<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended JUNE 30, 1996
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OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 33-15932
--------------------------------
SOUTHMARK SAN JUAN, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2132723
- ------------------------------- --------------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ISLA VERDE AVENUE, CAROLINA, PUERTO RICO 00979
- ------------------------------------------ --------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (809) 791-6100
---------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
NONE
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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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- -----
As of September 15, 1996, 262,680 shares of Common Stock, $0.001 par value per
share were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
1
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PART I
ITEM 1. BUSINESS
GENERAL
- -------
Southmark San Juan, Inc. (the "Company") a Delaware corporation, was
incorporated during April 1986 for the purpose of acquiring, renovating, and
owning the Sands Hotel and Casino in Carolina, Puerto Rico (the "Sands San
Juan"). The Company's outstanding common shares are owned by Southmark
Corporation ("Southmark"), (48.2%); SJPR Management, Inc. ("SJPR"), 46.3%; and
bondholders who have exercised warrants described in DEBT REORGANIZATION,
(5.5%). SJPR is a wholly owned subsidiary of Pratt Hotel Corporation ("Pratt").
The operations of the Sands San Juan are managed by SJPR, Inc., also a wholly
owned subsidiary of Pratt which is, in turn, an approximately 80%-owned
subsidiary of Hollywood Casino Corporation ("HCC"), a Delaware corporation. The
Sands San Juan was opened for business on November 1, 1987.
The Sands San Juan is a resort hotel/casino offering customers a superior
physical and service oriented product, targeting the upscale United States,
Puerto Rico, and Caribbean hospitality market. The facility is located on the
beach in the Carolina sector of San Juan approximately five minutes northwest
from the Luis Munoz Marin International Airport.
MARKETING
- ---------
The hotel/casino industry in Puerto Rico is seasonal in nature, with peak
seasonal activity occurring during the period from December through April. The
Company's principal customer base is from the Northeastern United States, with
the remaining market derived from a mix of other United States, Canada, Mexico,
and Caribbean sources. Marketing efforts are concentrated in three principal
areas including contract business through travel wholesalers and agencies, group
travel business through incentive travel companies, and corporate business
through meeting planners and associations.
CASINO CREDIT
- -------------
Casino operations are conducted on both a credit and a cash basis. Credit
extended to customers accounted for approximately 6%, 9% and 16% of overall
table game wagering for the three fiscal years ended June 30, 1996, 1995 and
1994, respectively, At June 30, 1996 and 1995, gaming receivables amounted to
$421,000 and $391,000, respectively, before allowances for uncollectible
accounts of $239,000 and $163,000, respectively.
LICENSE AGREEMENT
- -----------------
The trade name "Sands" is licensed by Pratt pursuant to a 99 year license
agreement. The license granted pursuant to the license agreement is currently
nonexclusive to Pratt within a certain geographical area in the Caribbean,
including Puerto Rico. Pratt incurs an annual royalty fee based on the greater
of 1.5% of the Company's gross room charges, as defined, or $100,000. Pratt
incurred royalty fees amounting to $217,000, $225,000, and $219,000,
respectively, for the three fiscal years ended June 30, 1996, 1995, and 1994.
The Company reimburses Pratt for its cost of providing the use of the "Sands"
name.
2
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COMPETITION
- -----------
The Sands San Juan competes directly with several other premier hotel/casino
properties in metropolitan San Juan as well as with other properties throughout
the Caribbean. These properties offer similarly priced rooms, food and
beverage, and other amenities. Competition is primarily on the basis of the
quality of rooms, restaurant and convention facilities, entertainment,
complimentary and promotional allowances, casino credit limits, and personal
attention offered to guests and casino customers.
A number of the properties with which the Sands San Juan competes have larger
hotel and/or casino facilities and possess greater financial resources than the
Company. The Company's limited financial resources could have detrimental
effect on its competitive position in the future.
EMPLOYEES AND LABOR RELATIONS
- -----------------------------
The Company employs an average of 450 employees. During the peak season, the
employee count can range as high as 525 including part-time and other temporary
employees.
In February 1994, approximately 30 permanent dealers, of the Sands San Juan
Casino department, voted to become part of Gastronomical Workers union, Local
610 (HEREIN, AFLCIO (the Union), however, in August 1995 the Sands Hotel Casino
(the Company) received written notification, from the attorney representing a
majority of the casino permanent dealers, which stated that they no longer
wanted to be represented by the Union. As a result, the Company has withdrawn
from negotiations with the Union in regards to the casino department employees.
The Union rejected, the notification from the Company and filed a case with
the San Juan Office of the N.L.R.B. The San Juan Office of the N.L.R.B. ruled
in favor of the Company upholding the company's negotiations withdrawal. The
Union appealed the decision to the N.L.R.B. in Washington. On October 31, 1996,
the N.L.R.B. ordered the hotel to hold a new election to determine if the
employees wished to join Local 610.
On October 11, 1995 a union representation election was held on behalf of
approximately 150 hourly employees of the Food and Beverage, Housekeeping,
Engineering and Bell Staff departments. The employees rejected the Union
representation but the Union challenged the voting qualifications of several
employees in a petition to the San Juan Offices of the National Labor Relations
Board ("NLRB"). In addition the Union filed several unfair labor practice
claims against the management. The San Juan Office of the N.L.R.B. ruled in
favor of the union petition for both counts, whereupon the Company filed an
appeal with the N.L.R.B. in Washington. The appeal is still pending.
REGULATION
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Gaming in Puerto Rico is conducted and regulated through the Puerto Rico
Tourism Company ("Tourism"). Before a company can conduct casino gaming in
Puerto Rico, its application for a gaming franchise license must be recommended
by Tourism and approved by the Secretary of the Treasury. Any gaming franchise
license granted for the conduct of casino gaming is subject to cancellation in
the event that the licensee fails to comply with the conditions stipulated. The
gaming franchise license in Puerto Rico is reviewed and reissued every 91 days.
On July 25, 1996, the operator's casino license was reviewed and reissued
through October 23, 1996.
DEBT REORGANIZATION
- -------------------
On August 20, 1992, the Company filed a voluntary petition under Chapter 11 of
the United States Bankruptcy Code with the United States Bankruptcy Court for
the Northern District of Texas, Dallas
3
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Division (the "Bankruptcy Court"). On August 21, 1992, the Company filed its
Plan of Reorganization Under Chapter 11 (the "Plan") and its Disclosure
Statement and Solicitation of Ballots for the Debtor's Plan of Reorganization
(the "Disclosure Statement") with the Bankruptcy Court. As a result of such
filing, the Bankruptcy Court assumed jurisdiction of the assets and business of
the Company, although the Company remained in possession of its assets and
business and its officers and directors remained in office, subject to the
supervision and orders of the Bankruptcy Court.
The Company's bankruptcy filing and the filing of the Plan and Disclosure
Statement followed months of planning the restructuring of the Company's
indebtedness and reflected the results of the Company's negotiations with its
largest bondholder (holder of approximately 62% of the $38,000,000 of Industrial
Revenue Bonds, 1987 Series A (the "Old Bonds")) and a Puerto Rico bank holding a
$4,980,000 demand note.
On November 12, 1992, after successful solicitation of the approval of the
impaired creditor classes, the Company's Plan was confirmed by the Bankruptcy
Court. On December 1, 1992 the new Loan Agreement issued by the Puerto Rico
Industrial, Medical, Educational, and Environmental Pollution Control Facilities
Financing Authority ("AFICA") and related agreements, were executed,
successfully completing the reorganization of the Company's debt.
A summary of the major components of the restructuring follows:
In exchange for $38,000,000 principal amount of the Old Bonds and related
accrued interest as of the bankruptcy filing date of $7,836,000 bondholders
received:
1. $31,000,020 principal amount of new Senior Secured Industrial Revenue
Bonds, 1992 Series A (the "Senior Secured Bonds"), issued by AFICA,
maturing on either December 1, 1997, (Class A) or December 1, 2001
(Class B) at the election of individual bondholders and secured by a
first mortgage on the Sands San Juan.
Senior Secured Bonds maturing December 1, 1997, are due in full at
maturity. Senior Secured Bonds maturing December 1, 2001, require
principal payments of 10% of the outstanding balance annually,
beginning December 1, 1997, with the balance due December 1, 2001. The
Senior Secured Bonds bear interest at 8.5% of which 6.5% must be paid
annually in cash. The remaining 2.0% must be paid in cash to the
extent there exists Available Cash, as defined in the Trust Agreement.
In the event that Available Cash is insufficient to pay all or a
portion of the 2.0% interest annually, the insufficiency will be paid
by the issuance of Senior Secured PIK Bonds which bear interest at the
same rate and terms and are secured by the same collateral as the
Senior Secured Bonds.
2. Warrants to acquire from 496,000 shares to 744,000 shares of the
Company (50% to 75% of the Company's authorized common stock). The
warrants may be exercised at any time after December 1, 1992, at
$0.001 per share.
Warrants to acquire 496,000 shares of common stock were issued to
bondholders upon execution of the Senior Secured Bond and related
agreements. Simultaneously, warrants to acquire 248,000 shares of
common stock were escrowed with the New Trustee (the "Escrowed
Warrants").
On June 1, 1996, holders of the Senior Secured Bonds received Escrowed
Warrants to acquire, in the aggregate, an additional 99,200 shares of
Common Stock as no Redemption, as defined, has occurred with respect
to all Senior Secured Bonds, Senior Secured PIK Bonds and the
Warrants.
4
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On June 1, 1997, holders of the Senior Secured Bonds will receive
Escrowed Warrants to acquire, in the aggregate, an additional 148,800
shares of Common Stock, unless a Redemption has occurred with respect
to all Senior Secured Bonds, Senior Secured PIK Bonds, and the
Warrants.
The Puerto Rico bank received a Term Note in the principal amount of
$3,000,000, secured by a second mortgage on the Sands San Juan and maturing on
November 1, 1999, in exchange for a note payable in the principal amount of
$4,980,000 and related accrued interest as of the bankruptcy filing date of
$692,000. The Term Note bears interest initially at 3%, increasing to 6%
effective November 1, 1997. Accrued interest will be paid annually to the extent
there exists Available Cash after payment of interest on the Senior Secured
Bonds and redemption of any outstanding Senior Secured PIK Bonds. Interest
Payment Notes due November 1, 1999 will be issued in payment of accrued interest
not paid in cash. Available Cash, if any, remaining after payment of all accrued
interest on the Term Note must be used for redemption of the Senior Secured
Bonds previously described.
Shareholders' advances amounting to $17,413,000 and related accrued
interest, as of the bankruptcy filing date, of $7,519,000, deferred incentive
fees payable of $1,329,000 and 1,960 shares of common stock with a par value of
$1.00 per share were exchanged for 248,000 shares of common stock with a par
value of $0.001 per share.
The Senior Secured Bonds are secured by a first mortgage on the Sands
San Juan and mature on either December 1, 1997, (Class A) or December 1, 2001
(Class B) at the election of individual bondholders. Class B bonds require
principal payments of 10% of the outstanding balance annually, beginning
December 1, 1997, with the balance due December 1, 2001.
The Senior Secured bonds mature as follows:
<TABLE>
<CAPTION>
MATURITY AMOUNT
- -------- -----------
<S> <C>
1998 $13,652,000
1999 1,926,000
2000 1,926,000
2001 1,926,000
2002 11,554,000
-----------
$30,984,000
===========
</TABLE>
ITEM 2. PROPERTIES
The Sands San Juan is situated on approximately 5.7 acres of ocean
front property and consists of a 14-story tower with 384 ocean and mountain view
rooms and suites and 36 luxury suites located in an attached two-story wing.
The facility includes a 10,000 square foot casino, providing customers
a total resort gaming experience. Other facilities and amenities include two
gourmet specialty restaurants, a continental cuisine restaurant, a 6,000 square
foot free-form outdoor pool, a pool-side restaurant and bar, two cocktail
lounges, a 310 seat showroom, 9,000 square feet of banquet and meeting space,
and a corporate business center.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently a defendant in several lawsuits and claims
arising in the ordinary course of business. In the opinion of management, the
ultimate resolution of such claims will not have a material adverse impact on
the Company's financial position.
5
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During fiscal 1996, no matter was submitted to a vote of security
holders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDERS MATTERS
Refer to PART I, "BUSINESS - General," of this document for a description
of the ownership of the Company's common stock. Southmark, SJPR, and
approximately eight minority shareholders hold the Company's common stock for
investment purposes. There is no established trading market for the Company's
common stock .
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the Company is qualified in its
entirety by the financial statements, including the notes thereto, appearing
elsewhere in this document.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Net revenues $25,955,000 $25,664,000 $25,045,000 $26,830,000 $ 27,119,000
Net loss before extraordinary item $(2,120,000) $(1,416,000) $(2,655,000) $(4,112,000) $ (8,498,000)
Extraordinary item - - - $17,508,000 -
Net (loss) income $(2,120,000) $(1,416,000) $(2,655,000) $13,396,000 $ (8,498,000)
Earnings (loss) per common and
common equivalent share:
Loss before extraordinary item $ (8.07) $ (5.39) $ (10.29) $ (6.05) $ (34.27)
Extraordinary Item - - - $ 25.75 -
Net (loss) income $ (8.07) $ (5.39) $ (10.29) $ 19.70 $ (34.27)
BALANCE SHEET DATA:
(As of June 30)
Working Capital Deficit* $ (385,000) $ (117,000) $ (998,000) $ (653,000) $(74,830,000)
Total Assets $34,890,000 $36,160,000 $36,693,000 $36,985,000 $ 38,567,000
Long Term Debt* $36,782,000 $35,611,000 $34,973,000 $34,362,000 -
Shareholders' Deficit $(8,836,000) $(6,716,000) $(5,300,000) $(2,645,000) $(42,302,000)
</TABLE>
* Long term debt, inclusive of the Old Bonds, note payable to bank and
shareholders' advances, were classified as current liabilities at June 30,
1992, due to the existence of events of default (see ITEM 1, BUSINESS - Debt
Reorganization).
Certain amounts have been reclassified to conform with the 1996 presentation.
The Company did not pay cash dividends to its shareholders during any of the
fiscal years presented.
6
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary source of liquidity and capital resources to meet its
debt service obligations and fund capital expenditures is cash flow generated
from operations of the Sands San Juan. For the year ended June 30, 1996, the
Sands San Juan generated $483,000 of cash flow from operating activities. The
Company used its cash flow from operations to partially fund capital
expenditures of $1,179,000 with remaining capital expenditures funded by
existing cash reserves.
The Plan provides that Senior Secured PIK Bonds may be issued for annual
bond interest up to a maximum of 2% in the event that Available Cash is
insufficient to pay such interest in cash. The Company made the mandatory 6.5%
interest payment of $2,120,000 due July 31, 1996, on the Senior Secured Bonds
but did not generate sufficient Available Cash to require cash payment of the
remaining 2% of bond interest due. Accordingly, the Company issued Senior
Secured PIK Bonds in the amount of $653,000 as payment in kind of the remaining
bond interest on July 31, 1996. In addition, at July 31, 1996 no interest
payment was made to the Term Note Holder based upon Available Cash restrictions.
On November 1, 1996, the Company entered into a contract for the sale of
substantially all of its assets together with the assumption or discharge of all
of its liabilities, including payment of all Senior Secured Bonds and Senior
Secured PIK Bonds not owned by the Purchaser at par plus accrued interest to
date of closing. Concurrently, SJPR, Inc., the manager of the Sands San Juan,
entered into an agreement with the purchaser concerning modification and
termination of the management agreement. Closing of both transactions is
anticipated to occur on or before December 30, 1996.
Subsequent to consummation of the above transactions, it is the Company's
intention to liquidate within 180 days in accordance with the terms of its
current Warrant Agreement.
RESULTS OF OPERATIONS
- ---------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Hotel Operations
- ----------------
Room revenue $14,497,000 $15,033,000 $14,677,000
Paid occupancy 66.4% 72.1% 76.4%
Average daily rate $ 144.23 $ 137.66 $ 127.15
Departmental expenses $ 4,004,000 $ 4,084,000 $ 4,123,000
</TABLE>
Hotel revenues for the year ended June 30, 1996 decreased by $536,000
(3.5%) due to a 5.7% decrease in occupancy partially offset by a $6.57 increase
in average daily rate. The occupancy fluctuation is mainly due to a decline in
bookings for the Group market segment which were 27% below the prior fiscal
year. The average daily rate fluctuation is the result of management's decision
to replace contracts for airline crew rooms, representing approximately 11% of
occupancy in fiscal 1995, which had an average daily rate of $76, with other
market segments which yield higher average daily rates.
Hotel revenues for the year ended June 30, 1995 increased $356,000
(2.4%), when compared to the same period in 1994, due to increases in the
average daily rates of most market segments partially offset by decreased
bookings for the corporate and leisure travelers which resulted in a 4.3%
decrease in paid occupancy.
7
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Food and Beverage Operations
- ----------------------------
Food and beverage revenues $5,954,000 $4,776,000 $5,032,000
Departmental expenses $4,692,000 $4,111,000 $4,251,000
</TABLE>
Food and beverage revenues increased $1,178,000 (24.9%) for the year
ended June 30, 1996 due to the replacement of airline crew guests with other
market segments which utilize food and beverage outlets more extensively and the
addition of several live entertainment and banquet functions.
Food and beverage revenues reflected a nominal $256,000 (5.1%)
decrease in the fiscal year 1995 compared to fiscal year 1994.
Food and beverage expenses declined to 78.8% of revenues for the year
ended June 30, 1996 as compared to 86.1% for fiscal 1995 and 84.5% for fiscal
1994 due to increased revenue coverage of fixed expenses.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Casino Operations
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Table games:
Gross wagering $16,696,000 $17,437,000 $22,272,000
Win percentage 17.4% 19.50% 16.52%
Revenues $ 2,911,000 $ 3,402,000 $ 3,679,000
Slot machine revenues $ 1,660,000 $ 1,641,000 $ 1,536,000
Departmental expenses $ 3,383,000 $ 3,497,000 $ 4,159,000
Promotional allowances $ 721,000 $ 699,000 $ 1,081,000
</TABLE>
Table games revenues declined by $491,000 (14.4%) and $277,000 (7.5%)
in fiscal years 1996 and 1995 each compared to the respective prior fiscal year
due primarily to the following factors affecting table games activities:
1) Gross wagering for fiscal years 1996 and 1995 decreased by 4.2% and
21.7%, respectively, compared to the prior years.
2) A decrease in table game win percentage of 2.1% resulted in a
corresponding decrease in table games revenue of $351,000 for fiscal
year 1996 as compared to fiscal year 1995. An increase in table win
percentage of 2.98% resulted in a corresponding increase in table games
revenues of $521,000 for fiscal year 1995 as compared to fiscal year
1994.
Casino departmental expenses reflected nominal changes increasing to 20.2%
of revenues for fiscal year 1996 compared to 20.0% and 18.7% during fiscal years
1995 and 1994, respectively.
Promotional allowances represent the retail value of complimentary goods
and services provided to casino customers under various marketing programs.
These allowances as a percentage of gross wagering amounted to 4.3%, 4.0%, and
4.8%, respectively, for the fiscal years ended 1996, 1995, and 1994.
8
<PAGE>
Other Items
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<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
General and administrative expenses $10,564,000 $10,296,000 $9,860,000
</TABLE>
For fiscal year 1996, general and administrative expenses reflected a
nominal increase of $268,000 (2.6%) as compared to the same period in 1995.
The increase for fiscal year 1995 of $436,000 compared to fiscal 1994
is primarily due to higher casualty insurance rates ($195,000) and increased
real estate taxes ($153,000) resulting from the scheduled reduction of the
Tourism Incentive Act exemption from 90% to 75%.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Depreciation and amortization $1,706,000 $1,547,000 $1,800,000
</TABLE>
Depreciation for fiscal year 1996 increased 10.2% as compared to the
same period in 1995 primarily due to property additions.
Depreciation and amortization for fiscal year 1995 decreased by 14.1%
due to certain furniture and equipment becoming fully depreciated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest expense $2,906,000 $2,837,000 $2,809,000
</TABLE>
Interest expense for the fiscal years 1996 and 1995 reflected
increases of 2.4% and 1%, respectively, resulting from the issuance of
additional PIK Bonds.
9
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants................................... 11
Balance Sheets............................................................. 13
Statements of Operations................................................... 15
Statements of Cash Flows................................................... 16
Notes to Financial Statements.............................................. 17
Supplementary data required by the item is not applicable to the Company.
10
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Southmark San Juan, Inc.:
We have audited the accompanying balance sheets of Southmark San Juan, Inc. as
of June 30, 1996 and 1995, and the related statements of operations and cash
flows for each of the three years in the period ended June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southmark San Juan, Inc. as of
June 30, 1996 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 3, during August 1992, the Company filed a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code and
filed its proposed plan of reorganization. During November 1992, the Company's
plan of reorganization was confirmed by the Bankruptcy Court, thereby allowing
its emergence from bankruptcy. The confirmed plan represented a general
restatement of the Company's liabilities, which reduces such balances, modified
payment terms and conditions and granted ownership rights to certain debt
holders. The Company has continued to incur operating losses after the
reorganization and for the year ended June 30, 1996, its current liabilities
exceed current assets at June 30, 1996, and management does not expect to be
able to pay or refinance a $13.7 million principal payment on its Senior Secured
Bonds, which becomes due December 1, 1997. The Company's continued operating
losses after reorganization including for the year ended June 30, 1996, its
working capital deficiency at June 30, 1996, and its anticipated inability to
pay or refinance its Senior Secured Bonds obligation due on December 1, 1997,
raise substantial doubt as to its ability to continue its business as a going
concern. On November 1, 1996, the Company entered into a contract for the sale
of substantially all of its assets together with the assumption or discharge of
all of its liabilities, including payment of all Senior Secured Bonds and Senior
Secured PIK Bonds not owned by the purchaser at par, plus accrued interest to
date of closing. The Company's financial statements have been prepared assuming
the Company will continue as a going concern and, therefore, no adjustments have
been made relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities, that might be
necessary should the Company be unable to continue as a going concern.
11
<PAGE>
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is presented for purpose of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
San Juan, Puerto Rico
August 29, 1996 (except with
respect to Note 3, as to which
the date is November 1, 1996)
(Stamp No. 1381574 of the Puerto Rico Society
of Certified Public Accountants has been affixed
to the original copy of this report.)
12
<PAGE>
SOUTHMARK SAN JUAN, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 536,000 $ 1,282,000
Certificates of deposit 2,150,000 2,100,000
Accounts receivable, net of allowances for doubtful
accounts of $304,000 and $228,000, respectively 1,585,000 1,510,000
Inventories 509,000 579,000
Prepaid expenses and other current assets 274,000 326,000
----------- -----------
Total current assets 5,054,000 5,797,000
----------- -----------
Property and equipment:
Land 4,543,000 4,543,000
Buildings 33,682,000 33,682,000
Furniture and equipment 9,901,000 8,722,000
----------- -----------
48,126,000 46,947,000
Less - accumulated depreciation and amortization 18,290,000 16,584,000
----------- -----------
Net property and equipment 29,836,000 30,363,000
----------- -----------
$34,890,000 $36,160,000
=========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
13
<PAGE>
SOUTHMARK SAN JUAN, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1995
------------- -------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,251,000 $ 1,399,000
Accrued liabilities 2,120,000 2,436,000
Accrued interest 2,020,000 2,079,000
Obligations under capital lease 48,000 -
------------ ------------
Total current liabilities 5,439,000 5,914,000
------------ ------------
Long term liabilities:
Accrued interest 1,063,000 929,000
Obligations under capital lease 107,000 -
Senior Secured Industrial Revenue Bonds,
1992 series A:
Class A, maturing December 1, 1997 11,727,000 11,727,000
Class B, maturing December 1, 1997
through 2001 19,257,000 19,257,000
Senior Secured PIK Bonds 1,628,000 988,000
Term Note 3,000,000 3,000,000
Deferred Incentive Fees 1,505,000 1,061,000
------------ ------------
Total long term liabilities 38,287,000 36,962,000
------------ ------------
Shareholders' deficit:
Common stock, $0.001 par value per share;
992,000 shares authorized; 262,680
shares issued and outstanding in 1996 and 1995 - -
Additional paid in-capital 27,763,000 27,763,000
Accumulated deficit (36,599,000) (34,479,000)
------------ ------------
Total shareholders' deficit (8,836,000) (6,716,000)
------------ ------------
$ 34,890,000 $ 36,160,000
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
14
<PAGE>
SOUTHMARK SAN JUAN, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------------
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Rooms $ 14,497,000 $ 15,033,000 $ 14,677,000
Casino 4,571,000 5,043,000 5,215,000
Food and beverage 5,954,000 4,776,000 5,032,000
Other 1,654,000 1,511,000 1,202,000
------------ ------------ ------------
26,676,000 26,363,000 26,126,000
Less - promotional allowances (721,000) (699,000) (1,081,000)
------------ ------------ ------------
Net revenues 25,955,000 25,664,000 25,045,000
------------ ------------ ------------
Expenses:
Rooms 4,004,000 4,084,000 4,123,000
Casino 3,383,000 3,497,000 4,159,000
Food and beverage 4,692,000 4,111,000 4,251,000
Other 820,000 708,000 698,000
Depreciation and amortization 1,706,000 1,547,000 1,800,000
Interest 2,906,000 2,837,000 2,809,000
General and administrative 10,564,000 10,296,000 9,860,000
------------ ------------ ------------
Total expenses 28,075,000 27,080,000 27,700,000
------------ ------------ ------------
Net loss (2,120,000) (1,416,000) (2,655,000)
Accumulated deficit, beginning of year (34,479,000) (33,063,000) (30,408,000)
------------ ------------ ------------
Accumulated deficit, end of year $(36,599,000) (34,479,000) (33,063,000)
============ ============ ============
Loss per common and common
equivalent share:
Net loss $(8.07) $(5.39) $(10.29)
============ ============ ============
Weighted average number of common
and common equivalent shares outstanding 262,680 262,680 258,000
============ ============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
15
<PAGE>
SOUTHMARK SAN JUAN, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net loss $(2,120,000) $(1,416,000) $(2,655,000)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 1,706,000 1,547,000 1,800,000
Provision for doubtful accounts 76,000 75,000 179,000
(Increase) decrease in accounts receivable (151,000) 96,000 116,000
Decrease (increase) in inventories, prepaid expenses,
and other current assets 122,000 210,000 (314,000)
Increase in accounts payable, accrued liabilities and
other liabilities 850,000 883,000 2,363,000
----------- ----------- -----------
Net cash provided by operating activities 483,000 1,395,000 1,489,000
Cash flows from investing activities:
Purchase of property and equipment, net (1,179,000) (736,000) (427,000)
Purchase of certificates of deposit (2,150,000) (2,100,000) -
Proceeds from maturity of certificates of deposits 2,100,000 - -
----------- ----------- -----------
(1,229,000) (2,836,000) (427,000)
(Decrease) increase in cash and cash equivalents (746,000) (1,441,000) 1,062,000
Cash and cash equivalents at beginning of year 1,282,000 2,723,000 1,661,000
----------- ----------- -----------
Cash and cash equivalents at end of year $ 536,000 $ 1,282,000 $ 2,723,000
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
16
<PAGE>
SOUTHMARK SAN JUAN, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 1 - ORGANIZATION
Southmark San Juan, Inc. (the "Company"), a Delaware corporation, was
incorporated during April 1986 for the purpose of acquiring, renovating, and
owning the Sands Hotel and Casino in San Juan, Puerto Rico, (the "Sands San
Juan"). The Company's outstanding common shares are owned by Southmark
Corporation ("Southmark"), (48.2%); SJPR Management, Inc. ("SJPR"), (46.3%); and
bondholders who have exercised warrants described in Note 3, (5.5%). SJPR is a
wholly owned subsidiary of Pratt Hotel Corporation ("Pratt"). The operations of
the Sands San Juan are managed by SJPR, Inc., also a wholly owned subsidiary of
Pratt.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition and Promotional Allowances
- ----------------------------------------------
The Company recognizes as casino revenues the net win from gaming
activities, which is the difference between gaming wins and losses. The retail
value of rooms, food, beverage and other items provided to customers without
charge is included in revenues and as promotional allowances. The costs of such
allowances have been included as expenses in the accompanying statements of
operations.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
- -------------------------
The Company has defined cash and cash equivalents as cash on hand and
in banks, time deposits and marketable securities having maturities of three
months or less on their acquisition date.
Allowance for doubtful accounts
- -------------------------------
The allowance for doubtful accounts is maintained at a level
considered adequate to provide for possible future losses. Provisions for
doubtful accounts for the fiscal years ended June 30, 1996, 1995, and 1994 were
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Casino $76,000 $75,000 $179,000
Hotel - - -
------- ------- --------
$76,000 $75,000 $179,000
======= ======= ========
</TABLE>
Inventories
- -----------
Inventories of provisions and supplies have been stated at the lower of
cost or market on a first-in, first-out basis.
17
<PAGE>
SOUTHMARK SAN JUAN, INC.
NOTES TO FINANCIAL STATEMENTS
Property and Equipment
- ----------------------
Property and equipment have been recorded at cost and are being
depreciated over their estimated useful lives utilizing the straight-line method
based on the following:
Buildings................................ 30 years
Furniture and equipment.................. 2 to 5 years
Net income (loss) per common share
- ----------------------------------
Net income per common and common equivalent share is calculated using
the weighted average number of common shares outstanding and on the net
additional number of shares which would be issuable upon the exercise of stock
warrants. Such additional shares are not considered in the calculation of net
loss per share since the effect would be antidilutive.
NOTE 3 - DEBT REORGANIZATION
On August 20, 1992, the Company filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code with the United States
Bankruptcy Court for the Northern District of Texas, Dallas Division (the
"Bankruptcy Court"). On August 21, 1992, the Company filed its Plan of
Reorganization Under Chapter 11 (the "Plan") and its Disclosure Statement and
Solicitation of Ballots for the Debtor's Plan of Reorganization (the "Disclosure
Statement") with the Bankruptcy Court. As a result of such filing, the
Bankruptcy Court assumed jurisdiction of the assets and business of the Company,
although the Company remained in possession of its assets and business and its
officers and directors remained in office, subject to the supervision and orders
of the Bankruptcy Court.
The Company's bankruptcy filing and the filing of the Plan and
Disclosure Statement followed months of planning the restructuring of the
Company's indebtedness and reflected the results of the Company's negotiations
with its largest bondholder (holder of approximately 62% of the $38,000,000 of
Industrial Revenue Bonds, 1987 Series A (the "Old Bonds")) and a Puerto Rico
bank holding a $4,980,000 demand note.
On November 12, 1992, after successful solicitation of the approval of
the impaired creditor classes, the Company's Plan was confirmed by the
Bankruptcy Court. On December 1, 1992, the new Loan Agreement issued by the
Puerto Rico Industrial, Medical, Educational, and Environmental Pollution
Control Facilities Financing Authority ("AFICA") and related agreements, were
executed, successfully completing the reorganization of the Company's debt.
A summary of the major components of the restructuring follows:
In exchange for $38,000,000 principal amount of the Old Bonds and
related accrued interest as of the bankruptcy filing date of $7,836,000
bondholders received:
1. $31,000,020 principal amount of new Senior Secured Industrial Revenue
Bonds, 1992 Series A (the "Senior Secured Bonds"), issued by AFICA,
maturing on either December 1, 1997 (Class A) or December 1, 2001
(Class B) at the election of individual bondholders, and secured by a
first mortgage on the Sands San Juan.
18
<PAGE>
SOUTHMARK SAN JUAN, INC.
NOTES TO FINANCIAL STATEMENTS
Senior Secured Bonds maturing December 1, 1997, are due in full at
maturity. Senior Secured Bonds maturing December 1, 2001, require
principal payments of 10% of the outstanding balance annually,
beginning December 1, 1997, with the balance due December 1, 2001. The
Senior Secured Bonds bear interest at 8.5% of which 6.5% must be paid
annually in cash. The remaining 2.0% must be paid in cash to the
extent there exists Available Cash, as defined in the Trust Agreement.
In the event that Available Cash is insufficient to pay all or a
portion of the 2.0% interest annually, the insufficiency will be paid
by the issuance of Senior Secured PIK Bonds which bear interest at the
same rate and terms and are secured by the same collateral as the
Senior Secured Bonds.
2. Warrants to acquire from 496,000 shares to 744,000 shares of the
Company (50% to 75% of the Company's authorized common stock). The
warrants may be exercised at any time after December 1, 1992, at
$0.001 per share.
Warrants to acquire 496,000 shares of common stock were issued to
bondholders upon execution of the Senior Secured Bond and related
agreements. Simultaneously, warrants to acquire 248,000 shares of
common stock were escrowed with the New Trustee (the "Escrowed
Warrants").
On June 1, 1996, holders of the Senior Secured Bonds received Escrowed
Warrants to acquire, in the aggregate, an additional 99,200 shares of
Common Stock, as no Redemption, as defined, has occurred with respect
to all Senior Secured Bonds, Senior Secured PIK Bonds and the
Warrants.
On June 1, 1997, holders of the Senior Secured Bonds will receive
Escrowed Warrants to acquire, in the aggregate, an additional 148,800
shares of Common Stock, unless a Redemption has occurred with respect
to all Senior Secured Bonds, Senior Secured PIK Bonds and the
Warrants.
The Puerto Rico bank received a Term Note in the principal amount of
$3,000,000, secured by a second mortgage on the Sands San Juan and maturing on
November 1, 1999, in exchange for a note payable in the principal amount of
$4,980,000 and related accrued interest as of the bankruptcy filing date of
$692,000. The Term Note bears interest initially at 3%, increasing to 6%
effective November 1, 1997. Accrued interest will be paid annually to the extent
there exists Available Cash after payment of interest on the Senior Secured
Bonds and redemption of any outstanding Senior Secured PIK Bonds. Interest
Payment Notes due November 1, 1999 will be issued in payment of accrued interest
not paid in cash. Available Cash, if any, remaining after payment of all accrued
interest on the Term Note must be used for redemption of the Senior Secured
Bonds previously described.
Shareholders' advances amounting to $17,413,000 and related accrued
interest, as of the bankruptcy filing date, of $7,519,000, deferred incentive
fees payable of $1,329,000 and 1,960 shares of common stock with a par value of
$1.00 per share were exchanged for 248,000 shares of common stock with a par
value of $0.001 per share.
The Company has continued to incur operating losses after the
reorganization including for the fiscal year ended June 30, 1996. In addition,
at June 30, 1996 current liabilities exceed current assets by
19
<PAGE>
SOUTHMARK SAN JUAN, INC.
NOTES TO FINANCIAL STATEMENTS
$385,000. Senior Secured Bonds in the principal amount of $13.7 million mature
on December 1, 1997 and based on current operating results, the Company does not
believe that such amount can be paid or refinanced.
On November 1, 1996, the Company entered into a contract for the sale
of substantially all of its assets together with the assumption or discharge of
all of its liabilities, including payment of all Senior Secured Bonds and Senior
Secured PIK Bonds not owned by the Purchaser at par, plus accrued interest to
date of closing. Concurrently, SJPR, Inc., the manager of the Sands San Juan,
entered into an agreement with the Purchaser concerning modification and
termination of the management agreement. Closing of both transactions is
anticipated to occur on or before December 30, 1996.
Subsequent to consummation of the above transaction, it is the
Company's intention to liquidate within 180 days in accordance with the terms of
its current Warrant Agreement.
The accompanying financial statements have been prepared assuming the
Company will continue its business as a going concern and, therefore, no
adjustments have been made relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities, that
might be necessary should the Company be unable to continue as a going concern.
NOTE 4 - CAPITALIZED LEASE OBLIGATIONS
The Company leases telephone equipment under a long-term lease and has
the option to purchase it for a nominal cost at the termination of the lease.
Future minimum payments under this capital lease are as follows:
<TABLE>
<CAPTION>
Fiscal Year Amount
- ----------- --------
<S> <C>
1997 $ 48,000
1998 48,000
1999 48,000
2000 48,000
2001 5,000
--------
Total minimum lease payments 197,000
Less - Amount representing interest (42,000)
--------
Present value of net minimum lease payments 155,000
Less - Current maturities (48,000)
--------
Long-term obligation $107,000
========
</TABLE>
20
<PAGE>
SOUTHMARK SAN JUAN, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - SENIOR SECURED INDUSTRIAL REVENUE BONDS, 1992 SERIES A
On December 1, 1992, the Company entered into a loan agreement with
AFICA for the issuance of $31,000,000 of Senior Secured Bonds which replaced the
Old Bonds in the principal amount of $38,000,000 and related accrued interest of
$7,836,000 (Note 3). The Senior Secured Bonds are secured by a first mortgage
on the Sands San Juan and mature on either December 1, 1997, (Class A) or
December 1, 2001 (Class B) at the election of individual bondholders. Class B
bonds require principal payments of 10% of the outstanding balance annually,
beginning December 1, 1997, with the balance due December 1, 2001.
The Senior Secured bonds mature as follows:
<TABLE>
<CAPTION>
MATURITY AMOUNT
-------- -----------
<S> <C>
1998 $13,652,000
1999 1,926,000
2000 1,926,000
2001 1,926,000
2002 11,554,000
-----------
$30,984,000
===========
</TABLE>
The Senior Secured Bonds bear interest at 8.5% of which 6.5% must be
paid annually in cash. The remaining 2.0% must be paid in cash to the extent
there exists Available Cash, as defined in the Trust Agreement. In the event
that Available Cash is insufficient to pay all or a portion of the 2.0% interest
annually, the insufficiency will be paid by the issuance of Senior Secured PIK
Bonds which bear interest at the same rate and terms and are secured by the same
collateral as the Senior Secured Bonds. The Company incurred $2,773,000,
$2,717,000, and $2,692,000 of interest expense on the Senior Secured Bonds
during fiscal years 1996, 1995, and 1994, respectively.
Interest is payable semi-annually commencing July 31, 1993. The
Company made the mandatory 6.5% interest payments of $2,120,000, $2,078,000, and
$2,037,000 due on July 31, 1996, 1995, and 1994, respectively, but did not have
sufficient Available Cash to satisfy the remaining 2% of bond interest due and
accordingly was obliged to issue Senior Secured PIK Bonds in the amounts of
$653,000, $639,000, and $627,000 at July 31, 1996, 1995, and 1994,
respectively. The related accrued interest converted into Senior Secured PIK
Bonds has been classified as accrued interest under long-term liabilities on the
accompanying balance sheets. No interest payments were made on January 31,
1996, 1995, or 1994 based upon the Available Cash restrictions, as defined in
the Trust Agreement.
NOTE 6 - TERM NOTE
On December 1, 1992, the Company executed a $3,000,000 Term Note with
a Puerto Rico bank, secured by a second mortgage on the Sands San Juan and
maturing on November 1, 1999, in exchange for a note payable in the principal
amount of $4,980,000 and related accrued interest of $692,000. The Term Note
bears interest initially at 3%, increasing to 6% effective November 1, 1997.
The Company incurred
21
<PAGE>
SOUTHMARK SAN JUAN, INC.
NOTES TO FINANCIAL STATEMENTS
$120,000, $120,000 and $117,000 of interest expense on the Term Note during the
fiscal years 1996, 1995 and 1994, respectively.
Accrued interest will be paid semi-annually commencing July 31, 1993
to the extent there exists Available Cash after payment of interest on the
Senior Secured Bonds and redemption of any outstanding Senior Secured PIK Bonds.
Interest Payment Notes due November 1, 1999 will be issued in payment of accrued
interest not paid in cash. Available Cash, if any, remaining after payment of
all accrued interest on the Term Note must be used for redemption of the Senior
Secured Bonds previously described. No interest payments have been made on the
Term Note based upon the Available Cash restrictions relating to the Senior
Secured Bonds (Note 3).
NOTE 7 - INCOME TAXES
The Company has qualified for exemption from taxation by the
Commonwealth of Puerto Rico under the Tourism Incentive Act of 1983 (as
amended). As a result, for the first five years of operations, the Company is
90% exempt of Puerto Rico income and property taxes attributable to its hotel
operations (reducing to a 75% exemption for the second five year period) and
100% of municipal and excise taxes on its exempt functions. Income from casino
operations is not exempt from taxation.
The ten year tax exemption grant was effective beginning January 1,
1987, except with respect to income tax, which effective date has not been
elected by the Company.
The Company's hotel and casino operations have incurred losses since
inception, accordingly, no income taxes have been provided for the fiscal years
ended June 30, 1996, 1995, or 1994.
The Company recognizes income tax benefits for loss carryforwards,
credit carryforwards and certain temporary differences. The tax benefits
recognized are reduced by a valuation allowance in certain circumstances. As of
June 30, 1996, the Company has net operating loss carryforwards aggregating
approximately $47 million, which expire periodically through 2002. As of June
30, 1996 and 1995, no financial statement benefit was recognized for the net
operating loss carryforwards due to the uncertainty as to the realization of any
tax benefit from such loss carryforwards within the carryforward period.
NOTE 8 - TRANSACTIONS WITH SHAREHOLDERS
The Sands San Juan is managed under a management agreement between the
Company and SJPR, Inc. which has an initial term of 20 years with options to
extend for two additional 10-year periods (Note 3). The Company is obligated to
pay SJPR, Inc. a management fee equal to 2% of net revenues and an incentive
management fee equal to 10% of gross operating profits, as defined in the
management agreement. Management fees incurred during the fiscal years ended
June 30, 1996, 1995, and 1994 were $510,000, $503,000, and $487,000,
respectively.
Incentive management fees incurred during the fiscal years ended June
30, 1996, 1995, and 1994 were $443,000, $523,000, and $326,000, respectively.
Payment of the incentive management fee is subordinate to the Company's annual
interest and principal payments on the Senior Secured Bonds and the Term Note.
The incentive management fee payable is classified as a non-current liability
in the accompanying balance sheets as the Company does not anticipate making any
incentive management fee payment within one year.
22
<PAGE>
SOUTHMARK SAN JUAN, INC.
NOTES TO FINANCIAL STATEMENTS
The Company operates under the trade name "Sands" pursuant to Pratt's
license agreement which provides for annual royalty payments. The royalty
payments are based on the greater of 1.5% of gross room charges, as defined, or
$100,000. The Company reimburses Pratt for its cost of providing the use of the
"Sands" name. During the fiscal years ended June 30, 1996, 1995, and 1994, the
Company reimbursed Pratt for royalties incurred amounting to $217,000, $225,000,
and $219,000, respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company has leased a variety of operating equipment under long-
term noncancelable operating leases which require lease payments as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $55,000
1998 13,000
-------
$68,000
=======
</TABLE>
Total rental expense for the years ended June 30, 1996, 1995, and 1994
amounted to $96,000, $171,000 and $238,000, respectively.
The Company's gaming operations are subject to regulatory control by
the Puerto Rico Tourism Company (Tourism). Gaming licenses issued by Tourism
are reviewed and reissued every 91 days and are subject to cancellation in the
event the licensee fails to comply with the conditions stipulated. On July 25,
1996, the Company's license was reviewed and reissued through October 23, 1996.
The Company is currently a defendant in several lawsuits and claims
arising in the ordinary course of business. In the opinion of management, the
ultimate resolution of such claims will not have a material adverse impact on
the Company's financial position.
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, certificates of deposits, accounts
receivable, accounts payables, accrued liabilities and interest approximate fair
value because of the short maturity of these items. It is not practicable to
estimate the fair value of long-term financial instruments obligations because
there are no quoted market prices for transactions which are similar in nature.
23
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company had no disagreements with its independent public accountants to
report under this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
<TABLE>
<CAPTION>
NAME AND AGE OFFICE HELD IN THE REGISTRANT
- ------------------------------ -------------------------------------------
<S> <C>
Edward T. Pratt, III /(1)/, 42 Chairman, Chief Executive Officer (since
1990), and Director (since 1988)
William D. Pratt /(1)/, 68 Vice President, Secretary, and Director
(since 1987)
John C. Hull, 58 Vice President and Chief Financial Officer
(since 1991)
Charles B. Brewer, 48 Director (since 1991)
</TABLE>
Edward T. Pratt, III has served on the Board of Directors of HCC since
1992. From 1992 to July 1993, he served as Vice President of HCC; from July
1993 to May 1995, he served as Executive Vice President of HCC; and in May 1995,
Mr. Pratt was elected President and Chief Operating Officer of HCC. Edward T.
Pratt, III has served as Executive Vice President - Development and Corporate
Affairs of Pratt for more than five years.
William D. Pratt has served on the Board of Directors of HCC since
1990, and from 1990 to May 1995, he served as Vice President, Secretary and
General Counsel of HCC. Since May 1995, Mr. Pratt has served as Executive Vice
President and Secretary of HCC. Mr. Pratt has served as Executive Vice
President, Secretary and a director of Pratt for more than five years.
John C. Hull joined HCC in April 1994 and was elected Corporate
Controller and Principal Accounting Officer of HCC and Corporate Controller of
Pratt in November 1994. Prior to joining HCC, Mr. Hull served as a financial
consultant to Pratt from 1988 to April 1994 and to HCC from 1990 to April 1994.
Charles B. Brewer is Executive Vice President , Chief Operating
Officer, and General Counsel of Southmark (since October 1989) and Secretary of
Southmark (since August 1990). Prior to his promotion to Executive Vice
President, Mr. Brewer served as Vice President and General Counsel beginning
July 1989.
/(1)/ Edward T. Pratt, III is the nephew of William D. Pratt.
24
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The Company's directors and executive officers serve without compensation
from the Company and from SJPR, Inc.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following entities own 5% or more of the outstanding common stock of
the Registrant:
<TABLE>
<CAPTION>
SHARES % OWNERSHIP
------- -----------
<S> <C> <C>
Southmark Corporation
1601 LBJ Freeway, Suite 800
Dallas, Texas 75234 126,480 48.2%
SJPR Management, Inc.
Two Galleria Tower, Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240 121,520 46.3%
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Sands San Juan is managed under a management agreement between the
Company and SJPR, Inc., a wholly-owned subsidiary of Pratt, which has an initial
term of 20 years with options to extend for two additional 10-year periods. The
Company is obligated to pay SJPR, Inc. a management fee equal to 2% of net
revenues and an incentive management fee equal to 10% of gross operating
profits, as defined in the management agreement. Management fees incurred
during the fiscal years ended June 30, 1996, 1995, and 1994, were $510,000,
$503,000, and $487,000, respectively.
Incentive management fees incurred during the fiscal years ended June
30, 1996, 1995, and 1994, were $443,000, $523,000, and $326,000, respectively.
Payment of the incentive management fee is subordinate to the Company's annual
interest and principal payments on the Senior Secured Bonds and the Term Note.
The incentive management fee payable is classified as a non-current liability in
the accompanying balance sheets as the Company does not anticipate making any
incentive management fee payment within one year.
The Company operates under the trade name "Sands" pursuant to Pratt's
license agreement which provides for annual royalty payments. The royalty
payments are based on the greater of 1.5% of gross room charges, as defined, or
$100,000. The Company reimburses Pratt for its cost of providing the use of the
"Sands" name. During the fiscal years ended June 30, 1996, 1995, and 1994 the
Company reimbursed Pratt for royalties incurred amounting to $217,000, $225,000,
and $219,000, respectively.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8K.
(a) (1) and (2) - The response to this portion of Item 14 is submitted as
a separate section of this report.
(b) Reports on Form 8-K - During the fourth quarter of the fiscal year
ended June 30, 1996, the Registrant did not file any reports on Form
8-K.
(c) Exhibits - The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules - The response to this portion of Item
14 is submitted as a separate section of this report.
26
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14 (A) (1) AND (2), (C) AND (D)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
SOUTHMARK SAN JUAN, INC.
YEAR ENDED JUNE 30, 1996
27
<PAGE>
FORM 10-K - ITEM 14 (a) (1) and (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements of Southmark San Juan, Inc. are included in
Item 8:
Balance Sheets - June 30, 1996 and 1995
Statements of Operations - For the years ended June 30, 1996, 1995, and 1994
Statements of Cash Flows - For the years ended June 30, 1996, 1995, and 1994
Notes to Financial Statements
The following financial statement schedules of Southmark San Juan, Inc. are
included in Item 14 (d):
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
28
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SOUTHMARK SAN JUAN, INC.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
-----------------------------------------------
BALANCE
AT ADDITIONS BALANCE
BEGINNING CHARGED TO AT END
OF PERIOD EXPENSES RETIREMENTS OF PERIOD
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts $ 228,000 $ 76,000 $ - $ 304,000
========== =========== =========== =========
<CAPTION>
YEAR ENDED JUNE 30, 1995
-----------------------------------------------
BALANCE
AT ADDITIONS BALANCE
BEGINNING CHARGED TO AT END
OF PERIOD EXPENSES RETIREMENTS OF PERIOD
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts $ 334,000 $ 75,000 $ 181,000 $ 228,000
========== =========== =========== =========
<CAPTION>
YEAR ENDED JUNE 30, 1994
-----------------------------------------------
BALANCE
AT ADDITIONS BALANCE
BEGINNING CHARGED TO AT END
OF PERIOD EXPENSES RETIREMENTS OF PERIOD
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts $1,916,000 $ 179,000 $ 1,761,000 $ 334,000
========== =========== =========== =========
</TABLE>
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities
indicated on November 26, 1996.
SOUTHMARK SAN JUAN, INC.
SIGNATURE TITLE
--------- -----
/s/ Edward T. Pratt III Chairman, Chief Executive Officer, and Director
- --------------------------
EDWARD T. PRATT III
/s/ William D. Pratt Vice President, Secretary, and Director
- --------------------------
WILLIAM D. PRATT
/s/ John C. Hull Vice President and Chief Financial Officer
- --------------------------
JOHN C. HULL
/s/ Charles B. Brewer Director
- --------------------------
CHARLES B. BREWER
30
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
- ------
2.1 Agreement of Sale and Purchase
3.1* Restated Certificate of Incorporation of Southmark San Juan, Inc.
3.2* Restated Bylaws of Southmark San Juan, Inc.
4.1* Form of Trust Agreement including form of Senior Secured Bond, among
AFICA, Southmark San Juan, Inc., Southmark Corporation, and Banco
Santander.
4.2* Form of Loan Agreement between Southmark San Juan, Inc. and AFICA.
4.3* Form of Pledge Agreement among AFICA, Banco Santander, Southmark
Corporation and Southmark San Juan, Inc.
4.4* Form of Guarantee Agreement between Southmark Corporation and AFICA.
10.1* Form of Management Agreement between Southmark San Juan, Inc. and SJPR,
Inc.
10.2* Form of Mortgage relating to the Sands Hotel and Casino (including form
of Mortgage Note issued to AFICA by Southmark San Juan, Inc.).
10.3 Employment Agreement dated December 1, 1995 by and between Southmark San
Juan, Inc. and Richard E. Abati
10.4 Agreement Concerning Modification and Termination of Management
Agreement
26.1-1* Revised Statement of Eligibility and Qualification on Form T-1 of
Banco Santander as trustee under the Trust Indenture Act of 1939, as
amended.
27 Financial Data Schedule
28.1* Disclosure Statement and Solicitation for Ballots for the Company's
Plan of Reorganization Filed Under Chapter 11 of the Bankruptcy Code
(filed with the United States Bankruptcy court of the Northern District
of Texas Dallas Division - Case No. 392-37413-HCA-11)(1).
* Previously filed
<PAGE>
EXHIBIT 2.1
AGREEMENT OF SALE AND PURCHASE
------------------------------
THIS AGREEMENT OF SALE AND PURCHASE (the "AGREEMENT"), dated as of
November 1, 1996, is made by and between SOUTHMARK SAN JUAN, INC. ("SELLER"), a
Delaware corporation having an address at 2711 LBJ Freeway, Suite 950, Dallas,
Texas 75234, and PUERTO RICO HOTEL OPCO, LLP ("PURCHASER"), a Delaware limited
partnership doing business in Puerto Rico as Puerto Rico Hotel OPCO LLP SE,
having an address at 277 Park Avenue, 19th Floor, New York, New York 10172.
DEFINITIONS; SALE AND PURCHASE
------------------------------
1.01 DEFINITIONS: For the purposes of this Agreement, the following
-----------
terms shall have the meanings indicated:
(a) "BOOKINGS" shall mean contracts or reservations for the use or
occupancy of guest rooms and/or the banquet facilities of the Hotel.
(b) "CLOSING DATE" shall mean the date specified in Section 7.01.
------------
(c) "CONSUMABLES" shall mean all opened and unopened food and beverages
(alcoholic and non-alcoholic).
(d) "CUT-OFF TIME" shall mean 11:59 p.m. on the date preceding the
Closing Date.
(e) "EFFECTIVE DATE" shall mean the date of this Agreement.
(f) "EXPENDABLES" shall mean all china, glassware, linens, silverware,
kitchen and bar small goods, paper goods, guest supplies, cleaning supplies,
operating supplies, printing, stationery and uniforms, whether in use or held in
reserve storage for future use in connection with the operation of the Hotel.
(g) "FRANCHISE AGREEMENT" shall mean the existing License Agreement with
Hughes Properties, Inc. with respect to the Hotel.
(h) "FURNISHINGS" shall mean all fixtures, furniture, furnishings,
fittings, equipment, machinery, apparatus, appliances, vehicles and other
articles of personal property, which are be owned by Seller and located on or
used or usable in connection with any part of the Hotel, subject to such
deletions, substitutions and replacements as shall occur and be made in the
ordinary course of business prior to the Closing Date in accordance with the
terms and provisions of this Agreement.
(i) "HOTEL" shall mean that certain hotel situated in the City of San
Juan, Municipality of Carolina, Commonwealth of Puerto Rico containing 420 rooms
and approximately 321,698 square feet of total building area, four restaurants
with three bars, a show lounge and a 10,400 square foot casino, four meeting
rooms and all related amenities and facilities commonly known and operated as
the "Sands Hotel & Casino."
(j) "HOTEL CONTRACTS" shall mean all assignable service and maintenance
contracts, employment agreements, union contracts, purchase orders, equipment
leases, insurance policies and other contracts or agreements relating to the
maintenance, operation, provisioning or equipping of the Hotel, if any, together
with all related written warranties and guaranties, if any.
(k) "HOTEL EMPLOYEES" shall mean the persons employed by or on behalf of
Seller to maintain, operate and manage the Hotel and to provide services to the
guests of the Hotel.
<PAGE>
(l) "IMPROVEMENTS" shall mean the buildings, structures (surface and sub-
surface), installations and other improvements, including such fixtures and
appurtenances as shall constitute real property located on the Land.
(m) "LAND" shall mean the land and all appurtenances thereto, having a
street address at Isla Verde Road 187, San Juan, Puerto Rico upon which the
Hotel is situated together with all appurtenances thereto, being those certain
parcels of land located on the Avenida Isla Verde, City of San Juan,
Municipality of Carolina, Commonwealth of Puerto Rico, as described on Exhibit A
---------
attached hereto (including both "Parcel A" and "Parcel B") and made a part
hereof for all purposes.
(n) "LEASEHOLD ESTATES" shall mean the following:
(i) Seller's interest, as tenant, in a lease dated January 29, 1987
entered into by and between Frank Lopez and Iris Cuevas de Lopez, as
Landlord, and Puerto Rico Hotel Associates, as Tenant, covering and
pertaining to that certain 1.888 acre parcel of land located opposite the
Hotel, as described on Exhibit A-1 attached hereto and made a part
-----------
hereof, which Ground Lease is filed at Page 125 of Volume 27, Entry 350,
of the Registry of Property of Puerto Rico, a Section of Carolina, as
assigned to Seller pursuant to that certain Deed of Amendment and
Assignment of Lease dated August 8, 1990, filed at Page 125 of Volume 27,
Entry 249, of the Registry of Property of Puerto Rico, a Section of
Carolina; and
(ii) Seller's interest, as tenant, in a lease dated May 29, 1987 with
Coral Beach Condominium, as Landlord, covering that certain parcel of
land consisting of approximately 4,000 square feet located to the west of
the Hotel, more particularly described on Exhibit A-2, attached hereto
-----------
and hereby made a part hereof for all purposes.
(o) "PERMITS" shall mean all transferable licenses, franchise, permits,
certificates of occupancy, authorizations and approvals issued to Seller and
used in or relating to the ownership, occupancy or operation of any part of the
Hotel, including, without limitation, those necessary for the sale and on-
premises consumption of liquor and other alcoholic beverages and the operation
of the casino located in the Hotel, but expressly excluding any Permits which
may not be transferred under applicable laws (it being understood that the
gaming license to operate the casino currently held by the Manager of the Hotel
is expressly not transferable).
(p) "PROPERTY" shall mean, collectively, the Land and Improvements but
expressly excluding the following:
(i) all of the personal property and personal effects and furnishings
belonging to the senior personnel of the Manager of the Hotel set forth
on Exhibit G attached hereto and made a part hereof for all purposes;
---------
(ii) any rights to the use of the tradename "Sands Hotel" and all
trademarks and other rights relating to such name or the use thereof;
(iii) the right to the use of the tradename "Plaza Club";
(iv) all items of personal property bearing the stamp, imprint,
trademark, tradename, logo or symbol of the Hotel, the tradename "Sands,"
the tradename "Plaza Club," or any combination or derivation thereof and
the gaming chips registered in the name of the casino's operator, bearing
the "Sands" logo.
-2-
<PAGE>
1.02 SALE AND PURCHASE. Seller agrees to sell and convey the Hotel,
-----------------
Property, Furnishings, Consumables, Expendables, Permits, Leasehold Estates,
Leases (as hereinafter defined), and Hotel Contracts to Purchaser and Purchaser
agrees to purchase and accept the Hotel, Property, Furnishings, Consumables,
Expendables, Permits, Leasehold Estates, Leases, and Hotel Contracts from
Seller, for the price and subject to the terms, covenants, conditions and
provisions set forth in this Agreement.
II.
CONSIDERATION
-------------
2.01 PURCHASE PRICE. The purchase price ("PURCHASE PRICE") to be paid by
--------------
Purchaser to Seller at the closing (the "CLOSING") shall be Twenty Nine Million
Two Hundred Seventy-One Thousand Seven Hundred Sixty-Two and No/100 Dollars
($29,271,762.00) and shall be paid, funded or delivered as follows:
(a) One Hundred Thousand Dollars ($100,000) as an earnest money deposit
(together with any interest earned thereon, the "EARNEST MONEY") within two (2)
business days after the execution and delivery of this Agreement by a check
payable to San Juan Abstract Company, 255 Ponce DeLeon Avenue, 809 Royal Bank
Center, Hato Rey, Puerto Rico, 00917, Attention: Mr. Eusebio Dardet, Phone No.:
809/753-1200, Facsimile No.: 809/759-8055 (in its capacity as holder of the
Earnest Money, the "ESCROW AGENT"). The Earnest Money shall be held by Escrow
Agent in escrow in an interest-bearing account pursuant to the terms of this
Agreement. If the Closing occurs in accordance with the terms and provisions of
this Agreement, the Earnest Money shall be paid to Seller at the Closing and
credited against the Purchase Price. If the Closing does not occur, the Earnest
Money shall be held and delivered as provided in this Agreement;
(b) Thirteen Million One Hundred Fifty-Two Thousand Six Hundred Thirty-
Seven and No/100 Dollars ($13,152,637.00) at the Closing by wire transfer of
good funds to an account to be designated by Seller prior to the Closing;
(c) Fifteen Million Seven Hundred Nineteen Thousand One Hundred Twenty-
Five and No/100th Dollars ($15,719,125.00) at the Closing by delivery to Seller
of all those certain bonds issued by the Puerto Rico Industrial Medical and
Educational Authority in connection with the Hotel listed on Exhibit G attached
---------
hereto and made a part hereof, the value of which Seller and Purchaser agree is
as set forth in this clause (c); and
(d) Three Hundred Thousand and No/100th Dollars ($300,000.00) at the
Closing by Purchaser delivering such releases as may be necessary to release
Seller and the Property from the mortgage loan made by Banco Popular de Puerto
Rico secured by the Property (the "Banco Popular Mortgage") the value of which
releases Seller and Purchaser agree is as set forth in this clause (d).
2.02 PURCHASE PRICE ALLOCATION; COMPLIANCE WITH INTERNAL REVENUE CODE.
----------------------------------------------------------------
Seller and Purchaser agree that prior to the expiration of the Inspection Period
they shall use their respective good faith reasonable efforts to jointly
allocate the Purchase Price among the assets to be purchased under the terms of
this Agreement and shall provide to the other party an executed acknowledgment
that such allocation has been approved by each such party. The parties
acknowledge that any such allocation shall be utilized by both parties for
federal income tax purposes. The parties further agree that they shall fully
comply with the requirements of
-3-
<PAGE>
Section 1060 of the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder relating to allocation rules for certain
applicable asset acquisitions.
III.
SURVEY
------
3.01 SURVEY. Promptly after the Effective Date, Seller shall provide to
------
Purchaser a copy of any survey or plat of the Land in Seller's possession.
Purchaser shall, at its expense, obtain and deliver to Seller a current survey
(the "SURVEY") of the Property prepared by a licensed Puerto Rican surveyor. The
Survey, which will be certified to Purchaser and Chicago Title Insurance Company
(in its capacity as title insurer, the "TITLE COMPANY") shall conform to the
current standards, requirements and regulations of an ALTA Land Title Survey.
IV.
TITLE INSURANCE
---------------
4.01 TITLE COMMITMENT. Within three (3) days after the Effective Date,
----------------
Seller will at its expense cause the Title Company to deliver to Purchaser an
up-to-date and complete commitment for an ALTA Owner's Policy of Title Insurance
(the "TITLE COMMITMENT") accompanied by a legible copy of all recorded documents
relating to liens, easements, rights-of-way, restriction and other matters
affecting title to the Property.
4.02 TITLE OBJECTIONS. Purchaser shall have five (5) business days from
----------------
the last to be received of the Title Commitment, together with the documents
referenced therein, and the Survey to notify Seller as to any items that are
unsatisfactory to Purchaser in Purchaser's reasonable judgment. Unless Purchaser
so notifies Seller within such five-day period, Purchaser shall be deemed to
have approved the conditions of title to the Property as reflected by the Title
Commitment and the Survey. If within such period Purchaser notifies Seller that
any of the items are unacceptable ("OBJECTIONS"), Seller shall have a period of
thirty (30) days in which to undertake to cure such Objections to Purchaser's
and the Title Company's reasonable satisfaction. If Seller is unable to cure
such Objections, then Purchaser may either (i) accept title to the Property
subject to such Objections or (ii) terminate this Agreement by written notice to
Seller, whereupon the Earnest Money shall be promptly returned to Purchaser and
the parties shall have no further rights or liabilities under this Agreement.
Purchaser shall make such election by written notice to Seller on or before the
Closing Date or within five (5) days after Seller has advised Purchaser in
writing that it is unable to cure such Objections, whichever occurs first, and
in the event Purchaser does not make such election, Purchaser shall be
conclusively deemed to have accepted title to the Property subject to such
Objections. Those restrictions, liens, encumbrances, easements, rights of way
and other matters as are not objected to by Purchaser in the manner provided in
this Section or which have been consented to in accordance with the preceding
sentence shall be deemed "PERMITTED EXCEPTIONS". Purchaser acknowledges and
agrees that all equipment leases which are being assigned to Purchaser under
this Agreement and any filings made or purported liens held by the lessor with
respect thereto shall be Permitted Exceptions. Seller acknowledges and agrees
that in no event shall the Permitted Exceptions include any mortgage loans
secured by or encumbering the Land, the Improvements or the Leasehold Estates.
4.03 TITLE CONVEYED. Seller shall, on the Closing Date, convey to
--------------
Purchaser good, indefeasible and insurable title to the Land, Improvements and
Leasehold Estates, subject only to the Permitted Exceptions.
-4-
<PAGE>
V.
REPRESENTATIONS, WARRANTIES, COVENANTS
--------------------------------------
AND CONDITIONS PRECEDENT
------------------------
5.01 SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and
---------------------------------------
warrants to Purchaser that:
(a) Seller is a duly organized and validly existing corporation, is in
good standing in the State of Delaware and has full power to enter into this
Agreement and to perform its obligations under this Agreement.
(b) The execution and delivery of this Agreement has been duly authorized
by all necessary and appropriate action of Seller.
(c) No consent or approval of any person, entity, or governmental
authority is required with respect to the execution and delivery of this
Agreement by Seller or the consummation by Seller of the transactions
contemplated thereby or the performance by Seller of its obligations under this
Agreement.
(d) To the best of Seller's actual knowledge, there are no leases or
other similar agreements affecting all or any portion of the Property except
those creating the Leasehold Estates and except as set forth in Exhibit B to
---------
this Agreement. To the best of Seller's actual knowledge, the lease agreements
creating the Leasehold Estates and all of the leases (the "LEASES") described in
Exhibit B are in full force and effect, there are no material defaults by any
- ---------
party thereunder, and true and complete copies of the lease agreements creating
the Leasehold Estates and the Leases and all material correspondence,
instruments and documents related to the Leases have been provided to Purchaser.
(e) To the best of Seller's actual knowledge, there are no Hotel
Contracts or similar agreements affecting the Property except as set forth in
Exhibit C to this Agreement. To the best of Seller's actual knowledge, all of
- ---------
the Hotel Contracts and the Franchise Agreement are in full force and effect,
there are no material defaults by any party thereunder, there are not now nor
will there be any brokerage commissions or similar fees payable after Closing in
connection with any of the Leases and true and complete copies of the Hotel
Contracts and the Franchise Agreement and all instruments and documents related
to the Hotel Contracts and the Franchise Agreement have been provided to
Purchaser.
(f) To the best of Seller's actual knowledge, all Permits necessary for
the operation of the Hotel are set forth in Exhibit D to this Agreement and, to
---------
the extent transferable under applicable law, will be transferred to Purchaser
at the Closing. To the best of Seller's actual knowledge, the Permits are in
full force and effect, Seller has received no notice of any material violations
thereof, and true and complete copies of all of the Permits have been delivered
to Purchaser.
(g) Seller has received no notice of, and, to the best of Seller's actual
knowledge, there are no material violations of, law, ordinances, orders or
regulations ("LAWS") of governmental or quasi-governmental authorities with
respect to the Property (including, without limitation, those related to
environmental, labor or employment matters), which would have a material adverse
effect on the operation of the Hotel.
-5-
<PAGE>
(h) To the best of Seller's actual knowledge, there is no litigation,
action, or proceeding pending or threatened relating to the Property or the
transactions contemplated by this Agreement, including, but not limited to,
those alleging the violation of any Laws pertaining to employment or employment
practices, except as disclosed on Exhibit E attached hereto.
---------
(i) Seller will provide to Purchaser within five (5) business days (i)
true and complete copies of all bills for real estate and personal property
taxes and assessments for the 1996 tax year and the two immediately preceding
tax years and (ii) a true and complete list of the current Hotel Employees
together with a schedule setting forth the compensation and fringe benefits
(including, but not limited to, benefit plans) accorded to such Hotel Employee.
(j) No Hotel Employees are employed under union agreements, collective
bargaining agreements or similar arrangements except as disclosed on Exhibit F
---------
attached hereto.
(k) Seller owns good and indefeasible title to the Furnishings (other
than those items leased pursuant to equipment leases described in Exhibit C)
---------
subject only to the Permitted Exceptions.
(l) With the exception of a petroleum fuel storage tank previously
removed from the Property in accordance with applicable law, there are not now
nor during Seller's ownership of the Property, nor to Seller's actual knowledge
have there ever been, any toxic or hazardous wastes or substances used,
generated, stored, treated or disposed of on the Property. Seller hereby
indemnifies Purchaser from and against any loss, liability, claim or expense,
including, without limitation, remediation costs, engineering fees and
reasonable attorneys fees and expenses which Purchaser may incur by reason of
such representation being false.
5.02 PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser represents
------------------------------------------
and warrants to Seller that:
(a) Purchaser is a duly organized and validly existing limited liability
company, is in good standing in the State of Delaware and has full power to
enter into this Agreement and to perform its obligations under this Agreement.
(b) The execution and delivery of this Agreement has been duly authorized
by all necessary and appropriate action of Purchaser.
(c) All consents and approvals necessary to enable Purchaser to enter
into this Agreement have been obtained by Purchaser.
5.03 SELLER'S COVENANTS. Seller covenants and agrees with Purchaser that
------------------
prior to the Closing:
(a) Seller will use its best efforts and act in good faith to assist
Purchaser and Purchaser's agents in performing their financial and other due
diligence review of the Property.
(b) Seller will not sell, exchange, assign, transfer, convey, lease or
otherwise dispose of all or any part of the Property or any interest therein
except for Furnishings. Consumables and Expendables which are sold or consumed
in the ordinary course of business, and will replace the same with items of
equivalent value and utility in the ordinary course of business.
(c) Seller will keep the lease agreements creating the Leasehold Estates,
the Leases, the Hotel Contracts, the Franchise Agreement and the Permits in full
force and effect, will pay all charges when due under such agreements and will
perform all of its obligations under such agreements.
-6-
<PAGE>
(d) Without the prior written consent of Purchaser (which consent shall
not be unreasonably withheld or delayed), Seller will not enter into any
contracts, licenses, easements or other agreements relating to the Property
which will obligate Purchaser or be a charge or lien against the Property,
except those necessary to continue the operation of the Hotel in the ordinary
course of business and which are terminable without penalty on no more than
thirty days notice.
(e) Seller will use its best efforts to cause the Property to be operated
and maintained in the manner in which it is being operated and maintained as of
the date of this Agreement which undertaking includes, but is not limited to,
(i) maintaining Expendables, Furnishings and Consumables in those quantities and
at those levels reasonably equivalent to those present as of the Effective Date,
(ii) entering into Bookings and continuing current advertising and promotional
programs in the ordinary course of business, (iii) collecting accounts
receivable and paying accounts payable and (iv) cleaning, maintaining and
repairing the Hotel.
(f) Seller will permit Purchaser and its representatives to enter upon
and inspect the Property and perform such investigations of the Property and all
applicable books and records as Purchaser may from time to time reasonably deem
desirable; provided, however, that Purchaser must give Seller reasonable prior
notice of any such inspections and investigations and must use good faith
efforts to minimize any interference with the operation of the Property.
(g) Seller or its agents will promptly deliver to Purchaser a copy of any
written communication received prior to Closing which might materially and
adversely affect the operation of the Hotel and will promptly notify Purchaser
upon learning of any fact or condition which might materially and adversely
affect the operation of the Hotel.
(h) Seller will cooperate with Purchaser in all reasonable respects in
connection with Purchaser's application for new liquor licenses necessary for
the operation of the Hotel and a new gaming license necessary for the operation
of the casino.
(i) Seller or its agents will promptly deliver to Purchaser a copy of the
Hotel's customary daily operating report, including, without limitation,
occupancy figures and casino revenues and expenses.
5.04 INSPECTION PERIOD. Purchaser and its representatives and agents
-----------------
shall have a period from the Effective Date through the close of business on the
date sixty (60) days after the Effective Date (or, if such date is not a
business day, the next succeeding business day) (the "INSPECTION PERIOD") within
which to undertake such inspections and investigations of the Property
(including, but not limited to, engineering environmental studies, financial
analysis, and feasibility studies) as Purchaser deems desirable to evaluate the
financial and physical condition of the Property and such other matters that
Purchaser may deem relevant, all at Purchaser's cost and expense. If Purchaser
shall, in its sole opinion and discretion, determine that the Property or any
matters related to the Property are unsatisfactory, then Purchaser may terminate
this Agreement by written notice given to Seller prior to the end of the
Inspection Period. Upon the giving of such notice, this Agreement shall
terminate, Escrow Agent shall return the Earnest Money to Purchaser and neither
party to this Agreement shall thereafter have any further rights or liabilities
under this Agreement. All documents provided to Purchaser by Seller or its
agents during the Inspection Period shall be treated as confidential at all
times prior to the Closing Date and if Purchaser does not purchase the Property,
shall remain confidential by Purchaser after termination of this Agreement (in
any case, subject to disclosure by Purchaser to its principals, officers,
employees, agents, lenders, consultants, attorneys and other professionals in
connection with the transactions set forth herein).
-7-
<PAGE>
5.05 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. Purchaser's
-----------------------------------------------
obligations under this Agreement are conditioned upon the satisfaction of the
following conditions as of the Closing Date:
(a) Seller's representations and warranties set forth in this Agreement
shall continue to be materially true and accurate.
(b) Seller shall have delivered all of the documents required under this
Agreement and performed all of its obligations under this Agreement.
(c) There shall be no liens or judgments, and no material and unpaid
charges, debts, liabilities, claims or obligations, which burden the Property,
other than the Permitted Exceptions.
(d) The Property shall on the Closing Date be in the same condition as on
the last day of the Inspection Period except as attributable to ordinary wear
and tear and depletion of Consumables and Expendables in the ordinary course of
business provided, however, that Consumables and Expendables shall also be
replaced in the ordinary course of business.
(e) There shall have been no material adverse change in the condition or
operations of the Hotel from the last day of the Inspection Period through the
date of Closing.
(f) Purchaser and its designated hotel operator shall have obtained such
liquor, gaming and other licenses, permits, certificates, authorizations and
approvals necessary or appropriate to the ownership, occupancy or operation of
any part of the Hotel, including, without limitation, those necessary for the
sale and on-premises consumption of liquor and other alcoholic beverages and the
operation of the casino located in the Hotel (collectively, the "Non-
Transferable Licenses"), to the extent the same are not being transferred to
Purchaser pursuant to this Agreement. Seller shall cooperate with Purchaser in
attempting to obtain such Non-Transferable Licenses. If Purchaser is unable to
obtain all such Non-Transferable Licenses prior to the Closing Date, Purchaser's
only remedy shall be to adjourn the Closing Date for a period of up to sixty
(60) days in order to attempt to obtain such Non-Transferable Licenses, which
right shall be exercised by giving written notice to Seller not more than five
(5) business days prior to the originally scheduled Closing Date.
If any of the foregoing conditions have not been satisfied as of the
Closing Date (with the exception of the condition set forth in clause (f)
above), then Purchaser shall be entitled to terminate this Agreement by giving
Seller written notice to such effect, whereupon Escrow Agent shall return the
Earnest Money to Purchaser and the parties shall thereafter have no further
rights or liabilities under this Agreement.
5.06 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. Seller's obligations
--------------------------------------------
under this Agreement are conditioned upon the satisfaction of the following
conditions as of the Closing Date:
(a) Purchaser's representations and warranties set forth in this
Agreement shall continue to be materially true and accurate.
(b) Purchaser shall have substantially performed all of its obligations
under this Agreement.
-8-
<PAGE>
VI.
REMEDIES
--------
6.01 SELLER'S REMEDIES. If Purchaser fails to perform its obligations
-----------------
under this Agreement for any reason except (a) the failure of any condition
precedent to Purchaser's obligations under this Agreement or (b) Purchaser's
termination of this Agreement in accordance with its terms, then Seller's sole
remedies shall be: (a) to terminate this Agreement by giving Purchaser written
notice of such election prior to or at Closing whereupon (i) the Escrow Agent
shall promptly pay to Seller the Earnest Money, and (ii) Purchaser shall pay to
Seller on demand all out-of-pocket costs (including, but not limited to,
reasonable attorney's fees) incurred by Seller in connection with this Agreement
and the transactions contemplated by this Agreement); (b) to waive the default
and close; or (c) to enforce specific performance of this Agreement.
6.02 PURCHASER'S REMEDIES. If Seller fails to perform its obligations
--------------------
under this Agreement for any reason except the failure of any condition
precedent to Seller's obligations under this Agreement, then Purchaser's sole
remedies shall be : (a) to terminate this Agreement by giving Seller written
notice of such election prior to or at Closing whereupon (i) the Escrow Agent
shall promptly return to Purchaser the Earnest Money, and (ii) Seller shall pay
to Purchaser on demand all out-of-pocket costs (including, but not limited to,
due diligence costs and reasonable attorney's fees) incurred by Purchaser in
connection with this Agreement and the transactions contemplated by this
Agreement); (b) to waive the default and close; or (c) to enforce specific
performance of this Agreement.
6.03 ATTORNEY'S FEES. In the event either party hereto is required to
---------------
employ an attorney because of the other party's default, then the non-prevailing
party in such dispute shall pay the prevailing party's reasonable attorney's
fees incurred in the enforcement of this Agreement.
VII.
CLOSING MATTERS
---------------
7.01 CLOSING DATE. The Closing shall be held in Puerto Rico at the
------------
offices of Purchaser's local counsel or such other location as both Seller and
Purchaser may agree, on December 30, 1996, or such earlier date as Seller and
Purchaser shall determine (the "CLOSING DATE").
7.02 ADJUSTMENT AND PRORATIONS. Seller and Purchaser have agreed that at
-------------------------
the Closing Purchaser shall acquire the Hotel and the on-going business
conducted at the Hotel. In that regard, there shall be no adjustments or
prorations between Seller and Purchaser upon the Closing Date. Purchaser shall
assume all of the liabilities associated with the on-going operation of the
business at the Hotel (except for any extraordinary liabilities incurred other
than in the ordinary course of business of the Hotel which were not disclosed to
Purchaser prior to closing) and shall be entitled to receive all assets and
receivables and other items of income and revenues, including, without
limitation, prepaid reservations.
7.03 GUEST PROPERTY IN SELLER'S POSSESSION ON CLOSING DATE. Property of
-----------------------------------------------------
guests of the Hotel in Seller's care, possession or control (excluding that in
guest rooms) on the Closing Date shall be handled in the following manner:
-9-
<PAGE>
(a) Safe Deposit Boxes. On the Closing Date, Seller shall cause notice
------------------
to be sent to all guests of the Hotel who have safe deposit boxes advising them
of the pending sale of the Property and requesting the removal and verification
of the contents of such safe deposit boxes within three (3) days after the
Closing Date. Seller may have a representative present at the Hotel during such
three-day period for the purpose of viewing such removal and verification.
Boxes of guests not responding to the written notice shall be listed at the end
of such three-day period. Such boxes shall be opened on the following day in
the presence of representatives of Seller and Purchaser to be agreed upon
between Seller and Purchaser and the contents thereof shall be recorded. Any
property contained in the safe deposit boxes and so recorded and thereafter
remaining in the hands of Purchaser shall be the responsibility of Purchaser,
and Purchaser hereby agrees to indemnify and save and hold the Seller harmless
from and against any claim or obligation arising out of or with respect to such
property. Any property contained in the safe deposit boxes and not so recorded
and not thereafter remaining in the hands of Purchaser shall be the
responsibility of Seller, and Seller hereby agrees to indemnify and save and
hold the Purchaser harmless from and against any claim or obligation arising out
of or with respect to such property.
(b) Baggage Inventory. All guest baggage checked and left in the
-----------------
possession, care and control of Seller shall be listed in an inventory to be
prepared in duplicate and signed by Seller's and Purchaser's representatives on
the Closing Date. Purchaser shall be responsible from and after the Closing
Date for all baggage listed in such inventory, and Purchaser hereby agrees to
indemnify and save and hold the Seller harmless from and against any claim
arising out of or with respect to the baggage listed in the inventory. Seller
shall be responsible for all baggage not listed in such inventory, and Seller
hereby agrees to indemnify and save and hold Purchaser harmless from and against
any claim arising out of or with respect to the baggage not listed in such
inventory.
(c) Other Property. All other guest property left in the possession,
--------------
care or control of Seller prior to the Closing Date shall be returned by Seller
to guests prior to the Closing Date and if not so returned prior to the Closing
Date shall be the sole responsibility of Seller subsequent to the Closing Date.
Seller hereby agrees to indemnify and save and hold Purchaser harmless from and
against any claim arising out of or with respect to any other guest property
left in the possession, care or control of Seller prior to the Closing Date and
not returned by Seller to guests prior to the Closing Date.
7.04 CLOSING DOCUMENTS.
------------------
(a) At Closing, Seller shall deliver or cause to be delivered to
Purchaser the following:
(i) a special warranty deed in recordable form conveying the fee
estate in the Property to Purchaser subject only to the Permitted
Exceptions.
(ii) a special warranty bill of sale transferring to Purchaser all of
the Furnishings, Expendables, Consumables and other tangible personal
property (other than those items subject to equipment leases) free of all
encumbrances except for the Permitted Exceptions.
(iii) if available, original executed counterparts of the Leases,
assignable Hotel Contracts and assignable Permits together with an
assignment conveying and transferring to Purchaser all of the Bookings,
the Leases, assignable Hotel Contracts and assignable Permits.
-10-
<PAGE>
(iv) an assignment of each of the lease agreements creating the
Leasehold Estates together with such consents or approvals as may be
necessary or appropriate in order to evidence the approval of the
respective landlords thereunder.
(v) possession of the Property.
(vi) a certified copy of such corporate or partnership authorizations,
approvals and incumbencies of Seller as Purchaser or the Title Company
shall reasonable require.
(vii) all books and records relating to the Property and the
Hotel in Seller's possession or in the possession of the Manager of the
Hotel.
(viii) if available and in Seller's possession, copies of all
reports, studies, plans and specifications covering the Property.
(ix) such notices to tenants and estoppel certificates from tenants as
may be reasonably required by Purchaser in order to establish the current
status of the landlord and tenant relationship under the Leases and in
order to notify any tenants of the transfer of the Property from Seller
to Buyer.
(x) an affidavit confirming that Seller is not a "foreign person" as
defined in Section 1445(f)(3) of the Internal Revenue Code, as amended.
(xi) such documents, affidavits and related instruments as the Title
Company shall reasonably require in order to issue an owner's policy of
title insurance to Purchaser.
(b) Purchaser shall deliver or cause to be delivered to Seller the
following:
(i) the balance of the Purchase Price in the manner described in
Section 2.01 above.
------------
(ii) such partnership authorizations, approvals and incumbencies as
Seller or the Title Company shall reasonably require.
(iii) an assumption of the obligations of Seller from and after
the Closing under the Bookings, the lease agreements creating the Ground
Leases, the Leases, assignable Hotel Contracts and assignable Permits.
(iv) such documents as may be necessary to release the lien of the
Banco Popular Mortgage.
7.05 CLOSING COSTS. Seller shall pay one-half of any escrow fees and its
-------------
legal fees out of the cash portion of the Purchase Price. Purchaser shall pay
for its legal fees, all costs of its due diligence investigation under Section
-------
5.04, one-half of any escrow fees, the cost of the Survey, all recording fees,
- ----
stamp taxes, excise fees, notary fees, mortgage and deed taxes, the costs of any
title policy and all other costs and expenses associated with the closing of the
transaction set forth in this Agreement, provided that Purchaser may select the
notary before whom the documents of transfer will be executed.
-11-
<PAGE>
7.06 REAL ESTATE COMMISSIONS. Seller and Purchaser each represent and
-----------------------
warrant to the other that it has no dealings with any broker in the negotiation
of this transaction other than Southmark Corporation, a Georgia corporation (the
"Broker"). Each party agrees to and does hereby indemnify, defend and hold the
other harmless against the payment of any commission to any person or entity
other than Broker claiming by, through or under Seller or Purchaser, as
applicable. At the Closing Purchaser shall pay to Broker a commission in the
amount of $775,000.00 if and only if the Closing shall occur under the terms and
provisions of this Agreement.
7.07 EMPLOYMENT OFFERS. As of the Closing of the transactions
-----------------
contemplated in this Agreement, Purchaser will make employment offers to all
current employees employed by Seller at the Hotel. As of the Closing Date, and
with respect to periods prior to and through the Closing Date and relating to
the Seller's employees, the Seller has paid or made provisions for the payment
of all salaries, accrued wages and benefits, including, but not limited to
bonuses, accrued vacation pay, accrued sick leave, payroll taxes, the Christmas
bonus, and has complied in all material respects with all applicable laws.
Seller agrees to indemnify, hold harmless, and defend Purchaser and its
affiliates from any and all claims, losses, demands, debts, actions, suits from
Seller's employees, known or unknown arising directly or indirectly from their
employment relation with Seller. These claims include, but are not limited to,
claims related to the terms and conditions of, change in, or cessation of
employment, claims based on any allegations of employment discrimination on the
basis of age, sex, color, race, national origin, religious or political beliefs,
disabilities, as well as any claim for salary, vacations, and/or meal periods.
Seller will also indemnify Purchaser from any costs and expenses incurred by
Purchaser in the litigation of these claims (including without limitation,
reasonable attorneys' fees). Purchaser will indemnify, defend, and hold Seller
harmless from and against any loss, damage, liability, claim, cost, or expense
(including without limitation, reasonable attorneys' fees) that may be incurred
by, or asserted against, Seller after Closing which involves any matter relating
to a past or present Hotel employee concerning acts or omissions occurring after
the Closing Date, except any such matters arising out of Seller's actions or
omissions after the Closing Date.
7.08 SURVIVAL. The provisions of Article VII shall survive the Closing.
--------
-12-
<PAGE>
VIII.
CONDEMNATION AND RISK OF LOSS
-----------------------------
8.01 CONDEMNATION. If, prior to Closing, any governmental authority or
------------
other entity having condemnation authority shall institute an eminent domain
proceeding or take any steps preliminary thereto (including the giving of any
direct or indirect notice of intent to institute such proceeding) with regard to
the Property and the same is not dismissed on or before ten (10) days prior to
Closing, Purchaser shall be entitled either to terminate this Agreement upon
written notice to Seller or to waive such right of termination and receive all
such condemnation proceeds or an assignment thereof at the Closing. In the event
Purchaser elects to terminate this Agreement under this Section 8.01, Escrow
------------
Agent shall promptly return to Purchaser the Earnest Money and neither party to
this Agreement shall thereafter have any further rights or obligations
hereunder.
8.02 RISK OF LOSS. Until Closing, Seller shall bear the risk of loss
------------
should there be damage to any of the improvements by fire or other casualty. If
prior to the Closing any of the Improvements shall be damaged by fire or other
casualty, Seller shall take all action reasonably necessary to preserve and
protect the improvements from further loss or damage, and within ten (10)
business days after such loss deliver to Purchaser the following items, to the
extent available (collectively, "CASUALTY LOSS INFORMATION"): (a) copies of all
casualty and business interruption policies relating to the Property; (b) the
names, address and telephone numbers of the adjustors assigned to adjust the
loss; (c) letters addressed to each insurance company issuing a policy covering
such loss and executed by Seller authorizing said company and its adjustors to
discuss all matters relating to such loss with Purchaser, its agents and
attorneys; and (d) a detailed written description of the damages incurred and an
estimate of the cost of restoration.
If the Improvements suffer material damage by a casualty, which, for the
purpose of this Agreement, shall mean damage in excess of $250,000 or damage of
a lesser amount to any area of the Hotel necessary for the day to day operation
of the Hotel that cannot reasonably be expected to be repaired within five (5)
business days, Purchaser may within five (5) days after delivery of the Casualty
Loss Information either:
(a) terminate this Agreement be delivering written notice of same to
Seller, in which event Escrow Agent shall promptly return to Purchaser the
Earnest Money and neither party to this Agreement shall thereafter have any
further rights or obligations hereunder; or
(b) waive its right of termination, by delivering written notice of same
to Seller, and proceed to close this transaction in accordance with the terms
hereof.
At Closing, (i) all insurance proceeds received prior to Closing shall be
delivered to Purchaser at Closing, (ii) at the option of Purchaser, Purchaser
and Seller shall jointly notify all appropriate insurance companies of its
interest in the insurance proceeds and (iii) all casualty insurance proceeds
payable as a result of the loss and Purchaser's pro rata share of any rental or
business loss proceeds shall be assigned to Purchaser at Closing.
-13-
<PAGE>
IX.
MISCELLANEOUS
-------------
9.01 ENTIRE AGREEMENT. This Agreement contains the entire agreement of
----------------
the parties hereto. There are no other agreements, oral or written, and this
Agreement can be amended only by written agreement signed by Seller and
Purchaser.
9.02 BINDING EFFECT. This Agreement shall inure to the benefit of and be
--------------
binding upon the heirs, personal representatives, successors and assigns of each
of the parties to this Agreement. Neither party may assign any of its rights or
obligations hereunder without the written consent of the non-assigning party.
9.03 NOTICES. Any notice, communication, request, reply or advice
-------
(collectively, "NOTICE") provided for or permitted by this Agreement to be made
or accepted by either party must be in writing. Notice may, unless otherwise
provided herein, be given or served by depositing the same in the United States
mail, postage prepaid, registered or certified, and addressed to the party to be
notified, with return receipt requested; or by delivering by overnight courier;
or by facsimile transmission. Notice deposited in the mail in the manner
hereinabove described shall be effective two (2) business days after such
deposit. Notice by overnight courier shall be effective one (1) business day
after deposit with the courier service. Notice by facsimile transmission shall
be effective on the business day delivered. For the purposes of Notice, the
addresses of the parties shall be:
Seller: Southmark San Juan, Inc.
c/o Southmark Corporation
2711 LBJ Freeway, Suite 950
Dallas, Texas 75234
Attn: Charles B. Brewer, President
Fax No.: (214) 406-6773
with copy to: Southmark San Juan, Inc.
c/o Hollywood Casino Corporation
13455 Noel Road, Suite 2200
Two Galleria Tower, LB 48
Dallas, Texas 75240
Attn: John C. Hull, Corporate Controller
Fax No.: (214) 716-3916
and copy to: Palmer, Allen & McTaggart, L.L.P.
8111 Preston Road, Suite 300
Dallas, Texas 75225
Attn: David L. Herbert, Esq.
Fax No.: (214) 265-7052
-14-
<PAGE>
Purchaser: Puerto Rico Hotel Opco, LP SE
c/o Donaldson, Lufkin & Jenrette
277 Park Avenue, 19th Floor
New York, New York 10172
Attn: Andy Rifkin, Senior Vice President
Fax No.: (212) 892-7553
with copy to: Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attn: Judith Singer, Esq.
Fax No.: (212) 715-8000
The parties shall have the right from time to time to change their respective
addresses for notice by at least two (2) business days' written notice to the
other party.
9.04 GOVERNING LAW. This Agreement shall be construed in accordance with
-------------
the laws of the Commonwealth of Puerto Rico.
9.05 SECTION HEADINGS. The section headings contained in this Agreement
----------------
are for convenience only and shall in no way enlarge or limit the scope or
meaning of the various and several sections of this Agreement.
9.06 OBLIGATIONS. To the extent necessary to carry out the terms and
-----------
provisions of this Agreement, the terms, conditions, warranties,
representations, obligations, indemnities and rights set forth in this Agreement
shall not be terminated at the time of Closing, nor will they merge into the
various documents executed and delivered at the time of Closing.
9.07 COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
9.08 CONFIDENTIALITY. By their execution of this Agreement, Seller and
---------------
Purchaser, their respective agents, employees, officers, shareholders,
directors, successors, independent contractors and permitted assigns hereby
agree to maintain in strict confidentiality, all of the terms, provisions,
agreements and information contained in or referred to in this Agreement,
including any of the exhibits attached hereto and the results of any tests,
surveys, economic feasibility studies, environmental audits and other
information provided to or generated by Purchaser or Seller. The information
to be maintained in strict confidentiality pursuant to the preceding sentence
shall not be disclosed directly or indirectly to any person or entity without
the prior written consent and specific written approval of the other party
hereto. Notwithstanding the foregoing, information may be disclosed to
attorneys, accountants, prospective lenders and their counsel and prospective
equity participants and their counsel if such permitted persons or entities
agree not to further disclose, directly or indirectly, any such confidential
information.
-15-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed in multiple
counterparts by the parties hereto on the date and year first above written.
SELLER:
SOUTHMARK SAN JUAN, INC.,
a Delaware corporation
By: /s/ William D. Pratt
------------------------------------
Name: William D. Pratt
Title: Vice President/Secretary
PURCHASER:
PUERTO RICO HOTEL OPCO, LLP,
a Delaware limited partnership doing
business in Puerto Rico as Puerto Rico
Hotel OPCO LLP SE
By: /s/ Andrew Rifkin
------------------------------------
Name: Andrew Rifkin
--------------------------------
Title: Vice President
-------------------------------
-16-
<PAGE>
Exhibit A
---------
Legal Description of the Fee Simple Land
----------------------------------------
RURAL: Parcel of land located on the Cangrejos Arriba Ward of the
Municipality of Carolina, with an area of TWENTY THREE THOUSAND ONE HUNDRED
THIRTY POINT EIGHT THOUSAND FOUR HUNDRED SIX SQUARE METERS (23,130.8406 sq.
mt.); with boundaries on the North, with the maritime zone of the Atlantic
Ocean; on the South, with property of Juan Piza; on the East, with properties of
San Juan Hotel Corporation; of Jose Rivera Mundo and Vicenta Antolin Cruz; on
the West, with properties of Caribbean Resorts Corporation, and of spouses
Rivera Mundo Antolin. State Road Number One Hundred Eighty Seven (187) runs
from East to West through this property.
On this property there is a fourteen (14) story building, with swimming pool
facilities, two (2) story cabins and paved parking.
Property number 18,276 recorded at page 122 overleaf of volume 750 of
Carolina, Registry of Property of Carolina, First Section.
EXHIBIT A - Solo Page
- ---------
<PAGE>
Exhibit A-I
-----------
Legal Description of Ground Lease
---------------------------------
GROUND LEASE:
Urban: Parcel of land located in the Cangrejo Arriba Ward of the Municipality
of Carolina, with an area of seven thousand eight hundred sixty square meters
and seventy eight hundredths of another. Bounded on the North, in fifty meters
with the road which goes from Santurce to Carolina; on the South, in fifty seven
meters and fifty nine centimeters with property of Enrique Abarca, before
Alberto Biascochea; on the East, in one hundred ninety three meters with the
remaining of the property from which it was segregated owned by Vicente Antolin
Cruz; and on the West, in one hundred forty four meters and ninety centimeters
with property of Timoteo de Jesus.
From the above-described property two segregations have been made, one of one
hundred ninety three point seventy seven (193.77) square meters and the other of
forty nine point fifty seven (49.57) square meters, without the remnant parcel
being described.
On this property there is also a concrete house and a garage, one shack of
bricks and wood and a zinc roof and wood house for dwelling with a zinc roof,
two paint mixers, five ball mills, a stone mill, a two hundred twenty five (225)
gallon shaker and a dry blender. There is also a concrete house with four
apartments for dwelling, a cottage of bricks and wood with a zinc roof for
warehousing and living quarters, a wood house with a zinc roof and a concrete
brick building devoted to restaurant and night club.
Property number 29,148 (formerly property number 2,082), recorded at page 15
of volume 574 of Carolina, Registry of Property of Carolina, First Section.
The Ground Lease is recorded in favor of Southmark San Juan, Inc. at page
20(r) of volume 574 of Carolina, Registry of Property of Carolina, First
Section, 13th inscription.
EXHIBIT A - Solo Page
- ---------
<PAGE>
Exhibit A-2
-----------
Legal Description of Ground Lease
---------------------------------
LEASED PARCEL:
Parcel of land with an irregular trapezoidal shape with an area of three
hundred sixty seven square meters with sixty seven hundredths of another (367.67
sq. mt.) with the following boundaries; on the North, in a distance of 3.354
meters with the Maritime Zone of the Atlantic Ocean; on the South, in a distance
of 1.499 meters, with State Road Number 187; on the East, in a distance of
153.451 meters, with the Sands Hotel & Casino Property; and on the West, in
seven (7) different alignments in a total distance of 153.624 meters, with the
main tract of land of which this parcel forms part of, and which is owned by
Coral Beach Condominium.
The above described parcel is part of the following property which is
described in the Registry of Property as:
URBAN: Parcel of land of regular shape located on the Cangrejos Arriba Ward
of Carolina, with an area of sixteen thousand three hundred fifty square meters
and thirty nine hundredths of another; with boundaries on the North, with the
Paseo de la Playa avenue, the Atlantic Drive, in a distance of one hundred
fourteen point nine hundred eighty seven lineal meters; on the South, in three
different and broken alignments which total one hundred eight point nine hundred
fifty two lineal meters, with State Road Number One Hundred Eighty Seven; on the
East, in a distance of one hundred sixty two point five hundred forty lineal
meters, with property owned by Americana de Rico, Inc., Hotel Americana; and on
the West, in two continuous and broken alignments which total thirty three point
two hundred eleven lineal meters with Street One, before, now Boulevard Street.
Property number does not appear in the lease with Coral Beach Condominium,
recorded at page 31 overleaf of volume 437 of Carolina, Registry of Property of
Puerto Rico.
The lease is not recorded in the Registry of Property.
EXHIBIT A - Solo Page
- ---------
<PAGE>
Exhibit B
---------
Tenant Leases
-------------
<TABLE>
<CAPTION>
Tenant Lease Date Expiration Date Business
- --------------------------------- ---------- ---------------- --------------------
<S> <C> <C> <C>
1. Calypso Water Sports 05/09/93 11/30/99 Clothing Accessories
2. Castillo Water Sports Inc. 03/05/93 11/30/97 Water Sports
3. Edouard De Paris Beauty Salon 04/01/93 11/30/97 Beauty Salon
4. Maximino Jewelers 03/05/93 11/30/97 Jeweler
5. W.H. Smith of P.R. Inc. 06/11/93 09/15/98 Sundry Shop
6. American Parking 10/08/87 M-M Parking management
7. II Giardino Inc. 06/26/92 12/31/97 Restaurant
8. International Arcade 12/01/95 11/30/98 Game Room
9. Ruth's Chris Steak House 11/12/93 02/28/2004 Restaurant
10. Charlie Rental Car 07/01/89 M-M Car Rental
11. Travel With Jane 12/01/92 M-M Travel Agent
12. Eduardo & Maria Hernandez
The Souvenir Shop 12/01/92 M-M Souvenirs
Variety Shop 12/01/92 M-M Varieties
Liquor Shop 12/01/92 M-M Liquor Store
13. La Fusta Hotel 08/07/85 Five-year renewal Hotel/Restaurant
under negotiation
14. Mi Capita Express 02/01/96 08/31/97 Restaurant
</TABLE>
EXHIBIT B - SOLO PAGE
- ---------
<PAGE>
Exhibit C
---------
Hotel Contracts
---------------
Leased Equipment
- ----------------
<TABLE>
<CAPTION>
Lesser Beginning Date Term Equipment Type
--------- -------------- ------ --------------
<S> <C> <C> <C>
1. El Camino Resources 01/01/95 24 mo. Computer System (P.M.S)
2. Oriental Leasing 07/01/94 36 mo. Casino coin wrapping machine
3. Oriental Leasing 10/01/94 36 mo. Executive Offices copy machine
4. Capital Leasing source corporation 07/01/94 48 mo. Accounting Office copy machine
5. Xerox corporation 07/12/95 36 mo. Fax Machine
6. Xerox corporation 05/01/96 36 mo. Sales Office copy machine
7. Oriental Leasing 09/01/95 60 mo. Call accounting system
</TABLE>
Employment Contracts and Agreements
- -----------------------------------
<TABLE>
<CAPTION>
Employee Beginning Date Term Type of Agreement
-------- -------------- ------ --------------------
<S> <C> <C> <C>
Richard E. Abati 12/01/95 24 mo. Employment Agreement
Frederick N. Newman 09/15/91 N/A Employment Letter
Victor Perez 01/10/95 N/A Letter Agreement
</TABLE>
EXHIBIT C - SOLO PAGE
- ---------
<PAGE>
Exhibit C (continued)
----------------------
Service Contracts
-----------------
1. Stage Crew Audio Visual Services
2. Castillo Water Sports Pool Maintenance Services
3. Michro Tech Food & Beverage POS Maintenance
4. Wells Fargo Armored Car Service
6. I.B.M. Property computer system maintenance
7. Caribbean Airport Facilities Outside Storage Services
8. Telecable de Puerto Rico In Room Cable T.V.
9. Interboro Time Clocks (2) Maintenance
10. Spectradine In Room Movies Pay T.V.
11. Spectradine In Room Movies Premium Channels
12. Selig Chemical Ind. Water Treatment
13. Otis Elevators Elevators Maintenance
14. B.F.I. Waste Removal
15. Trane Air Conditioning Maintenance
16. Master Maintenance Cleaning Services
17. Landscape Contractors Grounds & Landscaping
18. Antoine de Puerto Rico Dry Cleaning Services
19. Exterminators Extraordinary Exterminating Services
20. Top Furniture Carpet Maintenance
21. Country Club Window Cleaning Window Cleaning Services
22. Glory Inc. Coin Wrapping Machine Maintenance
23. Xerox Corporation Copy Machine Maintenance
24. Kodak Caribbean Copy Machine Maintenance
25. Cortelco Puerto Rico Inc. Call Accounting System Maintenance
26. Electro Servicios Especializados Emergency Plant Maintenance
27. Ecolab Manufacturing Inc. Dishwashing Machine Maintenance
28. La Montana Inc. Water coolers
29. Gestetner Corporation Copy Machine Maintenance
30. Systronics Inc. Copy Machine Maintenance
EXHIBIT D - SOLO PAGE
- ---------
<PAGE>
Exhibit D
---------
Licenses, Permits and Bonds
---------------------------
1. Casino License
2. Tucanos Restaurant/Room Service Health Permit
3. Pool Bar Health Permit
4. Players Lounge Health Permit
5. Tucanos Restaurant/Room Service Liquor License
6. Pool Bar Liquor License
7. Players Lounge Liquor License
8. Municipal; Permit "Patente Municipal" - Volume Tax
9. Use Permit
10. Tax Exemption Government Resolution
11. Consumer Affairs Department Parking Operation Permit
12. Workmen Compensation Insurance Policy
13. Fire Department License
14. Puerto Rico Electric Power Company bond
15. Puerto Rico Aqueduct and Sewer Authority bond
16. Casino Gaming bond
17. Room Tax Authority (Secretario de Hacienda) bond
EXHIBIT D - SOLO PAGE
- ---------
<PAGE>
Exhibit E
---------
Litigation and Pending Claims
-----------------------------
Litigation
- ----------
<TABLE>
<CAPTION>
Jurisdiction Case # Plaintiff
- ------------------------------------- ------------------ ----------------------
<S> <C> <C>
U.S. District Court for the 392-37413-HCA-11 Maria Milagros Soto
Northern District of Texas
U.S. District Court for the
Southern District of New York 96-CIV-835 International Recovery
System and National
Recovery Systems
Tribunal De Primera Instancia -
Carolina
Mario Ibarra Civil #96-1116 Unjustified Discharge
Lilly Anne Martinez Civil #94-257 Not Insured Employer
Fondo del Seguro del Estado
Luz Centeno Civil #FDP96-0207 Damages
Tribulan De Primera Instancia -
San Juan
Jose L. Arreche Civil #96-2485 Unjustified Discharge
U.S. District Court for Puerto Rico
Ed Ashtiani Civil #95-1992 (HL) Jury Trial
(Origin Discrimination)
Puerto Rico Labor Department
Jorge E. Vargas A1D1DP65-96 (Severance)
Puerto Rico Labor Department
Anti-Discrimination Unit
Michelle Alicea 16H960121 (Maternity)
</TABLE>
EXHIBIT E - SOLO PAGE
- ---------
<PAGE>
Exhibit E
---------
Litigation and Pending Claims
-----------------------------
Litigation
- ----------
<TABLE>
<CAPTION>
Jurisdiction Case # Plaintiff
------------ ------ ---------
<S> <C> <C>
National Labor Relations Board
Pending Cases:
Carmen Rivera 24-CA-7466 Unfair Labor Practice
Francisca Beltran 24-CA-7531 Unfair Labor Practice
The Union (Local 610) 24-RC-7742
Filed Objections to the election
In P.R. the Sands has filed an
appeal to the NLRB in
Washington, D.C. *
The Union (Local 610) 24-CA-7234
Appealed to Washington the 24-CA-7254
decertification of the Casino
</TABLE>
* On October 31, 1996, the NLRB ordered the hotel to hold a new election to
determine if the employees wish to join Local 610.
EXHIBIT E - SOLO PAGE
- ---------
<PAGE>
EXHIBIT E (CONTINUED)
PENDING INSURANCE CLAIMS
<TABLE>
<CAPTION>
Location/Injury
File Number File Type Claimant Date/Loss Date/Opened Description of Loss Description
- --------------------------- --------- ----------------------- --------- ----------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
OCC47888 BI Hernandez, Jose 07/31/91 08/20/91 Cut Foot in Pool Pool/Left Foot
OCC51053 BI Grimes, Rick 08/23/93 08/31/93 Slipped on Floor Players Lounge/R Knee
OCC51075 BI Macedonio, Joseph 08/15/92 09/09/93 Jet Ski Accident Ocean/Deceased
OCC51717 BI Mills, Sandra 02/26/94 03/08/94 Fell on Casino Steps Casino Steps/L
Ankle, Knee, Back
Shoulder
OCC51915 BI Rodriguez-Lesbia, Lydia 04/04/94 04/22/94 Trip & Fall Marketing Office/R
Hand, Elbow, L Arm,
Jaw
OCC51983 BI Mitchell, Thelma 02/09/94 05/16/94 Fell in Lobby Lower Lobby/Knee
OCC52218 BI Griffin, Rhonda 07/12/94 08/01/94 Fell in Lobby Tripped in Lower
Lobby/FX Foot
OCC52303 BI Draper, Roland J. III 2/07/93 08/24/94 Food Poisoning Toscano's/Food
Poisoning
OCC52459 BI Ortiz-Horrez, Giselle 10/02/94 10/20/94 Fell on Bricks on Handicap Ramp/Knees
the Handicap Ramp R. Hand, Thumb
Disloc.
OCC52703 BI Mitchell, Theresa 01/28/95 03/03/95 Slip & Fall Pool Area/Left Knee
OCC52866 BI Christopher, Nick 04/23/95 05/30/95 Tree Branch Fell on Poolside/Back of Neck
Head/Pool Area
OCC52868 BI Strazadas, Julia 05/15/95 05/30/95 Slipped Coming Out Pool/Right Knee,
of Pool/Ladder Left Leg
OCC52893 BI Renchik, Charles 10/24/94 06/06/95 Alleged Fall in Elevator/Lower Back
Elevator
OCC52964 BI Orengo, Evelyn 05/02/95 07/07/95 Fell Off Slot Stool Casino Floor
in Casino Slots/Neck & Left Arm
OCC53096 BI Zabala-Romero, Thomas 07/09/94 08/09/95 Fell in Bathroom Hotel Room/Back and
Rib Cage
OCC53144 BI Bazar Torres, Rosa 06/23/95 08/23/95 Slipped on Leaves Pool Area/L. Ankle,
Near Pool R. Shoulder
OCC53176 BI Baglio, Kelly 06/06/95 09/06/95 Fell Down Stairs Stairs/Twisted Foot
and Twisted Foot
OCC53192 BI Castillo, Eva 08/19/95 09/13/95 Cut Chin in Bathroom Guest Room 1626/Cut
Chin & Brused Neck
OCC53218 BI Pasarell-Colon, Maria 08/19/95 09/27/95 Fell Ballroom C/Left Ankle
OCC53219 BI Aracena, Laura 09/23/95 09/27/95 Ball From Roulette Casino Floor/Mouth
Hit Claimant M
OCC53246 BI Kantor, Shirley 08/26/95 10/08/95 Fell on Wet Floor Elevators/Back, Chest
OCC53263 BI Ortiz, Yolanda 10/06/95 10/16/95 Hit by Coconut in Pool Area/Shoulder
Pool Area
OCC53319 BI Malina, Anna Luz 10/12/95 11/13/95 Slip and Fall Casino Entrance
Steps/Knees
OCC53462 BI Rosen, Donna 11/25/95 01/02/96 Slipped on Edge of Pool Area/Head, R.
Pool Arm, L. Finger
OCC53463 BI Boyce, Marilyn 12/10/95 01/02/95 Slip and Fall Room 906/Right Arm,
Hip & Back
OCC53464 BI Porto, Camella 11/12/95 01/02/96 Tripped at Pool Pool Area/Back
OCC53573 PD Baeza, Michell & Evelyn l07/18/95 01/24/96 Sprinkler System Guest Room
Flooded Room 817/Property Damage
OCC53701 BI Colon, Charisse 02/03/96 02/09/96 Palm Tree Fell on Outside Pool/Right
Head Side of Head
OCC53702 BI Blum, Blanch 02/03/96 02/09/96 Palm Tree Bark Fell Pool Area/Right Leg
on Her Leg
OCC53847 BI Rosado, Delores 10/15/95 03/15/96 Fell in Bathroom Bathroom/Right Foot
Twisted
OCC53870 BI Perez-Figuerda, Roberto 02/24/96 03/22/96 Bumped by Food Cart Plazoleta/Rt. Hand,
Chest
OCC53975 BI Thompson, Dwane 03/25/96 04/25/96 Alleged Guest Room
"Legionnaires 316/Legionnaires
Disease" Disease
OCC54094 BI Melendez, Manuel 03/17/96 06/05/96 Elevator Doors Freight Elevator
Closed on Claimant Doors Hit
Claimant/Rt Arm
OCC54165 BI Cruz, Ada Santos 12/30/95 07/03/96 Fall Steps/Fracture
Of
OCC54205 BI Limanni, Macy 07/03/96 07/11/96 Fell on Steps Steps/Forehead
OCC54258 BI Cardona, Maria 07/04/96 07/26/96 Fell in Bathtub Guest Room 705/Nose
Left Eyebrow
OCC54259 BI Morgan, Kathy 05/31/96 07/26/96 Slip in Bathtub Guest Room 724/Face,
Left Knee
OCC54318 BI Arbona Morales, Nancy 07/30/96 08/13/96 Fell Out of Shower, Guest Room 1405/Left
No Mat Foot & Knee, Body
OCC54319 PD Bain, Matthew et al 07/06/96 08/13/96 Bags Were Stolen Bell Captain Area/
and Recovered Bags Stolen
OCC54391 BI Baez-Soto, Nereida 08/24/96 09/06/96 Piece of Glass in Tucano/Cut Mouth
Food With Piece of Glass
OCC54396 BI Lugo-Almodovar, Esther 08/09/96 09/09/96 Twisted Right Ankle Casino Area/Right
Ankle & Right Hip
OCC54427 BI Bermudez, Wilda 06/24/96 09/19/96 Slip & Fall Main Lobby/Right
Leg, Right Ankle
OCC54428 PD Figueror-Lugo, Moraima 08/11/96 09/19/96 Luggage Stolen Main Lobby/Stolen
Luggage
</TABLE>
<PAGE>
Exhibit F
---------
Status of Union and Collective Bargaining Agreements
----------------------------------------------------
. In February 1994, approximately 30 permanent dealers, of the Sands San Juan
Casino department, voted to become part of Gastronomical Workers union,
Local 610 HEREIN, AFLCIO (the Union), however, in August 1995 the Sands
Hotel Casino (the Company) received written notification, from the attorney
representing a majority of the casino permanent dealers, which stated that
they no longer wanted to be represented by the Union. As a result, the
Company has withdrawn from negotiations with the Union in regards to the
casino department employees.
The Union rejected, the notification from the Company and filed a case with
the San Juan Office of the N.L.R.B. The San Juan Office of the N.L.R.B.
ruled in favor of the Company upholding the company's negotiations
withdrawal. The Union appealed the decision to the N.L.R.B. in Washington.
The appeal is still pending.
. On October 11, 1995 a union representation election was held on behalf of
approximately 150 hourly employees of the Food and Beverage, Housekeeping,
Engineering and Bell Staff departments. The employees rejected the Union
representation but the Union challenged the voting qualifications of
several employees in a petition to the San Juan Offices of the National
Labor Relations Board ("NLRB"). In addition the Union filed several unfair
labor practice claims against the management. The San Juan Office of the
N.L.R.B. ruled in favor of the union petition for both counts, whereupon
the Company filed an appeal with the N.L.R.B. in Washington. The appeal is
still pending.
EXHIBIT F - SOLO PAGE
- ---------
<PAGE>
Exhibit G
---------
Excluded Personal Property and Personal Effects
-----------------------------------------------
GENERAL MANAGER'S ITEM:
- -----------------------
All items in the General Manager's Suite #1609/#1607 is the property of the
General Manager with the exception of the following:
1. Bedroom case goods in both bedrooms
2. Dining room set
3. Leather sofa bed
4. Table and two (2) matching chairs in den
5. All lamps
6. Coffee tables and end tables
7. Console TV in suite #1609
8. TV in suite #1607
Note: The Mitsubishi TV in suite #1609 is property of the General Manager.
All items in the General Manager's office is property of the hotel with the
exception of the following:
1. All wall accessories
2. Sony stereo system and related tapes, CD's, etc.
3. Cerwin-Vega speakers
4. Large black swivel office chair
5. Professional manuals, i.e. Hospitality Industry guides, Flagship
Hospitality Corporation, etc.
6. Personal knick-knacks, calculator, office supplies, etc.
VICE PRESIDENT'S OFFICE:
- ------------------------
All items in the Vice President's office are property of the hotel with the
exception of the following:
1. All wall accessories
2. Professional manuals, i.e. Hospitality Industry guides etc.
3. Personal knick-knacks, lamps, calculator, office supplies.
EXHIBIT G - SOLO PAGE
- ---------
<PAGE>
CONTROLLER'S OFFICE:
- --------------------
All items in the Controller's offices are property of the hotel with the
exception of the following:
1. All wall accessories
2. Sony CFD 440 stereo system and related tapes, CD's, etc.
3. Magnavox Metalif/SX Notebook computer
4. Professional manuals, i.e. Hospitality Industry guides, books, etc.
5. Personal knick-knacks, lamps, calculator, office supplies, etc.
<PAGE>
EXHIBIT 10.3
---------------------------------------
DATED:
---------------------------------------
EMPLOYMENT AGREEMENT
- BY AND BETWEEN -
SOUTHMARK SAN JUAN, INC.
("Employer")
- AND -
RICHARD E. ABATI
("Employee")
---------------------------------------
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
the 1st day of December, 1995, by and between Southmark San Juan, Inc.
("Employer") and Richard E. Abati ("Employee").
WITNESSETH:
-----------
WHEREAS, Employer is a corporation duly organized and existing under the
laws of the State of Texas, maintains its principal place of business at 13455
Noel Road, Dallas, Texas 75240 and is engaged in the business of owning a
casino/hotel complex in San Juan, Puerto Rico; and,
WHEREAS, in furtherance of its business, Employer has need of qualified,
experienced personnel; and,
WHEREAS, Employee is an adult individual residing at the Sands Hotel, San
Juan, Puerto Rico; and,
WHEREAS, Employee has represented and warranted to Employer that Employee
possess sufficient qualifications and expertise in order to fulfill the terms of
the employment stated in this Agreement; and,
WHEREAS, Employer is willing to employ Employee, and Employee is desirous
of accepting employment from Employer under the terms and pursuant to the
conditions set forth herein:
1
<PAGE>
NOW, THEREFORE, for and in consideration of the foregoing recitals, and in
consideration of the mutual covenants, agreements, understandings, undertakings,
representations, warranties and promises hereinafter set forth, and intending to
be legally bound thereby, Employer and Employee do hereby covenant and agree as
follows:
1. DEFINITIONS. As used in this Agreement, the words
-----------
and terms hereinafter defined have the respective meanings ascribed to them
herein, unless a different meaning clearly appears from the context:
(a) "Cause" - means
-----
(i) the conviction of Employee of a felony by a court of
competent jurisdiction,
(ii) the indictment of Employee by a state or federal grand jury
of competent jurisdiction for embezzlement or misappropriation of
Employer's funds or for any act of dishonesty or lack of fidelity
towards Employer,
(iii) a decree of a court of competent jurisdiction that Employee
is not mentally competent to handle his own affairs,
(iv) the written confession by Employee of any act of dishonesty
towards Employer or any embezzlement or misappropriation of Employer's
funds,
(v) the payment (or, by the operation solely of the effect of a
deductible, the failure of payment) by a surety or insurer of a claim
under a fidelity bond issued to the benefit of Employer reimbursing
Employee for a loss due to the wrongful act or wrongful omission to
act of Employee (the occurrence of which shall cause Employee to be
indebted to Employer for the greater of either (A) the loss incurred
by Employer or (B) the sums paid by Employer to Employee pursuant to
this agreement),
(vi) Employee's breach of the restrictive covenant set forth in
Paragraph 10 of this Agreement, provided, however, that Employee's
-------- -------
disability due to illness or accident or any other mental or physical
incapacity shall not constitute "Cause" as defined herein.
(b) "Complete Disability" - means the inability of Employee, due to
-------------------
illness or accident or other mental or physical incapacity, to perform
his obligations under this Agreement for a period of one hundred
eighty (180) calendar days in the aggregate over a period of five
hundred (500) consecutive calendar days, such "Complete Disability" to
become effective upon the expiration of such one hundred eightieth
(180th) day.
(c) "Effective Date" - means the date first above written.
--------------
(d) "Employee" - means Employee as earlier defined in this Agreement.
--------
(e) "Employer" - means Employer as earlier defined in this Agreement.
--------
2
<PAGE>
(f) "Employer's Affiliates" - means any parent, subsidiary or
---------------------
affiliated corporation or other legal entity of Employer.
(g) "Prior Employment" - means any prior employment Employee has had
----------------
with either Employer or Employer's Affiliates.
2. PRIOR EMPLOYMENT. This Agreement supersedes and replaces any and
----------------
all prior employment agreements, whether written or oral, by and between
Employee, on the one side, and Employer or Employer's Affiliates, on the other
side. From and after effective date, Employee shall be the employee of Employer
under the terms and pursuant to the conditions set forth in this Agreement.
3. BASIC EMPLOYMENT AGREEMENT. Subject to the terms and pursuant
--------------------------
to the conditions hereinafter set forth, Employer hereby employs Employee during
the Term of this Agreement (as hereinafter defined) to serve in a managerial or
executive capacity, under a title and with such duties not inconsistent with
those set forth in Paragraph 4 of this Agreement, as the same may be modified
and/or assigned to Employee by Employer form time to time. Notwithstanding the
foregoing, Employer and Employee hereby covenant and agree that, in the absence
of mutual consent of both Employer and Employee, Employee shall not be assigned
duties by Employer which would require that Employee maintain his principal
place of residence or primary place of employment outside of the greater
metropolitan area of San Juan, Puerto Rico.
3
<PAGE>
4. DUTIES OF EMPLOYEE. Employee shall perform such duties assigned to
------------------
Employee by Employer as are generally associated with the duties of Vice
President-General Manager or such similar duties as may be assigned to Employee
as Employer may determine (the "Position"), including, but not limited to, (i)
the efficient and continuous operation of Employer, (ii) the preparation of
relevant budgets and allocation of relevant funds, (iii) the selection and
delegation of duties and responsibilities of subordinates, (iv) the direction,
review and oversight of all programs under Employee's supervision, and (v) such
other and further duties specifically related to such duties as assigned by
Employer to Employee. Notwithstanding anything express or implied herein to the
contrary, Employee shall devote such time to Employer's Affiliates as required
by Employer, provided such duties are not inconsistent with Employee's primary
duties to Employer hereunder.
5. ACCEPTANCE OF EMPLOYMENT. Employee hereby unconditionally accepts the
------------------------
employment set forth hereunder the terms and pursuant to the conditions set
forth in this Agreement. Employee hereby covenants and agrees that, during the
Term of this Agreement, Employee will devote the whole of his normal and
customary working time and best efforts solely to the performance of Employee's
duties under this Agreement.
6. TERM. The initial term of This Agreement (the "Initial Term" ) shall
----
commence as of the Effective Date of this Agreement and shall expire on November
30, 1997 unless sooner terminated as provided in this Agreement. The initial
term of this Agreement shall be automatically extended for additional terms of
one (1) year (the "Renewal Term") commencing as of the expiration of the
preceding Initial Term or Renewal Term, as the case may be, unless either (i)
sooner terminated as provided in this Agreement, or (iii) terminated by Employee
upon prior written notice to Employer at least one hundred eighty (180) days
prior to expiration of the then current term, or (iii) terminated by Employer
upon written notice to Employee at least one hundred eighty (180) days prior to
expiration of then current term. For purposes of this Agreement, both the
Initial Term and the Renewal Term(s), if any, shall be deemed the "Term" of this
Agreement.
4
<PAGE>
7. SPECIAL TERMINATION PROVISIONS. Notwithstanding the provisions of
------------------------------
Paragraph 6 of this Agreement, this Agreement shall terminate upon the
occurrence of any of the following events:
(a) the death of Employee;
(b) the giving of written notice from Employer to Employee of the
termination of this Agreement upon the Complete Disability of
Employee;
(c) the giving of written notice by the Employer to Employee of the
termination of this Agreement upon the discharge of Employee for
Charge;
(d) the giving of written notice by Employee to Employer upon a
material breach of this Agreement by Employer, which material
breach remains uncured for a period of thirty (30) days after
giving such notice;
(e) the giving of written notice by Employer to Employee upon a
material breach of this Agreement by Employee, which material
breach remains uncured for a period of ten (10) days after the
giving of such notice (For purposes of Paragraph 7(e) hereof,
"material breach" shall mean an act or omission, not specified in
the definition of "cause" set forth in Paragraph 1(a) above, the
occurrence of which would lead a reasonable prudent employer to
terminate the employment of the offending party, were the
offending party to possess a comparable position, service record
and experience as Employee); and/or
(f) without Cause and for any reason upon the giving of thirty (30)
days prior written notice by Employer to Employee, provided that
compensation shall continue as specified in Paragraph 8(d) below.
8. COMPENSATION TO EMPLOYEE. For and in complete consideration of
------------------------
Employee's full and faithful performance of his duties under this agreement,
Employer hereby covenants and agrees to pay Employee, and Employee hereby
covenants and agrees to accept from Employer, the following items of
compensation:
5
<PAGE>
(a) Base Salary. Employer hereby covenants and agrees to pay to
-----------
Employee, and Employee hereby covenants and agrees to accept from Employer, a
base salary of one hundred fifty-five thousand and NO/100 ($155,250) per annum,
payable in such installments as shall be convenient to Employer (the "Base
Salary"). Such Base Salary shall be subject to adjustment as provided in
Paragraph 8(b) below. Such Base Salary shall be exclusive of and in addition to
any other benefits which Employer, in its discretion, may make available to
Employee.
(b) Base Salary Adjustment. The Base Salary during the Term of this
----------------------
Agreement shall be adjusted (the "Base Salary Adjustment") as of the 1st day of
December of each calendar year during such Term commencing on December 1, 1996
(each, an "Adjustment Date"), in accordance with the following formula:
Adjusted Base Salary = [Base Salary] x [(CPI-Comparison Period)/
(CPI-Base Period)]
In connection with such formula, the following definitions shall apply:
(i) The term "Adjusted Base Salary" shall mean each amount computed as
provided above and shall constitute the Base Salary under this
Agreement from the applicable Adjustment Date until the next Base
Salary Adjustment. In no event shall any adjustment made pursuant to
this Paragraph 8(b) or any decrease in the CPI from the CPI-Base
Period ever result in a decrease in the Adjusted Base Salary for any
calendar year below the Base Salary.
(ii) The term "Base Salary" shall mean $155,250.
(iii) The term "Bureau" shall mean the U.S. Department of Labor, Bureau of
Labor Statistics or any successor agency of the United States that
shall issue the indexes and data referred to in subparagraph (iv)
below. In the event that (w) the Bureau ceases to use the 1982-1984
average of 100 as the basis of calculations, or (x) a substantial
changes is made in the number or character of "market basket" items
used in determining the CPI, or (y) Employer and Employee mutually
agree in writing that the CPI does not accurately reflect the
purchasing power of the dollar, or (z) the CPI shall be discontinued
for any reason, the Bureau shall be requested to furnish a new index
comparable to the CPI together with information which will make
possible the conversion to the new index in computing the Adjusted
Base Salary.
(iv) The term "CPI" shall mean the Consumer Price Index for all Urban
Consumers (CPI-U) for the United States of America: All items (1982-
1984=100) issued by the Bureau.
(c) Employee Benefit Plans. Employer hereby covenants and agrees that
----------------------
it shall include Employee, if otherwise eligible, in any company life insurance
plans, medical and/or
6
<PAGE>
hospitalization plans, and/or any and all other benefit plans (excluding any
present or future profit sharing plans, retirement plans or stock option plans
of Employer or any of its subsidiaries or affiliates which may be placed in
effect by Employer during the Term of this Agreement.
(d) Termination Pursuant to Paragraph 7(f). If the employment of
--------------------------------------
Employee is terminated pursuant to Paragraph 7(f) above, Employee shall be
entitled to receive (i) all Base Salary, as adjusted, until the expiration of
the Term of this Agreement, and (ii) all benefits (if any) under the Plan (as
hereinafter defined) until the expiration of the Term of this Agreement
(collectively, the "Paragraph 8(d) Amounts"), as and when Employee would have
received such amounts if this Agreement had not been terminated as provided
above.
(e) Transportation. Employer shall furnish to Employee an automobile
--------------
with insurance, maintenance and fuel expenses provided by Employer.
(f) Housing. Employer shall provide Employee with live-in hotel
-------
accommodations for Employee and Employee's immediate family, at no cost, in a
two bedroom suite at the Sands Hotel, San Juan, Puerto Rico and complimentary
food and beverage within the hotel for Employee and Employee's immediate family.
(g) Expenses Reimbursement. During the Term of this Agreement, Employer
----------------------
shall either pay directly or reimburse Employee for Employee's reasonable
expenses incurred for the benefit of Employer in accordance with Employer's
general policy regarding reimbursement, as the same may be amended, modified or
changed from time to time. Such reimbursable expenses shall include, but are
not limited to, reasonable entertainment and promotional expenses, gift and
travel expenses, dues and expenses of membership in clubs, professional
societies and fraternal organizations, and the like.
(h) Vacations and Holidays. Commencing as of the Effective Data of this
----------------------
Agreement, Employee shall be entitled to (i) annual paid vacation leave in
accordance with Employer's standard policy therefore, to be taken at such times
as selected by Employee and approved by Employer, and (ii) paid holidays as
mandated under the laws of Puerto Rico (or, at Employer's option, an equivalent
number of paid days off).
10. CONFIDENTIALITY. Employee hereby warrants, covenants and agrees that,
---------------
without the prior written approval of Employer, Employee shall hold
in the strictest confidence, and shall not disclose to any person, firm,
corporation or other entity, any and all of Employer's confidential data,
including but not limited to (i) information or other documents concerning
7
<PAGE>
Employer's business, customers or suppliers, (ii) Employer's marketing methods,
files and credit and collection techniques and files, and (iii) Employer's trade
secrets and other "know how" or information not of a public nature, regardless
of how such information came to the custody of Employee. The warranty, covenant
and agreement set forth in this Paragraph 10 shall not expire, shall survive
this Agreement and shall be binding upon Employee without regard to the passage
of time or other events.
10. RESTRICTIVE COVENANT. Employee hereby covenants and agrees that,
--------------------
during the Term of this Agreement (or until [November 30, 1997], if Employer
terminates Employee pursuant to Paragraph 7(f) above and is paying to Employee
the Paragraph 8(d) Amounts pursuant to Paragraph 8(d) above), Employee shall not
directly or indirectly, either as a principal, agent, employee, employer,
consultant, partner, shareholder of a closely held corporation or shareholder in
excess of five (5%) per cent of a publicly traded corporation, corporate officer
or director, or in any other individual or representative capacity, engage or
otherwise participate in any manner or fashion in any business that is in
competition in any manner whatsoever with the principal business activity of
Employer or Employer's Affiliates. Employee hereby further covenants and agrees
that the restrictive covenant contained in this Paragraph 10 is reasonable as to
duration, terms and geographical area and that the same protects the legitimate
interests of Employer, and imposes no undue hardship on Employee, and is not
injurious to the public.
11. BEST EVIDENCE. This Agreement shall be executed in original and
-------------
"Xerox" or photostatic copies and each copy bearing original signatures in ink
shall be deemed original.
8
<PAGE>
12. SUCCESSION. This Agreement shall be binding upon and inure to
----------
the benefit of Employer and Employee and their respective permitted successors
and assigns.
13. ASSIGNMENT. Employee shall not assign this Agreement or
----------
delegate his duties hereunder without the express prior written consent of
Employer thereto. Any purported assignment by Employee in violation of this
Paragraph 13 shall be null and void and of no force or effect. Employer shall
have the right to assign this Agreement freely.
14. AMENDMENT OR MODIFICATION. This Agreement may not be amended,
-------------------------
modified, changed or altered except by a writing signed by both Employer and
Employee.
15. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Texas in effect on the Effective
Date of this Agreement.
16. NOTICES. Any and all notices required under this Agreement shall be
-------
in writing and shall be either hand-delivered or mailed, certified mail, return
receipt requested, addressed to:
EMPLOYER: Southmark San Juan, Inc.
- -------- Attn: William D. Pratt
Two Galleria Tower
13455 Noel Road, LB 48
Suite 2200
Dallas, Texas 75240
TO EMPLOYEE: Richard E. Abati
- ----------- c/o Sands Hotel and Casino
Isla Verde Road 187
San Juan, Puerto Rico 00913
All notices hand-delivered shall be deemed delivered as of the date actually
delivered. All notices mailed shall be deemed delivered as of three (3)
business days after the date postmarked. Any changes in any of the addresses
listed herein shall be made by notice as provided in this Paragraph 16.
17. INTERPRETATION. The preamble recitals to this Agreement are
--------------
incorporated into and made a part of this Agreement; titles of paragraphs are
for convenience and are not to be considered part of this Agreement.
9
<PAGE>
18. SEVERABILITY. In the event any one or more provisions of this
------------
Agreement is declared judicially void or otherwise unenforceable, the remainder
of this Agreement shall survive and such provision(s) shall be deemed modified
or amended so as to fulfill the intent of the parties hereto.
19. DISPUTE RESOLUTION. Except for equitable actions seeking to
------------------
enforce the provisions of Paragraphs 9 and 10 of this Agreement, jurisdiction
and venue for which is hereby granted the State District Court of Texas sitting
in Dallas County, Texas, any and all claims, disputes, or controversies arising
between parties hereto regarding any of the terms of this Agreement or breach
thereof, on the written demand of either of the parties hereto, shall be
submitted to and be determined by final and binding arbitration held in Dallas,
Texas, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. This agreement to arbitrate shall be specifically
enforceable in any court of competent jurisdiction.
20. WAIVER. None of the terms of this Agreement, including this
------
Paragraph 20, or any term, right or remedy hereunder shall be deemed waived
unless such waiver is in writing and signed by the party to be charged therewith
and in no event by reason of any failure to assert or delay in asserting any
such term, right or remedy or similar term, right or remedy hereunder.
21. PAROL. This Agreement constitutes the entire agreement between
-----
Employer and Employee with respect to the subject matter hereto and this
Agreement supersedes any prior understandings, agreements or undertakings by and
between Employer and Employee with respect to the subject matter hereof.
10
<PAGE>
IN WITNESS WHEREOF AND INTENDING TO BE LEGALLY BOUND THEREBY, the parties
hereto have executed and delivered this Agreement as of the year and date first
above written.
EMPLOYER:
ATTEST: Southmark San Juan, Inc.
/s/ William D. Pratt By: /s/ Edward T. Pratt, III
- -------------------------- --------------------------------------------
Secretary Edward T. Pratt, III
Chairman
WITNESS: EMPLOYEE:
/s/ John C. Hull /s/ Richard E. Abati
- -------------------------- --------------------------------------------
Richard E. Abati
11
<PAGE>
EXHIBIT 10.4
AGREEMENT CONCERNING MODIFICATION AND
TERMINATION OF MANAGEMENT AGREEMENT
-----------------------------------
THIS AGREEMENT CONCERNING MODIFICATION AND TERMINATION OF MANAGEMENT
AGREEMENT (this "Agreement") is made and entered into to be effective for all
purposes as of November 1, 1996 (the "Effective Date") by and between PUERTO
RICO HOTEL OPCO, LP SE, a Delaware limited partnership ("Owner") and SJPR, INC.,
a Texas corporation ("Operator").
RECITALS:
- --------
1. Of even date herewith, Southmark San Juan, Inc., a Delaware
corporation ("Seller") and Owner have entered into that certain Agreement of
Sale and Purchase (the "Contract") under which Contract Seller has agreed to
sell and Owner has agreed to purchase that certain hotel (the "Hotel") situated
in the City of San Juan, Municipality of Carolina, Commonwealth of Puerto Rico
and all related improvements and amenities.
2. In consideration of the payment of the Termination Fee (hereinafter
defined) by Owner to Operator, Owner and Operator have agreed to modify the
Management Agreement (hereinafter defined) to provide (i) that the Management
Agreement may be terminated by Owner upon at least fifteen (15) days prior
written notice to Operator, which notice shall specify the date of termination
(the "Termination Date"), (ii) that if such notice is not given the Management
Agreement shall, in any event, be terminated and the Termination Date shall
occur on or prior to the date which is two hundred seventy (270) calendar days
after the Closing (hereinafter defined) and (iii) that Operator shall waive all
past, present and future "Incentive Compensation" (as defined in the Management
Agreement) otherwise payable to Operator.
3. As used herein, the term "Management Agreement" shall mean that
certain Management Agreement dated as of September 15, 1987 by and between
Seller and Operator with respect to the management and operation of the hotel
and casino located in Carolina, Puerto Rico known as The Sands Hotel & Casino,
as such Management Agreement has been amended by (i) that certain First
Amendment of Management Agreement dated as of October 12, 1987 by and between
Seller and Operator; (ii) that certain Second Amendment of Management Agreement
dated as of October 21, 1987 by and between Seller and Operator; and (iii) that
certain Third Amendment to Management Agreement dated as of December 1, 1992 by
and between Owner and Operator.
CONSIDERATION:
- -------------
In consideration of the foregoing recitals and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged and
confessed by Owner and Operator, Owner and Operator have agreed to enter into
this Agreement upon and in accordance with the following terms and conditions:
<PAGE>
AGREEMENTS:
- ----------
1. Notwithstanding the terms and provisions of Section 1.01 of the
------------
Management Agreement, Owner and Operator hereby agree that from and after the
closing of the acquisition of the Hotel by Owner (the "Closing"), the Management
Agreement may be terminated by Owner upon at least fifteen (15) days prior
written notice to Operator, specifying the Termination Date.
2. Owner and Operator further agree that if the Management Agreement
shall not be terminated pursuant to Paragraph 1 above, the Management Agreement
-----------
shall be terminated and the Termination Date shall occur on or prior to the date
which is two hundred seventy (270) calendar days after the Closing.
3. Contemporaneously with the Closing, Owner shall pay to Operator the
sum of One Million Four Hundred Seventy-Five Thousand and No/100th Dollars
($1,475,000,00) as a termination fee (the "Termination Fee") in consideration of
Operator's agreement to permit the termination of the Management Agreement by
Owner and Operator's agreement to waive any and all past, present and future
Incentive Compensation described in Section 5.02 of the Management Agreement.
------------
4. During the period of time commencing upon the Closing and ending
upon the Termination Date (the "Interim Period"), Operator shall continue to
operate and manage the Hotel under the terms and provisions of the Management
Agreement and Owner shall pay to Operator the Percentage Management Fee set
forth in Section 5.01 of the Management Agreement. Notwithstanding any of the
------------
terms and provisions of the Management Agreement to the contrary, during the
Interim Period, Owner shall have no obligation to pay the Incentive Compensation
described in Section 5.02 of the Management Agreement to Operator. In addition,
------------
Operator hereby releases Owner from any liability to pay any accrued and unpaid
Incentive Compensation due and owing to Operator as of the Termination Date.
5. Owner hereby acknowledges that certain consents and approvals (the
"Consents and Approvals") with respect to the operations conducted by Operator
must be obtained prior to the Termination Date in order to enable Owner to
operate the Hotel and the casino at the Hotel including, without limitation,
approval from the appropriate governmental authorities of the issuance of a new
gaming license to Owner or its designee. Owner shall have a period of time
commencing upon the Closing and ending upon the Termination Date in order to use
its good faith diligent efforts to obtain all requisite Consents and Approvals.
Operator hereby agrees that it shall cooperate with Owner in attempting to
obtain the Consents and Approvals. If the Consents and Approvals have not been
obtained by Owner on or prior to the date which is two hundred seventy (270)
calendar days after the Closing, the Termination Date shall nevertheless occur.
6. Operator hereby agrees that, on the Termination Date Operator shall
deliver to Owner such documents as Owner may reasonably request acknowledging
that the Management Agreement has been terminated effective as of the
Termination Date, including but not limited to a Termination of Management
Agreement in substantially the form attached hereto as Exhibit A and made a part
---------
hereof, but failure to deliver such Agreement shall not detract from the
effectiveness of such termination.
-2-
<PAGE>
7. Pursuant to the terms of that certain Sub-License Agreement by and
between Pratt Hotel Corporation and Operator dated February 3, 1989 (the
"License Agreement"), Operator was granted the limited right to utilize the
"Sands" mark, name and certain derivatives, along with associated logos, art
work and other designs associated therewith (the "Trademark") for the duration
of the term of the Management Agreement. Owner has requested that Operator
continue to utilize the Trademark under the terms and provisions of the License
Agreement for a period of time commencing upon the Closing and ending upon the
later to occur of (i) March 31, 1997 or (ii) the date upon which the License
Agreement is terminated, or such earlier date as may be requested by Owner.
Operator hereby agrees to continue to utilize the Trademark for the benefit of
the Hotel during such period of time and Owner acknowledges that Operator may
cease utilizing the Trademark prior to the Termination Date if the Termination
Date is after the later to occur of (i) March 31, 1997 or (ii) the date upon
which the License Agreement is terminated.
8. Any notice or communication required or permitted hereunder shall be
given in writing, sent by (i) personal delivery if an actual written receipt
therefore is signed by a duly authorized officer or representative of the party
to whom notice is being given, or (ii) telecopier or fax machine provided
written confirmation of transmission and receipt is obtained by the sender, in
either case addressed as follows:
If to Owner, to: PUERTO RICO HOTEL OPCO, LP SE
--------------- c/o Donaldson, Lufkin & Jenrette
277 Park Avenue, 19th Floor
New York, New York 10172
FAX No.: (212) 892-7553
with a copy mailed to: KRAMER, LEVIN, NAFTALIS & FRANKEL
--------------------- 919 Third Avenue
New York, New York 10022
Attn: Judith Singer, Esq.
FAX No.: (212) 715-8000
to Operator to: SJPR, INC.
-------------- Two Galleria Tower, Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240
Attention: William D. Pratt, Esq.
Fax No. (214) 386-7411
or to such other address or to the attention of such other person as hereafter
shall be designated in written notice given by the applicable party in
accordance herewith.
9. This Agreement contains and reflects the complete and entire
understanding among the parties hereto and supersedes any and all prior
understandings and agreements relating to the subject matter hereof. There are
no subsisting agreements, understandings, or other arrangements, either
-3-
<PAGE>
oral or written, between or among the parties hereto which are not fully
expressed or integrated herein.
10. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Texas.
11. This Agreement may be amended in whole or in part only by the
written consent of all parties hereto. Such amendment shall be effective as of
the date then determined by said parties and shall supersede any provision
herein contained which are in conflict therewith.
12. This Agreement shall be binding upon and shall inure to the benefit
of the successors and assigns of each of the parties hereto.
IN WITNESS WHEREOF, Owner and Operator have executed this Agreement to be
effective for all purposes as of the Effective Date.
OWNER:
PUERTO RICO HOTEL OPCO, LP SE,
a Delaware limited partnership
By: /s/ Andrew Rifkin
----------------------------------
Name: Andrew Rifkin
---------------------------------
Title: Vice President
--------------------------------
OPERATOR:
SJPR, INC.,
a Texas corporation
By: /s/ William D. Pratt
----------------------------------
Name: William D. Pratt
---------------------------------
Title: Vice President
--------------------------------
-4-
<PAGE>
EXHIBIT A
---------
TERMINATION OF MANAGEMENT AGREEMENT
-----------------------------------
THIS TERMINATION OF MANAGEMENT AGREEMENT (this "Termination") is made and
entered into to be effective for all purposes as of ____________, 1996 (the
"Effective Date") by and between PUERTO RICO HOTEL OPCO, LP SE, a Delaware
limited partnership ("Owner") and SJPR, INC., a Texas corporation ("Operator").
RECITAL:
- -------
Owner and Operator have heretofore entered into that certain Agreement
Concerning Termination of Management Agreement dated effective as of
_____________, 1996 (the "Agreement") under which Owner was granted the right to
terminate the Management Agreement (hereinafter defined) upon the payment to
Operator of the Termination Fee (as defined in the Agreement) and Operator
agreed to, upon receipt of the Termination Fee, terminate the Management
Agreement. As used herein, "Management Agreement" shall mean that certain
Management Agreement dated as of September 15, 1987 by and between Owner and
Operator with respect to the management and operation of the hotel and casino
located in Carolina, Puerto Rico known as The Sands Hotel & Casino, as such
Management Agreement has been amended by (i) that certain First Amendment of
Management Agreement dated as of October 12, 1987 by and between Owner and
Operator; (ii) that certain Second Amendment of Management Agreement dated as of
October 21, 1987 by and between Owner and Operator; and (iii) that certain Third
Amendment to Management Agreement dated as of December 1, 1992 by and between
Owner and Operator.
CONSIDERATION:
- -------------
In consideration of the foregoing recital, the payment of the Termination
Fee by Owner to Operator and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged and confessed by Owner and
Operator, Owner and Operator have agreed to enter into this Termination upon and
in accordance with the following terms and conditions:
AGREEMENTS:
- ----------
1. Operator acknowledges receipt of the Termination Fee and hereby
confirms as follows:
(i) the Management Agreement has been terminated effective as of
________________, 19___;
(ii) Owner has fully and completely performed its obligations under
the terms of the Management Agreement which were to be performed prior to
or contemporaneously with the date hereof; and
(iii) Owner shall have no further duties and obligations under
the Management Agreement except the duties and obligations set forth in
the Management Agreement which survive the termination of the Management
Agreement.
EXHIBIT A - PAGE 1 OF 3 PAGES
- ---------
<PAGE>
2. Any notice or communication required or permitted hereunder shall be
given in writing, sent by (i) personal delivery if an actual written receipt
therefore is signed by a duly authorized officer or representative of the party
to whom notice is being given, or (ii) telecopier or fax machine provided
written confirmation of transmission and receipt is obtained by the sender, in
either case addressed as follows:
If to Owner, to: PUERTO RICO HOTEL OPCO, LP SE
--------------- c/o Donaldson, Lufkin & Jenrette
277 Park Avenue, 19th Floor
New York, New York 10172
FAX No.: (212) 892-7553
with a copy mailed to: KRAMER, LEVIN, NAFTALIS & FRANKEL
--------------------- 919 Third Avenue
New York, New York 10022
Attn: Judith Singer, Esq.
FAX No.: (212) 715-8000
to Operator to: SJPR, INC.
-------------- Two Galleria Tower, Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240
Attention: William D. Pratt, Esq.
Fax No. (214) 386-7411
or to such other address or to the attention of such other person as hereafter
shall be designated in written notice given by the applicable party in
accordance herewith.
3. This Termination contains and reflects the complete and entire
understanding among the parties hereto and supersedes any and all prior
understandings and agreements relating to the subject matter hereof. There are
no subsisting agreements, understandings, or other arrangements, either oral or
written, between or among the parties hereto which are not fully expressed or
integrated herein.
4. This Termination shall be governed by and construed and enforced in
accordance with the laws of the State of Texas.
5. This Termination may be amended in whole or in part only by the
written consent of all parties hereto. Such amendment shall be effective as of
the date then determined by said parties and shall supersede any provision
herein contained which are in conflict therewith.
6. This Termination shall be binding upon and shall inure to the
benefit of the successors and assigns of each of the parties hereto.
EXHIBIT A - PAGE 2 OF 3 PAGES
- ---------
<PAGE>
IN WITNESS WHEREOF, Owner and Operator have executed this Termination to be
effective for all purposes as of the Effective Date.
OWNER:
PUERTO RICO HOTEL OPCO, LP SE,
a Delaware limited partnership
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
OPERATOR:
SJPR, INC.,
a Texas corporation
By: /s/ William D. Pratt
-----------------------------------
Name: William D. Pratt
---------------------------------
Title: Vice President
--------------------------------
EXHIBIT A - PAGE 3 OF 3 PAGES
- ---------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOUTHMARK SAN JUAN, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 536
<SECURITIES> 0
<RECEIVABLES> 1,889
<ALLOWANCES> 304
<INVENTORY> 509
<CURRENT-ASSETS> 5,054
<PP&E> 48,126
<DEPRECIATION> 18,290
<TOTAL-ASSETS> 34,890
<CURRENT-LIABILITIES> 5,439
<BONDS> 35,719
0
0
<COMMON> 0
<OTHER-SE> (8,836)
<TOTAL-LIABILITY-AND-EQUITY> 34,890
<SALES> 0
<TOTAL-REVENUES> 25,955
<CGS> 0
<TOTAL-COSTS> 12,823
<OTHER-EXPENSES> 12,270
<LOSS-PROVISION> 76
<INTEREST-EXPENSE> 2,906
<INCOME-PRETAX> (2,120)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,120)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,120)
<EPS-PRIMARY> (8.07)
<EPS-DILUTED> 0
</TABLE>
