery was
granted.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Reference is made to "Market for the Company's Common Stock and Related
Security-Holder Matters" set forth in the 1995 Annual Report which information
is incorporated by reference herein.
ITEM 6. SELECTED FINANCIAL DATA.
Reference is made to "Selected Financial Data" set forth in the 1995 Annual
Report which information is incorporated by reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" set forth in the 1995 Annual Report which
information is incorporated by reference herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to the Consolidated Financial Statements and Notes thereto
and Report of Independent Auditors set forth in the 1995 Annual Report which
information is incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Identification of Directors. The directors listed in the table on the
next page were elected at the January 1995 Annual Meeting of Stockholders to
serve until the 1996 Annual Meeting of Stockholders and until their respective
successors are duly elected and qualify. All are at present directors of the
Company. Mr. Neil D. Nicastro is the son of Mr. Louis J. Nicastro; otherwise,
there is no family relationship between any of the directors or executive
officers of the Company.
IDENTIFICATION OF DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR OR SHARES OF
EXECUTIVE COMMON STOCK PERCENTAGE
POSITION WITH COMPANY OFFICER OF DEEMED TO BE OF
AND THE BENEFICIALLY OUTSTANDING
PRINCIPAL OCCUPATION COMPANY OWNED COMMON
DIRECTOR (AGE) AS OF 8/31/95 SINCE 08/31/95(1) STOCK(2)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Louis J. Nicastro (67) Chairman of the Board of 1974 6,433,732(3) 26.1%
Directors and Co-Chief
Executive Officer of the
Company
------------------------------------------------------------------------------------------
Neil D. Nicastro (38) President, Co-Chief Ex- 1986 6,781,100(4) 27.2%
ecutive Officer, Chief
Operating Officer and
Director of the Company
------------------------------------------------------------------------------------------
Kenneth J. Fedesna (45) Vice President & General 1993 145,058(5) *
Manager of the Company's
Coin-Op Amusement Games
operations and Director
of the Company
------------------------------------------------------------------------------------------
Norman J. Menell (63) Vice Chairman of the 1980 52,216(6) *
Board of Directors of
the Company
------------------------------------------------------------------------------------------
George R. Baker (65) Director of the Company 1983 50,800(6) *
and Private Consultant
------------------------------------------------------------------------------------------
William C. Bartholomay Director of the Company 1981 68,800(6) *
(67) and President, Near
North National Group
(Insurance Brokers)
------------------------------------------------------------------------------------------
Williams E. McKenna (76) Director of the Company 1981 52,594(6) *
and General Partner, MCK
Investment Company (Pri-
vate Investment Company)
------------------------------------------------------------------------------------------
Harvey Reich (66) Director of the Company 1983 51,190(6) *
and Attorney, Robinson
Brog Leinwand Reich
Genovese & Gluck, P.C.
------------------------------------------------------------------------------------------
Ira S. Sheinfeld (57) Director of the Company 1993 54,000(7) *
and Attorney, Squadron,
Ellenoff, Plesent &
Sheinfeld LLP
</TABLE>
(footnotes on following page)
23
<PAGE>
FOOTNOTES TO IDENTIFICATION OF DIRECTORS TABLE:
(1) Pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), options held by directors are deemed to be
beneficially owned if the holder of the option has the right to acquire
beneficial ownership of such security within 60 days. Certain of such
options as reported herein also require that the Company's Common Stock
attain a market price of $35.00 per share prior to exercise (herein
referred to as "Target Price Options").
(2) For purposes of calculating the percentage of shares of Common Stock owned
by each director, shares issuable on the exercise of his options have been
deemed to be outstanding.
(3) The number of shares reported as beneficially owned includes 5,929,100
owned by Sumner M. Redstone and National Amusements, Inc. for which the
reporting person has shared voting power but no dispositive power.
Additionally, the number of shares reported as beneficially owned includes
500,000 shares for which the reporting person has sole voting and sole
dispositive power, all of which may be acquired pursuant to Target Price
Options within 60 days of August 31, 1995. For a discussion concerning the
shared voting power with respect to the 5,929,100 shares of Common Stock
referred to above, see "Voting Proxy Agreement" set forth in Item 12.
(4) The number of shares reported as beneficially owned includes 5,929,100
owned by Sumner M. Redstone and National Amusements, Inc. for which the
reporting person has shared voting power but no dispositive power.
Additionally, the number of shares reported as beneficially owned includes
852,000 shares for which the reporting person has sole voting and sole
dispositive power, 800,000 of which may be acquired pursuant to stock
options within 60 days of August 31, 1995, 500,000 of such options being
Target Price Options. For a discussion concerning the shared voting power
with respect to the 5,929,100 shares of Common Stock referred to above, see
"Voting Proxy Agreement" set forth in Item 12.
(5) Includes 145,000 shares of Common Stock which Mr. Fedesna has the right to
acquire upon the exercise of stock options, 100,000 of which are Target
Price Options.
(6) Includes 50,000 shares of Target Price Options.
(7) Includes 54,000 shares of Common Stock which Mr. I. S. Sheinfeld has the
right to acquire upon the exercise of stock options, 50,000 of which are
Target Price Options.
*Less than 1% of the number of outstanding shares of Common Stock on August
31, 1995.
LOUIS J. NICASTRO, Chairman of the Board of Directors and Co-Chief Executive
Officer of the Company. Mr. Nicastro has served as Chairman of the Board of
Directors of the Company since its incorporation in 1974. On August 29, 1994,
he became Co-Chief Executive Officer, having served as Chief Executive Officer
since 1974. He served as President (1985-1988 and 1990-1991) and as Chief
Operating Officer (1985-1986) of the Company.
NEIL D. NICASTRO, Director, President and Co-Chief Executive Officer of the
Company. Mr. Nicastro became a director of the Company in 1986 and was elected
President of the Company June 18, 1991 and Co-Chief Executive Officer August
29, 1994. He has also served as Chief Operating Officer of the Company since
September 1990. He served as Treasurer (1986-1995), Executive Vice President
(1988-1991), Senior Vice President (1986-1988) and Director of Stockholder
Relations (1981-1986) of the Company.
KENNETH J. FEDESNA was elected a director of the Company on August 23, 1993.
He has served as Vice President and General Manager of Williams Electronics
Games, Inc. and Midway Manufacturing Company, wholly-owned subsidiaries of the
Company, for in excess of five years.
NORMAN J. MENELL was elected Vice Chairman of the Board of Directors
effective September 30, 1990. He served as President (1988-1990), Chief
Operating Officer (1986-1990) and Executive Vice President (1981-1988) of the
Company.
24
<PAGE>
GEORGE R. BAKER is a private consultant. He was a general partner of
Barrington Limited Partners (private investment partnership) (1985-1986), a
special limited partner of Bear, Stearns & Co., Inc. (investment banking)
(1983-1985) and an Executive Vice President of Continental Bank N.A. (1951-
1982). Mr. Baker is a director of The Midland Co., Reliance Group Holdings,
Inc., Reliance Insurance Co. and W. W. Grainger, Inc.
WILLIAM C. BARTHOLOMAY is President of Near North National Group, Chicago,
Illinois (insurance brokers) and Chairman of the Board of the Atlanta Braves
(National League Baseball). He also served as Vice Chairman of the Board of
Directors of Turner Broadcasting System, Inc., Atlanta, Georgia (1976-1992) and
was re-elected as Vice Chairman in April 1994. Mr. Bartholomay served as a
director of Turner Broadcasting System, Inc. (1976-April 1994). He also served
as Vice Chairman of the Board of Frank B. Hall & Co. Inc. (1974-1990).
WILLIAM E. MCKENNA has served as a General Partner of MCK Investment Company,
Beverly Hills, California for in excess of five years. He also is a director of
California Amplifier, Inc., Calprop Corporation, Drexler Technology Corporation
and Safeguard Health Enterprises, Inc.
HARVEY REICH has been a member of the law firm of Robinson Brog Leinwand
Reich Genovese & Gluck, P.C., New York, New York and its predecessor firms for
in excess of five years.
IRA S. SHEINFELD was elected a director of the Company on August 23, 1993. He
has been a member of the law firm of Squadron, Ellenoff, Plesent, & Sheinfeld
LLP, New York, New York, for in excess of five years.
(b) Identification of Executive Officers. Unless otherwise indicated below,
the following officers were elected to serve until the 1996 Annual Meeting of
the Board of Directors and until their respective successors are duly elected
and qualify.
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------------------------------------------------------
<S> <C> <C>
Louis J. Nicastro 67 Chairman of the Board of
Directors and Co-CEO
--------------------------------------------------------------------------------
Neil D. Nicastro 38 President, Co-CEO and Chief
Operating Officer
--------------------------------------------------------------------------------
Harold H. Bach, Jr. 63 Vice President--Finance,
Treasurer, Chief Financial and
Chief Accounting Officer
--------------------------------------------------------------------------------
Barbara M. Norman 57 Vice President, Secretary and
General Counsel
</TABLE>
The principal occupation or employment of Messrs. L.J. and N.D. Nicastro
during the last five years is set forth in Item 10(a) above.
Mr. Bach served as Secretary of the Company from July 5, 1990 to June 15,
1992. He assumed the positions of Treasurer effective September 13, 1994 and
Vice President--Finance, Chief Financial and Chief Accounting Officer effective
September 30, 1990. Prior to joining the Company, Mr. Bach was a partner in the
accounting firms of Ernst & Young (1989-1990) and Arthur Young & Company (1967-
1989).
Ms. Norman was elected Vice President, Secretary and General Counsel of the
Company on June 15, 1992. Prior thereto she was associated with the law firm of
Whitman & Ransom, New York, New York (1990-1992) and served the Company as Vice
President, Secretary and General Counsel (1986-1990).
25
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The Summary Compensation Table below sets forth the cash compensation paid by
the Company and its subsidiaries for service in all capacities during the
fiscal years ended June 30, 1995, 1994 and 1993 to each of the Company's
executive officers who served during such periods and whose compensation
exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMP.
ANNUAL COMPENSATION AWARDS
NAME AND ------------------------------------ ----------
PRINCIPAL SECURITIES
POSITION AS OTHER ANNUAL UNDERLYING ALL OTHER
OF SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
06/30/95 YEAR ($) ($) ($) (#) ($)
-------------------------------------------------------------------------------
(A) (B) (C) (D) (E) (G) (I)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Louis J. 1995 682,500 300,000 4,775 -- 409,784
Nicastro 1994 682,500 600,000 4,173 500,000 327,252
Chairman of 1993 682,500 600,000 -- -- 327,252
the
Board & Co-
CEO
-------------------------------------------------------------------------------
Neil D. 1995 532,500 489,100 -- -- 35,762
Nicastro 1994 532,500 741,600 -- 700,000 35,742
President, 1993 382,500 750,000 -- -- 24,992
Co-CEO
& COO
-------------------------------------------------------------------------------
Harold H. 1995 250,000 67,800 -- -- --
Bach, Jr. 1994 250,000 100,000 -- 75,000 --
Vice 1993 200,000 100,000 -- -- --
President--
Finance,
Treasurer,
CFO/CAO
-------------------------------------------------------------------------------
Barbara M. 1995 150,000 27,200 -- -- --
Norman 1994 150,000 40,000 -- 75,000 --
Vice 1993 140,000 40,000 -- -- --
President,
Secretary &
General
Counsel
</TABLE>
COLUMN (F) "Restricted Stock" has been omitted since the Company has not
awarded any restricted stock during the last three fiscal years and there was
no restricted stock held by executive officers.
COLUMN (H) "Long-term Incentive Plans Payout" has been omitted as not
applicable.
(1) Amounts shown for Mr. L.J. Nicastro include $4,775 for fiscal 1995 and
$4,173 for fiscal 1994 for tax gross ups.
(2) Amounts shown include accrual for contractual retirement benefits for Mr.
L.J. Nicastro. Amounts shown for Mr. N.D. Nicastro include for fiscal 1995,
1994 and 1993 insurance premiums of $662, $642, and $631, respectively, and
for fiscal 1995, 1994 and 1993, accrual for contractual retirement benefits
of $35,100, $35,100, and $24,361, respectively.
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted during fiscal year ended June 30, 1995 to the named
executives.
26
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL-YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
VALUE UNDERLYING UNEXERCISED OPTIONS OPTIONS AT 6/30/95 ($)
SHARES ACQUIRED ON REALIZED AT 6/30/95 (#) EXERCISABLE(E) EXERCISABLE(E)
NAME EXERCISE (#) ($) UNEXERCISABLE(U)(1) UNEXERCISABLE(U)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
--------------------------------------------------------------------------------------------------------
Louis J. Nicastro -0- -0- 500,000(U) -0-(U)
--------------------------------------------------------------------------------------------------------
Neil D. Nicastro -0- -0- 100,000(E) 6,500(E)
200,000(U) 475,000(U)
500,000(U) -0-(U)
--------------------------------------------------------------------------------------------------------
Harold H. Bach, Jr. -0- -0- 75,000(U) -0-(U)
--------------------------------------------------------------------------------------------------------
Barbara M. Norman -0- -0- 75,000(U) -0-(U)
</TABLE>
(1) Notwithstanding that, as set forth in the footnotes to the tables in Items
10, 11 and 12, Target Price Options are deemed to be beneficially owned
pursuant to Rule 13d-3(d)(1) of the Exchange Act, Target Price Options are
reported in the above table as "Unexercisable."
COMPENSATION OF DIRECTORS
The Company pays a fee of $40,000 per annum to each director who is not also
an employee of the Company or its subsidiaries. Each such director who serves
as the chairman of any committee of the Board of Directors receives a further
fee of $5,000 per annum for his services in such capacity and each member of
the Company's Audit and Ethics Committee receives an additional fee of $5,000
per annum.
During the 1995 fiscal year, each non-employee director of the Company's 95%-
owned subsidiary Posadas de Puerto Rico (which includes Messrs. Bartholomay,
Menell and Reich) also received an annual fee of $10,000 for services as a
director and, for those non-employee directors who serve as a member of the
Audit, Ethics and Compensation Committee of such subsidiary's Board of
Directors (which includes Messrs. Bartholomay and Reich), a further fee of
$12,500 was paid. During the 1995 fiscal year, each non-employee director of
the Company's 62%-owned subsidiary Williams Hospitality (which includes Messrs.
Baker, McKenna and Menell) also received an annual fee of $22,500 for services
as a director.
The Company's 1991, 1993 and 1994 Stock Option Plans (the "Option Plans")
provide for the issuance of shares of Common Stock of the Company pursuant to
stock options which may be granted to non-employee directors of the Company at
not less than 100% of the fair market value of such shares on the date of
grant. Under the terms of the 1991 and 1993 Option Plans, non-qualified stock
options may be granted to non-employee directors pursuant to the following
formula--upon the date of adoption of the Plan by the Board of Directors and on
each anniversary thereof, each non-employee director of the Company is entitled
to receive a non-qualified option to purchase, at 100% of the fair market value
of the Company's Common Stock on such date, such shares of the Company's Common
Stock as shall be determined by multiplying (a) in the case of the 1991 Stock
Option Plan, 4,000 times the number of years he or she has served on the Board
of Directors (subject to a maximum of 30,000 shares); and (b) in the case of
the 1993 Stock Option Plan, 10,000 times the number of years he or she has
served on the Board of Directors or as a consultant or adviser (subject to a
maximum of 50,000 shares). Upon adoption of the 1991 Stock Option Plan, the
following non-employee directors became entitled to and were granted non-
qualified stock options to purchase 30,000 shares each of the Company's Common
Stock at a purchase price of $7.31--Messrs. Baker, Bartholomay, McKenna and
Reich. On September 6, 1994, Mr. I.S. Sheinfeld was granted a non-qualified
option to purchase 4,000 shares at a price of $19.125 per share pursuant to the
formula established in the 1991 Option Plan. Upon adoption of the 1993 Stock
Option Plan, the following non-employee directors became entitled to and were
granted
27
<PAGE>
non-qualified stock options to purchase 50,000 shares each of the Company's
Common Stock at a purchase price of $26.875 each--Messrs. Baker, Bartholomay,
McKenna, Menell, Reich and Sheinfeld. Options granted under the 1993 Stock
Option Plan require that the Company's Common Stock attain a market price of
$35.00 per share prior to exercise.
Directors also are entitled to participate at the Company's expense in a
medical reimbursement plan which is supplementary to the primary medical
insurance maintained by such individual.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last fiscal year, Mr. William C. Bartholomay served as Chairman of
the Company's Compensation Committee and Mr. William E. McKenna served as the
sole additional member, neither of whom are employees or officers of the
Company or any of its subsidiaries or had any relationship requiring disclosure
herein by the Company.
EMPLOYMENT CONTRACTS
Mr. L. J. Nicastro is employed under the terms of an Amended and Restated
Employment Agreement dated October 27, 1994, which expires July 31, 1999,
subject to automatic one-year extensions thereafter unless notice has been
given six months prior to any termination date. The agreement provides for
salaried compensation at the rate of $682,500 per annum, or such greater amount
as may be determined by the Board of Directors. Upon Mr. Nicastro's retirement
date of July 31, 1999 ("Retirement Date"), or in the event Mr. Nicastro becomes
disabled, the Company is required to pay Mr. Nicastro until his death an annual
benefit equal to one-half of the aggregate annual base salary being paid to him
at the time of such occurrence, but in no event less than $341,250 per year
payable in monthly installments. Such benefit (to the extent not previously
vested) vests ratably during the period October 27, 1994 through July 31, 1999
(or such earlier date as Mr. Nicastro's employment may terminate by reason of
the Company's violation of the agreement or the occurrence of a change-in-
control of the Company). The vested amount of such retirement or disability
benefit is payable notwithstanding Mr. Nicastro's termination of employment for
any reason, provided, he is not in material breach of the terms of the
agreement and, upon his death, is payable to his designee or estate. Upon Mr.
Nicastro's death whether during the term of his employment or after his
Retirement Date, the Company shall pay in monthly installments to his designee
or estate for a period of fifteen years thereafter, an annual benefit equal to
one-half of the amount of the annual base salary paid to him on his date of
death if such death occurs during his employment or the amount of his
retirement benefit but no less than $341,250 per annum.
Mr. N. D. Nicastro is employed under the terms of a Second Amended and
Restated Employment Agreement dated October 12, 1993. The Agreement provides
for salaried compensation at the rate of $532,500 per annum, or such greater
amount as may be determined by the Board of Directors, bonus compensation of
two percent of the pre-tax income of the Company between the amounts of
$10,000,000 and $50,000,000 and $1,000,000 of life insurance coverage in
addition to the standard amount provided to Company employees. The agreement
expires December 31, 2000, subject to automatic extensions in order that the
term of Mr. Nicastro's employment shall at no time be less than three years.
Upon Mr. Nicastro's retirement or death and for a period of five years
thereafter, the Company is required to pay to Mr. Nicastro or his designee, or
if no designation is made, to his estate, for a period equal to the greater of
the balance of the remaining term of the agreement or five years, an annual
benefit equal to one-half of the annual base salary being paid to him on such
retirement or death, as the case may be, but in no event less than $266,250 per
year. Such benefits are payable notwithstanding Mr. Nicastro's termination of
employment for any reason.
The employment agreements of Messrs. L. J. Nicastro and N. D. Nicastro
provide for full participation by each executive in all benefit plans available
to senior executives and for reimbursement of all medical and dental expenses
incurred by each such officer or his spouse and, in the case of Mr. N. D.
Nicastro, incurred
28
<PAGE>
by his children under the age of twenty-one. Each agreement provides for full
compensation during periods of illness or incapacity; however, the Company may
give thirty-day notice of termination if such illness or incapacity disables
such officer from performing his duties for a period of more than six months.
Such termination notice becomes effective if full performance is not resumed
within thirty days of such notice and maintained for a period of two months
thereafter. Each of the employment agreements may be terminated at the election
of the officer upon the occurrence without his consent or acquiescence of any
one or more of the following events: (i) the placement of such officer in a
position of lesser stature or the assignment to such officer of duties,
performance requirements or working conditions significantly different from or
at variance with those presently in effect; (ii) the treatment of such officer
in a manner which is in derogation of his status as a senior executive; (iii)
the cessation of service of such officer as a member of the Board of Directors
of the Company; (iv) the discontinuance or reduction of amounts payable or
personal benefits available to such officer pursuant to such agreements; or (v)
such officer is required to work outside his agreed upon metropolitan area. In
any such event, and in the event the Company is deemed to have wrongfully
terminated such individual's employment agreement under the terms thereof, the
Company is obligated (a) to make a lump sum payment to such officer equal in
amount to the sum of the aggregate base salary during the remaining term of
such agreement (but in no event less than three times the highest base salary
payable to him during the one-year period prior to such event), the bonus
(assuming all objectives for payment had been met) and the retirement benefit
(assuming the date of termination were the Retirement Date and, in the case of
Mr. L.J. Nicastro, assuming the lump sum payment in respect of retirement
benefits is ten times his annual benefit) otherwise payable under the terms of
the employment agreement and (b) to purchase at the election of such officer
all stock options held by him with respect to the Company's Common Stock at a
price equal to the spread between the option price and the fair market price of
such stock as defined in the agreement. Each of the employment agreements may
also be terminated at the election of the officer if individuals who presently
constitute the Board of Directors, or successors approved by such Board
members, cease for any reason to constitute at least a majority of the Board.
Upon such an event, the Company may be required to purchase the stock options
held by such officers and make payments similar to those described above.
RETIREMENT PLANS
Under the Company's noncontributory pension plan for salaried employees of
the Company and its wholly-owned subsidiaries, the amount of monthly benefits
payable upon attainment of normal retirement age (assumed to be 65) are
computed as follows: $50.00 plus $7.50 per year of credited service to a
maximum of 30 years' credited service. Under this plan an employee's benefits
vest after five years of service. The estimated annual benefit payable upon
retirement to each officer listed in the Summary Compensation Table who is
entitled to such benefit, assuming continued employment and retirement at age
65, is as follows: Mr. L. J. Nicastro $1,786; Mr. N. D. Nicastro $1,500; Mr. H.
H. Bach, Jr. $690; and, for all executive officers as a group, $3,976. The plan
was amended effective September 1, 1990, to discontinue on that date the
acceptance of new participants in the plan and on December 31, 1991 to
discontinue the accrual of future benefits.
TREASURY SHARE BONUS PLAN
On April 19, 1993, the Board of Directors adopted a Treasury Share Bonus Plan
for key employees (the "Bonus Plan"). The shares of Common Stock allocated to
the Bonus Plan consist as of the close of the 1995 fiscal year of 56,312 shares
of the Company's Common Stock. Awards are made at no direct cost to the
employees selected by management for awards and vest on dates selected in the
discretion of management. Unvested portions of awards are forfeited upon the
termination of employment by award recipients for any reason other than death,
in which event, shares representing the remaining portion of any award are to
be issued to the executor or administrator of the employee's estate. During the
1995 fiscal year, no additional shares were awarded under the Bonus Plan.
29
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
VOTING PROXY AGREEMENT
In order for the Company to be permitted to manufacture and sell slot
machines in Nevada, the Company and certain of its subsidiaries and Mr. Louis
J. Nicastro and Mr. Neil D. Nicastro were required to be licensed or found
suitable and have been licensed or found suitable by the Nevada State Gaming
Control Board and the Nevada Gaming Commission (the "Nevada Gaming
Authorities"), as applicable, as a registered publicly traded corporation, as
registered holding companies, for licensure as a manufacturer and distributor
of gaming devices and as directors, officers and stockholders of such entities,
as applicable. Under applicable Nevada law and administrative procedure, as a
greater than 10% stockholder of the Company, Mr. Sumner M. Redstone ("SMR") was
required to apply and has an application pending with the Nevada Gaming
Authorities for a finding of suitability as a stockholder of the Company.
Pending completion of the processing of SMR's application, SMR and National
Amusements, Inc. ("NAI") have voluntarily granted to Mr. Louis J. Nicastro and,
if he is unable to perform his duties under the Proxy Agreement (as defined
herein), Mr. Neil D. Nicastro, individually, a voting proxy for all of the
shares of Common Stock which they own beneficially or of record.
On September 21, 1995, Mr. Louis J. Nicastro and Mr. Neil D. Nicastro entered
into a Voting Proxy Agreement (the "Proxy Agreement") with the Company, SMR and
NAI, pursuant to which Mr. Louis J. Nicastro and, if he is unable to perform
his duties under the Proxy Agreement, Mr. Neil D. Nicastro have been appointed,
individually, as proxy holder with full power of substitution during and for
the term of the voting proxy, to vote all shares of the Company's Common Stock
as the proxy of SMR and NAI at any annual, special or adjourned meeting of the
stockholders of the Company, including the right to execute consents,
certificates or other documents relating to the Company that the law of the
State of Delaware may permit or require on any and all matters which may be
presented to the stockholders of the Company. The term of the Proxy Agreement
is for 10 years commencing August 25, 1995, unless sooner terminated upon 30
days written notice. The Proxy Agreement will be deemed terminated as to any
subject matter that will be presented for approval, consent or ratification to
the stockholders of the Company if the Company fails to give SMR and NAI 45
days notice of such subject matter. The Proxy Agreement will also terminate if
SMR and NAI are found suitable as stockholders of the Company by the Nevada
Gaming Authorities or are no longer subject to the provisions of Nevada gaming
laws applicable to holders of more than 10% of the Company's Common Stock. The
Proxy Agreement is not applicable to any shares of the Company's Common Stock
sold or otherwise disposed of by SMR or NAI to any person who is not an
affiliate of SMR or NAI. SMR and NAI have agreed to give notice of any sale or
disposition to the Chairman of the Nevada State Gaming Control Board within 10
days after such sale or disposition. The Proxy Agreement was entered into to
assure that the passive investment position of SMR and NAI relative to the
Company will not change without prior notification to the Nevada Gaming
Authorities.
30
<PAGE>
The following table sets forth certain information as of August 31, 1995
(except as otherwise footnoted below) with respect to persons known to be the
beneficial owner of more than five percent of the Company's Common Stock.
Security ownership of management is set forth under the heading "Identification
of Directors" in Item 10(a) above as supplemented by footnote 9 below.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF
NAME AND ADDRESS OF BENEFICIAL PERCENTAGE OF OUTSTANDING
BENEFICIAL OWNER OWNERSHIP COMMON STOCK(1)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Sumner M. Redstone and 5,929,100 shares(2) 24.6%
National Amusements, Inc.
200 Elm Street
Dedham, MA 02026
---------------------------------------------------------------------------------------------------
Neil D. Nicastro 6,781,100(3) 27.2%
WMS Industries Inc.
3401 North California Avenue
Chicago, IL 60618
---------------------------------------------------------------------------------------------------
Louis J. Nicastro 6,433,732(4) 26.1%
WMS Industries Inc.
3401 North California Avenue
Chicago, IL 60618
---------------------------------------------------------------------------------------------------
The Capital Group Companies, Inc. 1,875,000(5) 7.78%
and Capital Research and Management Company
333 South Hope St.
Los Angeles, CA 90071
---------------------------------------------------------------------------------------------------
State of Wisconsin Investment Board 1,502,000(6) 6.23%
P.O. Box 7842
Madison, WI 53707
---------------------------------------------------------------------------------------------------
Directors and officers as a group (eleven persons) 7,927,390 shares(7) 30.5%(8)
</TABLE>
FOOTNOTES TO SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
TABLE:
(1) Each beneficial owner's percentage holdings have been calculated assuming
full exercise of stock options, if any, exercisable by such holder within
60 days of August 31, 1995.
(2) The number of shares reported is based upon information contained in
Amendment No. 18, dated October 8, 1993, to the Schedule 13D filed by Mr.
Sumner M. Redstone with the Securities and Exchange Commission and the
Proxy Agreement. Pursuant to such Schedule, Mr. Redstone and National
Amusements, Inc., a Maryland corporation, reported beneficial ownership of
and sole voting and investment power with respect to 3,033,800 and
2,895,300 shares, respectively, of the Common Stock and that Mr. Redstone
is the beneficial owner of 66 2/3% of the issued and outstanding shares of
the common stock of National Amusements, Inc. Pursuant to the Proxy
Agreement, Mr. Redstone transferred voting power with respect to the
5,929,100 shares of Common Stock which he beneficially owns to Messrs. L.J.
and N.D. Nicastro, see "Voting Proxy Agreement" above.
(3) The number of shares reported as beneficially owned includes 5,929,100
owned by Sumner M. Redstone and National Amusements, Inc. for which the
reporting person has shared voting power but no dispositive power.
Additionally, the number of shares reported as beneficially owned includes
852,000 shares for which the reporting person has sole voting and sole
dispositive power, 800,000 of which may be acquired pursuant to stock
options within 60 days of August 31, 1995, 500,000 of such options being
Target Price Options. For a discussion concerning the shared voting power
with respect to the 5,929,100 shares of Common Stock referred to above, see
"Voting Proxy Agreement" above.
(4) The number of shares reported as beneficially owned includes 5,929,100
owned by Sumner M. Redstone and National Amusements, Inc. for which the
reporting person has shared voting power but no
31
<PAGE>
dispositive power. Additionally, the number of shares reported as
beneficially owned includes 500,000 shares for which the reporting person
has sole voting and sole dispositive power, all of which may be acquired
pursuant to Target Price Options within 60 days of August 31, 1995. For a
discussion concerning the shared voting power with respect to the 5,929,100
shares of Common Stock referred to above, see "Voting Proxy Agreement"
above.
(5) The number of shares reported is based upon information contained in a
Schedule 13G dated February 8, 1995 filed with the Securities and Exchange
Commission by The Capital Group Companies, Inc. ("CGC"). Pursuant to such
Schedule 13G and accompanying documentation, CGC reported that Capital
Research and Management Company, an Investment Adviser registered under
Section 203 of the Investment Advisers Act of 1940, and Capital Guardian
Trust Company, a bank as defined in Section 3(a)(6) of the Securities
Exchange Act of 1934, wholly-owned subsidiaries of CGC, exercised as of
December 31, 1994, investment discretion with respect to 1,300,000 and
575,000 shares, respectively, or a combined total of 7.78% of the Company's
Common Stock which was owned by various institutional investors at that
time.
(6) The number of shares reported is based upon information contained in a
Schedule 13G dated February 13, 1995 filed with the Securities and Exchange
Commission by the State of Wisconsin Investment Brand ("SWIB"), a
governmental agency which manages public pension funds subject to
provisions comparable to ERISA. The SWIB reported it had sole voting and
dispositive power with respect to 1,502,000 shares of the Company's Common
Stock.
(7) Includes 1,899,000 shares of Common Stock which directors and executive
officers have the right to acquire upon the exercise of stock options
within 60 days of August 31, 1995, 1,550,000 of which are Target Price
Options. Additionally, includes 5,929,100 shares of Common Stock owned by
Sumner M. Redstone and National Amusements, Inc. with respect to which Mr.
Louis J. Nicastro and Mr. Neil D. Nicastro both have shared voting power
but no dispositive power. For a discussion concerning the shared voting
power with respect to the 5,929,100 shares of Common Stock referred to
above, see "Voting Proxy Agreement" above.
(8) For purposes of this calculation, the 5,929,100 shares of Common Stock
owned by Sumner M. Redstone and National Amusements, Inc. with respect to
which Mr. Louis J. Nicastro and Mr. Neil D. Nicastro have shared voting
power but no dispositive power have only been counted once. For a
discussion concerning the shared voting power with respect to the 5,929,100
shares of Common Stock referred to above, see "Voting Proxy Agreement"
above.
(9) As of August 31, 1995, Mr. Bach, Vice President--Finance and Treasurer and
Ms. Norman, Vice President and Secretary of the Corporation, were deemed to
own 77,000 and 90,000 shares, respectively, of the Company's Common Stock.
In each instance, 75,000 of such shares are held as stock options which
require that the Company's Common Stock attain a market price of $35.00 per
share prior to exercise. Each such holding represents less than 1% of the
outstanding shares of the Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CERTAIN BUSINESS RELATIONSHIPS
Mr. Ira S. Sheinfeld is a member of the law firm of Squadron, Ellenoff,
Plesent & Sheinfeld LLP which the Company has retained to provide tax services
during the last fiscal year and proposes to retain for such services during the
current fiscal year.
32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements of Registrant.
All financial statements of the Registrant required to be disclosed in this
Item 14(a)(1) appear in the Financial Statements in the 1995 Annual Report.
Such Financial Statements are incorporated by reference herein.
(2) Financial Statement Schedule of Registrant. See "Index to Financial
Information" on page F-1.
(3) Exhibits.
<TABLE>
<CAPTION>
<C> <S> <C>
*3(a) Amended and Restated Certificate of Incorporation of the
Registrant dated February 17, 1987; Certificate of Amend-
ment dated January 28, 1993; and Certificate of Correction
dated May 4, 1994, incorporated by reference to Exhibit
3(a) to the Registrant's Annual Report on Form 10-K for
the year ended June 30, 1994 (the "1994 10-K").
*3(b) By-Laws of the Registrant, as amended and restated through
December 16, 1986, incorporated by reference to Exhibit
3(b) to the 1994 10-K.
*4(a) Specimen of Common Stock certificate, incorporated by ref-
erence to Exhibit 4(a) to the 1994 10-K.
*4(b) Specimen 5 3/4% Convertible Subordinated Debenture Due
2002, incorporated by reference to Exhibit 4(b) to the
1994 10-K.
*4(c) Form of Indenture dated as of December 1, 1992 between the
Registrant and United States Trust Company of New York, as
Trustee, incorporated by reference to Exhibit 4(c) to the
1994 10-K.
*10(a) Amended and Restated Employment Agreement dated October
27, 1994 between the Registrant and Louis J. Nicastro, in-
corporated by reference to Exhibit (a) to Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1994.
*10(b) Second Amended and Restated Employment Agreement dated as
of October 12, 1993, between the Registrant and Neil D.
Nicastro, incorporated by reference to Exhibit (a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993.
*10(c) Second Amendment and Restatement of the Registrant's Pen-
sion Plan for Salaried Employees adopted June 24, 1986 and
Amendment Nos. 1 to 5 thereof, incorporated by reference
to Exhibit 10(c) to the 1994 10-K.
*10(d) Second Amended and Restated Williams Electronics Games,
Inc. Group Annuity Plan for Hourly Employees (effective as
of January 1, 1987), incorporated by reference to Exhibit
10(f) to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1988.
*10(e) 1982 Employee Stock Option Plan as amended, incorporated
by reference to Exhibit 10(e) to the 1994 10-K.
*10(f) 1991 Stock Option Plan as amended, incorporated by refer-
ence to Exhibit 10(f) to the 1994 10-K.
*10(g) 1993 Stock Option Plan, incorporated by reference to Ex-
hibit 10(g) to the 1994 10-K.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
*10(h) 1994 Stock Option Plan, incorporated by reference to Ap-
pendix A to the Registrant's Definitive Proxy Statement
dated December 12, 1994.
*10(i) Credit Agreement dated as of April 21, 1994 between WMS
Industries Inc. and Bank of America (formerly known as
Continental Bank N.A.), incorporated by reference to Ex-
hibit 10(h) to the 1994 10-K.
*10(j) Joint Venture Agreement ("Posadas JVA") dated July 26,
1984 between ESJ Hotel Corporation, Great American Indus-
tries, Inc., IHS Associates, Ltd., MILTK, Inc., Midwest
Property Corp. and MILTK Associates, as amended, incorpo-
rated by reference to Exhibit 10(i) to the 1994 10-K.
*10(k) Credit Agreement between Posadas de San Juan Associates
and the Bank of Nova Scotia dated January 20, 1993, with
respect to $34,000,000 refinancing, incorporated by refer-
ence to Exhibit 10(w) to Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993 (the
"1993 10-K").
*10(l) Form of Indemnity Agreement authorized to be entered into
between the Company and each officer and director approved
by the Board of Directors, incorporated by reference to
Exhibit 10(k) to the 1994 10-K.
*10(m) Operating Credit and Term Loan Agreement between Posadas
de Puerto Rico Associates, Incorporated and Scotiabank de
Puerto Rico dated August 30, 1988, as amended, with re-
spect to $35,500,000 financing, incorporated by reference
to Exhibit 10(l) to the 1994 10-K.
*10(n) WKA El Con Associates Joint Venture Agreement dated Janu-
ary 9, 1990, by and among WMS El Con Corp., International
Textile Products of Puerto Rico, Inc., KMA Associates of
Puerto Rico and Hospitality Investment Group, S.E., incor-
porated by reference to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1990.
*10(o) First and Second Amendments to the WKA El Con Associates
Joint Venture Agreement dated January 31, 1990 and January
18, 1991 incorporated by reference to Exhibit 10(gg) to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1991.
*10(p) WMS Industries Inc. 401(k) Retirement Savings Plan for
Non-Union Employees adopted January 1, 1992, incorporated
by reference to Exhibit 10(cc) to the Form 10-K for the
fiscal year ended June 30, 1992 (the "1992 10-K").
*10(q) Williams Innovative Technologies, Inc. 401(k) Retirement
Savings Plan (Union Employees) adopted January 1, 1992,
incorporated by reference to Exhibit 10(dd) to the 1992
10-K.
*10(r) WMS Industries Inc. Treasury Share Bonus Plan adopted
April 19, 1993, incorporated by reference to Exhibit
10(ee) to the 1993 10-K.
*10(s) Asset Purchase Agreement dated April 4, 1994 among
Tradewest, Inc., Tradewest International, Inc., Williams
Entertainment Inc., Leland P. Cook, Byron C. Cook and John
R. Rowe and WMS Industries Inc. and Asset Purchase Agree-
ment dated April 4, 1994 among the Leland Corporation,
Williams Entertainment Inc., Leland P. Cook, Byron C. Cook
and John R. Rowe and WMS Industries Inc., incorporated by
reference to Exhibits 2(a) and 2(b), respectively, to Reg-
istrant's Form 8-K Report filed May 7, 1994 and Amendment
No. 1 thereto filed July 14, 1994.
**10(t) Agreement and Plan of Merger dated as of June 21, 1995, as
amended July 27, 1995, by and between the Registrant and
Bally Gaming International, Inc.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
**10(u) Voting Proxy Agreement dated September 21, 1995 among
Louis J. Nicastro, Neil D. Nicastro, the Registrant, Sum-
ner M. Redstone and National Amusements, Inc.
**13 1995 Annual Report to Stockholders
**21 Subsidiaries of the Registrant
**23 Consent of Ernst & Young LLP
</TABLE>
--------
*Incorporated by reference
**Filed herewith
(b) Reports on Form 8-K.
None
35
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THE
19TH DAY OF SEPTEMBER, 1995.
WMS Industries Inc.
/s/ Louis J. Nicastro
By: _________________________________
(Louis J. Nicastro)
Chairman of the Board of
Directorsand Co-Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THIS REPORT HAS BEEN DULY SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Louis J. Nicastro Chairman of the Board of September 19, 1995
____________________________________ Directors and Co-Chief
(Louis J. Nicastro) Executive Officer
(Principal Executive
Officer)
/s/ Neil D. Nicastro President, Co-Chief September 19, 1995
____________________________________ Executive Officer, Chief
(Neil D. Nicastro) Operating Officer and
Director
/s/ Harold H. Bach, Jr. Vice President--Finance and September 19, 1995
____________________________________ Treasurer (Principal
(Harold H. Bach, Jr.) Financial and Principal
Accounting Officer)
/s/ Norman J. Menell Vice Chairman of the Board September 19, 1995
____________________________________ of Directors
(Norman J. Menell)
/s/ George R. Baker Director September 19, 1995
____________________________________
(George R. Baker)
/s/ William C. Bartholomay Director September 19, 1995
____________________________________
(William C. Bartholomay)
/s/ Kenneth J. Fedesna Director September 19, 1995
____________________________________
(Kenneth J. Fedesna)
/s/ William E. McKenna Director September 19, 1995
____________________________________
(William E. McKenna)
/s/ Harvey Reich Director September 19, 1995
____________________________________
(Harvey Reich)
/s/ Ira S. Sheinfeld Director September 19, 1995
____________________________________
(Ira S. Sheinfeld)
</TABLE>
36
<PAGE>
WMS INDUSTRIES INC.
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of independent auditors........................................ F-2
Consolidated balance sheets at June 30, 1995 and June 30, 1994........ *
Consolidated statements of income for the years ended June 30, 1995,
1994 and 1993........................................................ *
Consolidated statements of changes in stockholders' equity for the
years ended June 30, 1995, 1994 and 1993............................. *
Consolidated statements of cash flows for the years ended June 30,
1995, 1994 and 1993.................................................. *
Notes to consolidated financial statements............................ *
Financial statement schedule VIII--Valuation and qualifying accounts
for the years ended June 30, 1995, 1994 and 1993..................... F-3
</TABLE>
--------
* Incorporated by reference to the 1995 Annual Report filed as Exhibit 13 to
this Form 10-K
All other schedules are omitted since the required information is not present
in amounts sufficient to require submission of the schedule, or because the
information required is included in the consolidated financial statements and
notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
WMS Industries Inc.
We have audited the consolidated financial statements of WMS Industries Inc.
and subsidiaries listed in Item 14(a)(1) of the Annual Report on Form 10-K of
WMS Industries Inc. for the year ended June 30, 1995. Our audits also included
the financial statement schedule listed in the Index at Item 14(a)(2). These
financial statements and related schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and related schedule 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 and related
schedule 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
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of WMS Industries Inc. and subsidiaries at June 30, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Ernst & Young LLP
August 31, 1995
F-2
<PAGE>
SCHEDULE VIII
WMS INDUSTRIES INC.
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COLUMN C
COLUMN A COLUMN B ADDITIONS COLUMN D COLUMN E
-------- ----------- ---------------------- ----------- -----------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS- BALANCE AT
BEGINNING COSTS AND OTHER AMOUNTS END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WRITTEN OFF PERIOD
----------- ---------- ---------- ---------- ----------- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
Allowance for
receivables:
1995.................. $ 1,255,000 $5,135,000 $ -- $4,476,000 $ 1,914,000
=========== ========== =========== ========== ===========
1994.................. $ 1,373,000 $2,015,000 $ -- $2,133,000 $ 1,255,000
=========== ========== =========== ========== ===========
1993.................. $ 1,607,000 $1,523,000 $ -- $1,757,000 $ 1,373,000
=========== ========== =========== ========== ===========
Unrealized holding loss
on noncurrent
marketable equity
securities:
1995.................. $12,258,000 $ -- $(7,687,000) $ -- $ 4,571,000(1)
=========== ========== =========== ========== ===========
1994.................. $ -- $ -- $12,258,000 $ -- $12,258,000(1)
=========== ========== =========== ========== ===========
</TABLE>
--------
(1) Included as a direct reduction of stockholders' equity.
F-3
<PAGE>
EXHIBIT 10(t)
AGREEMENT AND PLAN OF MERGER
BETWEEN
WMS INDUSTRIES INC.,
AND
BALLY GAMING INTERNATIONAL, INC.
DATED AS OF JUNE 21, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
1.The Merger.............................................................. 1
1.1 The Merger.................................................... 1
1.2 Consummation of the Merger.................................... 2
1.3 Effective Time................................................ 2
1.4 Effect of the Merger.......................................... 2
1.5 Certificate of Incorporation; By-Laws......................... 2
1.6 Directors and Officers........................................ 2
1.7 Further Actions............................................... 2
2.Conversion and Exchange of Shares....................................... 2
2.1 Exchange Ratio................................................ 2
2.2 Exchange Procedures........................................... 3
2.3 Dividends and Distributions................................... 5
2.4 No Fractional Shares.......................................... 5
2.5 Adjustment of Exchange Ratio.................................. 5
2.6 Transfers Following the Effective Time........................ 6
3.Representations and Warranties of WMS................................... 6
4.Representations and Warranties of the Company........................... 11
5.Conduct of Business Pending the Merger.................................. 15
5.1 Conduct of Business by the Company Pending the Merger......... 15
5.2 Conduct of Business by WMS Pending the Merger................. 17
5.3 Notice of Breach.............................................. 18
6.Additional Agreements................................................... 18
Registration Statement; Proxy Statement; Auditors' Letters;
6.1 Other Matters................................................. 18
6.2 Alternative Proposals......................................... 19
6.3 Indemnification of Directors and Officers..................... 19
6.4 Regulatory Compliance......................................... 20
6.5 Reorganization................................................ 20
6.6 Environmental Audit........................................... 20
6.7 Arrangements with Certain Officers of the Company............. 20
7.Closing Conditions...................................................... 20
7.1 Conditions to Obligations of Each Party to Effect the Merger.. 20
7.1.1Effectiveness of the Registration Statement............... 21
7.1.2Stockholder Approval...................................... 21
7.1.3No Order.................................................. 21
7.1.4HSR Act................................................... 21
7.1.5Governmental Approvals.................................... 21
7.2 Additional Conditions to Obligations of WMS............... 21
7.2.1Representations and Warranties............................ 21
7.2.2Agreement and Covenants................................... 21
7.2.3Tax Opinion............................................... 21
7.2.4Fairness Opinion.......................................... 22
7.2.5Disposition of Bally Wulff................................ 22
7.2.6Arrangements with Certain Officers of the Company......... 22
7.2.7Debt Limitations.......................................... 22
7.2.8Environmental Conditions.................................. 23
7.2.9No Material Adverse Change to the Company................. 23
7.2.10Third Party Consents..................................... 23
7.2.11Gaming Regulatory Approval............................... 23
</TABLE>
(i)
<PAGE>
<TABLE>
<C> <S> <C>
7.3 Additional Conditions to Obligations of the Company........... 23
7.3.1Representations and Warranties............................ 23
7.3.2Agreements and Covenants.................................. 23
7.3.3Tax Opinion............................................... 23
7.3.4Fairness Opinion.......................................... 24
7.3.5No Material Adverse Change to WMS......................... 24
7.3.6Third Party Consents...................................... 24
7.3.7Gaming Regulatory Approval................................ 24
8.Termination; Effect of Termination...................................... 24
8.1 Right to Terminate............................................ 24
8.2 Certain Effects of Termination................................ 25
9.Miscellaneous........................................................... 25
9.1 Effectiveness of Representations, Warranties and Agreements... 25
9.2 Entire Agreement.............................................. 26
9.3 Notices....................................................... 26
9.4 No Waiver..................................................... 26
9.5 Governing Law................................................. 27
9.6 Expenses, Transfer Taxes; Certain Payments.................... 27
9.7 Assignment.................................................... 28
9.8 Binding Agreement............................................. 28
9.9 Headings...................................................... 28
9.10 Counterparts.................................................. 28
</TABLE>
(ii)
<PAGE>
DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
---- -----------------------------
<S> <C>
"Agreement"....................................... Page 1, first paragraph
"Alternative Proposal"............................ 6.2
"Bally Wulff"..................................... 7.2.5
"CERCLA".......................................... 3.15.2
"Certificate of Merger"........................... 1.3
"Certificates".................................... 2.2.2
"Code"............................................ Page 2, first Whereas clause
"Company"......................................... Page 1, first paragraph
"Company Common".................................. 2.1
"Company Disclosure Schedule"..................... 4
"Company ERISA Affiliate"......................... 4.12.3
"Company Option".................................. 2.1.3
"Company Options"................................. 2.1.3
"Company Plans"................................... 4.12.1
"Company Preferred"............................... 4.6
"Company's SEC Documents"......................... 4.8
"Company Stock Option Plans"...................... 2.1.3
"Company Stockholders"............................ Page 1, second Whereas clause
"Company Subsidiaries"............................ 4.1
"Company Subsidiary".............................. 4.1
"Company Warrant"................................. 2.1.3
"Company Warrants"................................ 2.1.3
"Delaware Law".................................... Page 1, first Whereas clause
"Effective Time".................................. 1.3
"Environmental Laws".............................. 3.15.2
"Environmental Permits"........................... 3.15.2
"ERISA"........................................... 3.11.1
"Exchange Act".................................... 3.4
"Exchange Agent".................................. 2.2.1
"Exchange Fund"................................... 2.2.1
"Exchange Ratio".................................. 2.1.2
"FTC"............................................. 6.4
"GAAP"............................................ 3.7
"Gaming Regulatory Authorities"................... 3.4
"Governmental Entity"............................. 3.4
"Hazardous Materials"............................. 3.15.2
"HSR Act"......................................... 3.4
"Indebtedness".................................... 5.1.3
"Material Adverse Effect"......................... 3.2, 4.2
"Material Contracts".............................. 3.17, 4.18
"Meeting"......................................... 6.1.1
"Merger Consideration"............................ 2.1.2
"Merger".......................................... Page 1, first Whereas clause
"Merger Subsidiary"............................... 1.1
"Minimum Proceeds"................................ 7.2.5
"NYSE"............................................ 2.4
"Proxy Statement--Prospectus"..................... 6.1.1
"Registration Statement".......................... 3.4
"Release"......................................... 3.15.2
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- ----------------------------
<S> <C>
"Return"........................................... 3.10.1
"Returns".......................................... 3.10.1
"SEC".............................................. 3.4
"Securities Act"................................... 3.4
"Subsidiary Merger"................................ 1.1
"Surviving Corporation"............................ 1.1
"Tax".............................................. 3.10.1
"Taxes"............................................ 3.10.1
"Warrant Agreements"............................... 2.1.3
"WMS".............................................. Page 1, first paragraph
"WMS Common"....................................... 2.1.2
"WMS Disclosure Schedule".......................... 3
"WMS ERISA Affiliate".............................. 3.11.3
"WMS Plans"........................................ 3.11.1
"WMS Preferred".................................... 3.6
"WMS Stockholders"................................. Page 1, third Whereas clause
"WMS Subsidiaries"................................. 3.1
"WMS Subsidiary"................................... 3.1
"WMS' SEC Documents"............................... 3.7
</TABLE>
(iv)
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger dated as of June 21, 1995 (this "Agreement"), as
amended July 27, 1995, by and between WMS Industries Inc., a Delaware
corporation ("WMS"), and Bally Gaming International, Inc., a Delaware
corporation (the "Company").
W I T N E S S E T H:
Whereas, upon the terms and subject to the conditions of this Agreement and
in accordance with the General Corporation Law of the State of Delaware
("Delaware Law"), the Company will be merged with and into WMS (the "Merger");
and
Whereas, Bally Gaming, Inc., a Nevada corporation and wholly-owned subsidiary
of the Company, will, as a result of the Merger, become a wholly-owned
subsidiary of the surviving corporation of the Merger; and
Whereas, the Board of Directors of the Company has determined that the Merger
is consistent with and in furtherance of the long-term business strategies of
the Company and is fair to, and in the best interest of, the Company and its
stockholders (the "Company Stockholders") and has approved and adopted this
Agreement and has approved the Merger and the other transactions contemplated
hereby and recommended approval and adoption of this Agreement and approval of
the Merger by the Company Stockholders; and
Whereas, the Board of Directors of WMS has determined that the Merger is
consistent with and in furtherance of the long-term business strategies of WMS
and is fair to, and in the best interest of, WMS and its stockholders (the "WMS
Stockholders") and has approved and adopted this Agreement and has approved the
Merger and the other transactions contemplated hereby and recommended approval
and adoption of this Agreement and approval of the Merger by the WMS
Stockholders; and
Whereas, for federal income tax purposes, it is intended that the Merger
qualify as a tax-free reorganization under the provisions of Section 368(a) of
the United States Internal Revenue Code of 1986, as amended (the "Code");
Now, Therefore, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
1. THE MERGER.
1.1 THE MERGER. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with Delaware Law, at the Effective Time (as
herein defined), the Company shall be merged with and into WMS, the separate
existence of the Company shall cease and WMS shall continue as the surviving
corporation of the Merger (the "Surviving Corporation"); provided that
immediately after the Effective Time the Company's wholly-owned subsidiary,
Bally Gaming, Inc., shall continue in existence as a wholly-owned subsidiary of
the Surviving Corporation. Notwithstanding the foregoing, if (i) the condition
set forth in Section 7.2.5 is waived by WMS or is satisfied by the Company by
means of a sale of all of the outstanding capital stock of the entities
comprising Bally Wulff (as herein defined) or (ii) the condition set forth in
Section 7.2.5 is satisfied by the Company by means of a distribution of Bally
Wulff to the Company Stockholders and the opinions required by Sections 7.2.3
and 7.3.3 can be rendered on the basis of a Subsidiary Merger (as herein
defined), then at the sole discretion of WMS the Merger may be effected by the
merger of a newly-formed wholly-owned subsidiary of WMS (the "Merger
Subsidiary") with and into the Company (the "Subsidiary Merger") which shall
continue as the Surviving Corporation. In such event, the Certificate of
Incorporation and By-Laws of the Company, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation and By-Laws of the
Surviving Corporation and the directors and officers of the Merger Subsidiary,
holding office immediately prior to the Effective Time, shall be the directors
and officers of the Surviving Corporation.
I-1
<PAGE>
1.2 CONSUMMATION OF THE MERGER. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Article 8 and subject to the satisfaction or waiver of the
conditions set forth in Article 7, the consummation of the Merger will take
place as promptly as practicable after the later of (i) the satisfaction or
waiver of the conditions set forth in Article 7 or (ii) January 31, 1996
(unless the restrictions set forth in Paragraph 7(a)(i) of the Agreement dated
January 8, 1993 by and between Bally Entertainment Corporation (formerly Bally
Manufacturing Corporation) and the Company shall not be applicable) at the
offices of Shack & Siegel, P.C., 530 Fifth Avenue, New York, New York, unless
another date, time and place is agreed to in writing by the parties hereto.
1.3 EFFECTIVE TIME. As promptly as practicable after the satisfaction or
waiver of the conditions set forth in Article 7, the parties hereto shall cause
the Merger to be consummated by filing a certificate of merger (the
"Certificate of Merger") with the Secretary of State of the State of Delaware
in such form as required by, and executed in accordance with the relevant
provisions of, Delaware Law (the date and time of such filing, or such later
date or time as set forth therein, being the "Effective Time").
1.4 EFFECT OF THE MERGER. At and after the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise provided herein, all the property, rights,
privileges, powers and franchises of the Company and WMS (or the Merger
Subsidiary, if applicable) shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and WMS (or the Merger Subsidiary,
if applicable) shall become the debts, liabilities and duties of the Surviving
Corporation.
1.5 CERTIFICATE OF INCORPORATION; BY-LAWS. At and after the Effective Time
except as otherwise provided in Section 1.1 hereof, the Certificate of
Incorporation and By-Laws of WMS, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation and By-Laws of the
Surviving Corporation.
1.6 DIRECTORS AND OFFICERS. At and after the Effective Time except as
otherwise provided in Section 1.1 hereof, the directors and officers of WMS
holding office immediately prior to the Effective Time shall be the directors
and officers of the Surviving Corporation, until their respective successors
shall have been duly elected or appointed and qualified or until their earlier
death, resignation or removal in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation.
1.7 FURTHER ACTIONS. At and after the Effective Time, the Surviving
Corporation shall take all action as shall be required in connection with the
Merger, including, but not limited to, the execution and delivery of any
further deeds, assignments, instruments or documentation as are necessary or
desirable to carry out the provisions of this Agreement.
2. CONVERSION AND EXCHANGE OF SHARES.
2.1 EXCHANGE RATIO. As of the Effective Time, by virtue of the Merger and
without any action on the part of any holder of any shares of common stock,
par value $.01 per share, of the Company (the "Company Common"):
2.1.1 All shares of Company Common which are held by the Company or any
subsidiary of the Company, and any shares of Company Common owned by WMS or
any subsidiary of WMS, shall be cancelled and retired and shall cease to
exist and no stock of WMS or other consideration shall be delivered in
exchange therefor.
2.1.2 Subject to the provisions of Sections 2.4, 2.5 and 7.2.5 hereof,
each share of Company Common issued and outstanding immediately prior to
the Effective Time shall be converted into the right to receive (together
with any dividends, and other distributions payable as provided in Section
2.3
I-2
<PAGE>
hereof) fifty-five one hundredths (0.55) of one share (the "Exchange
Ratio") of fully paid and nonassessable shares of common stock, par value
$.50 per share, of WMS (the "WMS Common") (the "Merger Consideration"). All
such shares of Company Common, when so converted, shall no longer be
outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the
right to receive the shares of WMS Common and any cash in lieu of
fractional shares as provided in Section 2.4 hereof, together with any
dividends and other distributions payable as provided in Section 2.3
hereof, all to be issued or paid in consideration for such certificate upon
the surrender thereof in accordance with Section 2.2 hereof.
2.1.3 All (i) options (individually, a "Company Option" and collectively,
the "Company Options") outstanding at the Effective Time under the Company
1991 Incentive Plan, the Company 1991 Non-Employee Directors' Option Plan,
the Company 1992 Restricted Stock Performance Plan and the Company 1994
Stock Option Plan for Non-Employee Directors (all as amended through the
Effective Time and collectively, the "Company Stock Option Plans") and (ii)
warrants (individually, a "Company Warrant" and collectively, the "Company
Warrants") to purchase Company Common listed on the Company Disclosure
Schedule (as herein defined) hereto issued pursuant to warrant agreements
(the "Warrant Agreements") shall remain outstanding following the Effective
Time for the remainder of their terms and in accordance with the terms of
the respective Company Stock Option Plans and Warrant Agreements; provided,
however, that (i) all Company Options subject to the provisions of Company
Stock Option Plans which shorten the exercise period by reason of the
Merger and (ii) all Company Options held by directors of the Company
regardless of any provision in any Company Option held by such director or
the Company Stock Option Plan pursuant to which such Company Option was
granted which may shorten the exercisability thereof as a result of such
person ceasing to be a director, officer or employee of the Company shall
be amended (which amendment shall be submitted for approval of the Company
Stockholders, if necessary) to the extent necessary to permit such Company
Options to remain exercisable for the lesser of (A) the original full
option period, or (B) three years from the Effective Time of the Merger. At
the Effective Time, such Company Options and Company Warrants (as amended
or adjusted as a result of the Merger in accordance with the applicable
Company Stock Option Plan or Warrant Agreement) shall, by virtue of the
Merger and without any further action on the part of Company or the holder
of any such Company Options and Company Warrants, become fully vested and
exercisable (to the extent not already fully vested and exercisable)
pursuant to (and only pursuant to) their terms and in accordance with the
terms of the respective Company Stock Option Plans and Warrant Agreements
and shall be assumed by WMS. From and after the Effective Time, each
Company Option and Company Warrant and any other options or warrants to
acquire Company Common listed on the Company Disclosure Schedule assumed by
WMS shall be exercisable (i) for that whole number of shares of WMS Common
(rounded up to the nearest whole share) into which the number of shares of
Company Common subject to such Company Option or Company Warrant
immediately prior to the Effective Time would be converted under this
Section 2.1 and (ii) at an option price or exercise price per share of WMS
Common equal to the option price or exercise price per share of the Company
Common subject to such Company Option or Company Warrant in effect
immediately prior to the Effective Time divided by the Exchange Ratio (the
option price or exercise price per share, as so determined, being rounded
upward to the nearest full cent). From and after the date of this
Agreement, no additional options shall be granted and no additional
warrants shall be issued by the Company or the Company Subsidiaries (as
herein defined) under the Company Stock Option Plans, Warrant Agreements or
otherwise.
2.2 EXCHANGE PROCEDURES.
2.2.1 Immediately prior to the Effective Time, WMS shall deposit with an
exchange agent (the "Exchange Agent") designated by WMS, which shall be
reasonably satisfactory to the Company, in trust for the Company Stockholders
of record, immediately prior to the Effective Time, certificates representing
the aggregate number of shares of WMS Common issuable pursuant to Section 2.1.2
hereof in exchange for the
I-3
<PAGE>
total outstanding shares of Company Common immediately prior to the Effective
Time. From time to time WMS shall make available to the Exchange Agent
sufficient cash to make all cash payments in lieu of fractional shares pursuant
to Section 2.4 hereof. All deposits with the Exchange Agent pursuant to this
Section 2.2 together with any dividends or distributions with respect to shares
of WMS Common as contemplated by Section 2.3 hereof are referred to as the
"Exchange Fund". The Exchange Fund shall not be used for any purpose except as
provided in this Agreement.
2.2.2 As soon as practicable after the Effective Time, WMS shall cause the
Exchange Agent to mail to each Company Stockholder a letter of transmittal and
instructions for use in effecting the surrender of certificates representing
shares of Company Common outstanding immediately prior to the Effective Time
(the "Certificates") in appropriate and customary form with such provisions as
the Company (prior to the Merger) and WMS may reasonably specify. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together
with such letter of transmittal, duly and properly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of WMS Common which such holder has a
right to receive pursuant to the provisions of this Article 2, together with
any dividends and other distributions payable as provided in Section 2.3
hereof, but subject to the payment of cash in lieu of fractional shares as
provided in Section 2.4 hereof, and the Certificate so surrendered shall be
cancelled. Until surrendered as contemplated by this Section 2.2, each
certificate shall, at and after the Effective Time, be deemed to represent only
the right to receive, upon surrender of such Certificate, the Merger
Consideration with respect to the shares of Company Common represented thereby,
together with any dividends and other distributions payable as provided in
Section 2.3 hereof, but subject to the payment of cash in lieu of fractional
shares as provided in Section 2.4 hereof. Shares of WMS Common issued in the
Merger shall be issued as of and be deemed to be outstanding as of the
Effective Time. WMS shall cause all such shares of WMS Common issued pursuant
to the Merger to be duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights.
2.2.3 If any certificate representing shares of WMS Common is to be issued in
a name other than that in which the Certificate surrendered in exchange
therefor is registered or any payment in lieu of fractional shares pursuant to
Section 2.4 hereof is to be paid other than to the registered holder of the
Certificate so surrendered, it shall be a condition of such exchange and/or
payment, as the case may be, that the Certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange and/or payment, as the case may be, shall pay any
transfer or other taxes required by reason of the issuance of certificates for
such shares of WMS Common, in a name other than that of, and/or payment to a
person other than, as the case may be, the registered holder of the Certificate
so surrendered.
2.2.4 In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and upon the posting by such person
of a bond in such amount as WMS may reasonably direct as indemnity against any
claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in respect of such lost, stolen or destroyed
Certificate the Merger Consideration with respect to the shares of Company
Common represented thereof (subject to the payment of cash in lieu of
fractional shares in accordance with Section 2.4 hereof) and such person shall
be entitled to the dividend and other distribution rights provided in Section
2.3 hereof.
2.2.5 Any portion of the Exchange Fund which remains unclaimed by the Company
Stockholders for two years after the Effective Time shall be delivered to WMS,
upon demand of WMS, and the Company Stockholders shall thereafter look only to
WMS for payment of their claims for the Merger Consideration in respect of
their shares of Company Common and cash in lieu of fractional shares (and
dividends or distributions with respect to WMS Common as contemplated by
Section 2.3 hereof). If any Certificates shall not have been surrendered prior
to two years after the Effective Time (or immediately prior to such earlier
date on which any payment in respect hereof would otherwise escheat or become
the property of any governmental unit or agency), the payment in respect of
such Certificates shall, to the extent permitted by
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applicable law, become the property of the Surviving Corporation, free and
clear of all claims or interest of any person previously entitled thereto.
Neither the Company nor WMS shall be liable to any Company Stockholder for any
such Merger Consideration or cash properly delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.2.6 WMS or the Exchange Agent shall be entitled to deduct and withhold from
the consideration otherwise payable pursuant to this Agreement to any holder of
a Certificate surrendered for the Merger Consideration (and dividends or
distributions with respect to WMS Common as contemplated by Section 2.3 hereof
and cash in lieu of fractional shares in accordance with Section 2.4 hereof)
such amount as WMS or the Exchange Agent is required to deduct and withhold
with respect to the making of such payment under the Code, or any provision of
any state, local or foreign tax law. To the extent that amounts are so deducted
and withheld, such amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of such Certificate.
2.3 DIVIDENDS AND DISTRIBUTIONS. No dividends or other distributions declared
or made with respect to WMS Common with a record date on or after the date of
the Effective Time will be paid to the holder of a Certificate entitled by
reason of the Merger to receive certificates representing WMS Common until such
holder surrenders such Certificate as provided in Section 2.2 hereof, provided
that there shall be paid forthwith by WMS to the person in whose name
certificates representing shares of WMS Common shall be issued pursuant to the
terms of this Article 2 (i) at the time of the surrender of such Certificate,
the amount of any dividends and other distributions theretofore paid with
respect to that number of whole shares of such WMS Common represented by such
surrendered Certificate pursuant to the terms of this Article 2, which
dividends or other distributions had a record date on or after the date of
Effective Time and a payment date prior to such surrender and (ii) at the
appropriate payment date, the amount of dividends and other distributions
payable with respect to that number of whole shares of WMS Common represented
by such surrendered Certificate pursuant to the terms of Article 2, which
dividends or other distributions have a record date on or after the date of
Effective Time and a payment date subsequent to such surrender.
2.4 NO FRACTIONAL SHARES.
2.4.1 Notwithstanding anything herein to the contrary, no certificates or
scrip evidencing fractional shares of WMS Common shall be issued upon the
surrender for exchange of Certificates, and such fractional share interests
will not entitle the owner thereof to vote or to any rights as a stockholder of
WMS. In lieu of any such fractional shares, each holder of Company Common upon
surrender of a Certificate for exchange pursuant to Section 2.2 hereof shall be
paid an amount in cash (without interest), rounded to the nearest cent,
determined by multiplying (i) the per share closing price on the New York Stock
Exchange (the "NYSE") of WMS Common on the date of the Effective Time (or, if
shares of WMS Common do not trade on the NYSE on such date, the first date of
trading of WMS Common on the NYSE after the Effective Time) by (ii) the
fractional interest of WMS Common to which such holder would otherwise be
entitled (after taking into account all shares of Company Common held of record
by such holder at the Effective Time), subject to the provisions of Section 2.2
hereof.
2.4.2 As soon as practicable after the determination of the amount of cash,
if any, to be paid to former holders of Company Common with respect to any
fractional share interests of WMS Common, the Exchange Agent shall promptly pay
such amounts to such former holders of Company Common subject to and in
accordance with the terms of this Section 2.4. WMS will make available to the
Exchange Agent the cash necessary for this purpose.
2.5 ADJUSTMENT OF EXCHANGE RATIO. In the event of any reclassification, stock
split (including reverse stock split), stock dividend or other general
distribution of securities, cash or other property with respect to WMS Common
(or if a record date with respect to any of the foregoing should occur) on or
after the date of this Agreement and on or prior to the date of the Effective
Time, appropriate and equitable adjustments, if any, shall be made to the
Exchange Ratio.
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2.6 TRANSFERS FOLLOWING THE EFFECTIVE TIME. The stock transfer books of the
Company shall be closed as of the Effective Time, and thereafter there shall be
no further registration of transfers of shares of Company Common that were
outstanding prior to the Effective Time.
3. REPRESENTATIONS AND WARRANTIES OF WMS. WMS represents and warrants to the
Company that, except as set forth in the schedule delivered to the Company
concurrently with the execution of this Agreement, which schedule shall
identify exceptions and other information by specific Section references and
shall be initialed by the Company and WMS for identification purposes (the "WMS
Disclosure Schedule"):
3.1 WMS is a corporation duly organized, validly existing and in good
standing under Delaware Law. The WMS Disclosure Schedule contains a list of the
name and jurisdiction of organization of each subsidiary of WMS (each such
corporation, partnership or other entity being referred to herein individually
as a "WMS Subsidiary" and collectively, as the "WMS Subsidiaries") and WMS'
ownership interest with respect thereto. Each WMS Subsidiary is a corporation
or partnership duly organized, validly existing and in good standing under the
laws of its place of incorporation.
3.2 WMS and each WMS Subsidiary (i) has all requisite corporate power and
authority to own, lease and operate its properties and carry on its business as
now being conducted and (ii) is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the nature
or location of its assets require such qualification and where the failure to
be so qualified and in good standing would have a Material Adverse Effect on
WMS. For purposes of this Agreement, "Material Adverse Effect" means, with
respect to WMS, a materially adverse effect on the business, results of
operation, financial condition, properties or assets of WMS and the WMS
Subsidiaries, taken as a whole.
3.3 WMS has all necessary corporate power and authority to enter into this
Agreement and, subject to approval and adoption of this Agreement by the
holders of a majority of the outstanding shares of WMS Common, to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by WMS and the performance by WMS, subject to approval and adoption
of this Agreement by the WMS Stockholders, of its obligations hereunder have
been duly authorized and approved by all requisite corporate action and no
other corporate proceedings on the part of WMS are necessary to authorize this
Agreement or for WMS to consummate the Merger. This Agreement has been duly
executed and delivered by duly authorized officers of WMS and constitutes a
valid and binding obligation of WMS, enforceable against WMS in accordance with
its terms.
3.4 No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality (each of the foregoing being a
"Governmental Entity"), is required by or with respect to WMS or any WMS
Subsidiary in connection with the execution and delivery of this Agreement by
WMS or the consummation by WMS of the transactions contemplated hereby, except
for (i) the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware and appropriate documents with the relevant authorities
of other states in which the Company is qualified to do business, (ii) notices
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), and the expiration (or earlier termination) of all applicable
waiting periods thereunder, (iii) consents of foreign governments having
jurisdiction (which consents are listed on the WMS Disclosure Schedule), (iv)
the filing with the Securities and Exchange Commission (the "SEC") of a
registration statement on Form S-4 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), covering all shares
of WMS Common to be issued pursuant to this Agreement, and the Proxy
Statement--Prospectus (as herein defined) under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), (v) the filings necessary to obtain all
state securities law or "Blue Sky" permits or approvals required to carry out
the transactions contemplated by this Agreement, and (vi) the licensing,
permitting, registration or other approval of, or a written consent or no
action letter from, each governmental authority or agency with regulatory
control or jurisdiction over the conduct of lawful gaming or gambling (the
"Gaming Regulatory Authorities") within each municipality, state, commonwealth,
Indian land, or foreign nation or subdivision thereof, wherein WMS or any WMS
Subsidiary conducts business on the date hereof (as set forth on the WMS
Disclosure Schedule) and as of the Effective Time.
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3.5 Neither the execution and delivery of this Agreement by WMS, nor the
consummation by WMS of the transactions contemplated hereby, will (i) conflict
with or result in a breach of any of the terms or provisions of WMS'
Certificate of Incorporation or By-Laws, (ii) violate any statute or
administrative regulation, or any order, writ, injunction, judgment or decree
of any court or governmental authority or any arbitration award to which WMS is
a party or by which WMS is bound, (iii) violate any terms or conditions imposed
on any license, permit, registration or other approval of any Gaming Regulatory
Authority, or (iv) violate, conflict with, breach, constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance required
by, or result in the creation of any lien or other encumbrance upon any of the
properties or assets of WMS or any WMS Subsidiary under, any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which WMS or any WMS Subsidiary is a party or to
which they or any of their respective properties or assets are subject, except
in the case of clauses (ii), (iii) or (iv) for which violations, conflicts,
breaches, defaults, terminations, accelerations or creations of liens or other
encumbrances that do not and will not, individually or in the aggregate, (x)
have a Material Adverse Effect on WMS or (y) materially impair the ability of
WMS to perform its obligations under this Agreement.
3.6 As of the date hereof, the authorized capital stock of WMS consists of
WMS Common and preferred stock, par value $.50 per share (the "WMS Preferred").
As of March 31, 1995, 60,000,000 shares of WMS Common were authorized,
24,104,800 shares of WMS Common were issued and outstanding and 60,812 shares
of WMS Common were issued but not outstanding and held in WMS' treasury. As of
March 31, 1995, 5,000,000 shares of WMS Preferred were authorized, none of
which were issued and outstanding. There are no other shares of capital stock
of WMS authorized, issued or outstanding. All of the issued and outstanding
shares of WMS Common have been duly authorized, validly issued and are fully
paid and nonassessable. Except as set forth on the WMS Disclosure Schedule,
there are no subscriptions, options, warrants, rights (including preemptive
rights), calls, convertible securities or other agreements or commitments of
any character relating to the issued or unissued capital stock or other
securities of WMS obligating WMS to issue any securities of any kind.
3.7 WMS has timely filed (and has delivered to the Company a true and
complete copy of) each report, schedule, registration statement and definitive
proxy statement required to be filed by WMS with the SEC since June 30, 1994
(such documents are referred to herein as "WMS' SEC Documents"). As of their
respective dates, WMS' SEC Documents comply in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the applicable rules and regulations of the SEC thereunder, and none of WMS'
SEC Documents, as of their respective dates, contain any 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 light of the circumstances under
which they were made, not misleading. The financial statements of WMS included
in WMS' SEC Documents comply, as of their respective dates, in all material
respects with all applicable accounting requirements and the published rules
and regulations of the SEC with respect thereof, have been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present
in all material respects the consolidated financial position of WMS as at the
dates thereof and the consolidated results of its operations, cash flows and
changes in financial position for the periods indicated therein.
3.8 Except as disclosed in WMS' SEC Documents filed prior to the date of this
Agreement and furnished to the Company, WMS and the WMS Subsidiaries do not
have any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) other than liabilities or obligations (i) which were
incurred after March 31, 1995 in the ordinary course of business or (ii) which
would not, individually or in the aggregate, have a Material Adverse Effect on
WMS.
3.9 Except as disclosed in WMS' SEC Documents filed prior to the date of this
Agreement and furnished to the Company, since March 31, 1995: (i) WMS has not
suffered or, to WMS' knowledge, been
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threatened with any change (other than changes generally affecting the
industries in which WMS or any WMS Subsidiary operates or changes relating to
the transactions contemplated by this Agreement) which could have a Material
Adverse Effect on WMS; and (ii) WMS and the WMS Subsidiaries have operated only
in the ordinary course of business consistent with past practice.
3.10
3.10.1 As used in this Agreement, the term (i) "Taxes" means all federal,
state, local, foreign and other income, sales, use, ad valorem, transfer,
franchise, withholding, payroll, employment, gross receipts, property,
severance, duties, net worth, excise or other taxes, charges, levies or like
assessments of any kind, together with any interest, penalties and additions
with respect thereto, and the term "Tax" means any one of the foregoing Taxes,
and (ii) "Returns" means all returns, declarations, reports, statements and
other documents required to be filed in respect of Taxes, and the term "Return"
means any one of the foregoing Returns.
3.10.2 There have been properly completed and filed on a timely basis all
Returns required to be filed by WMS or any WMS Subsidiary in each case where
the failure to properly complete or file any Return would have a Material
Adverse Effect on WMS. As of the time of filing, the foregoing Returns
correctly reflected the facts regarding the income, business, assets,
operations, activities, status or other matters of WMS or, as applicable, a WMS
Subsidiary or any other information required to be shown thereon, in each case
where the failure to do so would have a Material Adverse Effect on WMS.
3.10.3 With respect to all amounts in respect of Taxes imposed upon WMS or
any WMS Subsidiary, or for which WMS or any WMS Subsidiary is liable to taxing
authorities, with respect to all taxable periods or portions of periods ending
on or before the date hereof, all applicable Tax laws have been complied with
where the failure to comply with such laws would have a Material Adverse Effect
on WMS, and all amounts that are required to have been paid where the failure
to pay such amounts would have a Material Adverse Effect on WMS.
3.10.4 No issues have been raised or are currently pending by any tax
authority in connection with any of the Returns which, if resolved adversely to
WMS and the WMS Subsidiaries, would have a Material Adverse Effect on WMS.
There are no material outstanding waivers of the applicable statutes of
limitation with respect to Tax liabilities of WMS or any WMS Subsidiary.
3.10.5 WMS has not agreed to make, nor is it required to make, any adjustment
under Section 481(a) of the Code by reason of a change in accounting method or
otherwise.
3.10.6 The unpaid Taxes of WMS and the WMS Subsidiaries do not exceed the
reserve for tax liability (excluding any reserve for deferred Taxes) included
in the financial statements included in the Form 10-Q of WMS for the fiscal
quarter ended March 31, 1995 by an amount which would have a Material Adverse
Effect on WMS.
3.11
3.11.1 WMS and the WMS Subsidiaries maintain, administer or contribute to
only those employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not
excluded from coverage under specific Titles or Subtitles of ERISA), or
deferred compensation, severance, vacation, sick leave, fringe benefit, stock
purchase, stock option, stock-related plan, incentive, insurance or similar
contract, policy, arrangement or commitment, for the benefit of employees or
former employees of WMS and the WMS Subsidiaries which are described in the WMS
Disclosure Schedule (the "WMS Plans").
3.11.2 All WMS Plans comply with and are and have been operated in accordance
with each applicable provision of ERISA, the Code (including, without
limitation, the requirements of Code Section 401(a) to the extent any WMS Plan
is intended to conform to that Section, subject to any pending application to
the
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Internal Revenue Service for a "determination letter" to such effect), other
federal statutes, state law (including, without limitation, state insurance
law) and the regulations and rules promulgated pursuant thereto or in
connection therewith, except in any case where the failure to so comply or so
be operated would not have a Material Adverse Effect on WMS.
3.11.3 Neither WMS nor any trade or business, whether or not incorporated,
that together with WMS would be deemed a "single employer" within the meaning
of Section 4001 of ERISA (a "WMS ERISA Affiliate") has failed to make any
contributions or to pay any amounts due as required by the terms of any WMS
Plan or ERISA or any other applicable law other than such failures which would
not have a Material Adverse Effect on WMS. All contributions and payments with
respect to WMS Plans that are required to be made by WMS or any WMS ERISA
Affiliate have been made or will be accrued on the financial statements filed
with, or incorporated by reference in, WMS' SEC Documents with respect to the
periods covered therein.
3.11.4 Neither WMS nor any WMS ERISA Affiliate has incurred any liability to
the Pension Benefit Guaranty Corporation as a result of the voluntary or
involuntary termination of any pension plan subject to Title IV of ERISA (other
than liabilities paid in full); and neither WMS nor any WMS ERISA Affiliate has
made a complete or partial withdrawal from a multiemployer plan, as such term
is defined in Section 3(37) of ERISA, resulting in withdrawal liability, as
such term is defined in Section 4201 of ERISA (without regard to subsequent
reduction or waiver of such liability under either Section 4207 or 4208 of
ERISA) (other than liabilities paid in full).
3.12 Except as set forth on the WMS Disclosure Schedule, there is no
litigation or proceeding, in law or in equity, and there are no proceedings or
governmental investigations before any commission, authority, agency, Gaming
Regulatory Authority or other administrative authority, pending or, to WMS'
knowledge, threatened against WMS or any WMS Subsidiary with respect to or
affecting WMS' or any WMS Subsidiary's operations, business or financial
condition, including, but not limited to, any affecting its licenses, permits,
registration or other gaming approvals which have a reasonable probability of
being decided adversely to WMS or any WMS Subsidiary and which, if so decided
adversely, would have a Material Adverse Effect on WMS.
3.13 Neither WMS nor any WMS Subsidiary is a party to, or bound by, any
judgment, writ, injunction, decree, order or arbitration award (or agreement
entered into in any administrative, judicial or arbitration proceeding with any
Governmental Entity) with respect to or affecting the properties, assets,
personnel or business activities of WMS or any WMS Subsidiary, the enforcement
or operation of which or compliance with which would have a Material Adverse
Effect on WMS.
3.14 Except with respect to Environmental Laws (as defined and which are
addressed in Section 3.15 hereof), neither WMS nor any WMS Subsidiary is in
violation of, noncompliance with, or delinquent in respect to, any judgment,
writ, injunction, decree, order or arbitration award or law, statute, or
regulation of or agreement with, or any permit from, any Governmental Entity to
which the property, assets, personnel or business activities of WMS or any WMS
Subsidiary are subject, which violation, noncompliance or delinquency would
have a Material Adverse Effect on WMS.
3.15
3.15.1 Except for noncompliance or liabilities that would not have a Material
Adverse Effect on WMS, WMS, the WMS Subsidiaries and their respective assets
and business are in compliance with, and not otherwise subject to liability
under, any Environmental Laws (as herein defined) or any Environmental Permits
(as herein defined). Every written notice, citation, or complaint which WMS or
any WMS Subsidiary has received in the past five years of any alleged violation
of, or liability under, any Environmental Law or Environmental Permit has been
corrected where the failure to do so would have a Material Adverse Effect on
WMS. WMS and the WMS Subsidiaries possess all Environmental Permits which are
required by them for the operation of their business where the failure to do so
would have a Material Adverse Effect on WMS.
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3.15.2 For purposes of this Agreement (i) "Environmental Laws" means all
applicable federal, state, local and foreign statutes, regulations, ordinances,
rules, regulations, and all applicable court orders and decrees and arbitration
awards, which pertain to environmental matters or contamination of any type
whatsoever. "Environmental Laws" include, without limitation, those relating
to: manufacture, processing, use, distribution, treatment, storage, disposal,
generation or transportation of Hazardous Materials (as herein defined); air,
soil, surface or ground water or noise pollution; Releases (as herein defined);
protection of wildlife, endangered species, wetlands or natural resources;
above-ground and underground storage tanks, vessels and related equipment and
containers; health and safety of employees and other persons; the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601, et
seq., as amended and reauthorized ("CERCLA"); and notification requirements
relating to the foregoing; (ii) "Environmental Permits" means licenses,
permits, registrations, governmental approvals, agreements and consents which
are required under or are issued pursuant to Environmental Laws; (iii)
"Hazardous Materials" means pollutants, contaminants, pesticides, petroleum and
petroleum products, radioactive substances, solid wastes or hazardous or
extremely hazardous, special, dangerous or toxic wastes, substances, chemicals
or materials within the meaning of any Environmental Law, including, without
limitation, any (x) "hazardous substance" as defined in CERCLA, and (y) any
"hazardous waste" as defined in the Resource Conservation and Recovery Act, 42
U.S.C., 6902, et seq., as amended and reauthorized; and (iv) "Release" means
any spill, discharge, leak, emission, escape, injection, dumping, or other
release or threatened release of any Hazardous Materials into the environment,
whether or not notification or reporting to any governmental agency was or is,
required, including, without limitation, any release which is subject to
CERCLA.
3.16 Each of WMS and the WMS Subsidiaries owns, licenses or otherwise has the
right to use all patents, copyrights, trademarks, trade names and rights in
respect of the foregoing, adequate for the conduct of its business
substantially as now conducted without any known conflict with any rights of
others.
3.17 WMS has filed with the SEC, or disclosed on the WMS Disclosure Schedule
a list of and made available to the Company, true and complete copies of all
written contracts, agreements, commitments, arrangements, leases (including
with respect to personal property), and other instruments to which it or any
WMS Subsidiary is a party or by which it or any WMS Subsidiary is bound the
loss, default, breach or violation of which would have a Material Adverse
Effect on WMS ("Material Contracts") except for any contract, agreement,
commitment, arrangement, lease and other instrument which, subject to its terms
or otherwise, is required to be kept confidential. Except as set forth on the
WMS Disclosure Schedule, neither WMS nor any WMS Subsidiary is, or has received
any notice or has any knowledge that any other party is, in default in any
material respect under any such Material Contract and to WMS' knowledge there
has not occurred any event that with the lapse of time or the giving of notice
or both would constitute such a material default.
3.18 To the knowledge of WMS, neither WMS nor any WMS Subsidiary has taken
any action which would violate any requirement, including the continuity-of-
business-enterprise requirement of 26 C.F.R. 1.368-1(d), for tax-free
reorganization status under Section 368(a) of the Code with respect to the
Merger.
3.19 No broker, finder or investment banker (other than Oppenheimer & Co.,
Inc., whose financial advisory fee will be paid by WMS) is entitled to any
brokerage, finder's or other fee or commission in connection with the
transaction contemplated hereby based upon any arrangements made by or on
behalf of WMS.
3.20 Neither WMS nor any "affiliate" or "associate" (as defined in Section
203 of the Delaware Law) of WMS is an "interested stockholder" (as defined in
Section 203 of the Delaware Law) of the Company.
3.21 As of the date hereof, in those jurisdictions where a license, permit,
registration or other approval is required, WMS and each WMS Subsidiary is
authorized to conduct its gaming business by virtue of either (i) a valid
license, permit, registration or other approval, in good standing, or a written
consent or no action
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letter, issued by the Gaming Regulatory Authority within such jurisdiction; or
(ii) a valid temporary license, permit, registration or other approval granted
by the Gaming Regulatory Authority within such jurisdiction.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to WMS that, except as set forth in the schedule delivered to WMS
concurrently with the execution of this Agreement, which schedule shall
identify exceptions and other information by specific Section references and
shall be initialed by the Company and WMS for identification purposes (the
"Company Disclosure Schedule"):
4.1 The Company is a corporation duly organized, validly existing and in good
standing under Delaware Law. The Company Disclosure Schedule contains a list of
the name and jurisdiction of organization of each subsidiary of the Company
(each such corporation, partnership or other entity being referred to herein
individually as a "Company Subsidiary" and collectively, as the "Company
Subsidiaries") and the Company's ownership interest with respect thereto. Each
Company Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of its place of incorporation.
4.2 The Company and each Company Subsidiary (i) has all requisite corporate
power and authority to own, lease and operate its properties and to carry on
its business as now being conducted and (ii) is duly qualified and in good
standing in each jurisdiction in which the nature of its business or the nature
or location of its assets require such qualification and where the failure to
be so qualified and in good standing would have a Material Adverse Effect on
the Company. For purposes of this Agreement, "Material Adverse Effect" means,
with respect to the Company, a materially adverse effect on the business,
results of operation, financial condition, properties or assets of the Company
and the Company Subsidiaries, taken as a whole.
4.3 The Company has all necessary corporate power and authority to enter into
this Agreement and, subject to approval and adoption of this Agreement by the
holders of a majority of the outstanding shares of Company Common, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and, subject to approval and adoption of this
Agreement by the Company Stockholders, the performance by the Company of its
obligations hereunder have been duly authorized by all requisite corporate
action and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or for the Company to consummate the
Merger. This Agreement has been duly executed and delivered by duly authorized
officers of the Company and constitutes a valid and binding obligation of the
Company enforceable against it in accordance with its terms.
4.4 No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to the Company or any Company Subsidiary in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby, except for (i) the filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware and the filing of appropriate documents with the relevant authorities
of other states in which the Company is qualified to do business, (ii) notices
under the HSR Act and the expiration (or earlier termination) of all applicable
waiting periods thereunder, (iii) consents of foreign governments having
jurisdiction (which consents are listed on the Company Disclosure Schedule),
(iv) the filing with the SEC of the Proxy Statement--Prospectus, (v) the
filings necessary to obtain all state securities law or "Blue Sky" permits or
approvals required to carry out the transactions contemplated by this
Agreement, (vi) the licensing, permitting, registration or other approval of,
or a written consent or no action letter from any Gaming Regulatory Authorities
within each municipality, state, commonwealth, Indian land, or foreign nation
or subdivision thereof, wherein the Company or any Company Subsidiary conducts
business on the date hereof (as set forth on the Company Disclosure Schedule)
and as of the Effective Time.
4.5 Neither the execution and delivery of this Agreement by the Company, nor
the consummation by the Company of the transactions contemplated hereby, will
(i) conflict with or result in a breach of any of the terms or provisions of
the Company's Certificate of Incorporation or By-Laws, (ii) violate any statute
or administrative regulation, or any order, writ, injunction, judgment or
decree of any court or governmental authority or any arbitration award to which
the Company or any Company Subsidiary is a party or by which
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the Company or any Company Subsidiary is bound, (iii) violate the terms or
conditions imposed on any license, permit, registration or other approval of
any Gaming Regulatory Authority, or (iv) violate, conflict with, breach,
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in the creation of any lien
or other encumbrance upon any of the properties or assets of the Company or any
Company Subsidiary under, any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which the
Company or any Company Subsidiary is a party or to which they or any of their
respective properties or assets are subject, except in the case of clauses
(ii), (iii) or (iv) for such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens or other encumbrances that do
not and will not, individually or in the aggregate, (x) have a Material Adverse
Effect on the Company or (y) materially impair the Company's ability to perform
its obligations under this Agreement.
4.6 As of the date hereof, the authorized capital stock of the Company
consists of Company Common and preferred stock, par value $.01 per share (the
"Company Preferred"). As of June 21, 1995, 30,000,000 shares of Company Common
were authorized, 10,749,501 shares of Company Common were issued and
outstanding and no shares of Company Common were issued but not outstanding and
held in the treasury of the Company. As of June 21, 1995, 5,000,000 shares of
Company Preferred were authorized, none of which were issued and outstanding.
There are no other shares of capital stock of the Company authorized, issued or
outstanding. All of the issued and outstanding shares of Company Common have
been validly issued and are fully paid and nonassessable. Except as set forth
on the Company Disclosure Schedule, there are no outstanding subscriptions,
options, warrants, rights (including preemptive rights), calls, convertible
securities or other agreements or commitments of any character relating to the
issued or unissued capital stock or other securities of the Company obligating
the Company to issue any securities of any kind.
4.7 All of the outstanding shares of capital stock of, and all other
ownership interests in, each Company Subsidiary (i) are validly issued, fully
paid and nonassessable and free of any preemptive rights and (ii) other than as
set forth on the Company Disclosure Schedule, are owned of record and
beneficially by the Company, a Company Subsidiary or a nominee of the Company,
free and clear of all liens, claims, pledges, agreements, voting or other
restrictions, charges or other encumbrances. There are no outstanding
subscriptions, options, warrants, rights (including preemptive rights), calls,
convertible securities or other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities (other
than investment securities) of any Company Subsidiary obligating such Company
Subsidiary to issue any securities of any kind.
4.8 The Company has timely filed (and has delivered to WMS a true and
complete copy of) each report, schedule, registration statement and definitive
proxy statement required to be filed by the Company with the SEC since March
31, 1995 (such documents are referred to herein as the "Company's SEC
Documents"). As of their respective dates, the Company's SEC Documents comply
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the applicable rules and regulations of
the SEC thereunder, and none of the Company's SEC Documents, as of their
respective dates, contain any 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 light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the
Company's SEC Documents comply, as of their respective dates, in all material
respects with all applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP consistently applied (except as may be indicated in the
notes thereto or, in the case of unaudited statements, as permitted by Form 10-
Q of the SEC) and fairly present in all material respects the consolidated
financial position of the Company as at the dates thereof and the consolidated
results of its operations, cash flows and changes in financial position for the
periods indicated therein.
4.9 Except as disclosed in the Company's SEC Documents filed prior to the
date of this Agreement and furnished to WMS, the Company and the Company
Subsidiaries do not have any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) other than liabilities or
obligations (i)
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which were incurred after March 31, 1995 in the ordinary course of business or
(ii) which would not, individually or in the aggregate, have a Material Adverse
Effect on the Company.
4.10 Except as disclosed in the Company's SEC Documents filed prior to the
date of this Agreement and furnished to WMS, since March 31, 1995: (i) the
Company has not suffered or, to the Company's knowledge, been threatened with
any change (other than changes generally affecting the industries in which the
Company or any Company Subsidiary operates or changes relating to the
transactions contemplated by this Agreement) which could have a Material
Adverse Effect on the Company; and (ii) the Company and the Company
Subsidiaries have operated only in the ordinary course of business consistent
with past practice.
4.11
4.11.1 There have been properly completed and filed on a timely basis all
Returns required to be filed by the Company or any Company Subsidiary in each
case where the failure to properly complete or file any Return would have a
Material Adverse Effect on the Company. As of the time of filing, the foregoing
Returns correctly reflected the facts regarding the income, business, assets,
operations, activities, status or other matters of the Company or, as
applicable, a Company Subsidiary or any other information required to be shown
thereon, in each case where the failure to do so would have a Material Adverse
Effect on the Company.
4.11.2 With respect to all amounts in respect of Taxes imposed upon the
Company or any Company Subsidiary, or for which the Company or any Company
Subsidiary is liable to taxing authorities, with respect to all taxable periods
or portions of periods ending on or before the date hereof, all applicable Tax
laws have been complied with where the failure to comply with such laws would
have a Material Adverse Effect on the Company, and all amounts that are
required to have been paid by the Company to taxing authorities on or before
the date hereof have been paid where the failure to pay such amounts would have
a Material Adverse Effect on the Company.
4.11.3 No issues have been raised or are currently pending by any tax
authority in connection with any of the Returns which, if decided adversely to
the Company or any Company Subsidiary would have a Material Adverse Effect on
the Company. There are no material outstanding waivers of the applicable
statutes of limitation with respect to Tax liabilities of the Company or any
Company Subsidiary.
4.11.4 The Company has not agreed to make, nor is it required to make, any
adjustment under Section 481(a) of the Code by reason of a change in accounting
method or otherwise.
4.11.5 Neither the Company nor any Company Subsidiary is a party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
4.11.6 The unpaid Taxes of the Company and the Company Subsidiaries do not
exceed the reserve for tax liability (excluding any reserve for deferred Taxes)
included in the financial statements included in the Form 10-Q of the Company
for the fiscal quarter ended March 31, 1995 by an amount that would have a
Material Adverse Effect on the Company.
4.12
4.12.1 The Company and the Company Subsidiaries maintain, administer or
contribute to only those employee benefit plans (as defined in Section 3(3) of
ERISA, whether or not excluded from coverage under specific Titles or Subtitles
of ERISA), or deferred compensation, severance, vacation, sick leave, fringe
benefit, stock purchase, stock option, stock-related plan, incentive, insurance
or similar contract, policy, arrangement
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or commitment, for the benefit of employees or former employees of the Company
and the Company Subsidiaries which are described in the Company Disclosure
Schedule (the "Company Plans").
4.12.2 All Company Plans comply with and are and have been operated in
accordance with each applicable provision of ERISA, the Code (including,
without limitation, the requirements of Code Section 401(a) to the extent any
Company Plan is intended to conform to that Section, subject to any pending
application to the Internal Revenue Service for a "determination letter" to
such effect), other federal statutes, state law (including, without limitation,
state insurance law) and the regulations and rules promulgated pursuant thereto
or in connection therewith, except in any case where the failure to so comply
or so be operated would not have a Material Adverse Effect on the Company.
4.12.3 Neither the Company nor any trade or business, whether or not
incorporated, that together with the Company would be deemed a "single
employer" within the meaning of Section 4001 of ERISA (a "Company ERISA
Affiliate") has failed to make any contributions or to pay any amounts due as
required by the terms of any Company Plan or ERISA or any other applicable law
other than such failures which would not have a Material Adverse Effect on the
Company. All contributions and payments with respect to Company Plans that are
required to be made by the Company or any Company ERISA Affiliate have been
made or will be accrued on the financial statements filed with, or incorporated
by reference in, the Company's SEC Documents with respect to the periods
covered therein.
4.12.4 Neither the Company nor any Company ERISA Affiliate has incurred any
liability to the Pension Benefit Guaranty Corporation as a result of the
voluntary or involuntary termination of any pension plan subject to Title IV of
ERISA (other than liabilities paid in full); and neither the Company nor any
Company ERISA Affiliate has made a complete or partial withdrawal from a
multiemployer plan, as such term is defined in Section 3(37) of ERISA,
resulting in withdrawal liability, as such term is defined in Section 4201 of
ERISA (without regard to subsequent reduction or waiver of such liability under
either Section 4207 or 4208 of ERISA) (other than liabilities paid in full).
4.13 Except as set forth on the Company Disclosure Schedule, there is no
litigation or proceeding, in law or in equity, and there are no proceedings or
governmental investigations before any commission, authority, agency, Gaming
Regulatory Authority or other administrative authority, pending or, to the
Company's knowledge, threatened against the Company or any Company Subsidiary
with respect to or affecting the Company's or any Company Subsidiary's
operations, business or financial condition, including, but not limited to, any
affecting its licenses, permits, registration or other gaming approvals which
have a reasonable probability of being decided adversely to the Company or any
Company Subsidiary and which, if so decided adversely, would have a Material
Adverse Effect on the Company.
4.14 Neither the Company nor any Company Subsidiary is a party to, or bound
by, any judgment, writ, injunction, decree, order or arbitration award (or
agreement entered into in any administrative, judicial or arbitration
proceeding with any Governmental Entity) with respect to or affecting the
properties, assets, personnel or business activities of the Company or any
Company Subsidiary, the enforcement or operation of which or compliance with
which would have a Material Adverse Effect on the Company.
4.15 Except with respect to Environmental Laws (which are addressed in
Section 416 hereof), neither the Company nor any Company Subsidiary is in
violation of, noncompliance with, or delinquent in respect to, any judgment,
writ, injunction, decree, order or arbitration award or law, statute, or
regulation of or agreement with, or any permit from, any Governmental Entity,
to which the property, assets, personnel or business activities of the Company
or any Company Subsidiary are subject, which violation, noncompliance or
delinquency would have a Material Adverse Effect on the Company.
4.16 The Company, the Company Subsidiaries and their respective assets and
business are in compliance in all material respects with, and not otherwise
subject to liability under, any Environmental Laws or any Environmental
Permits. Every written notice, citation or complaint which the Company or any
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Company Subsidiary has received in the past five years of any alleged violation
of, or liability under, any Environmental Law or Environmental Permit has been
corrected in all material respects. The Company and the Company Subsidiaries
possess all Environmental Permits which are required by them for the operation
of their business where the failure to do so would have a Material Adverse
Effect on the Company.
4.17 Each of the Company and the Company Subsidiaries owns, licenses or
otherwise has the right to use all patents, copyrights, trademarks, trade names
and rights in respect of the foregoing, adequate for the conduct of its
business substantially as now conducted without any known conflict with any
rights of others.
4.18 The Company has filed with the SEC, or disclosed on the Company
Disclosure Schedule a list of and made available to WMS, (i) true and complete
copies of all written contracts, agreements, commitments, arrangements, leases
(including with respect to personal property), and other instruments to which
it or any Company Subsidiary is a party or by which it or any Company
Subsidiary is bound the loss, default, breach or violation of which would have
a Material Adverse Effect on the Company ("Material Contracts"). Except as set
forth on the Company Disclosure Schedule, neither the Company nor any Company
Subsidiary is, or has received any notice or has any knowledge that any other
party is, in default in any material respect under any such Material Contract
and to the Company's knowledge there has not occurred any event that with the
lapse of time or the giving of notice or both would constitute such a material
default.
4.19 To the knowledge of the Company, neither the Company nor any Company
Subsidiary has taken any action which would violate any requirement, including
the continuity-of-business-enterprise requirement of 26 C.F.R. 1.368-1(d), for
tax-free reorganization status under Section 368(a) of the Code with respect to
the Merger.
4.20 No broker, finder or investment banker (other than Ladenburg, Thalmann &
Co. Inc., whose brokerage, finder's or other fee will be paid by the Company)
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated hereby based upon arrangements made by or on
behalf of the Company. The Company has provided a true and correct copy of its
agreement with Ladenburg, Thalmann & Co. Inc. to WMS.
4.21 The Company has received the written opinion of Ladenburg, Thalmann &
Co. Inc. on the date of this Agreement, that the consideration to be received
in the Merger by the Company Stockholders is fair, from a financial point of
view, to the Company Stockholders. The Company has provided a true and correct
copy of such opinion to WMS.
4.22 Assuming the representation in Section 3.20 is accurate, as of the date
hereof and at all times on or prior to the Effective Time, Section 203 of the
Delaware Law is, and shall be, inapplicable to the Merger and the transactions
contemplated by this Agreement.
4.23 As of the date hereof, in those jurisdictions where a license, permit,
registration or other approval is required, the Company and each Company
Subsidiary is authorized to conduct its gaming business by virtue of either (i)
a valid license, permit, registration or other approval, in good standing, or a
written consent or no action letter, issued by the Gaming Regulatory Authority
within such jurisdiction; or (ii) a valid temporary license, permit,
registration or other approval granted by the Gaming Regulatory Authority
within such jurisdiction.
5. CONDUCT OF BUSINESS PENDING THE MERGER.
5.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. Prior to the
Effective Time, unless WMS shall otherwise agree in writing:
5.1.1 The Company shall, and shall cause the Company Subsidiaries to, use
their reasonable best efforts to carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, and shall, and shall cause the Company Subsidiaries to
use their reasonable best efforts to preserve intact their present business
organizations, maintain their current licenses and permits, keep available the
services of their present officers and key employees and preserve their
relationships with
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customers, suppliers and others having business dealings with them to the end
that their goodwill and on-going businesses shall be unimpaired at the
Effective Time, except such impairment as would not have a Material Adverse
Effect on the Company. The Company shall, and shall cause the Company
Subsidiaries to use their reasonable best efforts to, (i) maintain insurance
coverages and its books, accounts and records in the usual manner consistent
with prior practices; (ii) comply in all material respects with all laws,
ordinances and regulations of Governmental Entities applicable to the Company
and the Company Subsidiaries; (iii) maintain and keep its properties and
equipment in good repair, working order and condition, ordinary wear and tear
excepted; and (iv) perform in all material respects its obligations under all
contracts and commitments to which it is a party or by which it is bound;
5.1.2 Except as required or permitted by this Agreement, the Company shall
not and shall not propose to (i) sell or pledge or agree to sell or pledge any
capital stock owned by it in any Company Subsidiary, (ii) amend its Certificate
of Incorporation or By-Laws, (iii) split, combine or reclassify its outstanding
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of capital
stock of the Company, or declare, set aside or pay any dividend or other
distribution payable in cash, stock or property or (iv) directly or indirectly
redeem, purchase or otherwise acquire or agree to redeem, purchase or otherwise
acquire any shares of Company capital stock;
5.1.3 The Company shall not, nor shall it permit any Company Subsidiary to,
(i) except as required or permitted by this Agreement, issue, deliver or sell
or agree to issue, deliver or sell any additional shares of, or rights of any
kind to acquire any shares of, its capital stock of any class or incur any
liability in respect of (a) borrowed money, (b) capitalized lease obligations,
(c) deferred purchase price of property or services (other than trade payables
in the ordinary course) and (d) guarantees of any of the foregoing
("Indebtedness") (other than pursuant to existing lines of credit for use in
the ordinary course of business and consistent with past practices) or any
option, rights or warrants to acquire, or securities convertible into, shares
of capital stock other than issuances of Company Common disclosed in the
Company Disclosure Schedule; (ii) except as required or permitted by this
Agreement, acquire, lease or dispose or agree to acquire, lease or dispose of
any capital assets or any other assets other than in the ordinary course of
business; (iii) incur additional Indebtedness or encumber or grant a security
interest in any asset or enter into any other transaction other than in each
case in the ordinary course of business; (iv) acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity interest
in, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, except that the
Company may create new wholly-owned Subsidiaries in the ordinary course of
business; or (v) enter into any contract, agreement, commitment or arrangement
with respect to any of the foregoing;
5.1.4 Except as disclosed in the Company Disclosure Schedule, the Company
shall not, nor shall it permit, any Company Subsidiary to, except as permitted
by this Agreement or required to comply with applicable law or this Agreement
or pursuant to the terms of existing agreements that were not required to be
included in the Company Disclosure Schedule, (i) adopt, enter into, terminate
or amend any bonus, profit sharing, compensation, severance, termination, stock
option, pension, retirement, deferred compensation, employment or other Company
Plan, agreement, trust, fund or other arrangement for the benefit or welfare of
any director, officer or current or former employee, (ii) increase in any
manner the compensation or fringe benefit of any director or officer or of any
employee (except, with respect to employees, for normal increases in the
ordinary course of business that are consistent with past practice and that, in
the aggregate, do not result in a material increase in benefits or compensation
expense to the Company and any Company Subsidiary relative to the level in
effect prior to such amendment), (iii) pay any benefit not provided under any
existing plan or arrangement, (iv) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or Company Plan
(including, without limitation, the grant of stock options, stock appreciation
rights, stock based or stock related awards, performance units or restricted
stock, or the removal of existing restrictions in any benefit plans or
agreements or awards made thereunder), (v) take any action to fund or in any
other way secure the payment of compensation or benefits under any employee
plan, agreement, contract or arrangement or Company Plan other than in the
ordinary course of
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business consistent with past practice or (vi) adopt, enter into, amend or
terminate any contract, agreement, commitment or arrangement to do any of the
foregoing, provided, however, that nothing contained herein shall prevent the
Company or any Company Subsidiary from paying any bonus to or increasing the
compensation of any employee in accordance with the terms of any employment
agreement for such employee that was provided to WMS prior to the date hereof;
and
5.1.5 Between the date hereof and the Effective Time, (i) the Company shall
provide to WMS within 25 days after the end of each month, such financial
statements as are customarily prepared by the Company on a monthly basis; (ii)
the Company and each Company Subsidiary shall consult with WMS on a regular
basis with respect to all operating decisions which could be expected to result
in a material change in the business of the Company or any Company Subsidiary
as presently operated or which are not in the ordinary course of business;
(iii) the Company and each Company Subsidiary shall permit representatives of
WMS to have full and unrestricted access to such information, documents,
facilities and personnel as WMS may from time to time request; (iv) the Company
shall use its reasonable efforts to sell all of the outstanding capital stock
of the entities comprising Bally Wulff and, if the net proceeds of any
transaction proposed by a prospective purchaser would satisfy the condition set
forth in Section 7.2.5, the Company shall complete such sale rather than
effecting the distribution of Bally Wulff to the Company Stockholders; and (v)
the Company shall keep WMS informed of the status of negotiations with respect
to the sale of Bally Wulff and provide WMS with copies of all documents and
drafts of documents in connection therewith and a reasonable opportunity to
participate in the negotiations.
5.2 CONDUCT OF BUSINESS BY WMS PENDING THE MERGER. Prior to the Effective
Time, unless the Company shall otherwise agree in writing except as otherwise
required by this Agreement:
5.2.1 WMS shall, and shall cause the WMS Subsidiaries to, use their
reasonable best efforts to preserve their relationships with customers,
suppliers and others having business dealings with them and maintain their
current licenses and permits to the end that their goodwill and on-going
businesses shall be unimpaired at the Effective Time, except such impairment as
would not have a Material Adverse Effect on WMS. WMS shall, and shall cause the
WMS Subsidiaries to use their reasonable best efforts to (i) maintain insurance
coverage and its books, accounts and records in the usual manner consistent
with prior practices; (ii) comply in all material respects with all laws,
ordinances and regulations of Governmental Entities applicable to WMS and the
WMS Subsidiaries; (iii) maintain and keep its properties and equipment in good
repair, working order and condition, ordinary wear and tear expected; and (iv)
perform in all material respects its obligations under all contracts and
commitments to which it is a party or by which it is bound, in each case other
than where the failure to so maintain, comply or perform, either individually
or in the aggregate, would result in a Material Adverse Effect on WMS;
5.2.2 WMS shall not amend any of the material terms or provisions of the WMS
Common;
5.2.3 WMS shall not take any action that would result in the failure to
maintain the trading of WMS Common on the NYSE; and
5.2.4 WMS shall not declare or pay any dividend or distribution on any
outstanding shares of its capital stock.
5.2.5 Between the date hereof and the Effective Time, (i) WMS shall provide
to the Company within 25 days after the end of each month (other than June
which need not be provided until completion of review by WMS' auditors and
audit committee), such financial statements as are customarily prepared by WMS
on a monthly basis; (ii) WMS and each WMS Subsidiary shall promptly advise the
Company of developments which could be expected to result in a material change
in the business of WMS or any WMS Subsidiary as presently operated; and (iii)
subject to WMS' contractual obligations to maintain confidentiality of certain
agreements to which WMS or any WMS Subsidiary is a party, WMS and each WMS
Subsidiary shall permit representatives of the Company to have access to such
information, documents, facilities and personnel as the Company may from time
to time request.
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5.3 NOTICE OF BREACH. Each party shall promptly give written notice to the
other party upon becoming aware of the occurrence or, to its knowledge,
impending or threatened occurrence, of any event which would cause or
constitute a breach of any of its representations, warranties or covenants
contained or referenced in this Agreement and will use all reasonable efforts
to prevent or promptly remedy the same. Any such notification shall not be
deemed an amendment of the Company Disclosure Schedule or the WMS Disclosure
Schedule.
6. ADDITIONAL AGREEMENTS.
6.1 REGISTRATION STATEMENT; PROXY STATEMENT; AUDITORS' LETTERS; OTHER
MATTERS.
6.1.1 As promptly as practicable after the execution of this Agreement, WMS
and the Company shall cooperate and promptly prepare and file with the SEC a
joint proxy statement (the "Proxy Statement--Prospectus") with respect to the
joint special meeting (the "Meeting") in connection with the Merger. At an
appropriate time mutually determined by WMS and the Company prior to the
clearance of the Proxy Statement--Prospectus, WMS and the Company shall
cooperate and promptly prepare and WMS shall file with the SEC the Registration
Statement, with respect to the WMS Common issuable in the Merger (and with
respect to the outstanding Company Options or Company Warrants or any similar
executive compensation awards, following the Merger), in which Registration
Statement the Proxy Statement--Prospectus shall be included as a prospectus
with respect to such shares of WMS Common. The respective parties shall cause
the Proxy Statement--Prospectus and the Registration Statement to comply as to
form in all material respects with the applicable provisions of the Securities
Act, the Exchange Act and the rules and regulations thereunder. WMS shall use
all reasonable efforts, and the Company will reasonably cooperate with WMS, to
have the Registration Statement declared effective by the SEC as promptly as
practicable. WMS shall use its best efforts to obtain, prior to the effective
date of the Registration Statement, all necessary state securities law or "Blue
Sky" permits or approvals required to carry out the transactions contemplated
by this Agreement and will pay all expenses incident thereto. WMS and the
Company each agree that the Proxy Statement--Prospectus and each amendment or
supplement thereto at the time of mailing thereof and at the time of the
Meeting, or, in the case of the Registration Statement and each amendment or
supplement thereto, at the time it is filed or becomes effective, shall not
include 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
light of the circumstances under which they were made, not misleading. The
Company agrees that the written information concerning the Company provided by
it for inclusion in the Proxy Statement--Prospectus and each amendment or
supplement thereto, at the time of mailing thereof and at the time of the
Meeting, or, in the case of written information concerning the Company provided
by the Company for inclusion in the Registration Statement or any amendment or
supplement thereto, at the time it is filed or becomes effective, shall not
include 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
light of the circumstances under which they were made, not misleading. WMS
agrees that the written information concerning WMS provided by it for inclusion
in the Proxy Statement--Prospectus and each amendment or supplement thereto, at
the time of mailing thereof and at the time of the Meeting, shall not include
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
light of the circumstances under which they were made, not misleading. Except
as otherwise required by law, no amendment or supplement to the Proxy
Statement--Prospectus shall be made by WMS or the Company without the approval
of the other party. WMS shall advise the Company and the Company shall advise
WMS, as applicable, promptly after it receives notice thereof, of the time when
the Registration Statement shall become effective or any supplement or
amendment has been filed, the issuance of any stop order, the suspension of the
qualification of the WMS Common issuable in connection with the Merger for
offering or sale in any jurisdiction, or any request by the SEC for amendment
of the Proxy Statement--Prospectus or the Registration Statement or comments
thereon and responses thereto or requests by the SEC for additional
information.
6.1.2 The Company shall use its reasonable best efforts to cause to be
delivered to WMS a letter of Coopers & Lybrand L.L.P., the Company's
independent auditors, dated a date within two business days
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before the date on which the Registration Statement shall become effective and
addressed to the Company, customary in form, scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement.
6.1.3 WMS shall use its reasonable best efforts to cause to be delivered to
the Company a letter of Ernst & Young LLP, WMS' independent auditors, dated a
date within two business days before the date on which the Registration
Statement shall become effective and addressed to WMS, customary in form, scope
and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
6.1.4 WMS shall use its best efforts to have authorized, as soon as
practicable, for listing on the NYSE, upon official notice of issuance, the
shares of WMS Common to be issued in the Merger (or with respect to the
outstanding Company Options or Company Warrants or any similar executive
compensation awards, following the Merger).
6.2 ALTERNATIVE PROPOSALS. Subject to the proviso of this Section 6.2, prior
to the Effective Time, the Company agrees that (i) neither it nor any of the
Company Subsidiaries shall, and it shall use reasonable efforts to cause its
officers, directors, employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or any
of the Company Subsidiaries) not to, initiate, solicit or encourage, directly
or indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its
stockholders) with respect to a merger, acquisition, consolidation or similar
transaction (other than a transaction contemplated and permitted pursuant to
Section 7.2.5 hereof) involving, or any purchase of all or any significant
portion of the assets or any equity securities of, the Company or any Company
Subsidiary (any such proposal or offer being hereinafter referred to as an
"Alternative Proposal") or engage in any negotiations or enter into any
agreement concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Alternative Proposal, or
otherwise facilitate any effort or attempt to make or implement an Alternative
Proposal, (ii) it shall immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing, and it shall take the
necessary steps to inform the individuals or entities referred to above of the
obligations undertaken in this Section 6.2 and (iii) it shall notify WMS as
promptly as practicable if any such inquiries or proposals are received by, any
such information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it; provided, however, that nothing
contained in this Section 6.2 shall prohibit the Board of Directors of the
Company from (a) after notice to WMS, furnishing information to, or entering
into negotiations or discussions with, any person or entity that makes an
unsolicited bona fide Alternative Proposal if the Board of Directors of the
Company determines in good faith, after consultation with counsel, that the
failure to do so could reasonably be deemed a breach of its fiduciary duties
under applicable law, (b) failing to make, withdrawing, modifying or changing
the recommendation referred to the Company Stockholders, the approval and
adoption of this Agreement if the Board of Directors of the Company determines
in good faith, after consultation with counsel, that making such
recommendation, or the failure to withdraw, modify or change such
recommendation, could reasonably be deemed a breach of its fiduciary duties
under applicable law, (c) recommending to the Company Stockholders an
Alternative Proposal that the Board of Directors of the Company determines in
good faith, after consultation with its financial advisor, is likely to be more
favorable, from a financial point of view, to the Company Stockholders, than
the Merger or (d) to the extent applicable, complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Alternative Proposal.
6.3 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The provisions of the
Certificate of Incorporation of the Surviving Corporation with respect to
indemnification on the date of this Agreement, shall not be amended, repealed
or otherwise modified for a period six years after the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who at
the Effective Time were directors or officers of the Company in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by this Agreement), unless
such modification is required
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by law. Without limiting the obligations under the previous sentence, for a
period of six years after the Effective Time, the Surviving Corporation will
maintain in effect insurance policies, covering the directors and officers of
the Company immediately prior to the Effective Time, for claims made within
such six year period with respect to directors' and officers' liability for
activities taken or not taken on or prior to the Effective Time, such policies
to be comparable in all material respects (including dollar amount and scope of
coverage) to the policies presently maintained by the Company for such purpose.
6.4 REGULATORY COMPLIANCE. The Company and WMS will use their respective best
efforts to comply promptly with all requirements which federal or state law may
impose on them with respect to the Merger. The Company and WMS shall, as soon
as practicable, file Notification and Report Forms under the HSR Act with the
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") and shall use their best
efforts to respond as promptly as practicable to all inquiries received from
the FTC or the Antitrust Division for additional information or documentation.
The Company and WMS will take all such action as may be necessary under the
federal securities laws applicable to or necessary for, and will file and, if
appropriate, use their best efforts to have declared effective or approved, all
documents and notifications with the SEC and other governmental or regulatory
bodies which they deem necessary or appropriate for the consummation of the
Merger and the transactions contemplated hereby, and each party shall give the
other information reasonably requested by such other party pertaining to it and
its subsidiaries and affiliates to enable such other party to take such
actions. The Company and WMS will take all such action as may be necessary
under gaming laws and regulations applicable to or necessary for the
consummation of the Merger and the transactions contemplated hereby and will,
as soon as practicable, file or cause to be filed with all Governmental
Entities having jurisdiction over the gaming activities of the Company, Company
Subsidiaries, WMS and WMS Subsidiaries, on behalf of such entities or
individuals as required, such applications, disclosure statements, documents
and other submissions for approval, qualification or consent as may be required
in connection therewith. No party hereto will intentionally take, or omit to
take, any action, which action or omission will have the effect of delaying,
impairing or impeding the receipt of any required consent, authorization, order
or approval or the making of any required filing or registration. The Company
and WMS shall file in a timely manner all reports and documents required to be
so filed by or under the Exchange Act.
6.5 REORGANIZATION. From and after the date hereof and until the Effective
Time, neither WMS nor the Company shall knowingly take any action, or knowingly
fail to take any action, that would be reasonably likely to jeopardize
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
6.6 ENVIRONMENTAL AUDIT. Unless WMS shall have waived the condition set forth
in Section 7.2.8 hereof, within 30 days after the date hereof, WMS shall at its
expense cause an environmental audit firm of recognized standing to commence a
Phase I assessment of all the real property owned or occupied by the Company or
any Company Subsidiary as set forth on the Company Disclosure Schedule and to
conclude the same within 60 days of the date hereof. No sampling of soil or
ground water shall be undertaken as part of any audit unless the same is
consented to, in writing, by the Company, such consent not to be unreasonably
withheld. WMS shall promptly provide the Company with a copy of such report.
6.7 ARRANGEMENTS WITH CERTAIN OFFICERS OF THE COMPANY. WMS shall be bound by
all employment agreements and related plans currently in effect for officers,
directors and employees of the Company, including provisions of those
agreements and plans relating to stock options, performance units, stock
payment rights, restricted stock and/or change of control. Prior to the
Effective Time, the Company may enter into amendments to such agreements and
plans with each of Richard Gillman, Hans Kloss and Neil Jenkins in form and
content reasonably satisfactory to WMS and such individuals.
7. CLOSING CONDITIONS.
7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger and the other
transactions contemplated herein shall be subject to the satisfaction
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at or prior to the Effective Time of the following conditions, any or all of
which may be waived, in whole or in part, to the extent permitted by applicable
law:
7.1.1 EFFECTIVENESS OF THE REGISTRATION STATEMENT. The Registration Statement
shall have been declared effective by the SEC under the Securities Act. No stop
order suspending the effectiveness of the Registration Statement shall have
been issued by the SEC and no proceedings for that purpose shall have been
initiated or, to the knowledge of WMS or the Company, threatened by the SEC.
7.1.2 STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the Company Stockholders, and
shall have been approved and adopted by the requisite vote of the WMS
Stockholders.
7.1.3 NO ORDER. No Governmental Entity or federal or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is in effect and which
materially restricts, prevents or prohibits consummation of the Merger or any
transaction contemplated by this Agreement; provided, however, that the parties
shall use their reasonable best efforts to cause any such decree, judgment,
injunction or other order to be vacated or lifted.
7.1.4 HSR ACT. The applicable waiting period under the HSR Act shall have
expired or been terminated.
7.1.5 GOVERNMENTAL APPROVALS. Other than the filing of Certificate of Merger
in accordance with Delaware Law, all licenses, permits, registrations,
authorizations, consents, waivers, orders or other approvals required to be
obtained, and all filings, notices or declarations required to be made, by WMS
or any WMS Subsidiary, and the Company or any Company Subsidiary, in order to
consummate the Merger and the transactions contemplated hereunder shall have
been obtained from, and made with, all required Governmental Entities, without
any material condition thereto.
7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF WMS. The obligations of WMS to
effect the Merger and the transactions contemplated herein are also subject to
the following conditions:
7.2.1 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Company contained in this Agreement shall be true and correct
as of the Effective Time as though made on and as of the Effective Time, except
(i) for changes specifically permitted by this Agreement and (ii) that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date. WMS shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of the
Company to the foregoing effect.
7.2.2 AGREEMENT AND COVENANTS. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time. WMS shall have received a certificate of the Chief Executive Officer and
Chief Financial Officer of the Company to the foregoing effect.
7.2.3 TAX OPINION. WMS shall have received the opinion of Squadron, Ellenoff,
Plesent, Sheinfeld & Sorkin LLP, to be delivered at the Effective Time, to the
effect that the Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the Code,
which opinion shall not have been withdrawn or modified in any material
respect. The issuance of such opinion shall be conditioned on the receipt of
representation letters from each of WMS and the Company. The specific
provisions of each such representation letter shall be in form and substance
satisfactory to Squadron, Ellenoff, Plesent, Sheinfeld & Sorkin LLP and
Shereff, Friedman, Hoffman & Goodman, LLP, and each such representation letter
shall be dated on or before the date of such opinion and shall not have been
withdrawn or modified in any material respect.
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7.2.4 FAIRNESS OPINION. Oppenheimer & Co. Inc. shall have provided to the
Board of Directors of WMS (i) as of a date not more than five days before the
date on the Proxy Statement--Prospectus is first mailed to stockholders of WMS
and (ii) as of a date not more than five days prior to the Effective Time,
their written opinion that the Merger is fair to the stockholders of WMS from a
financial point of view.
7.2.5 DISPOSITION OF BALLY WULFF. Prior to or contemporaneously with the
Effective Time, the Company shall have completed the sale or other disposition
of Bally Wulff Automaten GmbH and Bally Wulff Vertriebs GmbH and all other
entities relating to the Company's operations in Germany, but not including
Bally Gaming International GmbH Hannover (collectively "Bally Wulff"), either
by means of a sale of all of the outstanding capital stock of the entities
comprising Bally Wulff or a distribution of Bally Wulff to the Company
Stockholders. A sale of Bally Wulff shall be deemed to satisfy the condition
set forth in this Section 7.2.5 only if it results in the Company receiving net
proceeds, after taxes and transaction expenses, of at least Fifty Five Million
($55,000,000) Dollars (the "Minimum Proceeds") and if the Company has no
liabilities, contingent or otherwise, resulting from such sale, by reason of
representations and warranties or otherwise, except to the extent of the net
proceeds of the sale of Bally Wulff in excess of the Minimum Proceeds and
except that the Company may make representations with respect to ownership, due
organization and authority to enter into such transaction. If the Company at or
prior to the Effective Time completes a sale of Bally Wulff that satisfies the
condition set forth in this Section 7.2.5, the Company may declare a
distribution payable to holders of Company Common at the Effective Time in an
aggregate amount equal to all or a portion of the net proceeds of the sale of
Bally Wulff in excess of the Minimum Proceeds payable at such time as the
purchaser of Bally Wulff shall no longer have recourse to such net proceeds in
excess of the Minimum Proceeds; provided that such distribution does not
adversely effect the tax opinions provided for in Sections 7.2.3 and 7.3.3
hereof; and, provided further that to the extent such distribution would
adversely affect the tax opinions provided for in Sections 7.2.3 and 7.3.3
hereof, such excess cash shall be retained by the Company and the Exchange
Ratio set forth in Sections 2.1 hereof shall be adjusted to increase the total
number of shares of WMS Common to be received by the Company Stockholders, by a
number of shares of WMS Common equal to the amount of such excess cash divided
by the market price of WMS Common on the NYSE at the Effective Time; provided
that WMS shall in no event be required to issue fractional shares of WMS Common
and in lieu thereof Section 2.4 hereof shall apply. To the extent such excess
cash is subject to reduction by reason of contingent claims or otherwise, the
amount of such excess cash shall be reduced accordingly, and the additional
shares of WMS Common to be issued shall be adjusted appropriately, promptly
after the amount of such excess cash remaining after any such reduction is
finally determined. A distribution of Bally Wulff shall be deemed to satisfy
the condition set forth in this Section 7.2.5 only if (i) the Company and all
Company Subsidiaries are released from obligations with respect to the
Company's Forty Million ($40,000,000) Dollars 10 3/8% Senior Secured Notes due
July 15, 1998; (ii) the sum of Fifteen Million ($15,000,000) Dollars is paid to
the Company by Bally Wulff as a dividend; (iii) the Company shall not have any
liabilities, contingent or otherwise, resulting from such distribution except
for liabilities arising as a matter of law by reason of such distribution; and
(iv) all costs and expenses of such distribution are borne by Bally Wulff.
7.2.6 ARRANGEMENTS WITH CERTAIN OFFICERS OF THE COMPANY. WMS intends to honor
all employment agreements and related plans currently in effect for officers,
directors and employees of the Company, including provisions of those
agreements and plans relating to change of control. Prior to the Effective
Time, the Company shall have entered into amendments to the employment
agreements with each of Richard Gillman, Hans Kloss and Neil Jenkins in form
and content satisfactory to WMS and such individuals.
7.2.7 DEBT LIMITATIONS. At the Effective Time, after giving effect to the
transactions referred to in Section 7.2.5 hereof, and the discharge of the
Company's indebtedness in respect of its 10 3/8% Senior Secured Notes due July
15, 1998 and all indebtedness of the Company and the Company Subsidiaries to
Marine Midland Business Loans, Inc., the Company, and the Company's
Subsidiaries (excluding Bally Wulff), shall have no indebtedness and shall not
be liable for indebtedness of any other person or entity, contingent or
otherwise, other than (i) accounts payable to trade creditors incurred in the
ordinary course of business; (ii)
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accrued liabilities for compensation and benefit related liabilities and other
liabilities incurred in the ordinary course of business, all of such
liabilities referred to in this clause (ii) not to exceed $10,000,000 plus any
accrued interest with respect to the Company's 10 3/8% Senior Secured Notes due
July 15, 1998; (iii) contingent liabilities for guarantees provided in
connection with financing product sales not to exceed $25,000,000; and (iv)
notes payable relating to Global Gaming Technology, Inc. and other receivable
financings, not to exceed $4,000,000 in the aggregate. WMS shall have received
a certificate of the Chief Executive Officer and Chief Financial Officer of the
Company to the foregoing effect.
7.2.8 ENVIRONMENTAL CONDITIONS. Prior to the Effective Time, WMS shall have
received, from an environmental audit firm of recognized standing a
certification substantially to the effect that no environmental conditions
exist affecting properties owned or occupied by the Company or any Company
Subsidiary which would require remediation or cleanup costs in excess of
$100,000 for any particular property.
7.2.9 NO MATERIAL ADVERSE CHANGE TO THE COMPANY. From the date hereof through
and including the Effective Time, no event shall have occurred which would have
a Material Adverse Effect on the Company. WMS shall have received a certificate
of the Chief Executive Officer and Chief Financial Officer of the Company to
the foregoing effect.
7.2.10 THIRD PARTY CONSENTS. All third party consents shall have been
received which may be required to avoid the breach of any material agreements
to which the Company or any Company Subsidiary is a party, including consents
of lessors, in order to consummate the Merger and the transactions contemplated
hereby.
7.2.11 A GAMING REGULATORY APPROVAL. All licenses, permits, registrations,
authorizations, consents, waivers, orders or other approvals required to be
obtained from, and all filings, notices or declarations required to be made
with, the Gaming Regulatory Authorities set forth on the Company Disclosure
Schedule in order to permit the Company and any Company Subsidiary to conduct
its business in the jurisdictions regulated by such Gaming Regulatory
Authorities after the Effective Time in the same manner as conducted by it
prior to the Effective Time shall have been obtained or made. Any license,
permit, registration, authorization, consent, waiver, order, other approval,
filing, notice or declaration which, in accordance with laws administered or
regulations promulgated by any such Gaming Regulatory Authority, that may be
obtained or made after consummation of the Merger shall not be deemed obtained
or made, and the condition set forth in this Section 7.2.11 shall not be deemed
satisfied, unless such license, registration, authorization, consent, waiver,
order, other approval, filing, notice or declaration is obtained or made prior
to the consummation of the Merger.
7.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of
the Company to effect the Merger and the other transactions contemplated in
this Agreement are also subject to the following conditions:
7.3.1 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of WMS contained in this Agreement shall be true and correct as of
the Effective Time, as though made on and as of the Effective Time, except (i)
for changes specifically permitted by this Agreement and (ii) that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date. The Company shall have
received a certificate of the Chief Executive Officer and Chief Financial
Officer of WMS to the foregoing effect.
7.3.2 AGREEMENTS AND COVENANTS. WMS shall have performed or complied in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to the Effective Time. The
Company shall have received a certificate of the Chief Executive Officer and
Chief Financial Officer of WMS to the foregoing effect.
7.3.3 TAX OPINION. The Company shall have received the opinion of Shereff,
Friedman, Hoffman & Goodman, LLP to be delivered at the Effective Time, to the
effect that the Merger will be treated for federal
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income tax purposes as a reorganization qualifying under the provisions of
Section 368(a) of the Code, which opinion shall not have been withdrawn or
modified in any material respect. The issuance of such opinion shall be
conditioned on the receipt of representation letters from each of WMS and the
Company. The specific provisions of each such representation letter shall be in
form and substance satisfactory to each of Squadron, Ellenoff, Plesent,
Sheinfeld & Sorkin LLP and Shereff, Friedman, Hoffman & Goodman, LLP and each
such representation letter shall be dated on or before the date of such opinion
and shall not have been withdrawn or modified in any material respect.
7.3.4 FAIRNESS OPINION. Ladenburg, Thalmann & Co. Inc. shall have provided to
the Board of Directors of the Company (i) as of a date not more than five days
before the date on the Proxy Statement--Prospectus is first mailed to
stockholders of the Company and (ii) as of a date not more than five days prior
to the Effective Time, their written opinion that the Merger is fair to the
stockholders of the Company from a financial point of view.
7.3.5 NO MATERIAL ADVERSE CHANGE TO WMS. From the date hereof through and
including the Effective Time, no event shall have occurred which would have a
Material Adverse Effect on WMS. The Company shall have received a certificate
of the Chief Executive Officer and Chief Financial Officer of WMS to the
foregoing effect.
7.3.6 THIRD PARTY CONSENTS. All third party consents shall have been received
which may be required to avoid the breach of any material agreements to which
WMS or any WMS Subsidiary is a party, including consents of lessors, in order
to consummate the Merger and the transactions contemplated hereby.
7.3.7 GAMING REGULATORY APPROVAL. All licenses, permits, registrations,
authorizations, consents, waivers, orders or other approvals required to be
obtained from, and all filings, notices or declarations required to be made
with, the Gaming Regulatory Authorities set forth on the WMS Disclosure
Schedule in order to permit WMS or any WMS Subsidiary to conduct its business
in the jurisdictions regulated by such Gaming Regulatory Authorities after the
Effective Time in the same manner as conducted by it prior to the Effective
Time shall have been obtained or made. Any license, permit, registration,
authorization, consent, waiver, order, other approval, filing, notice or
declaration which, in accordance with laws administered or regulations
promulgated by any such Gaming Regulatory Authority, that may be obtained or
made after consummation of the Merger shall not be deemed obtained or made, and
the condition set forth in this Section 7.3.7 shall not be deemed satisfied,
unless such license, registration, authorization, consent, waiver, order, other
approval, filing, notice or declaration is obtained or made prior to the
consummation of the Merger.
8. TERMINATION; EFFECT OF TERMINATION.
8.1 RIGHT TO TERMINATE. ANYTHING TO THE CONTRARY HEREIN NOTWITHSTANDING, THIS
AGREEMENT AND THE TRANSACTION CONTEMPLATED HEREBY MAY BE TERMINATED AT ANY TIME
PRIOR TO THE EFFECTIVE TIME BY PROMPT NOTICE GIVEN IN ACCORDANCE WITH SECTION
9.2:
8.1.1 by the mutual written consent of WMS and the Company (with the approval
of their respective Boards of Directors);
8.1.2 by WMS (with the approval of its Board of Directors) or the Company
(with the approval of its Board of Directors) if: (i) any Governmental Entity
whose approval is required for consummation of the Merger has denied approval
of the Merger and such denial has become final and nonappealable; or (ii) the
Effective Time shall not have occurred at or before 11:59 pm New York time on
February 7, 1996; provided, however, that the right to terminate this Agreement
under this Section 8.1.2 shall not be available to any party whose failure to
fulfill any of its obligations under this Agreement has been the cause of or
resulted in the occurrence of any of the events in clauses (i) or (ii) above;
8.1.3 by WMS (with the approval of its Board of Directors), by giving written
notice of such termination to the Company, if (i) there has been a material
breach of any material agreement of the Company herein, such that in the
reasonable opinion of WMS, the condition to closing in Section 7.2,2 could not
be
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expected to be satisfied by the termination date contemplated by Section 8.1.2
hereof, (ii) there has been a material breach of any material representation or
warranty of the Company herein such that, in the reasonable opinion of WMS, the
condition to closing in Section 7.2.1 could not be expected to be satisfied by
the termination date contemplated by Section 8.1.2 hereof; or (iii) the WMS
Stockholders do not approve and adopt this Agreement at the Meeting; or
8.1.4 by the Company (with the approval of its Board of Directors), by giving
written notice of such termination to WMS, if (i) there has been a material
breach of any agreement of WMS herein, such that in the reasonable opinion of
the Company, the condition to closing in Section 7.3.2 could not be expected to
be satisfied by the termination date contemplated by Section 8.1.2 hereof, (ii)
there has been a material breach of any material representation or warranty of
WMS herein, such that in the reasonable opinion of the Company, the condition
to closing in Section 7.3.1 could not be expected to be satisfied by the
termination date contemplated by Section 8.1.2 hereof, (iii) the Company's
Stockholders do not approve and adopt this Agreement at the Meeting, (iv) the
Board of Directors of the Company fails to make, withdraws, or modifies or
changes the recommendation referred to in Section 6.2 based on its good faith
determination, after consultation with counsel, that making such
recommendation, or the failure to withdraw, modify or change such
recommendation, could reasonably be deemed a breach of its fiduciary duties
under applicable law, (v) the Board of Directors of the Company recommends to
the Company Stockholders an Alternative Proposal that the Board of Directors of
the Company determines in good faith, after consultation with its financial
advisor, is likely to be more favorable, from a financial point of view, to the
Company Stockholders than the Merger or (vi) prior to the Effective Time, WMS
engages in any merger, acquisition, disposition or similar transaction with a
third party which transaction requires the approval of WMS Stockholders.
8.2 CERTAIN EFFECTS OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 8.1 hereof:
8.2.1 Except as provided in Sections 8.2.2, 8.2.3 and 9.6 hereof, this
Agreement shall forthwith become void, there shall be no liability on the part
of WMS or the Company or any of their respective affiliates, officers or
directors and all rights and obligations of any party hereto shall cease;
provide, however, that nothing herein shall relieve any party from liability
for the willful breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement, prior to such termination;
8.2.2 Each party, if so requested by the other party, will return promptly
every document furnished to it by or on behalf of the other party in connection
with the transaction contemplated hereby, whether so obtained before or after
the execution of this Agreement, and any copies thereof (except for copies of
documents publicly available) which may have been made, and will use reasonable
efforts to cause its representatives and any representatives of financial
institutions and investors and others to whom such documents were furnished
promptly to return such documents and any copies thereof any of them may have
made; and
8.2.3 Each party hereto shall continue to abide by the terms of the Letter
Agreement between WMS and the Company dated April 17, 1995 notwithstanding any
termination of this Agreement.
This Section 8.2 shall survive any termination of this Agreement.
9. MISCELLANEOUS.
9.1 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
9.1.1 Except as set forth in Section 9.1,2, the representations, warranties
and agreements of each party hereto shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any other
party hereto, any person controlling any such party or any of their officers or
directors, whether prior to or after the execution of this Agreement.
9.1.2 The representations, warranties and agreements in this Agreement shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Article 8 hereof; except that the agreements set forth in Articles
1, 2 and 9 and Section 6.3 hereof shall survive the Effective Time and those
set forth in Section 8.2 and Article 9 hereof shall survive termination.
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9.2 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof. The representations,
warranties, covenants and agreements set forth in this Agreement and in any
financial statements, schedules or exhibits delivered pursuant hereto
constitute all the representations, warranties, covenants and agreements of the
parties hereto and upon which the parties have relied and except as may be
specifically provided herein, no change, modification, amendment, addition or
termination of this Agreement or any part thereof shall be valid unless in
writing and signed by or on behalf of the party to be charged therewith.
9.3 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be given or made pursuant to any of the provisions of
this Agreement shall be deemed to have been duly given or made for all purposes
if sent by certified or registered mail, return receipt requested and postage
prepaid, hand delivered, overnight delivery service, or sent by telephone
facsimile as follows:
If to WMS, at:
WMS Industries Inc.
3401 North California Avenue
Chicago, Illinois 60618
Facsimile: (312) 961-1099
Attention: Neil D. Nicastro, President
With a copy to:
Shack & Siegel, P.C.
530 Fifth Avenue
New York, New York 10036
Facsimile: (212) 730-1964
Attention: Jeffrey N. Siegel, Esq.
If to Company, at:
Bally Gaming International, Inc.
6601 South Bermuda Road
Las Vegas, Nevada 89119
Facsimile: (702) 896-7990
Attention: Richard Gillman, Chief Executive Officer
With a copy to:
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022-9998
Facsimile: (212) 758-9526
Attention: Martin Nussbaum, Esq.
or at such other address as any party may specify by notice given to other
party in accordance with this Section. The date of giving of any such notice
shall be three days following the posting of the mail, the date of hand
delivery, the business day following delivery to an overnight delivery service
or the date sent by telephone facsimile.
9.4 NO WAIVER. No waiver of the provisions hereof shall be effective unless
in writing and signed by the party to be charged with such waiver. No waiver
shall be deemed a continuing waiver in respect of any subsequent breach or
default, either of similar or different nature, unless expressly so stated in
writing.
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9.5 GOVERNING LAW. Except to the extent that Delaware Law is mandatorily
applicable to the Merger and the rights of the Company Stockholders and WMS
Stockholders, this Agreement shall be governed, interpreted and construed in
accordance with the laws of the State of New York applicable to contracts to be
performed entirely within that State. Should any clause, section or part of
this Agreement be held or declared to be void or illegal for any reason, all
other clauses, sections or parts of this Agreement which can be effected
without such illegal clause, section or part shall nevertheless continue in
full force and effect.
9.6 EXPENSES, TRANSFER TAXES; CERTAIN PAYMENTS.
9.6.1 Each party hereto shall bear all fees and expenses incurred by such
party in connection with, relating to or arising out of the negotiation,
preparation, execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, including, without
limitation, financial advisors', attorneys', accountants' and other
professional fees and expenses, except that (i) the filing fee in
connection with the filing of the Registration Statement or the Proxy
Statement--Prospectus with the SEC, (ii) the expenses incurred in
connection with the printing and mailing of the Registration Statement and
the Proxy Statement--Prospectus and (iii) the HSR filing fee, shall be
shared equally by the Company and WMS.
9.6.2 So long as WMS shall have not breached its obligations hereunder,
if this Agreement is terminated by the Company pursuant to clause (v) of
Section 8.1.4, within two business days after such termination, the Company
shall pay WMS a fee of Four Million Eight Hundred Thousand ($4,800,000)
Dollars, which amount shall be payable by wire transfer of same day funds.
9.6.3 So long as WMS shall not have breached its obligations hereunder,
if this Agreement is terminated by the Company pursuant to clauses (iii)
and (iv) of Section 8.1.4 hereof and if any of the following shall have
occurred or occur within six months after such termination:
(i) any person (other than WMS or any WMS Subsidiary) shall have
commenced (as such term is defined in Rule 14d-2 under the Exchange
Act), a tender offer or exchange offer to purchase any shares of
Company Common such that, upon consummation of such offer, such person
would own or control 35% or more of the then outstanding Company Common
and the Board of Directors of the Company, within ten business days
after such tender offer or exchange offer is so commenced, either fails
to recommend against acceptance of such tender offer or exchange offer
by the Company Stockholders or takes no position with respect to the
acceptance of such tender offer or exchange offer by the Company
Stockholders; provided, however, that with respect to a tender offer or
exchange offer first commenced within six months after termination of
this Agreement by the Company the fee provided for in this Section
9.6.3 shall not be payable unless such tender offer or exchange offer
is consummated, whether or not such consummation is within such six
month period.
(ii) the Company or any Company Subsidiary shall have authorized,
recommend, proposed or publicly announced an intention to authorize,
recommend or propose, or entered into, an agreement with any person
(other than WMS or any WMS Subsidiary) to (A) effect a merger,
consolidation or similar transaction involving the Company or any
Company Subsidiary, (B) sell, lease or otherwise dispose of assets of
the Company or any Company Subsidiary representing 35% or more of the
consolidated assets of the Company and the Company Subsidiaries or (C)
issue, sell or otherwise dispose of (including by way of merger,
consolidation, share exchange or any similar transaction) securities
(or options, rights or warrants to purchase, or securities convertible
into, such securities) representing 35% or more of the voting power of
the Company or any Company Subsidiary; or
(iii) any person (other than WMS, any WMS Subsidiary, the Company or
any Company Subsidiary in a fiduciary capacity) shall have acquired
beneficial ownership (as such term is defined in Rule 13d-3 under the
Exchange Act) or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under the Exchange Act) shall have
been formed which beneficially owns or has the right to acquire
beneficial ownership of, 35% or more of the then outstanding Company
Common;
I-27
<PAGE>
then, within two business days after such occurrence, the Company shall pay WMS
a fee of Four Million Eight Hundred Thousand ($4,800,000) Dollars, which amount
shall be payable by wire transfer of same day funds.
9.6.4 So long as WMS shall not have breached its obligations hereunder, if
this Agreement is terminated by the Company pursuant to clause (iii) of Section
8.1.4 hereof and Section 9.6.3 is not applicable thereto, within two business
days after such termination, the Company shall reimburse WMS for its out-of-
pocket costs and expenses incurred in connection with the transactions
contemplated by this Agreement, including without limitation fees and
disbursements of counsel, financial advisors and accountants, up to but not in
excess of the sum of One Million Two Hundred Fifty Thousand ($1,250,000)
Dollars. If the Company fails to promptly pay any amount due pursuant to
Sections 9.6.2, 9.6.3 or9.6.4 and, in order to obtain such payment, WMS
commences a suit which results in a judgment against the Company for all or a
substantial portion of the amounts due thereunder, the Company shall pay to WMS
its costs and expenses (including reasonable attorneys' fees) in connection
with such suit.
9.6.5 So long as the Company shall not have breached its obligations
hereunder, if this Agreement is terminated by WMS pursuant to clause (iii) of
Section 8.1.3 hereof and prior to such termination any person shall have
acquired beneficial ownership (as such term is defined in Rule 13d-3 under the
Exchange Act) or the right to acquire beneficial ownership of, or any "group"
(as such term is defined under the Exchange Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of, more
than 35% of the then outstanding WMS Common, within two business days after
such termination, WMS shall pay the Company a fee of Four Million Eight Hundred
Thousand ($4,800,000) Dollars, which amount shall be payable by wire transfer
of same day funds.
9.6.6 So long as the Company shall not have breached its obligations
hereunder, if this Agreement is terminated by WMS pursuant to clause (iii) of
Section 8.1.3 hereof and Section 9.6.5 is not applicable thereto, within two
business days after such termination, WMS shall reimburse the Company for its
out-of-pocket costs and expenses incurred in connection with the transactions
contemplated by this Agreement, including without limitation fees and
disbursements of counsel, financial advisors and accountants, up to but not in
excess of the sum of One Million Two Hundred Fifty Thousand ($1,250,000)
Dollars. If WMS fails to promptly pay any amount due pursuant to Sections 9.6.5
or 9.6.6 and, in order to obtain such payment, the Company commences suit which
results in a judgment against WMS for all or a substantial portion of the
amounts due thereunder, WMS shall pay to the Company its costs and expenses
(including reasonable attorneys' fees) in connection with such suit.
9.7 ASSIGNMENT. This Agreement shall not be assigned by operation of law or
otherwise.
9.8 BINDING AGREEMENT. This Agreement shall be binding upon and inure solely
to the benefit of the parties hereto, and nothing in this Agreement, express or
implied (other than the provisions of Section 6.3), is intended to or shall
confer upon any person any right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
9.9 HEADINGS. The headings or captions under sections of this Agreement are
for convenience and reference only and do not in any way modify, interpret or
construe the intent of the parties or effect any of the provisions of this
Agreement.
9.10 COUNTERPARTS. This Agreement may be executed in one or more counterparts
each of which when taken together shall constitute one agreement.
I-28
<PAGE>
In Witness Whereof, the parties hereto have caused this agreement to be
signed on the date and year first above written.
WMS Industries Inc.
/s/ Neil D. Nicastro
By: _________________________________
Neil D. Nicastro, President
Bally Gaming International, Inc.
/s/ Richard Gillman
By: _________________________________
Richard Gillman, Chairman
I-29
<PAGE>
Exhibit 10(u)
VOTING PROXY AGREEMENT
----------------------
THIS VOTING PROXY AGREEMENT (hereinafter this "Agreement"), made and
entered this 25th day of August, 1995, by and among WMS Industries Inc., a
Delaware corporation, (hereinafter the "Company"), Sumner M. Redstone
(hereinafter "Redstone"), National Amusements, Inc. (hereinafter "NAI," and
collectively with Redstone the "Shareholders"), and Louis J. Nicastro and Neil
D. Nicastro, individuals, as Proxy Holder.
W I T N E S S E T H:
WHEREAS, the Company is a publicly traded corporation with common stock,
par value $0.50 per share, traded on the New York Stock Exchange; and,
WHEREAS, as of the date of this Agreement each of the Shareholders owns,
either beneficially or of record, the number of shares of the Company's common
stock, par value $0.50 per share, as set forth opposite such Shareholder's name
on Exhibit A hereto; and,
WHEREAS, the Shareholders are passive investors in the Company, have no
representation on the Board of Directors of the Company and have no involvement
in the management of the Company; and,
WHEREAS, on August 24, 1995, the Nevada Gaming Commission granted the
applications of the Company and its subsidiaries, WMS Games Inc., WMS Gaming
Inc., WMS Gaming (Nevada) Inc., and the Proxy Holder for findings of suitability
as a registered publicly traded corporation, as registered holding companies,
licensure as a manufacturer and distributor of gaming devices, and for licensure
or findings of suitability as directors and officers respectively; and,
WHEREAS, Redstone has an application pending with the Nevada State Gaming
Control Board and Nevada Gaming Commission for a finding of suitability as a
Shareholder of the Company; and,
WHEREAS, the Shareholders have voluntarily decided to grant to the Proxy
Holder a voting proxy for all of the shares of common stock of the Company that
the Shareholders own beneficially or of record at the time of the licensure,
finding of suitability and other approval of the Company and its subsidiaries,
officers and directors by the Nevada Gaming Commission; and,
WHEREAS, in order to assure that the passive investment position of the
Shareholders relative to the Company will not change without prior notification
of the Nevada Gaming Authorities (herein defined), the Shareholders are amenable
to entering this Agreement; and,
WHEREAS, the Company, Shareholders and Redstone have the ability to perform
under this Agreement; and,
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, it is agreed as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
------------------------------
Unless otherwise stated in this Agreement:
"Affiliate" shall have the meaning ascribed to that term by Section
15.482-3 of the Regulations of the Nevada Gaming Commission.
"Common Stock" means all voting equity securities of the Company
beneficially owned by Redstone individually or through his ownership and control
of NAI or any other Person.
"Nevada Gaming Authorities" means the Nevada State Gaming Control Board and
the Nevada Gaming Commission.
"Nevada Board Chairman" means the chairman of the Nevada State Gaming
Control Board or his designee.
"Person" means a natural person, any form of business or social
organization and any other nongovernmental legal entity.
"Proxy Holder" means Louis J. Nicastro, Chairman of the Board of Directors
of the Company, or in the event Louis J. Nicastro is unable to perform the
duties and exercise the rights of Proxy Holder, Neil D. Nicastro, President of
the Company.
"Shareholder" means Sumner M. Redstone and National Amusements, Inc.
2
<PAGE>
ARTICLE 2
CREATION AND TERMINATION OF VOTING PROXY
----------------------------------------
2.1 This Agreement shall not be effective until that day which is ten
(10) business days after the date of the Company's registration with the Nevada
Gaming Authorities as a publicly traded corporation. The Proxy Holder shall
file a copy of this Agreement in the registered office of the Company in
Delaware.
2.2 Each Shareholder shall perform such further acts and execute such
further documents and instruments as may reasonably be required to confer on the
Proxy Holder the power to carry out the provisions of this Agreement, including
the execution of new or additional proxies.
2.3 The Shareholders shall be entitled to terminate this Agreement
effective thirty (30) calendar days following service of written notice of such
termination on the Company, Proxy Holder and the Nevada Board Chairman.
2.4 Except if, and to the extent, terminated pursuant to paragraph
2.3, this Agreement shall remain effective as to any Common Stock of the Company
owned beneficially or of record by the Shareholders, other than the Common Stock
of the Company previously in such ownership of the Shareholders that is sold or
otherwise disposed of in a transfer to a Person that is not an Affiliate of the
Shareholders, unless and until:
2.4.1 The Shareholders shall be found suitable as a shareholder of
the Company by the Nevada Gaming Authorities pursuant to Nevada Revised Statute
463.643(3); or,
2.4.2 The Shareholders shall not be subject to the provisions of
Nevada Revised Statute 463.643(3).
2.5 Failure by the Company to comply with the notice requirement
described in paragraph 4.1 hereof shall be deemed an automatic termination of
this Agreement as to any subject matter for which such notice was not properly
given by the Company.
2.6 Unless sooner terminated as provided in paragraphs 2.3 through
2.5 hereof, this Agreement shall continue in force until ten (10) years from the
date hereof (hereinafter the "Voting Proxy Term"). Two years before the
expiration of ten (10) years from the date hereof, the parties may agree to
extend this Agreement for another ten (10) years.
3
<PAGE>
ARTICLE 3
POWERS, RIGHTS AND DUTIES OF PROXY HOLDER
-----------------------------------------
3.1 Each Shareholder, by this Agreement, with respect to the Common
Stock that such Shareholder owns beneficially or of record, does hereby
constitute and appoint the Proxy Holder, with full power of substitution, during
and for the Voting Proxy Term, as their true and lawful attorney-in-fact and
proxy, for and in their name, place and stead, to vote all shares of the Common
Stock as the proxy of the Shareholders, at every annual, special or adjourned
meeting of the Shareholders of the Company, including the right to sign the
Proxy Holder's name as Shareholder to any consent, certificate or other document
relating to the Company that the law of the State of Delaware may permit or
require on any and all matters which may be presented to the Shareholders of the
Company. Actions to be taken by Proxy Holder shall be determined by Proxy
Holder in his sole and absolute discretion. Without limiting the foregoing,
Proxy Holder may exercise all of the voting rights of the Shareholders,
including for example, the right to vote or consent to amendment of the Articles
of Incorporation of Company, sale of all corporate assets, mergers,
consolidations, reductions of capital and dissolutions, except that Proxy Holder
shall not sell, assign or otherwise dispose of the Common Stock. This Agreement
shall continue and be applicable with respect to any securities of the Company
having any voting rights issued by the Company to the Shareholders in
substitution or exchange for, or as a distribution on, the Common Stock of
Company.
3.2 Proxy Holder shall serve without compensation as Proxy Holder and
will be responsible for the payment of all expenses and charges and to employ
and pay such agents and attorneys as Proxy Holder may deem necessary and proper
in the performance of his duties under this Agreement.
3.3 In voting the Common Stock, Proxy Holder shall use his best
judgment from time to time to the end that the affairs of the Company shall be
properly managed. Proxy Holder may cause himself to be elected as director of
the Company and Proxy Holder may act as an employee, officer or agent of company
and be reasonably compensated for his services in such capacity as fully as
though he were not a Proxy Holder.
3.4 Proxy Holder shall not be liable to the Company or the
Shareholders for any act or omission of the Proxy Holder, or any agent of the
Proxy Holder, or be held to any personal liability whatsoever in tort, contract,
or otherwise in connection with the performance of the Proxy Holder's
obligations pursuant to this Agreement, except for liabilities arising from the
Proxy Holder's bad faith, willful misfeasance or reckless disregard of duty.
The Proxy Holder shall not be liable except for the performance of any duties
and obligations as are specifically set forth in this Agreement and no implied
covenants or obligations shall be read into the Agreement against the Proxy
Holder. The Proxy Holder shall not be liable with respect to any action taken
or omitted to be taken by the Proxy Holder in good faith. In addition to, and
not in limitation of, the foregoing, no successor Proxy Holder shall in any way
be liable for the acts or omissions of any Proxy Holder or agent of the Proxy
Holder occurring prior to the date on which he became a Proxy Holder.
4
<PAGE>
3.5 Proxy Holder may consult with counsel, auditors or other experts,
and the advice or opinion of such counsel, auditors, or other experts shall be
full and complete personal protection to the Proxy Holder in respect of any
action taken or suffered by the Proxy Holder in good faith and in reliance upon
or in accordance with such advice or opinion. In discharging his duties, the
Proxy Holder may rely upon financial statements of the Company represented to
the Proxy Holder to be correct by the Person having charge of the Company's
books of account, or stated in a written report by an independent certified
public accountant to present fairly the financial position of the Company. The
Proxy Holder may rely, and shall be personally protected in acting upon any
instrument, certificate, opinion, report, notice, order or other document of any
sort whatsoever delivered to him in connection with this Agreement reasonably
believed by him to be genuine.
3.6 The Shareholders, the Proxy Holder and the Company, indemnify and
hold harmless the members, employees, and agents of the Nevada Gaming
Authorities from any and all losses, liabilities, claims, demands, damages,
deficiencies, expenses, including legal fees and other expenses of investigation
and defending claims and lawsuits, causes of action or suits which shall be
suffered by or arise against the aforesaid parties pursuant to the action or
inaction of such parties under this Agreement.
3.7 Proxy Holder shall not resign or cease to act as Proxy Holder
until a successor Proxy Holder is licensed or granted exemption from licensing
by the Nevada Gaming Authorities. In the event of the death or in the event
that Proxy Holder is adjudicated an incompetent, and a guardian or conservator
is appointed for his Person, business, assets or estate, and such adjudication
is not set aside or reversed or stayed within sixty (60) days from the date of
such adjudication, or, in the event of the total physical or mental disability
of Proxy Holder which persists for a continuous period of six (6) months, the
Board of Directors of the Company shall select a successor Proxy Holder to serve
until the termination of this Agreement. The successor Proxy Holder shall be a
member of the Company's Board of Directors licensed or found suitable by the
Nevada Gaming Authorities or a bank or trust company licensed by the State of
Nevada or the United States (hereinafter the "Institutional Proxy Holder"), with
capital in excess of $100,000,000.00. The successor Institutional Proxy Holder
shall immediately seek exemption from licensing pursuant to the provisions of
Nevada Revised Statute 463.175.
ARTICLE 4
POWERS, RIGHTS AND DUTIES OF SHAREHOLDERS
-----------------------------------------
4.1 The Shareholders shall receive from the Company written notice of
any subject matter that will be presented for approval, consent or ratification
to the Shareholders of the Company at least forty-five (45) calendar days prior
to the date on which the Shareholders of the Company shall vote on, or consent
to, such subject matter. The Company shall provide a copy of such notice to the
Nevada Board Chairman contemporaneous with service of such notice on the
Shareholders.
4.2 The terms of this Agreement do not obligate any Person other than
the
5
<PAGE>
Shareholders, their Affiliates, the Company, and the Proxy Holder and will
terminate as to any shares of Common Stock of the Company transferred by
Redstone or NAI in accordance with the provisions of paragraph 2.4 hereof.
4.3 The Shareholders shall submit to the Nevada Board Chairman a copy
of any report, form or other document filed by Redstone or NAI with the United
States Securities and Exchange Commission ("SEC"), relative to the Company
contemporaneously with filing such report, form or document with the SEC.
4.4 The Shareholders shall submit to the Nevada Board Chairman
written notice within ten (10) business days of the sale or other disposition of
the Common Stock or any other securities issued by the Company owned by the
Shareholders. The written notice required by this paragraph 4.4 shall specify
the type and number of securities involved in a reported transaction, and the
consideration provided for the disposition of such securities.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
----------------------------------------------
Each Shareholder, jointly and severally, hereby represents and
warrants to the Company and the Proxy Holder that such Shareholder is the record
or beneficial owner of the shares of Common Stock as set forth in Exhibit A to
this Agreement, free and clear of any proxy or voting restrictions other than
pursuant to this Agreement.
ARTICLE 6
MISCELLANEOUS PROVISIONS
------------------------
6.1 IRREVOCABLE PROXY. Except as provided in paragraphs 2.3 through
2.6 and 4.2 hereof, the proxy created by this Agreement is irrevocable.
6.2 TITLES AND SUBTITLES. Titles of the paragraphs and subparagraphs
are placed herein for convenient reference only and shall not to any extent have
the effect of modifying, amending or changing the express terms and provisions
of this Agreement.
6.3 WORDS AND GENDER OR NUMBER. As used herein, unless the context
clearly indicates the contrary, the singular number shall include the plural,
the plural the singular, and the use of any gender shall be applicable to all
genders.
6.4 EXECUTION IN COUNTERPART. This Agreement may be executed in any
number of counterparts, each of which shall be taken to be an original.
6.5 SEVERABILITY. In the event any parts of this Agreement are found
to be void, the remaining provisions of this Agreement shall nevertheless be
binding with the same effect as though the void parts were deleted.
6
<PAGE>
6.6 EFFECTIVE DATE. This Agreement shall be effective only upon
execution by all of the proposed parties.
6.7 WAIVER. No waiver of any provisions of this Agreement shall be
valid unless in writing and signed by the Person or party against whom charged.
6.8 APPLICABLE LAW. Except as provided in paragraph 6.9 hereof, this
Agreement shall be subject to and governed by the laws of the State of Delaware.
6.9 REGULATORY JURISDICTION. This Agreement is subject to the
jurisdiction of the Nevada Gaming Authorities and shall be subject to the
provisions of Chapter 463 of the Nevada Revised Statutes and the Regulations of
the Nevada Gaming Commission in relation to all gaming matters. In this regard,
the laws of the State of Nevada shall govern the validity, construction,
performance and effect of this Agreement.
6.10 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties.
6.11 CERTAIN JUDICIAL REMEDIES. The parties to this Agreement
acknowledge and agree that irreparable damage would result in the event any
provision of this Agreement was not performed in accordance with the terms
hereof and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or in equity.
6.12 NOTICES. Every and all notice required hereunder shall be given
by personal service, telecopy transmittal or by overnight courier, to the
parties at the following addresses listed in this Agreement; provided, however,
any party may change its address by written notice to the other parties:
As to the Company WMS Industries Inc.
3401 North California Avenue
Chicago, Illinois 60618
Attn: Barbara M. Norman
Telecopy No.: (312) 961-1020
As to the Proxy Holder Louis J. Nicastro
Neil D. Nicastro
3401 North California Avenue
Chicago, Illinois 60618
Telecopy No.: (312) 961-1099
7
<PAGE>
As to Shareholders Sumner M. Redstone
c/o Philippe P. Dauman
Executive Vice President
Viacom, Inc.
1515 Broadway
New York, New York 10036-5794
Telecopy No.: (212) 258-6996
As to Nevada Board Chairman: William A. Bible
State Gaming Control Board
1150 East William Street
Carson City, Nevada 89710
Telecopy No.: (702) 687-5817
6.13 ASSIGNMENT. This Agreement shall not be assigned by operation
of law or otherwise.
IN WITNESS WHEREOF, the parties have entered into this Agreement
effective as of this 25th day of August, 1995.
WMS Industries Inc. Dated September 21, 1995
By: /s/ Harold H. Bach, Jr. /s/ Sumner M. Redstone
------------------------ ---------------------------
Harold H. Bach, Jr. Sumner M. Redstone
/s/ Louis J. Nicastro National Amusements, Inc.
--------------------------
Louis J. Nicastro
/s/ Neil D. Nicastro By: /s/ Sumner M. Redstone
--------------------------- -------------------------
Neil D. Nicastro Sumner M. Redstone
8
<PAGE>
Exhibit A
SCHEDULE OF AFFECTED COMMON STOCK
<TABLE>
<CAPTION>
Name of Stockholder Number of Shares
------------------- ----------------
<S> <C>
Sumner M. Redstone 3,033,800
National Amusements, Inc. 2,895,300
---------
TOTAL: 5,929,100
=========
</TABLE>
<PAGE>
EXHIBIT 13
----------
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
<S> <C>
Selected Financial Data 10
Management's Discussion 11
Market for Company's Common Stock
and Related Security-Holder Matters 15
Report of Independent Auditors 15
Consolidated Balance Sheets 16
Consolidated Statements of Income 17
Consolidated Statements of Changes
in Stockholders' Equity 18
Consolidated Statements of Cash Flows 19
Notes to Consolidated Financial Statements 20
Quarterly Financial Information 27
Industry Segments 28
</TABLE>
9
<PAGE>
WMS Industries Inc.
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
SELECTED STATEMENT OF INCOME DATA June 30, 1995 1994 1993 1992 1991
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $385,372 $358,213 $331,129 $227,008 $161,188
----------------------------------------------------------------------------------------------------
Income from operations 33,873 49,288 52,455 29,235 16,616
----------------------------------------------------------------------------------------------------
Income before tax provision, minority
interests and extraordinary item 33,958 46,346 49,664 25,382 9,471
----------------------------------------------------------------------------------------------------
Provision for income taxes 11,841 13,266 15,623 1,750 --
----------------------------------------------------------------------------------------------------
Income before extraordinary item 19,207 28,483 30,709 25,015 8,872
----------------------------------------------------------------------------------------------------
Net income 19,207 28,483 30,709 25,015 10,856
====================================================================================================
Income per common share
Income before extraordinary item $ .80 $1.19 $1.31 $1.21/1/ $ .52/1/
Net income .80 1.19 1.31 1.21 .64
====================================================================================================
Shares used in calculating per share amounts 24,102 24,016 23,374 20,631 17,046
====================================================================================================
SELECTED BALANCE SHEET DATA
Total assets $386,066 $343,141 $306,875 $225,187 $121,358
------------------------------------------------------------------------------------------------
Working capital 139,333 143,990 163,668 75,131 7,836
------------------------------------------------------------------------------------------------
Long-term debt, including current maturities 88,241 92,809 93,569 45,191 54,475
------------------------------------------------------------------------------------------------
Stockholders' equity 208,571 181,472 152,475 115,386 22,522
================================================================================================
</TABLE>
/1/ On July 1, 1990 the Company had a net operating loss carryforward for tax
purposes and could not recognize the expected future tax benefits from these
loss carryforwards under SFAS 109. The tax benefits from the net operating
loss carryforwards were recognized in the years ended June 30, 1991 and 1992
resulting in no provision for income taxes in fiscal 1991 and a
significantly reduced provision for income taxes in 1992. Income per share
before extraordinary item would have been $.82 and $.47 for fiscal 1992 and
1991, respectively, if they were calculated on a fully taxed basis
comparable to subsequent years.
10
<PAGE>
WMS Industries Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Cash flows from operating, investing and financing activities during fiscal 1995
resulted in net cash provided of $11,725,000 as compared with net cash used of
$3,690,000 during fiscal 1994. Cash flow provided by operating activities was
$29,199,000 during fiscal 1995 as compared with $34,599,000 during fiscal 1994.
The principal reason for the decrease was lower net income in fiscal 1995.
Investing cash flows included the purchase of property, plant and equipment
during fiscal 1995 of $19,474,000 as compared with $18,913,000 during fiscal
1994. The asset additions in fiscal 1995 were primarily at the amusement games
business. In fiscal 1994, $14,431,000 of cash was utilized for the acquisition
of Tradewest. Investing cash flows in fiscal 1995 included the net sale of
short-term investments of $15,037,000 and 1994 includes the net purchase of
noncurrent and short-term investments of $4,108,000.
Cash used by financing activities was $5,314,000 for fiscal 1995 compared with
cash provided of $8,130,000 for fiscal 1994. Fiscal 1995 included $37,000
received from the exercise of stock options compared to $10,248,000 in fiscal
1994. The proceeds from long-term debt in fiscal 1994 were used for the purchase
of property, plant and equipment at the hotel/casino businesses.
See the Consolidated Statements of Cash Flows on page 19 for further details
on cash flow items.
The Condado Plaza has a $2,000,000 bank line of credit available which was
fully utilized at June 30, 1995 and the El San Juan has a $1,000,000 bank line
of credit available which was unused at June 30, 1995. Condado Plaza and El San
Juan long-term debt agreements provide that advances, dividends and other
payments to the owners are to be based on defined levels of cash flow from the
respective hotel/casino whereas Williams Hospitality is permitted to make
advances and pay dividends in an amount aggregating $1,800,000 per year as well
as additional amounts approved by the lender. During fiscal 1995 Williams
Hospitality paid dividends of $2,060,000. Management does not have a present
intention to pay additional dividends from the hotel/casino businesses to the
parent except for future payments of dividends by Williams Hospitality.
Management believes that cash flow from hotel/casino operations will be adequate
to pay their long-term debt as it becomes due and provide for the normal planned
capital additions.
WMS Industries Inc. has an uncollateralized bank line of credit which provides
for borrowing up to $25,000,000 or for WMS and its U.S. operating subsidiaries
to have letters of credit up to $25,000,000 outstanding. The letter of credit
availability was increased to $75,000,000 through December 31, 1995. At June 30,
1995 there were no borrowings from the line of credit but there were outstanding
letters of credit totaling $10,200,000. Interest on the initial borrowings will
be at a short-term Eurodollar rate plus .75%. Management believes that cash flow
from operations, cash and cash equivalents, short-term investments and amounts
available under the line of credit will be adequate to fund the fluctuating
level of inventories and receivables required in the operation of the business
and provide for the growth and expansion of the business including the home
video game business and gaming devices.
RESULTS OF OPERATIONS
1995 Compared With 1994
Segment data discussed below is taken or derived from segment disclosures in
Note 15 to the Consolidated Financial Statements.
Consolidated revenues increased 7.5% from $358,213,000 in fiscal 1994 to
$385,372,000 in fiscal 1995. Revenues of the amusement games business increased
11.2% to $314,494,000 in fiscal 1995. The principal reason amusement games
revenues increased was from sales of video game cartridges into the home video
game market (home video software creator and publisher Tradewest was acquired in
April 1994) and $27,000,000 from licensing the distribution of home video games
for use on multipurpose home computers, licensing certain foreign distribution
of home video games and certain other licensing revenues. Fiscal 1994 included
approximately $13,000,000 in net revenues from the Company's business
arrangements with Nintendo of America and Nintendo Co. Ltd. of Japan and certain
other licensing revenues. Coin operated amusement games revenues, after
excluding the Nintendo business arrangements net revenue from fiscal 1994,
decreased 2% in fiscal 1995 compared to fiscal 1994. This decrease was due to a
24% decrease in pinball sales, caused by a soft market, substantially offset by
a 21% increase in coin operated video game sales and increased video lottery
terminal unit sales.
Gross profit (excluding depreciation) of the amusement games business
increased in fiscal 1995 to $72,533,000 (23.1% of amusement games business
revenues) compared with $64,931,000 (22.9% of such revenues) in fiscal 1994.
Excluding the increase in gross profit resulting from the licensing of the
distribution of home video games mentioned above, gross profit from the
amusement game business in fiscal 1995 would have been $48,933,000 (17.0% of
comparable revenues).
11
<PAGE>
WMS Industries Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Excluding the effects of the Nintendo arrangements and certain other licensing
revenues mentioned above, fiscal 1994 gross profit would have been $51,931,000
(19.3% of comparable revenues). This decrease was primarily due to approximately
$3,300,000 in royalties payable to the external developer of one coin operated
video game sold during fiscal 1995 and a planned increase of $6,601,000 in
research and development expense to $26,779,000 in fiscal 1995 from $20,178,000
in fiscal 1994. The increased research and development expenses include that of
the home video game business and expenses associated with the Company's
development of gaming products and interactive networked video games, the
benefits of which are expected to be realized in future periods.
Operating profit of the amusement games business on a segment basis decreased
to $38,833,000 in fiscal 1995 from $45,012,000 in fiscal 1994. This was
primarily due to the decrease in gross profit as discussed above coupled with
increased selling and administrative and depreciation expenses. The increase in
selling and administrative expense of the amusement games business was primarily
caused by $1,500,000 of higher selling and administration expense for gaming
products and $8,900,000 of higher selling and administrative expense in the home
video game business for a full year in fiscal 1995. The home video game business
is expected to incur higher selling expense as a percent of sales than the coin
operated games business and is expected to generate a higher gross profit as a
percentage of sales to more than offset the increased selling cost, which did
not materialize during fiscal 1995. The increase in depreciation and
amortization expense of the amusement game business of $1,600,000 was primarily
from the home video game business.
Condado Plaza revenues were $57,530,000 in fiscal 1995 compared to $62,600,000
in fiscal 1994. Net casino revenue (casino revenues minus casino promotional
allowances) decreased by $3,469,000 or 16.4% due to a reduced casino handle and
a lower win percentage. Hotel revenues were slightly below fiscal 1994 due
primarily to a lower average room rate and a lower occupancy rate.
The Condado Plaza's profit before selling and administrative expense
(excluding depreciation) decreased to $17,746,000 (30.8% of the Condado Plaza
revenues) in fiscal 1995 from $22,957,000 (36.7% of the Condado Plaza revenues)
in fiscal 1994. The decrease was due to lower revenues as explained above and
increased operating expenses including emergency water cost required during the
drought early in fiscal year 1995.
The Condado Plaza on a segment basis had an operating loss of ($1,465,000) for
fiscal 1995 compared with operating profit of $4,473,000 in fiscal 1994. The
decrease was primarily due to the same reason as for the $5,211,000 decrease in
profit before selling and administrative expense but further reduced by
increased administrative expense, in part from higher insurance expense.
Williams Hospitality revenues (before intersegment elimination) increased to
$17,350,000 in fiscal 1995 from $16,795,000 in fiscal 1994. This increase was
primarily from including El Conquistador management fees for an entire year in
fiscal 1995 compared to only eight months in fiscal 1994. Management fees from
the Condado Plaza and El San Juan were lower during fiscal 1995 compared to
fiscal 1994 because of their reduced revenue and level of operations. Williams
Hospitality operating profit on a segment basis decreased to $9,174,000 in
fiscal 1995 from $9,472,000 in fiscal 1994. The decrease was primarily due to
increased administrative and amortization expense more than offsetting the
increased revenues.
Consolidated selling and administrative expense increased primarily as a
result of the selling and administrative expenses of the home video game
business, higher selling and administrative expenses for gaming products and
increased insurance expense at the Condado Plaza.
Consolidated depreciation and amortization increased due to the acquisition of
Tradewest in April 1994 and equipment additions at the amusement game business.
The equity in loss of nonconsolidated affiliates was ($7,003,000) in fiscal
1995 as compared with ($3,534,000) in fiscal 1994. The increased loss was
primarily due to an increase in the Company's equity in net loss from the newly
opened El Conquistador Hotel and Casino that was ($5,803,000) in fiscal 1995
compared with ($2,311,000) in fiscal 1994, representing only five months of
operations. Like most resort properties El Conquistador is expected to report
losses in its early years, but the Company's 23.3% equity in the losses are
expected to be partially offset by the Company's 62% interest in the management
fees earned during the year by Williams Hospitality from El Conquistador. The
50% equity in the loss of the El San Juan was ($1,200,000) in fiscal 1995
compared to equity in loss of ($1,223,000) in fiscal 1994. The El San Juan's
results were relatively flat, notwithstanding a 21.6% decline in casino revenues
and a small decline in hotel revenues, due to decreased operating expenses
resulting from cost reduction activities.
Income from operations was $33,873,000 in fiscal 1995 as compared with
$49,288,000 in fiscal 1994. The reduction was from both lower operating profit
of the hotel/casino business
12
<PAGE>
(including equity in loss of nonconsolidated affiliates) resulting in a decrease
of $9,735,000 and decreased operating profits of the amusement game business as
described above.
Consolidated interest and other income increased primarily due to increased
income on short-term and cash equivalent investments.
The fiscal 1995 provision for income taxes reflects federal, Puerto Rico and
state income taxes and results in an effective rate of 34.9% compared with 28.6%
in fiscal 1994. The increase in effective rate was because the loss at the
Condado Plaza in fiscal 1995 had no tax benefit and a partial federal tax on
certain Puerto Rico income as a result of a tax law change.
Minority interests decreased primarily due to lower net income of Williams
Hospitality and the Company's additional ownership percentage in Williams
Hospitality.
Fiscal 1995 net income was $19,207,000, $.80 per share, in comparison to
$28,483,000 ($1.19 per share) in fiscal 1994. Net income for fiscal 1995
includes $14,562,000, ($.60 per share) relating to licensing the distribution of
video games for use on multipurpose home computers, certain foreign distribution
of home video games and certain other licensing revenue as mentioned above. Net
income for fiscal 1994 includes $8,320,000 ($.35 per share) from the business
arrangements with Nintendo of America and Nintendo Co. Ltd. of Japan and certain
other licensing revenues noted above. The decline in fiscal 1995 net income was
due to a net loss in the hotel/casino business resulting in a reduction of
consolidated net income of $6,022,000, $.25 per share, and lower operating
results of the amusement game business, as described above, which includes a net
loss from the home video game business after excluding licensing net revenue.
Higher research and development expense and gaming products selling and
administrative expense in fiscal 1995 also decreased net income, the benefits of
which are expected to be realized in future periods.
1994 Compared With 1993
Consolidated revenues increased from $331,129,000 in fiscal 1993 to $358,213,000
in fiscal 1994. Revenues of the amusement games business increased 8.6% to
$282,733,000 in fiscal 1994. The increase in amusement games revenues was
primarily due to an 18% increase in video arcade game sales, increased video
lottery terminal sales, increased royalty income from the license of the
Company's video arcade games for the home video game cartridge market and
approximately $13,000,000 of net revenue received from the Company's business
arrangements with Nintendo of America and Nintendo Co. Ltd. of Japan and
certain other licensing revenue, offset in part by a 13.9% decline in pinball
game sales. The decline in pinball sales resulted from a 21% decrease in unit
sales offset by an increase in the average sales price. During fiscal 1994 the
average sales price of a pinball game increased 10% but did not increase as fast
as the costs to manufacture an average pinball game increased. The fiscal 1994
pinball models generally have wider play fields with more playing devices that
have increased manufacturing costs.
Gross profit (excluding depreciation) of the amusement games business
increased in fiscal 1994 to $64,931,000 (22.9% of amusement games business
revenues) from $59,265,000 (22.8% of amusement games business revenues) in
fiscal 1993. The increase resulted primarily from increased revenues as
explained above offset in part by a lower margin percentage on pinball sales for
fiscal 1994 compared to fiscal 1993. In fiscal 1994 gross profit of the
amusement games business absorbed a $6,409,000 increase in research and
development expense incurred, in part, to expand the Company's future product
base including gaming devices, interactive video games and home video games, the
benefits of which are expected to be realized in future periods as these new
businesses come on line. Operating profit of the amusement games business on a
segment basis increased to $45,012,000 in fiscal 1994 from $43,220,000 in fiscal
1993. This was primarily due to the same reasons as the increase in gross profit
described above but reduced by increased selling and administrative expense and
depreciation expense. These expenses increased, in part, because of continued
start-up costs of the gaming device business.
Condado Plaza revenues were $62,600,000 in fiscal 1994 compared to $64,813,000
in fiscal 1993. The decrease was primarily due to reduced food and beverage
revenues of $1,493,000 from the group and banquet areas and reduced net casino
revenues (casino revenues minus casino promotional allowances) of $1,325,000
because of reduced casino handle.
The Condado Plaza's profit before selling and administrative expense
(excluding depreciation) decreased to $22,957,000 (36.7% of the Condado Plaza
revenues) in fiscal 1994 from $23,694,000 (36.6% of the Condado Plaza revenues)
in fiscal 1993 because of the decline in revenue explained above exceeding the
net reduction in costs. The operating profit of the Condado Plaza on a segment
basis decreased to $4,473,000 in fiscal 1994 from $6,759,000 for fiscal 1993.
The decrease was primarily as described above and from the increase in
administrative expense resulting from higher insurance costs.
13
<PAGE>
WMS Industries Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Williams Hospitality revenues increased to $16,795,000 (before intersegment
elimination) in fiscal 1994 from $9,874,000 in fiscal 1993. This increase was
primarily from increased fees for certain centralized services provided to the
Company's affiliated hotel/casino properties and from management fees earned
from the newly opened El Conquistador Hotel and Casino. Williams Hospitality
operating profit on a segment basis increased to $9,472,000 in fiscal 1994 from
$7,403,000 in fiscal 1993. The increase was less than the increase in revenues
due to the additional cost incurred for centralized services.
Consolidated selling and administrative expense in fiscal 1994 was $32,848,000
or 9.1% of consolidated revenues as compared with $26,784,000 or 8.1%. The
increase was primarily as a result of growth at the amusement games business and
its previously mentioned start-up costs, increased insurance cost at the Condado
Plaza and higher general corporate expenses.
Consolidated depreciation and amortization expense increased primarily due to
equipment additions at the amusement game business.
The equity in loss of nonconsolidated affiliates was ($3,534,000) in fiscal
1994 as compared with equity in loss (before the extraordinary charge) of
nonconsolidated affiliate of ($135,000) in fiscal 1993. This unfavorable
difference was due to both equity in net loss from the newly opened El
Conquistador Hotel and Casino and equity in net loss from the El San Juan. The
equity in net loss of the El San Juan was ($1,223,000) in fiscal 1994 compared
to equity in net loss (before the extraordinary charge) of ($135,000) in fiscal
1993. The unfavorable difference was due to increased casino expenses including
higher bad debt expense and higher casino special guest expense coupled with a
lower win percentage in the casino. The equity in loss of the El Conquistador
was ($2,311,000) in fiscal 1994. El Conquistador opened for business in November
1993 and the first five months of operations included certain start-up costs.
Like most resort properties El Conquistador is expected to report losses in its
early years but the Company's 23.3% equity in the losses are expected to be
offset by the Company's 62% interest in the management fees earned by Williams
Hospitality from El Conquistador.
Income from operations was $49,288,000 in fiscal 1994 as compared with
$52,455,000 in fiscal 1993. The reduction was primarily from decreased operating
profit of hotel/casino operations (including equity in loss of nonconsolidated
affiliates), offset in part by a modest increase in operating profit of the
amusement games business.
Consolidated interest and other income-net increased primarily due to
increased income on short-term investments and the absence of the 1993 charge of
$601,000 for the El San Juan retirement of debt. See note 3 to Notes to
Consolidated Financial Statements.
Consolidated interest expense increased $1,532,000 primarily from the interest
expense on 53/4% convertible debentures that were sold on December 1, 1992
resulting in interest expense on the debentures for seven months in fiscal 1993
in comparison to twelve months in fiscal 1994.
The fiscal 1994 provision for income taxes reflects federal, Puerto Rico and
state income taxes and results in an effective rate of 28.6% compared with 31.5%
in fiscal 1993. The decrease in effective rate was primarily due to foreign
sales corporation benefits and increased utilization of capital loss carry
forwards, offset in part by the 1 percentage point increase in the federal tax
rate.
Minority interest in income increased to $4,597,000 in fiscal 1994 from
$3,332,000 in fiscal 1993 primarily due to increased net income of Williams
Hospitality.
Net income was $28,483,000 ($1.19 per share) in fiscal 1994 as compared with
$30,709,000 ($1.31 per share) in fiscal 1993. The average number of shares
outstanding increased 2.7% in fiscal 1994. Net income for fiscal 1994 decreased
as a result of a $3,555,000 ($.16 per share) reduction in the hotel/casino
contribution to net income as compared to fiscal 1993 and in the current year
higher expenses, after tax, of $3,900,000 ($.16 per share) incurred to expand
the Company's business into three new business areas: casino gaming products,
home video games; and, interactive networked video games. Net income for fiscal
1994 was increased by approximately $8,320,000 ($.35 per share) relating to the
Company's business arrangements with Nintendo of America and Nintendo Co. Ltd.
of Japan and certain other licensing revenues noted above.
IMPACT OF INFLATION
During the past three fiscal years, the general level of inflation affecting the
Company's operations in the United States and its hotel/casino operations in
Puerto Rico has been at a relatively low level. The ability of the Company to
pass on future cost increases in the form of higher sales prices and average
room rates will continue to be dependent on the prevailing competitive
environment.
14
<PAGE>
MARKET FOR THE COMPANY'S COMMON STOCK AND
RELATED SECURITY-HOLDER MATTERS
The Company's Common Stock, $.50 par value, is traded on the New York Stock
Exchange (ticker symbol -- WMS). The table sets forth the high and low sales
prices of the Common Stock on the New York Stock Exchange for the periods
indicated:
<TABLE>
<CAPTION>
---------------------------------------------------------
Calendar Period High Low
---------------------------------------------------------
<S> <C> <C>
1993
Third Quarter $29 $21 3/4
Fourth Quarter 33 7/8 26 5/8
---------------------------------------------------------
1994
First Quarter $29 7/8 $23 1/2
Second Quarter 27 3/8 16 1/2
Third Quarter 20 5/8 17
Fourth Quarter 19 3/8 16
---------------------------------------------------------
1995
First Quarter $24 1/4 $16 5/8
Second Quarter 21 18
Third Quarter (through Sept. 8, 1995) 23 7/8 19 5/8
</TABLE>
No cash dividends were declared or paid during fiscal 1995 or 1994. The
payment of future cash dividends will depend upon, among other things, earnings,
anticipated expansion and capital requirements and the financial condition of
the Company.
At September 8, 1995, there were approximately 2,000 holders of record of the
Common Stock.
REPORT OF INDEPENDENT AUDITORS
The Stockholders and the Board of Directors
WMS Industries Inc.
We have audited the accompanying consolidated balance sheets of WMS Industries
Inc. and Subsidiaries as of June 30, 1995 and 1994, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended June 30, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the 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 consolidated financial position of WMS Industries
Inc. and Subsidiaries at June 30, 1995 and 1994, and the consolidated results of
their operations and cash flows for each of the three years in the period ended
June 30, 1995 in conformity with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
August 31, 1995
15
<PAGE>
WMS Industries Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
June 30, 1995 1994
----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 45,964 $ 34,239
Short-term investments 47,863 62,900
Receivables, net 57,919 55,926
Receivables from nonconsolidated affiliates 3,376 4,877
Inventories
Raw materials and work in progress 36,667 21,199
Finished goods 5,221 6,430
----------------------------------------------------------------------------------------------------
41,888 27,629
Deferred income taxes -- 553
Other current assets 6,218 5,222
----------------------------------------------------------------------------------------------------
Total current assets 203,228 191,346
Investments in, receivables and advances to nonconsolidated affiliates 26,320 26,490
Investment in marketable equity securities 23,187 15,500
Property, plant and equipment, net 81,194 70,697
Excess of purchase cost over amount assigned to net assets acquired, net 20,109 19,578
Other assets 32,028 19,530
----------------------------------------------------------------------------------------------------
Total assets $386,066 $343,141
====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,922 $ 23,336
Accrued compensation and related benefits 5,859 7,686
Income taxes payable 5,328 --
Deferred income taxes 1,819 --
Other accrued liabilities 11,154 9,780
Notes payable 2,000 2,000
Current maturities of long-term debt 3,813 4,553
----------------------------------------------------------------------------------------------------
Total current liabilities 63,895 47,355
Long-term debt, less current maturities 84,428 88,256
Deferred income taxes 4,088 3,006
Other noncurrent liabilities 8,721 6,665
Minority interests 16,363 16,387
Stockholders' equity:
Preferred stock (5,000,000 shares authorized, none issued) -- --
Common stock (issued 24,165,612 shares in 1995 and 24,160,612 shares in 1994) 12,083 12,080
Additional paid-in capital 81,851 81,666
Retained earnings 119,367 100,160
----------------------------------------------------------------------------------------------------
213,301 193,906
Treasury stock, at cost (56,312 shares in 1995 and 62,312 shares in 1994) (159) (176)
Unrealized loss on noncurrent marketable equity securities (4,571) (12,258)
----------------------------------------------------------------------------------------------------
Total stockholders' equity 208,571 181,472
----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $386,066 $343,141
====================================================================================================
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
WMS Industries Inc.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Years ended June 30, 1995 1994 1993
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Amusement games $314,494 $282,733 $260,449
Management fees -- Williams Hospitality 13,348 12,880 5,867
Condado Plaza hotel/casino:
Casino 24,584 29,560 30,946
Casino promotional allowances (6,872) (8,379) (8,440)
Rooms 25,210 26,183 25,715
Food and beverage 11,412 11,713 13,206
Other 3,196 3,523 3,386
--------------------------------------------------------------------------------------------------
57,530 62,600 64,813
--------------------------------------------------------------------------------------------------
Total revenues 385,372 358,213 331,129
COSTS AND EXPENSES
Cost of sales (excluding depreciation) -- amusement games 241,961 217,802 201,184
Williams Hospitality operating expenses (excluding depreciation) 5,175 5,724 1,397
Condado Plaza operating expenses (excluding depreciation):
Casino 13,737 14,612 14,557
Rooms 9,081 8,969 9,355
Food and beverage 10,503 10,153 10,873
Other 6,463 5,909 6,334
--------------------------------------------------------------------------------------------------
39,784 39,643 41,119
Selling and administrative 45,891 32,848 26,784
Depreciation and amortization 11,685 9,374 8,055
Equity in loss of nonconsolidated affiliates 7,003 3,534 135
--------------------------------------------------------------------------------------------------
Total costs and expenses 351,499 308,925 278,674
--------------------------------------------------------------------------------------------------
Income from operations 33,873 49,288 52,455
Interest and other income -- net 7,239 4,958 3,577
Interest expense (7,154) (7,900) (6,368)
--------------------------------------------------------------------------------------------------
Income before tax provision and minority interests 33,958 46,346 49,664
Provision for income taxes (11,841) (13,266) (15,623)
Minority interests in income (2,910) (4,597) (3,332)
--------------------------------------------------------------------------------------------------
Net income $ 19,207 $ 28,483 $ 30,709
==================================================================================================
Net income per share of common stock $ .80 $ 1.19 $ 1.31
==================================================================================================
Shares used in calculating per share amount 24,102 24,016 23,374
==================================================================================================
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
WMS Industries Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Receivable
Additional from sale Treasury Unrealized Total
Common paid-in Retained of common stock, holding stockholders'
stock capital earnings stock at cost loss equity
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of June 30, 1992 $11,618 $64,686 $ 40,968 $(1,705) $(181) $ -- $115,386
Net income for the year ended June 30, 1993 -- -- 30,709 -- -- -- 30,709
Collection of receivable from sale of
common stock -- -- -- 1,705 -- -- 1,705
Issuance of 368,000 shares of common stock
through exercise of options 184 2,109 -- -- -- -- 2,293
Tax benefit from exercise of common stock
options -- 2,382 -- -- -- -- 2,382
----------------------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1993 11,802 69,177 71,677 -- (181) -- 152,475
Net income for the year ended June 30, 1994 -- -- 28,483 -- -- -- 28,483
Issuance of 556,450 shares of common stock
through exercise of options 278 9,970 -- -- -- -- 10,248
Issuance of 2,000 treasury shares through
the treasury share bonus plan -- 40 -- -- 5 -- 45
Unrealized holding loss on noncurrent
investment in marketable equity securities -- -- -- -- -- (12,258) (12,258)
Tax benefit from exercise of common stock
options -- 2,479 -- -- -- -- 2,479
----------------------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1994 12,080 81,666 100,160 -- (176) (12,258) 181,472
Net income for the year ended June 30, 1995 -- -- 19,207 -- -- -- 19,207
Issuance of 5,000 shares of common stock
through exercise of options 3 34 -- -- -- -- 37
Issuance of 6,000 treasury shares through
the treasury share bonus plan -- 134 -- -- 17 -- 151
Reduction of unrealized holding loss on
noncurrent investment in marketable
equity securities -- -- -- -- -- 7,687 7,687
Tax benefit from exercise of common stock
options -- 17 -- -- -- -- 17
----------------------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1995 $12,083 $81,851 $119,367 $ -- $(159) $ (4,571) $208,571
==================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
WMS Industries Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Years ended June 30, 1995 1994 1993
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 19,207 $ 28,483 $ 30,709
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 11,685 9,374 8,055
Receivables provision 5,135 2,015 1,523
Undistributed loss of nonconsolidated affiliates 7,003 3,534 736
Minority interests 2,910 4,597 3,332
Deferred income taxes 3,454 3,212 7,019
Tax benefit from exercise of common stock options 17 2,479 2,382
Increase (decrease) resulting from changes in operating assets and liabilities:
Receivables (13,711) (8,370) (14,904)
Inventories (14,259) (2,574) (3,821)
Other current assets (1,231) (2,236) (1,003)
Accounts payable and accruals 10,134 3,747 (3,356)
Income taxes payable 5,328 -- --
Net amounts due from nonconsolidated affiliates (5,857) (5,383) (1,152)
Other assets and liabilities not reflected elsewhere (616) (4,279) (427)
---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 29,199 34,599 29,093
INVESTING ACTIVITIES
Purchase of property, plant and equipment (19,474) (18,913) (11,335)
Purchase of additional shares of subsidiaries (3,925) (660) (865)
Acquisition of Tradewest operating assets -- (14,431) --
Net change in short-term investments 15,037 23,650 (86,550)
Purchase of noncurrent marketable equity securities -- (27,758) --
Investment in and advances to nonconsolidated affiliates (1,360) (3,473) (3,480)
Collections from nonconsolidated affiliates 2,010 1,973 13,691
Other (4,448) (6,807) --
---------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (12,160) (46,419) (88,539)
FINANCING ACTIVITIES
Net proceeds from public sale of 53/4% convertible debentures -- -- 55,600
Proceeds from long-term debt and notes payable -- 4,664 963
Payment of long-term debt and notes payable (4,568) (4,674) (10,835)
Dividends paid to minority shareholders of subsidiary (783) (2,108) (3,826)
Cash received on exercise of stock options and receivable from sale of common stock 37 10,248 3,998
---------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (5,314) 8,130 45,900
---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 11,725 (3,690) (13,546)
Cash and cash equivalents at beginning of year 34,239 37,929 51,475
---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 45,964 $ 34,239 $ 37,929
=====================================================================================================================
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
WMS Industries Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: PRINCIPAL ACCOUNTING POLICIES
Consolidation Policy
The consolidated financial statements include the accounts of WMS Industries
Inc. ("WMS") and its majority-owned subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated.
Investments in companies that are 20% to 50% owned are accounted for by the
equity method. WMS records its equity in the results of operations of El
Conquistador L.P. on that partnership's year end of March 31.
Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
Inventories
Inventories are valued at the lower of cost (determined by the first-in, first-
out method) or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated by the
straight-line method over their estimated useful lives.
Excess of Purchase Cost Over Amount Assigned to Net Assets Acquired (Goodwill)
Goodwill of $22,849,000 (net of accumulated amortization of $3,740,000) at June
30, 1995 arising from acquisitions is being amortized by the straight-line
method over 15 to 40 years. Goodwill of $1,000,000 which arose in 1968 is not
being amortized.
Intellectual Properties Licenses
Nonrefundable guaranteed amounts are recognized as revenue when the license
agreements are signed. Unit royalties on sales that exceed the guarantee are
recognized as revenue as earned.
Home Video Game Revenues
Home video game revenues are recorded when products are shipped to customers. An
allowance for returns and discounts is also recorded based upon management's
evaluation of historical experience as well as current industry trends.
Casino Revenues
Casino revenues are the net win from gaming activities, which is the difference
between gaming wins and losses.
Casino Promotional Allowances
Casino promotional allowances represent the retail value of complimentary food,
beverage and hotel services furnished to patrons, commissions and transportation
costs.
Research and Development Expense
Research and development expense charged to earnings for fiscal 1995, 1994 and
1993 was $26,779,000, $20,178,000 and $13,769,000, respectively.
Advertising Expense
The cost of advertising is charged to earnings as incurred and for fiscal 1995,
1994 and 1993 was $7,579,000, $2,194,000 and $1,721,000, respectively.
NOTE 2: PROPOSED ACQUISITION AND ACQUISITIONS
On June 21, 1995, the Company and Bally Gaming International, Inc. (Bally)
executed a definitive merger agreement pursuant to which the Company will
acquire Bally by the exchange of .55 shares of its common stock for each share
of Bally common stock outstanding at the date of merger. The Company is expected
to issue approximately 6,176,000 shares of common stock. Bally is engaged in the
design, manufacture and sale of electronic gaming machines and the design and
sale of computerized tracking systems for casino slot and video machines.
Consummation of the merger is subject to, among other things, Bally's
disposition of its German operations under specified conditions, stockholder
approval of both companies and regulatory approvals including certain state
gaming authorities.
20
<PAGE>
On April 29, 1994, a WMS subsidiary, Williams Entertainment Inc., acquired
substantially all of the operating assets and business of three commonly owned
companies ("Tradewest"): Tradewest, Inc., Tradewest International, Inc. and The
Leland Corporation. The assets acquired are utilized in the amusement games
business of developing, publishing and distributing home video games in various
formats including game cartridges. The acquisition is being accounted for by the
purchase method of accounting.
The final purchase price will be equal to five times average annual pre-tax
income of the acquired business during the four year period commencing May 1,
1994 subject to a minimum and a maximum. The minimum purchase price is
$14,131,000 based upon a closing balance sheet of Tradewest and the maximum
purchase price is $50,131,000. The additional purchase price, if any, will be
allocated to goodwill when accrued and amortized over 15 years.
The unaudited pro forma consolidated statement of income data for fiscal 1994
included below assumes the Tradewest acquisition occurred July 1, 1993.
<TABLE>
<CAPTION>
------------------------------------------------
(in thousands) 1994
------------------------------------------------
<S> <C>
Revenues $380,375
================================================
Net income $ 26,031
================================================
Net income per share of common stock $ 1.08
================================================
</TABLE>
In July 1994 the Company acquired 2.5% of Posadas de Puerto Rico Associates,
Incorporated, owner of the Condado Plaza Hotel & Casino ("Condado Plaza"),
increasing its interest from 92.5% to 95%. In each of May 1993 and January 1994,
the Company acquired 1% of Williams Hospitality Group Inc. ("Williams
Hospitality") increasing its interest from 55% to 57%. In July 1994 the Company
acquired 5% of Williams Hospitality increasing its interest from 57% to 62%.
NOTE 3: INVESTMENTS IN NONCONSOLIDATED AFFILIATES
Investments in nonconsolidated affiliates consist of a 50% interest in Posadas
de San Juan Associates, a partnership ("PSJA"); a 23.3% indirect interest in El
Conquistador Partnership L.P. ("El Conquistador") through a 46.5% interest in
WKA El Con Associates, a partnership ("WKA El Con").
Current receivables from nonconsolidated affiliates at June 30 were:
<TABLE>
<CAPTION>
------------------------------------------------
(in thousands) 1995 1994
------------------------------------------------
<S> <C> <C>
PSJA $ -- $ 650
WKA El Con 1,130 1,602
El Conquistador 2,029 2,625
Las Casitas 217 --
------------------------------------------------
$ 3,376 $ 4,877
================================================
</TABLE>
Investments in and noncurrent receivables and advances to nonconsolidated
affiliates at June 30 were:
<TABLE>
<CAPTION>
------------------------------------------------
(in thousands) 1995 1994
------------------------------------------------
<S> <C> <C>
Investments:
PSJA $(6,999) $(5,799)
WKA El Con 1,566 6,418
Receivables and advances:
PSJA 21,263 20,312
WKA El Con 4,547 5,025
El Conquistador 5,943 534
------------------------------------------------
$26,320 $26,490
================================================
</TABLE>
PSJA operates as a partnership, therefore, 50% of its accumulated deficit is
recorded as an investment. PSJA owns the El San Juan Hotel &Casino ( "El San
Juan"). Summarized financial data for PSJA at June 30, 1995 and 1994 and for
fiscal 1995, 1994 and 1993 were:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
(in thousands) 1995 1994 1993
-------------------------------------------------------------------
<S> <C> <C> <C>
Current assets $ 7,745 $ 13,411
Noncurrent assets 35,929 36,747
-------------------------------------------------------------------
Total assets $ 43,674 $ 50,158
===================================================================
Payable to affiliates $ -- $ 650
Other current liabilities 9,935 12,154
-------------------------------------------------------------------
Total current liabilities 9,935 12,804
Noncurrent payables to affiliates 21,263 20,312
Other noncurrent liabilities 26,474 28,638
-------------------------------------------------------------------
Total noncurrent liabilities 47,737 48,950
Partners capital deficiency (13,998) (11,596)
-------------------------------------------------------------------
Total liabilities and partners
capital deficiency $ 43,674 $ 50,158
===================================================================
Revenues $ 51,797 $ 55,923 $57,314
Costs and expenses 54,198 58,371 58,786
-------------------------------------------------------------------
Net (loss) $ (2,401) $ (2,448) $(1,472)
===================================================================
</TABLE>
Net (loss) of PSJA in 1993 includes an extraordinary charge of $1,202,000 for
the write-off of deferred loan fees resulting from mortgage debt refinanced in
1993. The Company's 50% equity in this write-off of $601,000 is included in the
fiscal 1993 consolidated statement of income in the caption "interest and other
income -- net."
21
<PAGE>
WMS Industries Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company has a 46.5% interest in WKA El Con which has a 50% interest in El
Conquistador. Summarized financial data for WKA El Con at June 30, 1995 and 1994
and fiscal year ended June 30, 1995 and eight months ended June 30, 1994 were:
<TABLE>
<CAPTION>
---------------------------------------------------------------
(in thousands) 1995 1994
---------------------------------------------------------------
<S> <C> <C>
Loans receivable from El Conquistador $ 14,043 $12,619
Investment in El Conquistador--net (215) 13,552
Other assets--net 3,597 1,987
---------------------------------------------------------------
Total assets $ 17,425 $28,158
===============================================================
Current payable to Williams Hospitality $ 1,130 $ 1,602
Other payables 683 832
Long-term payable to Williams Hospitality -- 926
Long-term note payable including interest 4,797 4,470
Long-term notes payable to partners
including interest 9,258 8,340
Partners' equity 1,557 11,988
---------------------------------------------------------------
Total liabilities and equity $ 17,425 $28,158
===============================================================
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
1995 1994
---------------------------------------------------------------
<S> <C> <C>
Net operating expenses $ (356) $ (239)
Equity in net loss of El Conquistador
to March 31 (13,739) (5,024)
Equity in net income of Las Casitas
to June 30 1,627 297
---------------------------------------------------------------
Net (loss) $(12,468) $(4,966)
===============================================================
</TABLE>
The WKA El Con long-term note payable including interest is collateralized by
a pledge of a second mortgage on land owned by the Company that cost $3,761,000
and a WMS guarantee of $1,000,000.
El Conquistador is located in Las Croabas, Puerto Rico and is a destination
resort and casino which began operations in November 1993. Summarized financial
data for El Conquistador at March 31, 1995 and 1994 (the partnership's fiscal
year end) and the fiscal year ended March 31, 1995 and the five months ended
March 31, 1994 were:
<TABLE>
<CAPTION>
------------------------------------------------------------------
(in thousands) 1995 1994
------------------------------------------------------------------
<S> <C> <C>
Current assets $ 15,316 $ 25,269
Land, building and equipment--net 195,989 199,095
Deferred debt issuance and
pre-opening costs--net 12,696 17,713
Other assets 1,190 1,510
------------------------------------------------------------------
Total assets $ 225,191 $243,587
==================================================================
Current liabilities $ 27,288 $ 29,055
Long-term debt 151,759 153,625
Long-term due to Partners and affiliates 37,428 24,716
Partners' equity 8,716 36,191
------------------------------------------------------------------
Total liabilities and equity $ 225,191 $243,587
==================================================================
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------
1995 1994
------------------------------------------------------------------
<S> <C> <C>
Revenues $ 84,743 $ 32,973
Costs and expenses (101,096) (38,747)
Depreciation and amortization (11,124) (4,274)
------------------------------------------------------------------
Net (loss) $ (27,477) $(10,048)
==================================================================
</TABLE>
Williams Hospitality has pledged cash equivalents and investments of
$1,850,000 as collateral for certain financing made by El Conquistador. In
addition, Williams Hospitality has provided guarantees amounting to $5,200,000
in connection with leasing and other financing transactions of El Conquistador.
Consolidated retained earnings of the Company at June 30, 1995 is reduced by
$18,613,000 for the accumulated deficit of PSJA and WKA El Con which are
accounted for under the equity method.
22
<PAGE>
NOTE 4: INVESTMENT IN SECURITIES
Effective July 1, 1994, the Company adopted, which had no effect on the
consolidated financial statements, Statement of Financial Accounting Standards
115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity
Securities". SFAS 115 requires the classification of securities into one of
three categories, trading, held-to-maturity and available for-sale. All
investments are classified by the Company as available-for-sale. Available-for-
sale securities are recorded at market value with the holding gain or loss
reflected in stockholders' equity. A summary of securities held at June 30 were
as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------
Gross
Unrealized Market
(in thousands) Cost Losses Value
------------------------------------------------------------
<S> <C> <C> <C>
1995
----------------------
Securities included as part
of cash equivalents $25,843 $ -- $25,843
Short-term investments 47,863 -- 47,863
Marketable equity
securities noncurrent 27,758 4,571 23,187
1994
----------------------
Short-term investments $62,900 $ -- $62,900
Marketable equity
securities noncurrent 27,758 12,258 15,500
</TABLE>
Short-term investments consist principally of money market preferred stocks
that generally have no fixed maturity dates but have dividend reset dates every
49 days or less.
NOTE 5: RECEIVABLES
At June 30 net receivables were:
<TABLE>
<CAPTION>
-----------------------------------------------------
(in thousands) 1995 1994
-----------------------------------------------------
<S> <C> <C>
Accounts receivable -- trade $59,833 $57,181
Less allowances (1,914) (1,255)
-----------------------------------------------------
Net receivables $57,919 $55,926
=====================================================
</TABLE>
The Company obtains notes receivable from the sale of video lottery equipment
and has agreements to sell the notes receivable to financial institutions. As of
June 30, 1995 the Company, under certain circumstances, may be required to
repurchase $482,000 of these notes.
NOTE 6: PROPERTY, PLANT AND EQUIPMENT
At June 30 net property, plant and equipment were:
<TABLE>
<CAPTION>
--------------------------------------------------------
(in thousands) 1995 1994
--------------------------------------------------------
<S> <C> <C>
Land $ 10,744 $ 10,702
Buildings and improvements 64,381 51,783
Machinery and equipment 41,796 35,577
Furniture and fixtures 16,643 15,723
--------------------------------------------------------
133,564 113,785
Less accumulated depreciation (52,370) (43,088)
--------------------------------------------------------
Net property, plant and equipment $ 81,194 $ 70,697
========================================================
</TABLE>
NOTE 7: INCOME TAXES
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. Deferred tax assets also include the
future tax benefit from unrealized capital loss and capital loss carryforwards.
Significant components of the Company's deferred tax assets and liabilities at
June 30 were:
<TABLE>
<CAPTION>
----------------------------------------------------------------
(in thousands) 1995 1994
----------------------------------------------------------------
<S> <C> <C>
Deferred tax assets resulting from:
Unrealized capital loss $ 1,800 $ 4,862
Capital loss carryforwards -- 1,139
Inventory valuation 1,370 781
Book over tax loss of WKA El Con 2,840 820
Accrued expenses not currently deductible 1,110 --
Receivable allowance 632 211
Other 1,527 1,006
----------------------------------------------------------------
Total deferred tax assets 9,279 8,819
Valuation allowance for:
Unrealized capital loss (1,800) (4,862)
Capital loss carryforwards -- (1,139)
----------------------------------------------------------------
Net deferred tax assets 7,479 2,818
----------------------------------------------------------------
Deferred tax liabilities resulting from:
Tax over book depreciation 1,467 1,115
Tax over book deductions of PSJA 1,605 1,246
Revenues deferred in tax reporting 8,476 1,371
Other 1,838 1,539
----------------------------------------------------------------
Total deferred tax liabilities 13,386 5,271
----------------------------------------------------------------
Net deferred tax liabilities $(5,907) $(2,453)
================================================================
</TABLE>
23
<PAGE>
WMS Industries Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Significant components of the provision for income taxes for the years ended
June 30, 1995, 1994 and 1993 were:
<TABLE>
<CAPTION>
-----------------------------------------------------------
(in thousands) 1995 1994 1993
-----------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 6,572 $ 5,165 $ 3,560
State 1,045 1,457 1,419
Puerto Rico 753 953 1,243
-----------------------------------------------------------
Total current 8,370 7,575 6,222
Deferred:
Federal 2,641 2,901 6,363
State 813 311 656
-----------------------------------------------------------
Total deferred 3,454 3,212 7,019
Provision for tax benefits
resulting from stock options 17 2,479 2,382
-----------------------------------------------------------
Provision for income taxes $11,841 $13,266 $15,623
===========================================================
</TABLE>
For financial reporting purposes, income before income taxes and minority
interests is comprised of the following components for the years ended June 30:
<TABLE>
<CAPTION>
--------------------------------------------
(in thousands) 1995 1994 1993
--------------------------------------------
<S> <C> <C> <C>
Pretax income:
United States $28,304 $36,039 $38,734
Puerto Rico 5,654 10,307 10,930
--------------------------------------------
$33,958 $46,346 $49,664
============================================
</TABLE>
The provision for income taxes differs from the amount computed using the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 34.0%
Puerto Rico income taxed at lower rates (4.7) (5.7) (5.0)
Puerto Rico loss resulting in no tax benefit 4.5 -- --
State income taxes, net of federal benefit 3.6 3.1 3.3
Foreign sales corporation benefits (1.7) (2.0) --
Utilization of capital loss carryforwards (3.0) (2.6) (1.3)
Other, net 1.2 .8 .5
-------------------------------------------------------------------
34.9% 28.6% 31.5%
===================================================================
</TABLE>
Undistributed earnings of the Puerto Rico subsidiaries that operate as Section
936 corporations under U.S. income tax regulations were approximately
$32,279,000 at June 30, 1995. Those earnings are considered indefinitely
reinvested and, accordingly, no provision for income or toll gate taxes has been
provided thereon. Upon distribution of those earnings in the form of dividends
the Company would be subject to U.S. income tax of approximately $1,810,000 and
toll gate withholding taxes of approximately $700,000.
During fiscal 1995, 1994 and 1993 income taxes paid were $3,199,000,
$9,707,000 and $5,546,000, respectively.
NOTE 8: NOTES PAYABLE AND LONG-TERM DEBT
WMS has an uncollateralized bank line of credit which provides for borrowing up
to $25,000,000 or for WMS and its U.S. operating subsidiaries to have letters of
credit up to $25,000,000 outstanding. The letter of credit availability was
increased to $75,000,000 through December 31, 1995. Interest on the initial
borrowings will be at a short-term Eurodollar rate plus .75%. At June 30, 1995,
there were no borrowings from this line of credit but there were outstanding
letters of credit totaling $10,200,000.
The Condado Plaza has a $2,000,000 bank line of credit which is payable on
demand with interest at the prime rate plus 1 percentage point, 9.75% and 8.5%
at June 30, 1995 and 1994, respectively. Borrowings under the line at June 30,
1995 and 1994 were $2,000,000. The line of credit is collateralized by a
mortgage on the Condado Plaza property and accounts receivable.
Long-term debt at June 30 was:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
(in thousands) 1995 1994
-------------------------------------------------------------------
<S> <C> <C>
Convertible subordinated debentures $57,500 $57,500
Condado Plaza mortgage note, due in increasing
annual amounts through 1999, 12% 26,150 27,950
Williams Hospitality note payable to bank,
due in installments, LIBOR (6.5%) plus
2 percentage points 900 2,700
Other 3,691 4,659
-------------------------------------------------------------------
88,241 92,809
Less current maturities (3,813) (4,553)
-------------------------------------------------------------------
$84,428 $88,256
===================================================================
</TABLE>
24
<PAGE>
The $57,500,000 of 53/4% convertible subordinated debentures due 2002 are
convertible by the holders into common stock at a conversion price of $29.00 per
share. The debentures are redeemable by the Company after December 1, 1995 at
103.6% of principal, declining to 100% on November 30, 2000.
The Williams Hospitality note payable to bank is guaranteed up to $533,000 by
the minority shareholders of Williams Hospitality and certain management fees
earned each year by Williams Hospitality are pledged as collateral.
Scheduled payments for the next five fiscal years on long-term debt are as
follows: $3,813,000 in 1996; $3,208,000 in 1997; $3,608,000 in 1998; $19,919,000
in 1999 and $193,000 in 2000.
The amount of interest paid (excluding $485,000, $204,000 and $516,000
capitalized in fiscal 1995, 1994 and 1993, respectively) during fiscal 1995,
1994 and 1993 was $7,160,000, $7,889,000 and $6,118,000, respectively.
NOTE 9: STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
Authorized common stock of the Company consists of 60,000,000 shares of $.50 par
value. At June 30, 1995, 6,416,809 shares of common stock were reserved for
possible issuance for the convertible debentures and the stock option plans.
Additionally, there are 5,000,000 shares of $.50 par value preferred stock
authorized. The preferred stock is issuable in series, and the relative rights
and preferences and the number of shares in each series are to be established by
the Board of Directors.
Earnings per share amounts are computed based upon the weighted average number
of outstanding common shares and dilutive common equivalent shares (relating to
stock options). In fiscal 1995, 1994 and 1993, per share amounts were computed
using the weighted average number of outstanding common shares of 24,102,051,
24,016,174 and 23,373,682, respectively.
NOTE 10: COMMON STOCK PLANS
Under the stock option plans the Company may grant both incentive stock options
and nonqualified options on shares of common stock through the year 2003.
Options may be granted to employees and under certain conditions to non-employee
directors. The stock option committee has the authority to fix the terms and
conditions upon which each employee option is granted, but in no event shall the
term exceed ten years or be granted at less than 100% of the fair market value
of the stock at the date of grant.
Under the plans, options were outstanding to acquire 3,058,050 shares ($1.88
to $26.88 per share -- 486,550 shares exercisable) and 2,768,550 shares ($1.88
to $26.88 per share) at June 30, 1995 and 1994, respectively. At June 30, 1995
outstanding options include options to acquire 1,600,000 shares at $26.88 per
share that do not become exercisable until the market value of the Company's
common stock reaches $35.00 per share. During fiscal 1995, options were granted
to purchase 304,000 shares ($17.25 to $19.63 per share), options were cancelled
for 9,500 shares, and options were exercised for 5,000 shares ($7.31 per share).
At June 30, 1995 and 1994, 1,376,000 and 1,680,000 shares, respectively, were
available for the granting of future options under the plans.
The Company has a Treasury Share Bonus Plan for key employees covering all the
shares of common stock held in the treasury. The vesting and other terms of the
awards are flexible. Awards for 4,000 shares of treasury stock were outstanding
at June 30, 1995 that vest during fiscal 1996 when the treasury shares will be
issued.
NOTE 11: CONCENTRATION OF CREDIT AND MARKET RISK AND FAIR VALUE DISCLOSURES OF
FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to concentrations of
credit and market risk consist primarily of cash equivalents, short-term
investments, trade accounts receivable from the sale of games and marketable
equity securities. By policy, the Company places its cash equivalents and short-
term investments
25
<PAGE>
WMS Industries Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
only in high credit quality securities and limits the amounts invested in any
one security. At June 30, 1995, 70% of trade accounts receivable are from sale
of games to the Company's distributors located primarily throughout the United
States and Western Europe and because of the number and geographic distribution,
concentration is limited. Foreign sales are typically made in U.S. dollars and
typically on the basis of a letter of credit.
The estimated fair value of financial instruments at June 30, 1995 has been
determined by the Company, using available market information and valuation
methodologies considered to be appropriate. The amounts reported for cash
equivalents, short-term investments, current notes payable and Williams
Hospitality note payable to bank are considered to be a reasonable estimate of
their fair value. The amount reported for marketable equity securities is valued
at the closing market price on June 30, 1995.
The $57,500,000 of 53/4% convertible subordinated debentures issued in
December 1992 are traded on the New York Stock Exchange and based on the last
trade on June 30, 1995 had a fair value of $51,463,000. The debentures are
callable at a premium after 1995 and convertible by the holder into common stock
at $29.00 per share.
The $26,150,000 Condado Plaza 12% mortgage note payable is estimated to have a
fair value of $28,801,000 using discounted cash flow analysis based on an
estimated interest rate of 7.8%. The mortgage note is subject to a substantial
prepayment penalty based on interest rate differentials plus a fixed percentage.
NOTE 12:LEASE COMMITMENTS
The Company's commitments for minimum rentals under non-cancelable operating
leases at June 30, 1995 are as follows:
<TABLE>
<CAPTION>
-----------------------------------
(in thousands)
-----------------------------------
<S> <C>
1996 $ 2,262
1997 1,324
1998 1,134
1999 1,112
2000 1,122
Thereafter 3,505
-----------------------------------
$10,459
===================================
</TABLE>
Operating leases relate principally to hotel, office and manufacturing
facilities and equipment. A portion of the hotel facilities are leased from a
partnership owned by a minority shareholder of the Condado Plaza. The minority
shareholder lease extends through 2004 at an annual rent of $684,000 through
1998 with periodic escalations thereafter to an annual rent of $827,000 in 2004.
Rent expense for fiscal 1995, 1994 and 1993 was $2,783,000, $2,735,000 and
$2,743,000, respectively (including $684,000, $668,000 and $622,000 paid in
1995, 1994 and 1993 respectively under the minority shareholder lease at the
Condado Plaza).
NOTE 13: PENSION PLANS
During fiscal 1992 the Company suspended the defined benefit pension plan that
covers salaried employees of the amusement game business and corporate
headquarters. The Company continued the defined benefit pension plan covering
certain hourly employees of the amusement game business.
The defined benefit plans provide pension benefits that are based on a flat
monthly rate multiplied by the number of years of service. The Company's funding
policy for these plans is to make at least the minimum annual contributions
required by ERISA. Plan assets are invested primarily in guaranteed insurance
contracts.
26
<PAGE>
The components of net periodic pension cost based on an expected long-term
rate of return on plan assets of 9% were:
<TABLE>
<CAPTION>
------------------------------------------------------------------
(in thousands) 1995 1994 1993
------------------------------------------------------------------
<S> <C> <C> <C>
Service costs-benefits earned
during the year $ 205 $ 187 $ 174
Interest cost on projected obligation 434 414 421
Actual return on plan assets (209) (268) (315)
Net amortization of unrecognized net
obligation at transition and deferrals (70) (10) 28
------------------------------------------------------------------
Net periodic pension cost for the year $ 360 $ 323 $ 308
==================================================================
</TABLE>
The plans' funded status and amounts included in the Company's consolidated
balance sheets at June 30 were:
<TABLE>
<CAPTION>
------------------------------------------------------------------
(in thousands) 1995 1994
------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of projected benefit
obligation, including vested obligations of
$4,803 and $4,541, respectively $(5,433) $(5,255)
Fair value of plan assets 3,778 3,838
------------------------------------------------------------------
Funded status (1,655) (1,417)
Unrecognized net obligations being
recognized over a remaining 7 years 519 590
Unrecognized net loss (gain) 294 (40)
Adjustment required to recognize
minimum liability (739) (495)
------------------------------------------------------------------
Accrued pension liability $(1,581) $(1,362)
==================================================================
</TABLE>
The discount rate used to determine the actuarial present value of the
projected benefit obligation was 7.5% at June 30, 1995 and 1994. Other assets
include an intangible asset of $739,000 and $495,000 at June 30, 1995 and 1994,
respectively, resulting from the adjustment required to recognize the minimum
pension liability.
The Company has three defined contribution employee retirement savings plans.
These defined contribution plans cover certain hourly and salaried employees of
the amusement game business and corporate headquarters. The Company's
contribution to these plans are based on employee participation with certain
limitations. The Company may change any of the factors which determine the
Company's contribution to such plans. Certain subsidiaries are required to make
contributions on behalf of unionized employees to defray part of the costs of
the multi-employer pension plans established by their respective labor unions.
Such contributions are computed using a fixed charge per employee. Contributions
to the defined contribution and multi-employer plans for fiscal 1995, 1994 and
1993 were $779,000, $607,000 and $528,000, respectively.
NOTE 14: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for fiscal 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
(in thousands, except Sept. 30 Dec. 31 Mar. 31 June 30
per share amounts) 1994 1994 1995 1995
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1995 Quarters:
Revenues $82,387 $112,559 $ 93,456 $96,970
Income from operations 224 10,800 14,034 8,815
Net income (loss) (1,073) 6,102 8,027 6,151
Net income (loss) per share (.04) .25 .33 .26
Shares used 24,098 24,098 24,103 24,108
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------
(in thousands, except Sept. 30 Dec. 31 Mar. 31 June 30
per share amounts) 1993 1993 1994 1994
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1994 Quarters:
Revenues $63,194 $101,273 $106,448 $87,298
Income from operations 1,823 17,516 23,184 6,765
Net income 455 10,104 14,228 3,696
Net income per share .02 .42 .59 .15
Shares used 23,824 24,039 24,095 24,097
</TABLE>
Revenues for the quarters ended December 31, 1994, March 31, 1995 and June 30,
1995 included certain licensing revenues of $10,000,000, $15,000,000 and
$2,000,000, respectively, that increased net income by $5,184,000, $.22 per
share, $8,130,000, $.34 per share, and $1,248,000, $.05 per share, respectively.
Revenues for the quarter ended June 30, 1995 included $916,000 from a fiscal
1994 ocean oil spill claim in Puerto Rico that increased net income by $870,000,
$.04 per share.
Revenues for the quarter ended March 31, 1994 included net revenues of
$9,000,000 from the business arrangement with Nintendo of America and Nintendo
Co. Ltd. of Japan that increased net income by $5,760,000, $.24 per share.
Revenues for the quarter ended June 30, 1994 included certain licensing revenue
of $4,000,000 that increased net income by $2,560,000, $.11 per share.
27
<PAGE>
WMS Industries Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 15: INDUSTRY SEGMENTS
The Company's operations are conducted through three industry segments: the
development, manufacture and sale of amusement games for the coin operated and
consumer entertainment market, the operation of the Condado Plaza and the
management of hotel/casinos.
Corporate assets consist principally of cash and cash equivalents, short-term
investments and marketable equity securities. Industry segment information
follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
(in thousands) 1995 1994 1993
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Amusement games $314,494 $282,733 $260,449
Condado Plaza 57,530 62,600 64,813
Williams Hospitality 17,350 16,795 9,874
Intersegment revenues elimination -- Williams Hospitality fees charged to Condado Plaza (4,002) (3,915) (4,007)
-------------------------------------------------------------------------------------------------------------------------
Total revenues $385,372 $358,213 $331,129
=========================================================================================================================
Operating profit
Amusement games $ 38,833 $ 45,012 $ 43,220
Condado Plaza (1,465) 4,473 6,759
Williams Hospitality 9,174 9,472 7,403
-------------------------------------------------------------------------------------------------------------------------
Total operating profit 46,542 58,957 57,382
Equity in (loss) of nonconsolidated affiliates (7,003) (3,534) (135)
General corporate expenses (5,666) (6,135) (4,792)
Interest and other income -- net 7,239 4,958 3,577
Interest expense (7,154) (7,900) (6,368)
-------------------------------------------------------------------------------------------------------------------------
Income before tax provision and minority interests $ 33,958 $ 46,346 $ 49,664
=========================================================================================================================
Identifiable assets
Amusement games $157,278 $117,879 $ 81,542
Condado Plaza 57,879 63,077 60,804
Williams Hospitality 17,737 16,419 14,454
Corporate 123,476 114,399 122,057
Investments in, receivables and advances to nonconsolidated affiliates 29,696 31,367 28,018
-------------------------------------------------------------------------------------------------------------------------
Total identifiable assets $386,066 $343,141 $306,875
=========================================================================================================================
Depreciation of property, plant and equipment
Amusement games $ 3,880 $ 2,649 $ 1,874
Condado Plaza 4,656 4,488 4,179
Williams Hospitality 681 316 --
Corporate 65 33 24
-------------------------------------------------------------------------------------------------------------------------
Total depreciation of property, plant and equipment $ 9,282 $ 7,486 $ 6,077
=========================================================================================================================
Capital expenditures
Amusement games $ 17,392 $ 7,897 $ 5,859
Condado Plaza 2,030 7,992 4,365
Williams Hospitality 36 2,979 1,064
Corporate 16 45 47
-------------------------------------------------------------------------------------------------------------------------
Total capital expenditures $ 19,474 $ 18,913 $ 11,335
=========================================================================================================================
Export sales
Amusement games (primarily to Western Europe) $138,530 $144,080 $143,843
=========================================================================================================================
Sales to a major customer
Amusement games $ 52,343 $ 58,844 $ 58,400
=========================================================================================================================
</TABLE>
28
<PAGE>
Exhibit 21
----------
Subsidiaries of Registrant
WMS INDUSTRIES INC.
AND
SUBSIDIARIES & AFFILIATES
AS OF 6/30/95
<TABLE>
<CAPTION>
Date and
Type of % of State Jurisdictions
Name & Tax ID No. Business Ownership Organized Qualified
----------------- -------- --------- --------- -------------
<S> <C> <C> <C> <C>
PARENT:
------
WMS Industries Holding company Public 11/20/74 New York-1/18/83
Inc. Delaware Illinois-3/29/91
36-2814522 Mississippi-12/28/94
Nevada-7/27/95
SUBSIDIARIES: (HOTELS AND CASINOS)
------------
El Conquistador Ferryboat Shuttle 100% by WHGI 9/30/93 - -
Ferryboat Inc. Puerto Rico
66-0499293
ESJ Hotel Holding company 100% 6/4/84 - -
Corporation Delaware
13-3237264
Isla Verde Tourism Parking Lot 100% by WHGI 11/6/92 - -
Parking Corp. Concession Holder Puerto Rico
Posadas de Puerto Hotel and casino 95% by 6/13/83 Puerto Rico
Rico Associates, ownership WMS Hotel Delaware 7/15/83
Incorporated
66-0401424
Posadas Finance Holding company 100% by Pos. de 8/12/88 - -
Corporation PR Assoc. Inc. Delaware
52-1635050
WMS El Con Corp. Holding company 100% 10/11/89 - -
06-1288059 Delaware
WMS Hotel Holding company 100% 6/13/83 - -
Corporation Delaware
(Name Change 5/20/87
from Williams Hotel Corporation)
36-3277014
Williams Hotel Holding company 100% 5/20/87 New York-3/1/88
Corporation Delaware Surrendered-3/15/93
13-3408888
Williams Hotel management 62% by 6/13/83 Puerto Rico-7/5/83
Hospitality WMS Hotel Delaware
Group Inc.
(Name Change 11/3/93
from Williams Hospitality Management Corporation)
66-0408507
WMS Property Inc. R.E. Holding Co. 100% 8/27/93 Puerto Rico-9/15/93
36-3906015 Delaware
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
Date and
Type of % of State Jurisdictions
Name & Tax ID No. Business Ownership Organized Qualified
----------------- -------- --------- --------- -------------
<S> <C> <C> <C> <C>
SUBSIDIARIES: (GAMES)
------------
Lenc-Smith Inc. Manufacturer of 100% 3/23/92 Illinois
36-3843629 amusement games Delaware 11/4/92
Midway Manufacturer of 100% 7/15/88 Illinois
Manufacturing amusement games Delaware 8/3/88
Company
22-2906244
WMS Games Asia Holding Company 79% by 9/7/93 --
Limited WMS Games Hong Kong
Bus.Reg.Cert. 17358232-000-09-93-2 1% by WEG
WMS Games Promotion and 100% 11/26/92 - -
(Europe) GmbH Marketing of Games Germany
WMS Games Inc. Holding company 100% 8/25/88 Mississippi
13-3491757 Delaware
WMS Games Sales Foreign Sales 100% 4/26/93 - -
Corporation Corporation Barbados
98-0132712
WMS Games Parts Amusement games 100% 2/28/90 Illinois
& Service Inc. part sales Delaware 11/8/91
36-3741556
WMS Gaming Inc. Manufacture of 100% 6/5/91 IL - 6/21/91
36-3770687 Video Lottery Delaware SD - 6/12/91
Terminals and MT - 9/4/91
Gaming Machines OR - 12/12/91
LA - 12/16/91
WV - 2/3/92
RI - 10/1/92
CO - 11/24/92
MS - 2/5/93
NV - 5/10/93
WI - 11/5/93
ND - 5/13/94
MO - 8/26/94
IN - 9/23/94
IO - 9/22/94
NJ - 9/26/94
AZ - 11/4/94
MN - 5/22/95
CT - 6/16/95
WMS Gaming Manufacture of 100% 5/24/93
(Nevada) Inc. Video Lottery Nevada
36-3895992 Terminals and
Gaming Machines
Williams Elec- Manufacturer of 100% 4/13/84 Illinois-1/17/86
tronics Games, Amusement games Delaware
Inc.
36-3331124
Williams Enter- Design, manufacture 100% 12/16/93 CA - 4/27/94
tainment Inc. and sale of amusement Delaware TX - 4/22/94
36-3933621 games for home systems
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Date and
------------
Type of % of State Jurisdictions
-------- ----- ----- -------------
Name & Tax ID No. Business Ownership Organized Qualified
----------------- -------- --------- --------- -----------
<S> <C> <C> <C> <C>
Williams Manufacturer of 100% 9/18/84 Illinois
Innovative amusement games Delaware 10/17/84
Technologies, Inc.
36-3371266
Williams/ Design, manufacture 50% by 3/15/94 [Illinois
Nintendo Inc. and sale of amusement WMS Games Delaware Pending]
[ID# App. For] games for home systems
PARTNERSHIPS:
-------------
El Conquistador Hotel and casino 50% 01/16/90
Partnership L.P. ownership by WKA Delaware
06-1288145 [23.3% WMS]
Las Casitas El Conquistador 50% by 4/27/93 - -
Development Condominium WKA El Con Puerto Rico
Company I, S development Associates
en C (S.E.)
Posadas de San Hotel and casino 50% by 07/30/84
Juan Associates ownership ESJ Hotel New York
66-041121
WKA Development, Real Estate 98% WHGI 6/1/91 - -
S.E. Holding Company 2% WKA El Con Puerto Rico
66-0476163
(formerly WMS Development, S.E.)
WKA El Con Partner in El 46.54% by 01/09/90
Associates Conquistador L.P. WMS El Con New York
06-1288143
</TABLE>
-3-
<PAGE>
Exhibit 23
----------
Consent of Independent Auditors
We consent to the incorporation by reference in the following: (i) Post
Effective Amendment No. 1 to Registration Statement No. 2-76082 on Form S-8
filed December 29, 1982; (ii) Registration Statement No. 2-82186 on Form S-8
filed March 3, 1983; (iii) Registration Statement No. 33-37187 on Form S-3 filed
February 27, 1991; (iv) Registration Statement No. 33-48363 on Form S-8 filed
June 3, 1992; and (v) Registration Statement No. 33-79146 on Form S-8 filed
May 19, 1994, and in the related Prospectuses, of our reports with respect to
the consolidated financial statements and schedule of WMS Industries Inc. and
subsidiaries, included in the Annual Report (Form 10-K) of WMS Industries Inc.
for the year ended June 30, 1995.
Ernst & Young LLP
Chicago, Illinois
September 18, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 45,964
<SECURITIES> 47,863
<RECEIVABLES> 59,833
<ALLOWANCES> 951
<INVENTORY> 41,888
<CURRENT-ASSETS> 203,228
<PP&E> 133,564
<DEPRECIATION> 52,370
<TOTAL-ASSETS> 386,066
<CURRENT-LIABILITIES> 63,895
<BONDS> 84,428
<COMMON> 12,083
0
0
<OTHER-SE> 196,488
<TOTAL-LIABILITY-AND-EQUITY> 386,066
<SALES> 314,494
<TOTAL-REVENUES> 385,372
<CGS> 241,961
<TOTAL-COSTS> 286,920
<OTHER-EXPENSES> 11,685
<LOSS-PROVISION> 1,950
<INTEREST-EXPENSE> 7,154
<INCOME-PRETAX> 33,958
<INCOME-TAX> 11,841
<INCOME-CONTINUING> 19,207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,207
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
