-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, DAu9kawVHPcnPpGzVYuv4qnMOjzQ5weABPm4zRrYWJ6JOBcOJkWvc+8KVj852SrZ Irzn+3l+e4VWqrSvghaVPA== 0000898430-94-000872.txt : 19941122 0000898430-94-000872.hdr.sgml : 19941122 ACCESSION NUMBER: 0000898430-94-000872 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANTA ANITA OPERATING CO CENTRAL INDEX KEY: 0000313749 STANDARD INDUSTRIAL CLASSIFICATION: 7948 IRS NUMBER: 953419438 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08132 FILM NUMBER: 94560106 BUSINESS ADDRESS: STREET 1: 285 W HUNTINGTON DR STREET 2: PO BOX 808 CITY: ARCADIA STATE: CA ZIP: 91066-0808 BUSINESS PHONE: 8185747223 MAIL ADDRESS: STREET 1: 285 W HUNTINGTON DRIVE STREET 2: P.O. BOX 808 CITY: ARCADIA STATE: CA ZIP: 91066-0808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANTA ANITA REALTY ENTERPRISES INC CENTRAL INDEX KEY: 0000314661 STANDARD INDUSTRIAL CLASSIFICATION: 7948 IRS NUMBER: 953520818 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08131 FILM NUMBER: 94560213 BUSINESS ADDRESS: STREET 1: 363 SAN MIGUEL DR STE 100 STREET 2: P O BOX 14160 CITY: NEWPORT STATE: CA ZIP: 92660-7803 BUSINESS PHONE: 7147212700 MAIL ADDRESS: STREET 1: 363 SAN MIGUEL DRIVE SUITE 100 STREET 2: P.O. BOX 14160 CITY: NEW PORT STATE: CA ZIP: 92660-7803 10-Q 1 FORM 10-Q FOR 09-30-94 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10 - Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________ Commission file number 0-9109 Commission file number 0-9110 SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY - - ---------------------------------------- --------------------------------------- (Exact name of registrant as specified (Exact name of registrant as specified in its charter) in its charter) Delaware Delaware - - ---------------------------------------- --------------------------------------- (State or other jurisdiction of (State or other jurisdiction of incorporation or organization) incorporation or organization) 95-3520818 95-3419438 - - ---------------------------------------- --------------------------------------- (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) 301 West Huntington Drive, 285 West Huntington Drive, Suite 405 P.O. Box 60014 Arcadia, California 91007 Arcadia, California 91066-6014 - - ---------------------------------------- --------------------------------------- (Address of principal executive (Address of principal executive offices including zip code) offices including zip code) (818) 574-5550 (818) 574-7223 - - ---------------------------------------- --------------------------------------- (Registrant's telephone number, (Registrant's telephone number, including area code) including area code) Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares outstanding of each of the issuers' classes of common stock, as of the close of business on October 31, 1994 were: Santa Anita Realty Enterprises, Inc. 11,256,353 Santa Anita Operating Company 11,143,853 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES Form 10-Q Index Page No. PART I. FINANCIAL INFORMATION 3 Balance Sheets - September 30, 1994 and December 31, 1993 for Santa Anita Realty Enterprises, Inc. 4 Santa Anita Operating Company and Subsidiaries 5 Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company and Subsidiaries Combined 6 Statements of Operations - three months ended September 30, 1994 and 1993 for Santa Anita Realty Enterprises, Inc. 7 Santa Anita Operating Company and Subsidiaries 7 Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company and Subsidiaries Combined 7 Statements of Operations - nine months ended September 30, 1994 and 1993 for Santa Anita Realty Enterprises, Inc. 8 Santa Anita Operating Company and Subsidiaries 8 Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company and Subsidiaries Combined 8 Statements of Cash Flows - nine months ended September 30, 1994 and 1993 for Santa Anita Realty Enterprises, Inc. 9 Santa Anita Operating Company and Subsidiaries 10 Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company and Subsidiaries Combined 11 Notes to Financial Statements 12 Managements' Discussion and Analysis of Financial Condition and Results of Operations 17 PART II. OTHER INFORMATION 22 SIGNATURES 23 2 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES Form 10-Q For the Nine Months Ended September 30, 1994 (Unaudited) PART I. FINANCIAL INFORMATION Item 1. Financial Statements The accompanying balance sheets as of September 30, 1994 and December 31, 1993 of Santa Anita Realty Enterprises, Inc. ("Realty"), Santa Anita Operating Company and Subsidiaries ("Operating Company"), and Realty and Operating Company combined, the statements of operations for the three and nine months ended September 30, 1994 and 1993, and the related statements of cash flows for the nine months ended September 30, 1994 and 1993, were prepared by Realty and Operating Company and are unaudited. In the opinion of the management of each company, the accompanying financial statements include all adjustments deemed necessary for a fair presentation. The following financial statements should be read in conjunction with the accompanying notes. SANTA ANITA REALTY ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS
(Unaudited) September 30, December 31, 1994 1993 ---------------- ---------------- ASSETS Real estate assets Santa Anita Racetrack, less accumulated depreciation of $19,270,000 and $18,670,000, respectively $7,125,000 $6,997,000 Commercial properties, less accumulated depreciation of $36,745,000 and $42,503,000, respectively 131,234,000 221,876,000 Investments in unconsolidated joint ventures 1,985,000 3,616,000 Real estate loans and advances receivable 23,015,000 22,084,000 ---------------- ---------------- 163,359,000 254,573,000 Cash 13,235,000 7,633,000 Accounts receivable 3,141,000 4,305,000 Prepaid expenses and other assets 11,259,000 4,705,000 Due from Operating Company 1,311,000 469,000 ---------------- ---------------- $192,305,000 $271,685,000 ================= ================ LIABILITIES AND SHAREHOLDERS' EQUITY Real estate loans payable $83,095,000 $106,731,000 Other loans payable 30,879,000 77,913,000 Accounts payable 1,802,000 3,678,000 Other liabilities 10,686,000 15,346,000 Dividends payable 2,251,000 3,788,000 ---------------- ---------------- 128,713,000 207,456,000 ---------------- ---------------- Minority interest in consolidated joint ventures (4,455,000) (4,590,000) Shareholders' equity Preferred stock; $.10 par value; authorized 6,000,000 shares; none issued -- -- Common stock, $.10 par value; authorized 19,000,000 shares; issued and outstanding 11,256,353 shares 1,125,000 1,125,000 Additional paid-in capital 117,084,000 117,084,000 Retained earnings (deficit) (50,162,000) (49,390,000) ---------------- ---------------- 68,047,000 68,819,000 ---------------- ---------------- $192,305,000 $271,685,000 ================ ================
See accompanying notes. 4 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Unaudited) September 30, December 31, 1994 1993 --------------- --------------- ASSETS Current assets Cash $81,000 $9,695,000 Short-term investments, at cost (approximates market) 5,470,000 4,693,000 Accounts receivable 1,084,000 2,789,000 Prepaid expenses and other assets 589,000 1,434,000 --------------- --------------- Total current assets 7,224,000 18,611,000 --------------- --------------- Investment in common stock of Realty 2,122,000 2,179,000 Property, plant and equipment, at cost Machinery and other equipment 21,929,000 21,943,000 Leasehold improvements 22,551,000 20,976,000 --------------- --------------- 44,480,000 42,919,000 Less accumulated depreciation (23,307,000) (21,088,000) --------------- --------------- 21,173,000 21,831,000 --------------- --------------- $30,519,000 $42,621,000 =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $432,000 $10,070,000 Other liabilities 10,307,000 10,117,000 Other loans payable 776,000 726,000 --------------- --------------- Total current liabilities 11,515,000 20,913,000 --------------- --------------- Other loans payable 1,940,000 2,528,000 Deferred revenues 818,000 2,872,000 Due to Realty 1,311,000 469,000 Deferred income taxes 3,550,000 3,565,000 --------------- --------------- 19,134,000 30,347,000 --------------- --------------- Shareholders' equity Preferred stock; $.10 par value; authorized 6,000,000 shares; none issued - - Common stock, $.10 par value; authorized 19,000,000 shares; issued and outstanding 11,143,853 and 11,140,853 shares, respectively 1,114,000 1,114,000 Additional paid-in capital 20,596,000 20,592,000 Retained earnings (deficit) (10,325,000) (9,432,000) --------------- --------------- 11,385,000 12,274,000 --------------- --------------- $30,519,000 $42,621,000 =============== ===============
See accompanying notes. 5 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES COMBINED BALANCE SHEETS
(Unaudited) September 30, December 31, 1994 1993 ------------- ------------ ASSETS Real estate assets Santa Anita Racetrack, less accumulated depreciation of $19,270,000 and $18,670,000, respectively $7,125,000 $6,997,000 Commercial properties, less accumulated depreciation of $35,193,000 and $41,079,000, respectively (Note 6) 126,318,000 216,832,000 Investments in unconsolidated joint ventures 1,985,000 3,616,000 Real estate loans and advances receivable 23,015,000 22,084,000 ----------- ----------- 158,443,000 249,529,000 Cash 13,316,000 17,328,000 Short-term investments, at cost (approximates market) 5,470,000 4,693,000 Accounts receivable 4,225,000 7,094,000 Prepaid expenses and other assets 13,502,000 7,493,000 Property, plant and equipment, at cost, less accumulated depreciation of $23,307,000 and $21,088,000, respectively 21,173,000 22,129,000 ----------- ----------- $216,129,000 $308,266,000 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Real estate loans payable $83,095,000 $106,731,000 Other loans payable 33,595,000 81,167,000 Accounts payable 2,234,000 13,748,000 Other liabilities 20,993,000 25,463,000 Dividends payable 2,251,000 3,788,000 Deferred revenues 818,000 2,872,000 Deferred income taxes 3,550,000 3,565,000 ----------- ----------- 146,536,000 237,334,000 ----------- ----------- Minority interest in consolidated joint ventures (4,455,000) (4,590,000) Shareholders' equity Preferred stock; $.10 par value; authorized 6,000,000 shares; none issued - - Common stock, $.10 par value; authorized 19,000,000 shares; issued and outstanding 11,143,853 and 11,140,853 shares, respectively 2,227,000 2,227,000 Additional paid-in capital 134,615,000 134,554,000 Retained earnings (deficit) (62,794,000) (61,259,000) ----------- ----------- 74,048,000 75,522,000 ----------- ----------- $216,129,000 $308,266,000 =========== ===========
See accompanying notes. 6 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES STATEMENTS OF OPERATIONS (Unaudited) (000's Omitted Except Per Share Amounts)
Three Months Ended September 30, 1994 Three Months Ended September 30, 1993 ---------------------------------------------- ----------------------------------------------- Operating Adjustments Operating Adjustments Company & and Company & and Realty Subsidiaries Eliminations Combined Realty Subsidiaries Eliminations Combined ---------------------------------------------- ------------------------------------------------ Revenues Horse racing $4,392 $4,392 $4,013 $4,013 Food and beverage 1,081 1,081 1,207 1,207 Rental property $5,913 5,913 $9,941 $50 (a) 9,991 Interest and other 631 126 (22)(b) 735 511 114 (79)(b) 546 ---------------------- -------- ---------------------- -------- 6,544 5,599 12,121 10,452 5,334 15,757 ---------------------- -------- ---------------------- -------- Costs and expenses Direct horse racing operating costs 4,365 4,365 4,052 4,052 Food and beverage cost of sales 228 228 450 450 Rental property operating expenses 2,256 2,256 4,090 4,090 Depreciation and amortization 1,192 157 (42)(c) 1,307 1,906 136 (42)(c) 2,000 General and administrative 832 719 1,551 729 885 1,614 Interest 2,326 120 2,446 3,100 119 3,219 Losses from unconsolidated joint ventures 445 445 443 443 Minority interest in earnings of consolidated joint ventures 389 389 59 59 Rental expense to Realty (50) 50 (a) ---------------------- -------- ---------------------- -------- 7,440 5,589 12,987 10,327 5,592 15,927 ---------------------- -------- ---------------------- -------- Income (loss) before income taxes (896) 10 (866) 125 (258) (170) Benefit for income taxes ---------------------- -------- ---------------------- -------- Net income (loss) ($896) $10 ($866) $125 ($258) ($170) ====================== ======== ====================== ======== Weighted average number of common shares outstanding 11,256 11,144 11,144 11,256 11,141 11,141 ====================== ======== ====================== ======== Net income (loss) per common share $(0.08) $0.00 $(0.08) $0.01 $(0.02) $(0.02) ====================== ======== ====================== ======== Dividends declared per common share $0.20 $0.20 $.34 $.34 ======== ======== ======== ========
(a) to eliminate inter-entity rent (b) to eliminate inter-entity dividends (c) to eliminate depreciation resulting from inter-entity sales See accompanying notes. 7 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES STATEMENTS OF OPERATIONS (Unaudited) (000's Omitted Except Per Share Amounts)
Nine Months Ended September 30, 1994 Nine Months Ended September 30, 1993 ---------------------------------------------- ----------------------------------------------- Operating Adjustments Operating Adjustments Company & and Company & and Realty Subsidiaries Eliminations Combined Realty Subsidiaries Eliminations Combined ---------------------------------------------- ------------------------------------------------ Revenues Horse racing $47,306 $47,306 $43,605 $43,605 Food and beverage 7,547 7,547 7,973 7,973 Rental property $29,932 ($10,563)(a) 19,369 $37,654 ($8,780)(a) 28,874 Interest and other 1,417 506 (101)(b) 1,822 4,496 462 (118)(b) 4,840 ---------------------- -------- ---------------------- -------- 31,349 55,359 76,044 42,150 52,040 85,292 ---------------------- -------- ---------------------- -------- Costs and expenses Direct horse racing operating costs 35,022 35,022 34,121 34,121 Food and beverage cost of sales 2,239 2,239 2,272 2,272 Rental property operating expenses 6,904 6,904 11,233 11,233 Depreciation and amortization 4,672 2,355 (128)(c) 6,899 6,542 2,309 (128)(c) 8,723 General and administrative 2,622 5,737 8,359 2,375 5,986 8,361 Interest 7,105 338 7,443 9,727 396 10,123 Losses from unconsolidated joint ventures 1,340 1,340 1,328 1,328 Minority interest in earnings of consolidated joint ventures 1,148 1,148 113 113 Rental expense to Realty 10,563 (10,563)(a) 8,780 (8,780)(a) ---------------------- -------- ---------------------- -------- 23,791 56,254 69,354 31,318 53,864 76,274 ---------------------- -------- ---------------------- -------- Income (loss) before income taxes 7,558 (895) 6,690 10,832 (1,824) 9,018 Benefit for income taxes (2,523) (2,523) ---------------------- -------- ---------------------- -------- Net income (loss) $7,558 ($895) $6,690 $13,355 ($1,824) $11,541 ====================== ======== ====================== ======== Weighted average number of common shares outstanding 11,256 11,143 11,143 11,256 11,141 11,141 ====================== ======== ====================== ======== Net income (loss) per common share $.67 $(.08) $.60 $1.19 $(.16) $1.04 ====================== ======== ====================== ======== Dividends declared per common share $.74 $.74 $1.02 $1.02 ======== ======== ======== ========
(a) to eliminate inter-entity rent (b) to eliminate inter-entity dividends (c) to eliminate depreciation resulting from inter-entity sales See accompanying notes. 8 SANTA ANITA REALTY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30,
(Unaudited) -------------------------- 1994 1993 ----------- ----------- Cash flows from operating activities: Net income $ 7,558,000 $13,355,000 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 4,672,000 6,542,000 Minority interest in earnings of consolidated joint ventures 1,148,000 113,000 Equity in losses of unconsolidated joint ventures 1,421,000 1,328,000 Net decrease (increase) in certain other assets 1,995,000 (2,937,000) Net (decrease) increase in certain other liabilities (1,586,000) 10,307,000 ----------- ----------- Net cash provided by operating activities 15,208,000 28,708,000 ----------- ----------- Cash flows from investing activities: Proceeds from disposition of Multifamily and Industrial Operations 44,425,000 - Origination of loans and advances receivable (1,150,000) (514,000) Payments received on loans receivable - 3,721,000 Additions and improvements to real estate assets (11,644,000) (27,282,000) Investment in unconsolidated joint venture 305,000 - ----------- ----------- Net cash provided by (used in) investing activities 31,936,000 (24,075,000) ----------- ----------- Cash flows from financing activities: Proceeds from real estate loans payable 21,077,000 - Proceeds from other loans payable - 16,218,000 Repayment of real estate loans payable (423,000) (715,000) Repayment of other loans payable (47,034,000) - Net increase in due from Operating Company (842,000) (1,895,000) Net decrease in certain other liabilities (3,441,000) Dividends paid (9,866,000) (11,481,000) Distributions to minority interest in consolidated joint ventures, net (1,013,000) (871,000) ----------- ----------- Net cash (used in) provided by financing activities (41,542,000) 1,256,000 ----------- ----------- Net increase in cash and cash equivalents 5,602,000 5,889,000 Cash and cash equivalents at beginning of year 7,633,000 1,671,000 ----------- ----------- Cash and cash equivalents at September 30 $13,235,000 $7,560,000 =========== ===========
See accompanying notes. 9 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30,
(Unaudited) -------------------------- 1994 1993 ----------- ----------- Cash flows from operating activities: Net loss ($895,000) ($1,824,000) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 2,355,000 2,309,000 Deferred income taxes (15,000) 29,000 Net decrease in certain other assets 2,550,000 470,000 Net decrease in certain other liabilities (11,500,000) (4,715,000) ----------- ----------- Net cash used in operating activities (7,505,000) (3,731,000) ----------- ----------- Cash flows from investing activities: Additions to property, plant and equipment (1,697,000) (1,132,000) Sale of Realty stock 57,000 - ----------- ----------- Net cash used in investing activities (1,640,000) (1,132,000) ----------- ----------- Cash flows from financing activities: Repayment of other loans payable (538,000) (492,000) Net increase in due to Realty 842,000 1,895,000 Proceeds from stock issued in connection with exercise of stock options 4,000 - ----------- ----------- Net cash provided by financing activities 308,000 1,403,000 ----------- ----------- Net increase in cash and cash equivalents (8,837,000) (3,460,000) Cash and cash equivalents at beginning of year 14,388,000 9,976,000 ----------- ----------- Cash and cash equivalents at September 30 $5,551,000 $6,516,000 =========== ===========
See accompanying notes. 10 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES COMBINED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30,
(Unaudited) -------------------------- 1994 1993 ----------- ----------- Cash flows from operating activities: Net income $6,690,000 $11,541,000 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 6,899,000 8,723,000 Minority interest in earnings of consolidated joint ventures 1,148,000 113,000 Equity in losses of unconsolidated joint ventures 1,421,000 1,328,000 Deferred income taxes (15,000) 29,000 Net decrease (increase) in certain other assets 4,545,000 (2,467,000) Net (decrease) increase in certain other liabilities (13,086,000) 5,592,000 ----------- ----------- Net cash provided by operating activities 7,602,000 24,859,000 ----------- ----------- Cash flows from investing activities: Proceeds from disposition of Multifamily and Industrial Operations 44,425,000 - Origination of loans and advances receivable (1,150,000) (514,000) Payments received on loans receivable - 3,721,000 Additions to property, plant and equipment (1,697,000) (1,132,000) Additions and improvements to real estate assets (11,644,000) (27,282,000) Investment in unconsolidated joint venture 305,000 - ----------- ----------- Net cash provided by (used in) investing activities 30,239,000 (25,207,000) ----------- ----------- Cash flows from financing activities: Proceeds from real estate loans payable 21,077,000 - Proceeds from other loans payable - 16,218,000 Repayment of real estate loans payable (423,000) (715,000) Repayment of other loans payable (47,572,000) (492,000) Distributions to minority interest in consolidated joint ventures, net (1,013,000) (871,000) Dividends paid (9,765,000) (11,363,000) Net (decrease) increase in certain other liabilities (3,441,000) - Proceeds from stock issued in connection with exercise of stock options 61,000 - ----------- ----------- Net cash (used in) provided by financing activities (41,076,000) 2,777,000 ----------- ----------- Net increase in cash and cash equivalents (3,235,000) 2,429,000 Cash and cash equivalents at beginning of year 22,021,000 11,647,000 ----------- ----------- Cash and cash equivalents at September 30 $18,786,000 $14,076,000 =========== ===========
See accompanying notes. 11 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS - September 30, 1994 Note (1) Operating Company has adopted an accounting practice whereby the revenues associated with thoroughbred horse racing at Santa Anita Racetrack are reported as they are earned. Costs and expenses associated with thoroughbred horse racing revenues are charged against income in those interim periods in which the thoroughbred horse racing revenues are recognized. Other costs and expenses are recognized as they actually occur throughout the year. Note (2) Realty's investment in unconsolidated joint ventures include investments in the following commercial real estate ventures: Name Ownership Project ------------------ -------------- ----------------- Joppa Associates 33-1/3% Retail H-T Associates 50% Regional Mall Unaudited combined condensed financial statement information for unconsolidated joint ventures as of September 30, 1994 and December 31, 1993, and for the nine months ended September 30, is as follows:
September 30, December 31, 1994 1993 ---------------- ---------------- Assets $213,042,000 $212,979,000 ================ ================ Liabilities Advances from Realty $9,312,000 $8,375,000 Other 202,650,000 200,735,000 ---------------- ---------------- $211,962,000 $209,110,000 ================ ================ Partners' equity Realty $1,985,000 $3,616,000 Others (905,000) 253,000 ---------------- ---------------- $1,080,000 $3,869,000 ================ ================ Nine Months Ended September 30, 1994 1993 ---------------- ---------------- Revenues $15,890,000 $14,498,000 ================ ================ Net loss Realty ($1,340,000) ($1,328,000) Others (961,000) (806,000) ---------------- ---------------- ($2,301,000) ($2,134,000) ================ ================
Note (3) The disposition of Realty's Multifamily and Industrial Operations as described in note 4 involve the transfer of the following noncash items: Real estate assets $98,305,000 Other assets $475,000 Real estate loans payable $44,290,000 Other liabilities $302,000 12 NOTES TO FINANCIAL STATEMENTS (Continued) Note (4) Disposition of Multifamily and Industrial Operations In November 1993, Realty entered into a Purchase and Sale Agreement to sell its multifamily and industrial operations to Pacific Gulf Properties Inc. ("Pacific"), in conjunction with Pacific's proposed public offering of common stock and debentures. On February 18, 1994, Realty completed the first part of this transaction by selling to Pacific ten multifamily properties, containing 2,654 apartment units, located in Southern California, the Pacific Northwest, and Texas and three industrial properties, containing an aggregate of 185,000 leasable square feet of industrial space, located in the State of Washington (the "Transferred Properties"). Realty's corporate headquarters building and related assets were also acquired by Pacific. In consideration of the sale of the Transferred Properties, Realty received approximately $44.4 million in cash and 150,000 shares of the common stock of Pacific. In addition, Realty was relieved of about $44.3 million of mortgage debt on the Transferred Properties. Effective October 1, 1994, Realty completed the second part of the transaction, the sale of its interest in Baldwin Industrial Park to Pacific. As a result, effective October 31, 1994, Pacific delivered to Realty an additional 634,419 shares of Pacific common stock as consideration for the transaction and corporate headquarters and other net assets. The following unaudited pro forma condensed balance sheet of Realty is presented as if the Baldwin Industrial Park transaction had occurred on September 30, 1994. The unaudited pro forma condensed balance sheet is not necessarily indicative of what the actual financial position of Realty would have been at September 30, 1994 nor does it purport to represent the future financial position of Realty. 13 NOTES TO FINANCIAL STATEMENTS (Continued) Note (4) Disposition of Multifamily and Industrial Operations (continued)
September 30, 1994 ------------------------------------------------------ Realty Realty Historical Pro Forma Cost Basis Adjustments (a) (Unaudited) ----------------- ---------------- ---------------- Real estate assets Santa Anita Racetrack, net $7,125,000 - $7,125,000 Commercial properties, net 131,234,000 (8,726,000) 122,508,000 Investments in unconsolidated joint ventures 1,985,000 - 1,985,000 Real estate loans and advances receivable 23,015,000 - 23,015,000 ----------------- ---------------- ---------------- 163,359,000 (8,726,000) 154,633,000 ----------------- ---------------- ---------------- Cash 13,235,000 (1,565,000) 11,670,000 Other assets (b)(c) 15,711,000 3,140,000 18,851,000 ----------------- ---------------- ---------------- $192,305,000 ($7,151,000) $185,154,000 ================= ================ ================ Real estate loans payable $83,095,000 ($9,415,000) $73,680,000 Other loans payable 30,879,000 - 30,879,000 Other liabilities 14,739,000 (245,000) 14,494,000 ----------------- ---------------- ---------------- 128,713,000 (9,660,000) 119,053,000 ----------------- ---------------- ---------------- Minority interest in consolidated joint ventures (4,455,000) 2,509,000 (1,946,000) Shareholders' equity 68,047,000 - 68,047,000 ----------------- ---------------- ---------------- $192,305,000 ($7,151,000) $185,154,000 ================= ================ ================
The accompanying notes are an integral part of this pro forma balance sheet. Notes: ----- (a) Reflects the disposition of the assets and liabilities of the Baldwin Industrial Park as if the transaction had occurred on September 30, 1994. (b) The historical balance at September 30, 1994 includes Realty's investment in Pacific stock of $2,738,000 and a receivable from Pacific of $1,187,000 relating to the consideration for Realty's corporate headquarters and net other assets related to the Transferred Properties. The pro forma balance at September 30, 1994 includes Realty's investment in Pacific stock of $12,825,000. (c) As a result of the February 18, 1994 sale to Pacific, Realty has an investment in the common shares of Pacific totaling $2,738,000. As a result of the completion of Realty's disposition of Baldwin Industrial Park to Pacific as of October 1, 1994 and as consideration for the corporate headquarters building and certain other assets related to the Transferred Properties, Realty will receive additional Pacific stock totaling $10,087,000. 14 NOTES TO FINANCIAL STATEMENTS (Continued) Note (4) Disposition of Multifamily and Industrial Operations (continued) The following unaudited pro forma statements of operations of Realty are presented as if both parts of the transaction had occurred as of the beginning of the period presented. The unaudited pro forma statements of operations are not necessarily indicative of what the actual results of operations would have been if the entire transaction had been consummated as of the beginning of the period presented nor do they purport to represent the results of operations of Realty for any future period.
For the Nine Months Ended September 30, 1994 ---------------------------------------------------- Realty Realty Historical Pro Forma Cost Basis Adjustments (1) (Unaudited) --------------- --------------- --------------- Revenues Rental property $29,932,000 ($4,952,000) $24,980,000 Interest and other (2) 1,417,000 475,000 1,892,000 --------------- --------------- --------------- 31,349,000 (4,477,000) 26,872,000 --------------- --------------- --------------- Costs and expenses Rental property operating expenses 6,904,000 (1,738,000) 5,166,000 Depreciation and amortization 4,672,000 (808,000) 3,864,000 General and administrative 2,622,000 (255,000) 2,367,000 Interest and other (3) 7,105,000 (1,607,000) 5,498,000 Losses from unconsolidated joint ventures 1,340,000 - 1,340,000 Minority interest in earnings of consolidated joint ventures (4) 1,148,000 (521,000) 627,000 --------------- --------------- --------------- 23,791,000 (4,929,000) 18,862,000 --------------- --------------- --------------- Net income $7,558,000 $452,000 $8,010,000 =============== =============== =============== For the Nine Months Ended September 30, 1993 ---------------------------------------------------- Realty Realty Historical Pro Forma Cost Basis Adjustments (1) (Unaudited) --------------- --------------- --------------- Revenues Rental property $37,654,000 ($14,844,000) $22,810,000 Interest and other (2) 4,496,000 573,000 5,069,000 --------------- --------------- --------------- 42,150,000 (14,271,000) 27,879,000 --------------- --------------- --------------- Costs and expenses Rental property operating expenses 11,233,000 (6,041,000) 5,192,000 Depreciation and amortization 6,542,000 (2,512,000) 4,030,000 General and administrative 2,375,000 (995,000) 1,380,000 Interest and other (3) 9,727,000 (5,433,000) 4,294,000 Losses from unconsolidated joint ventures 1,328,000 - 1,328,000 Minority interest in earnings of consolidated joint ventures (4) 113,000 449,000 562,000 --------------- --------------- --------------- 31,318,000 (14,532,000) 16,786,000 Income before income taxes 10,832,000 261,000 11,093,000 Benefit for income taxes (2,523,000) - (2,523,000) --------------- --------------- --------------- Net income $13,355,000 $261,000 $13,616,000 ================ =============== ===============
The accompanying notes are an integral part of this pro forma statement of operations. 15 NOTES TO FINANCIAL STATEMENTS (Continued) Note (4) Disposition of Multifamily and Industrial Operations (continued) Notes: ------ (1) Reflects the operations of the Multifamily and Industrial Operations directly identifiable with, and allocations of other costs and expenses related to, the Multifamily and Industrial Operations transferred by Realty to Pacific, and the operations of Baldwin Industrial Park, for the respective nine months ended September 30. (2) Estimated quarterly distributions to be received on Realty's investment in Pacific ($.39 per common share) less the amount of such distributions estimated to represent the return of capital ($.14 per common share). (3) Elimination of interest expense on real estate and other loans payable repaid or assumed by Pacific. (4) Elimination of minority interest in earnings of joint ventures resulting from Realty's acquisition of the Partnership interests and subsequent transfer to Pacific. 16 Item 2. Managements' Discussion and Analysis of Financial Condition and Results of Operations SANTA ANITA REALTY ENTERPRISES, INC. The following narrative discusses Realty's results of operations for the three months and nine months ended September 30, 1994 and 1993, together with liquidity and capital resources as of September 30, 1994. Results of Operations Realty's revenues are derived principally from the rental of real property and interest on investments. Total revenues for the three months ended September 30, 1994 were $6,544,000, compared with $10,452,000 for the similar period in 1993, a decrease of 37.4%. Total revenues for the nine months ended September 30, 1994 were $31,349,000, compared with $42,150,000 for the nine months ended September 30, 1993, a decrease of 25.6%. The lower 1994 revenues primarily were due to Realty selling its multifamily and industrial operations to Pacific Gulf Properties Inc. ("Pacific"), formerly a wholly-owned subsidiary, in February 1994, and to nonrecurring interest earned on a California Franchise Tax Board refund received in 1993. The sale to Pacific is discussed in Note 4 and the nonrecurring interest is discussed below. The single most significant source of rental revenue is the lease of Santa Anita Racetrack. Since there was no live racing at the Racetrack during the three months ended September 30, 1994 and 1993, there were no rental revenues from the Racetrack for these periods. Racetrack rental revenues for the nine months ended September 30, 1994 were $10,852,000, an increase of 15.9% from revenues of $9,363,000 in the same period in 1993. The increase in rental revenue resulted from more race days in 1994. The lease with LATC for Santa Anita Racetrack, which was scheduled to expire December 31, 1994, has been amended and extended for an additional five years. The adjusted rental rates will result in reduced revenues to Realty. The new lease provides that Realty will continue to receive 1.5% of the on-track handle on live races at Santa Anita; however, the rental rate on simulcasting commissions was reduced from 40% to 26.5%. Rental revenues from other real estate investments for the three months ended September 30, 1994, were $5,913,000, a decrease of 40.5% from revenues of $9,941,000 in the same period in 1993. Rental revenues from other real estate investments for the nine months ended September 30, 1994 were $19,080,000, a decrease of 32.6% from revenues of $28,291,000 in the same 1993 period. The 1994 decrease is due primarily to the February 1994 sale by Realty of its multifamily and industrial operations. Interest and other income was $631,000 for the three months ended September 30, 1994, compared with $511,000 in the same period in 1993. Interest and other income was $1,417,000 for the nine months ended September 30, 1994, compared with $4,496,000 in the same 1993 period. The decrease is primarily attributable to interest income of $3,211,000 in the nine months ended September 30, 1993, related to a tax settlement with the California Franchise Tax Board. The settlement was for tax years prior to 1980 relating to Realty's predecessor. In addition to interest earned on the settlement, income tax benefits were $2,523,000 in the 1993 nine month period. Costs and expenses were $7,440,000 for the three months ended September 30, 1994, a decrease of 28.0%, from $10,327,000 in the year ago quarter. Costs and expenses of $23,791,000 for the nine months ended September 30, 1994, decreased 24.0% from $31,318,000 in the 1993 nine month period. The decreases were primarily due to the disposition of the multifamily and industrial operations and were partially offset by increases in interest expense attributable to continuing operations. The increases in interest expense were due to a steady increase in interest rates throughout 1994 and an increase in borrowing levels in the 1993 fourth quarter. Realty incurred a net loss of $896,000 for the three months ended September 30, 1994 compared with net income of $125,000 in the year ago quarter This decrease primarily was due to an increase in interest expense and a decrease in earnings of consolidated joint ventures, both attributable to continuing 17 Item 2. Managements' Discussion and Analysis of Financial Condition and Results of Operations (Continued) operations, and to the disposition of the multifamily and industrial operations. Net income for the 1994 nine months was $7,558,000, compared with $7,621,000 a year ago, excluding nonrecurring items. Including the nonrecurring tax settlement and related interest income of $5,734,000 with the California Franchise Tax Board, earnings were $13,355,000 in the nine months. Other factors contributing to the decrease in 1994 were an increase in interest expense and a decrease in consolidated joint venture earnings, both attributable to continuing operations, and the disposition of the multifamily and industrial operations. Liquidity and Capital Resources Realty has funds available from a combination of short-and long-term sources. Short-term sources include cash and short-term investments of $13,235,000 at September 30, 1994. In connection with the sale of properties to Pacific, Realty paid down its lines of credit by $44,425,000 and transferred to Pacific $44,290,000 of indebtedness associated with the apartment and industrial properties sold. On November 9, 1994, Realty entered into a new $30,000,000 one-year credit facility with a commercial bank which, along with other available cash reserves, was used to repay $30,879,000 of outstanding obligations to other lenders. Borrowings under the one-year credit facility will be due one year from the date of funding but no later than November 30, 1995 and will bear interest, at Realty's option, at the prime rate, at LIBOR plus 1%, or at the certificate of deposit rate plus 1%. Realty is near completion of the refinancing of the $10,000,000 mortgage loan on its Medical Office Building with the existing lender. The new $8,900,000 mortgage loan, due 2001, will bear interest at 9.25%, provide for a twenty-five year amortization period and require Realty to pay down the existing loan by $1.1 million. Realty anticipates that this refinancing will be completed in November 1994. Realty is also currently finalizing mortgage loans on each of its six neighborhood shopping center properties. Realty anticipates that the mortgage loans will total approximately $15,800,000, have an initial variable interest rate of 8.25%, have a 20 year amortization period, and be due in 10 years. Realty anticipates that these mortgage loans will close in November 1994. Realty is currently negotiating a new long-term credit facility which would provide an amount sufficient to refinance Realty's new one-year credit facility and an additional line of credit to be used for general corporate purposes. In management's opinion, Realty will generate sufficient liquidity from other sources during the negotiation of the new long-term credit facility to provide for its operating needs. During the 1994 second quarter, the Board of Directors established a revised annual dividend rate of $.80 per share, effective with the quarterly dividend of $.20 per share paid on July 22, 1994. Previously the annual dividend rate was $1.36 per share. The revised annual rate is expected to reduce annual dividends by $6,300,000. Realty had $23,015,000 of long-term receivables at September 30, 1994 with maturities ranging from 1994 to 2002. For the nine months ended September 30, 1994, long-term receivables earned interest income of $1,329,000. In the opinion of management, as of September 30, 1994, Realty's real estate investments had market value substantially in excess of the historical costs and indebtedness related to such real estate investments. Management believes that this provides significant additional borrowing capacity. 18 Item 2. Managements' Discussion and Analysis of Financial Condition and Results of Operations (Continued) SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES Operating Company is engaged in thoroughbred horse racing through its wholly- owned subsidiary, Los Angeles Turf Club, Incorporated ("LATC"), which leases the Santa Anita Racetrack ("Santa Anita") from Realty. The following narrative discusses Operating Company's results of operations for the three and nine months ended September 30, 1994 and 1993, together with liquidity and capital resources as of September 30, 1994. Results of Operations -- Third Quarter 1994 Compared with Third Quarter 1993 Operating Company derives its revenues primarily from thoroughbred horse racing activities. For the three months ended September 30, Santa Anita Racetrack operated 20 days in 1994 and 21 days in 1993 as a satellite wagering facility for Hollywood Park. Total attendance and wagering as a satellite wagering facility were down 12.5% and 8.7%, respectively, in the third quarter of 1994 compared with the year ago quarter. Average daily attendance and average wagering were down 8.1% and 4.2%, respectively, for the third quarter of 1994 compared with the year ago quarter. Also, in the third quarter ended September 30, Santa Anita Racetrack operated 43 days in 1994 and 42 days in 1993 as a satellite wagering facility for Del Mar. Total attendance and wagering as a satellite wagering facility were down 4.8% and 5.1%, respectively, in the third quarter of 1994 compared with the year ago quarter. Average daily attendance and average wagering, however, were down 7.0% and 7.3%, respectively, for the third quarter of 1994 compared with the year ago quarter. Total revenues in the third quarter of 1994 were $5,599,000, up 5.0% from revenues of $5,334,000 for the comparable year ago period. Total revenues increased in the third quarter of 1994 compared with the year ago quarter due to an increase of $400,000 over the comparable period last year in the supplemental rent from Oak Tree Racing Association for its year ended May 31, 1994. Oak Tree subleases Santa Anita Racetrack from LATC for a base rent tied to wagering activity plus supplemental rent representing Oak Tree's adjusted profits above an agreed upon level. Direct horse racing operating costs in the third quarter of 1994 were $4,365,000, up 7.7% from $4,052,000 for the comparable year ago period due to the accounting practice of allocating costs and expenses associated with revenues in interim periods. See Note 1 of Notes to Financial Statements. Food and beverage revenues and cost of sales were lower in the third quarter of 1994 compared with the year ago period due to the lower level of attendance. As a percentage of sales, cost of sales decreased to 21.1% in the third quarter of 1994 compared with 37.3% in the comparable quarter of 1993 due to price increases in the third quarter of 1994. General and administrative expenses were $719,000 in the third quarter of 1994, down 18.8% from the $885,000 from the comparable year ago period, primarily due to lower professional fees. Interest expense remained virtually unchanged at $120,000 in the third quarter of 1994 and $119,000 in the comparable quarter of 1993. Operating Company reported a net profit of $10,000 or $.00 per share in the third quarter of 1994 compared with a net loss of $258,000 or $.02 per share in the third quarter of 1993 primarily due to the revenue and expense items previously discussed. 19 Item 2. Managements' Discussion and Analysis of Financial Condition and Results of Operations (Continued) Results of Operations -- Year to Date 1994 Compared with Year to Date 1993 For the nine months ended September 30, live thoroughbred horse racing at Santa Anita Racetrack totaled 85 days in 1994 compared with 78 days in 1993. Total on- track attendance at the live racing events in the first nine months of 1994 was up 3.2% from the comparable year ago period while average daily attendance declined 5.3%. Total wagering at the live racing events increased 30.9% and average daily wagering increased 20.1% in the first nine months of 1994 compared with the same period last year. On-track wagering increased 6.3%, inter-track wagering increased 17.3% and interstate wagering increased 94.1% in the first nine months of 1994 compared with the same period last year. Also, for the nine months ended September 30, Santa Anita Racetrack operated 111 days in 1994 and 115 days in 1993 as a satellite wagering facility for Hollywood Park and Del Mar. Total attendance and wagering as a satellite wagering facility were down 9.1% and 7.9%, respectively, in the first nine months of 1994 compared with the same period last year. Average daily attendance and average wagering were down 5.8% and 4.5%, respectively, for the first nine months of 1994 compared with the same period last year. Total revenues and direct horse racing operating costs were higher in the first nine months of 1994 compared with the same period last year due to more race days and higher attendance and wagering at live racing events. Total revenues in the first nine months of 1994 were $55,359,000, up 6.4% from $52,040,000 for the comparable year ago period. Direct horse racing operating costs in the first nine months of 1994 were $35,022,000, up 2.6% from $34,121,000 for the comparable year ago period. Food and beverage revenues were lower in the first nine months of 1994 compared with the year ago period due to lower per capita spending while cost of sales was higher for the same comparable periods. As a percentage of sales, cost of sales increased to 29.7% in the first nine months of 1994 compared with 28.5% in the first nine months of 1993. General and administrative expenses were $5,737,000 in the first nine months of 1994, down 4.2% from the $5,986,000 from the comparable year ago period due to the one time charge of $974,000 in the prior year for the post retirement benefits payable as a result of the death of the former Chairman of the Board of Operating Company. Interest expense decreased to $338,000 in the first nine months of 1994 from $396,000 in the first nine months of 1993. Rental expense to Realty was $10,563,000 for the first nine months of 1994 compared with $8,780,000 reported in the first nine months of 1993. The increase in rental expense of 20.3% reflects the overall increase in racing days and wagering. Due to the revenue and expense items previously discussed, Operating Company reported a net loss of $895,000 or $.08 per share for the nine months ended September 30, 1994, compared with a net loss of $1,824,000 or $.16 per share for the comparable period in 1993. Seasonality Operating Company's operations are subject to seasonal fluctuations. Operating Company recognizes the majority of its revenues in the first quarter due to live racing activity at Santa Anita. Therefore, the results of operations for interim periods are not necessarily indicative of the results that may be expected for the full year. Liquidity and Capital Resources At September 30, 1994, Operating Company's sources of liquidity included cash and short-term investments of $5,551,000 and an unsecured line of credit with Realty of $10,000,000, of which approximately $3,000,000 was utilized in connection with a guarantee of a capital lease. Operating 20 Item 2. Managements' Discussion and Analysis of Financial Condition and Results of Operations (Continued) Company's ability to utilize Realty's line of credit is dependent upon Realty's liquidity and capital resources. (See Item 2. "Managements' Discussion and Analysis of Financial Condition and Results of Operations - Santa Anita Realty Enterprises, Inc. - Liquidity and Capital Resources"). For the three and nine months ended September 30, 1994, short-term investments earned interest income of $126,000 and $506,000, respectively. The cash balances and related interest income from short-term investments reflect seasonal variations associated with the Santa Anita meet. During the meet, large cash balances and short-term investments are maintained by LATC, including amounts to be disbursed for payment of license fees payable to the state, purses payable to horse owners and un-cashed winning pari-mutuel tickets payable to the public. 21 SANTA ANITA REALTY ENTERPRISES, INC. and SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES FORM 10-Q For the Quarter Ended September 30, 1994 PART II OTHER INFORMATION Item 3. Defaults upon Senior Securities At September 30, 1994, Realty was not in compliance with certain financial covenants contained in its credit agreements, although Realty's lenders waived such noncompliance through November 14, 1994. The debt to these lenders was repaid on November 10, 1994. Realty is in compliance with its new credit facility. See Managements' Discussion and Analysis of Financial Condition and Results of Operations - Santa Anita Realty Enterprises, Inc. - Liquidity and Capital Resources. Item 6. Exhibits and Reports on Form 8-K (a) The following documents are filed as part of this report:
Sequential Exhibit Numbering Number Page No. ------- ---------- 10.1 Schedule of omitted documents and differences in material details regarding Severence Agreements of Certain Officers of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company 10.2 Closing Agreement, dated as of October 1, 1994, by and between Santa Anita Realty Enterprises, Inc. and Pacific Gulf Properties, Inc. 10.3 Amended and Restated Lease, dated as of November 9, 1994, by and between Santa Anita Realty Enterprises, Inc. and Los Angeles Turf Club, Incorporated 10.4 Credit Agreement between Santa Anita Realty Enterprises, Inc. and First Interstate Bank of California, dated as of November 9, 1994 27(a) Financial Data Schedule of Santa Anita Realty Enterprises, Inc. 27(b) Financial Data Schedule of Santa Anita Operating Company
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended September 30, 1994. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Operating Company and Realty have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY By \Sherwood C. Chillingworth By \Stephen F. Keller ----------------------------------- ------------------------------------ Sherwood C. Chillingworth Stephen F. Keller Vice Chairman of the Board and Chairman of the Board, President Chief Executive Officer and Chief Executive Officer (Principal Executive Officer) (Principal Executive Officer) Dated: November 14, 1994 Dated: November 14, 1994 -------------------- -------------------- By \Brian L. Fleming By \Richard D. Brumbaugh ----------------------------------- ------------------------------------ Brian L. Fleming Richard D. Brumbaugh Executive Vice President and Vice President-Finance and Chief Financial Officer Chief Financial Officer (Principal Financial and Accounting (Principal Financial and Accounting Officer) Officer) Dated: November 14, 1994 Dated: November 14, 1994 -------------------- -------------------- September 30, 1994 Form 10-Q 23 EX-10.1 2 SEVERANCE AGREEMENTS EXHIBIT 10.1 Schedule of Omitted Documents and Material Details Regarding Severance Agreements of Certain Officers of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company The persons listed below have entered into substantially identical forms of Severance Agreements, effective as of the dates listed opposite their names. The form of Severance Agreement is incorporated by reference to Exhibit 10.22 to the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1992. Stephen F. Keller October 1, 1992 Clifford C. Goodrich October 1, 1992 Thomas S. Robbins October 1, 1992 Richard D. Brumbaugh October 1, 1992 Sherwood C. Chillingworth May 11, 1994 Christopher T. Stirling May 11, 1994 Brian L. Fleming May 11, 1994 EX-10.2 3 CLOSING AGMT 10/01/94 EXHIBIT 10.2 CLOSING AGREEMENT ----------------- This CLOSING AGREEMENT (the "Agreement") is made and entered into as --------- of October 1, 1994 by and between PACIFIC GULF PROPERTIES INC., a Maryland corporation ("Pacific Gulf"), and SANTA ANITA REALTY ENTERPRISES, INC., a ------------ Delaware corporation ("SARE"), with reference to the following: ---- A. Pacific Gulf and SARE are the parties to that certain Purchase and Sale Agreement, dated as of November 15, 1993 (the "Purchase Agreement"), ------------------ pursuant to which SARE agreed to sell and Pacific Gulf agreed to purchase, among other things, SARE's interest in Baldwin Industrial Properties, Ltd., a California limited partnership (the "Partnership"). ----------- B. On September 30, 1994, Pacific Gulf acquired all of the general and limited partner interests in the Partnership not owned by SARE pursuant to that certain Master Agreement among the parties hereto and certain other parties (the "Master Agreement"). ---------------- C. Pacific Gulf and SARE now desire to close the purchase by Pacific Gulf of SARE's interest in the Partnership, and to agree upon certain other matters in connection therewith, all as more fully set forth herein. NOW, THEREFORE, in consideration of the foregoing recitals, which are true and correct, and the promises, covenants, and agreements herein set forth, the parties hereto hereby agree as follows: 1. Purchase and Sale of the Baldwin Interest. ----------------------------------------- (a) Assignment. At the "Closing" (as hereinafter defined), SARE will ---------- ------- sell, assign, transfer, convey, and deliver, and Pacific Gulf will thus purchase, acquire, and own, good and marketable title to all of the rights, titles, claims, interests, and causes of action of SARE in or relating to the Partnership, as set forth in the Partnership Agreement or otherwise existing at law or in equity, including all rights, titles, claims, interests, and the like as a partner, claimant, creditor, or otherwise of the Partnership (collectively, the "SARE Interest"), free and clear of any liens, claims, encumbrances, or ------------- restrictions, except as specifically set forth in the Partnership Agreement. At the Closing, the parties will execute and deliver the assignment attached hereto as Exhibit "A" (the "Assignment"), and thereupon SARE shall cease to be a ----------- ---------- partner in the Partnership and Pacific Gulf shall become a partner in its place and stead. (b) Payment of the Baldwin Price. The parties hereby agree that the ---------------------------- full and final amount payable for the SARE Interest is Eight Million Nine Hundred Thousand Dollars ($8,900,000) (the "Baldwin Price"). Such sum shall not ------------- be adjusted or modified in any manner, notwithstanding anything to the contrary contained in the Purchase Agreement, including Paragraph 10.6 thereof. Said sum shall be paid by delivery -------------- to SARE of 559,748 shares of Pacific Gulf $.01 par value common stock (the "Baldwin Price Shares"), with said Shares registered in SARE's name. Such - - --------------------- delivery shall satisfy in full Pacific Gulf's obligation on account of the Baldwin Price. 2. Payment of the Nonrental Asset Purchase Price. SARE has --------------------------------------------- heretofore sold and delivered the "Nonrental Assets" (as such term is defined in ---------------- the Purchase Agreement -- and such definition shall apply herein) to Pacific Gulf under the terms of the Purchase Agreement. Pacific Gulf is indebted to SARE for the "Nonrental Asset Purchase Price" (as such term is defined in the ------------------------------ Purchase Agreement -- and such definition shall apply herein). The parties hereby agree that the full and final amount of the Nonrental Asset Purchase Price payable for the Nonrental Assets is One Million One-Hundred Eighty-Seven Thousand, Two Hundred Sixty-Eight and 91/100 Dollars ($1,187,268.91). Such sum shall not be adjusted or modified in any manner, notwithstanding anything to the contrary contained in the Purchase Agreement, including Paragraph 2.2 thereof. ------------- Said sum shall be paid by delivery to SARE of 74,671 shares of Pacific Gulf $.01 par value common stock (the "Nonrental Asset Shares"), with said Shares ---------------------- registered in SARE's name. Such delivery shall satisfy in full Pacific Gulf's obligation on account of the Nonrental Asset Purchase Price. 3. Issuance and Delivery of Shares. At the Closing, Pacific Gulf ------------------------------- will issue and deliver to SARE good and marketable title to the Baldwin Price Shares and the Nonrental Asset Shares free and clear of any liens, claims, encumbrances, or restrictions except as set forth in the Purchase Agreement or this Agreement or applicable under law. The share certificates delivered on account of the Baldwin Price Shares and the Nonrental Asset Shares shall bear the legend required by Paragraph 6.5(a) of the Purchase Agreement, and all ---------------- shares represented thereby shall be subject to the restrictions set forth in the Purchase Agreement, including Article VII thereof; provided, however, the ----------- parties hereby agree that Paragraph 7.2 of the Purchase Agreement is hereby ------------- amended so that all references therein to fourteen (14) days are hereby changed to be five (5) business days, and in all other respects said Section shall remain in force and effect as set forth in the Purchase Agreement. The parties agree that the share certificates for the aforementioned Shares shall be dated as of October 31, 1994, and that SARE's rights as a shareholder on account thereof, including any rights to receive dividends, shall commence from and after that date (as such, SARE shall not be entitled to any dividend on account of the cash dividend declared by Pacific Gulf for record shareholders on October 15, 1994). Additionally, it is agreed that the rights and obligations of SARE and Pacific Gulf pursuant to that certain "Registration Rights Agreement" (as ----------------------------- such term is defined in the Purchase Agreement) shall remain unaltered, unaffected, and unmodified by this Agreement, and shall apply to the Baldwin Price Shares and the Nonrental Asset Shares. Pacific Gulf represents and warrants that the issuance of the Baldwin Price Shares and the Nonrental Asset Shares has been duly authorized by all necessary corporate action of Pacific Gulf, and that the shares, upon delivery at the Closing, will be duly and - 2 - validly issued, fully paid and non-assessable, and the issuance thereof will not be subject to preemptive or other similar rights. In addition, at the Closing, Pacific Gulf shall deliver to SARE a check payable to SARE in the amount of $255,209. 4. Delivery of Letters of Credit. At the Closing, SARE shall deliver ----------------------------- and turn over to Pacific Gulf, undrawn, both letters of credit referred to in Paragraph 10.2(c) of the Purchase Agreement, and thereupon such letters of - - ----------------- credit shall be canceled. 5. Certificate of SARE. At the Closing, SARE will execute and ------------------- deliver to Pacific Gulf the certificate attached hereto as Exhibit "B" (the ----------- "Certificate") as required pursuant to Paragraph 10.5(b)(4) of the Purchase - - ------------ -------------------- Agreement, subject to the modification of Paragraph 10.7(c) of the Purchase ----------------- Agreement set forth in Paragraph 12 hereof. ------------ 6. Title Policies. At the Closing, SARE shall deliver, in lieu of -------------- the "title policy" (as defined in Paragraph 10.5(b)(3) of the Purchase ------------ -------------------- Agreement), a binder from Chicago Title Company (the "Title Company") committing ------------- the Title Company to issue, within two year of the Effective Date, to the Partnership, Pacific Gulf, or such other entity designated by either, the title policy as described in Paragraph 10.5(b)(3) of the Purchase Agreement with -------------------- respect to the real property presently owned by the Partnership and the "Willman ------- Property" (as such term is defined in the Paragraph 10.3(b) of the Purchase - - -------- ----------------- Agreement). The cost of such binder shall be borne by SARE, except for any endorsements requested by Pacific Gulf the cost of which shall be borne by Pacific Gulf. 7. Reimbursement of Certain Expenses. At the Closing, SARE shall --------------------------------- reimburse to Pacific Gulf, by delivery to Pacific Gulf of a check in such amount, the sum of Fifty Thousand Dollars ($50,000), representing partial reimbursement to Pacific Gulf of legal, accounting and certain other expenses incurred in Pacific Gulf's dealings with Baldwin Associates, Ltd., W.T. Grant, and Wm. P. Willman & Associates relating to the purchase of their interests in the Partnership. The remainder of the expenses incurred by Pacific Gulf in connection with the foregoing shall be the responsibility of Pacific Gulf. 8. Cooperation of SARE. Following the Closing, SARE shall cooperate ------------------- with Pacific Gulf in the arbitrations (the "Arbitrations") among Pacific Gulf, ------------ SARE, W.T. Grant, Baldwin Associates, Ltd., and Wm. P. Willman & Associates pertaining to the purchase price for the interests sold by W.T. Grant, Baldwin Associates, Ltd., and Wm. P. Willman & Associates to Pacific Gulf on September 30, 1994 and certain other matters under the Partnership Agreement. Such cooperation shall consist of promptly providing, at Pacific Gulf's request (which shall include reasonable advance notice), contracts, agreements, correspondence, memos, reports, statements, and other documents, papers, and things in SARE's possession or under its control, and promptly authorizing and directing, at Pacific - 3 - Gulf's request, officers, directors, employees, and/or agents and representatives of SARE to meet with and provide all available information to Pacific Gulf and its agents and representatives with regard to any matters relevant to the subject matter of the Arbitrations. Expenses incurred by SARE in connection with the foregoing shall be borne by SARE. SARE shall also remain a party in the Arbitrations until otherwise requested by Pacific Gulf. SARE shall be represented by its own independent legal counsel. The reasonable legal fees and expenses incurred by SARE as a result thereof shall be reimbursed by Pacific Gulf on a monthly basis, provided that Pacific Gulf shall not be obligated to reimburse more than Two Thousand Dollars ($2,000) in such expenses (noncumulatively) in any calendar month, except as provided hereinbelow. It is the intent of the parties that the primary prosecution and defense of the Arbitrations on account of the interests which are relevant to Pacific Gulf and SARE will be handled by Pacific Gulf's legal counsel in its capacity as legal counsel for Pacific Gulf, and that SARE's legal counsel only will monitor the proceedings in the Arbitrations without active participation therein, unless otherwise requested by Pacific Gulf. The cost of such monitoring and activity by SARE and its counsel shall be borne by SARE, subject to the reimbursement hereinabove provided. If, however, Pacific Gulf requests active participation from SARE and its legal counsel in the Arbitrations (active participation shall include attendance at the Arbitration hearings), SARE shall be obligated to do so only upon Pacific Gulf's agreement to reimburse SARE for actual legal fees and expenses therefor in amounts to be agreed upon by Pacific Gulf. 9. Turnover of Books and Records. At the Closing, or within thirty ----------------------------- (30) days thereafter, SARE shall deliver and turn over to Pacific Gulf any and all originals of books, records, ledgers, journals, financial statements, invoices, receipts, contracts, and any and all other documents, papers, records, or things in its possession or under its control which belong or relate to the Partnership or the business, affairs, operations, or properties thereof; provided, however, the foregoing shall not include the originals or copies of the documents, contracts, and other papers relating to the transactions being consummated under this Agreement or the Purchase Agreement; and, provided, further, that the foregoing shall not include any documents which are subject to SARE's attorney/client privilege. 10. Purchase Agreement and Master Agreement. Nothing herein is --------------------------------------- intended to in any way modify, amend, change, or alter any of the terms, provisions, or conditions of the Purchase Agreement or the Master Agreement, or the rights, claims, causes of action, defenses, and the like of any of the parties under the terms and provisions thereof, except as expressly provided herein. 11. Representations and Warranties. In addition to the ------------------------------ representations and warranties the parties have made to each other in the Purchase Agreement, and not in modification or lieu thereof, the parties hereby represent and warrant to one another as follows: - 4 - (a) Incorporation and Existence. Each party hereto is duly --------------------------- incorporated, validly existing and in good standing under the laws of the state of its incorporation, is in good standing and authorized to transact business in the State of California, and has the requisite authority to enter into and perform this Agreement. (b) Power, Authority, Binding Effect. The execution, delivery and -------------------------------- performance of this Agreement by each party have been duly and validly authorized by all necessary corporate action of such party, and this Agreement has been duly executed and delivered by each party. This Agreement constitutes a legal, valid and binding agreement of the respective parties, enforceable against such respective parties in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws or equitable principles relating to or limiting the rights of creditors generally. The respective persons executing this Agreement on behalf of the respective parties have the right, power, legal capacity, and authority to execute and deliver same and all other documents that may be executed or delivered in connection with this Agreement on behalf of the party for whom they are so executing and delivering. (c) Violation or Breach. None of the execution, delivery or ------------------- performance of this Agreement does or will, with or without the giving of notice, the lapse of time, or both, violate, conflict with, or constitute a material default under any term, provision or condition of (1) the organizational documents of a party hereto or of any material agreement to which a party hereto is a party or by which it is bound, (2) any judgment, decree, order, statute, injunction, law, rule, or regulation of any nature by which the respective party is bound, or by which any property or asset of such party is bound or affected; nor will such execution, delivery or performance of this Agreement by a party hereto result in the creation of any lien or other encumbrance upon the assets or properties of such party. (d) Consents and Approvals. The respective parties have obtained the ---------------------- consent and approval of all governmental authorities and third parties where such is required in connection with the transactions contemplated hereunder by the respective parties, and have given the appropriate notices to all governmental authorities and third parties entitled to receive such by reason of the transactions contemplated herein. (e) Performance. The respective parties shall take such acts, seek ----------- such consents and authorizations, and do such things as are within their power and control to enable such parties to close the transactions contemplated hereunder. - 5 - 12. Modification of Paragraph 10.7(c). Paragraph 10.7(c) of the --------------------------------- Purchase Agreement is hereby deleted in its entirety, and the following is substituted therefor: "(c) For the purposes of the representations and warranties made pursuant to this Section 10.7, the term "Seller's knowledge" means the actual knowledge of (1) Glenn L. Carpenter, Donald G. Herrman and Robert A. Dewey as of the Closing Date, and (2) the Chief Executive Officer and Chief Financial Officer as of the Baldwin Closing Date. With respect to the representations and warranties made pursuant to this Section 10.7 which are not conditioned on "Seller's knowledge", such representations and warranties shall be deemed (i) made on the Closing Date based on the facts and circumstances as they existed as of the Closing Date, and also made on the Baldwin Closing Date on the basis of the "Seller's knowledge" as defined in clause (2) of the foregoing sentence based on the facts and circumstances as they exist as of the Baldwin Closing Date. To the extent that Glenn L. Carpenter, Donald G. Herrman or Robert A. Dewey shall have any actual knowledge, on the Baldwin Closing Date, that any representations or warranties deemed made by the Seller pursuant to the foregoing are materially inaccurate on such date, Pacific Gulf shall disclose such in writing to Seller prior to the Baldwin Closing Date." 13. Cancellation of Management Agreement. Automatically upon the ------------------------------------ Closing, without the need for any further notice or demand by any party, the duties, responsibilities, and obligations of Pacific Gulf under that certain Management Agreement among Pacific Gulf and SARE, dated as of February 17, 1994 (the "Management Agreement"), shall terminate, and thereafter Pacific Gulf shall -------------------- have no further duties, responsibilities, or obligations under the Management Agreement. All monies owing, and any assets or properties held by a party for the benefit of another party, as of the Closing, shall be paid and returned, as the case may be, at the Closing or promptly thereafter. 14. Closing. The "Closing" hereunder shall occur at 10:00 a.m., Los ------- ------- Angeles time, on November 11, 1994 at the Los Angeles offices of Cox, Castle & Nicholson, or at such other time and place as the parties may mutually agree upon in writing. At the Closing, Pacific Gulf shall deliver certificates for the Baldwin Price Shares and the Nonrental Asset Shares registered in the name of SARE, SARE shall deliver the check for the reimbursements agreed upon hereunder and the title policy commitments called for hereunder, the parties shall execute and deliver the Assignment, and the parties shall deliver such further documents and do such further things as are called for under this Agreement or otherwise - 6 - necessary or desirable to consummate the transactions herein contemplated. If for any reason the Closing does not occur by the close of business on November 30, 1994 due to the fault or breach of a party in its promises, obligations, or representations hereunder, then the non-breaching party, in its sole discretion, shall be entitled to terminate the transactions contemplated under this Agreement and/or seek recovery at law and in equity for any damages suffered as a result of the fault or breach of the breaching party; or, the non-breaching party shall be entitled to seek enforcement of and performance under this Agreement, together with damages resulting from the fault or breach of the breaching party. 15. Miscellaneous. ------------- (a) Notices. Except as otherwise provided in this Agreement, all ------- notices, requests, demands, and other communications required or permitted to be given under this Agreement shall be in writing and shall be either (i) mailed to the party to whom such notice, request, demand, or other communication is to be given, by United States Mail with all postage prepaid (in which case such notice, request, demand, or other communication shall be deemed to have been duly given on the second business day following the date of deposit of same in such Mails), (ii) mailed by Federal Express or other next-day mail service (in which case such notice, request, demand, or other communication shall be deemed to have been duly given on the next business day following the date of delivery to the respective mail service), (iii) sent by telephone facsimile to the facsimile number set forth hereinbelow, in which case such notice, request, demand, or other communication shall be deemed to have been duly given one (1) business day following either telephonic or electronic confirmation that such facsimile was received by the party to whom it was sent (but in each case provided that written copy is also sent to the recipient by United States Mails, or (iv) personally delivered to such party (in which case such notice, request, demand, or other communication shall be deemed to have been duly given one (1) business day after personal delivery), in each case to the following address: If to Pacific Gulf: Pacific Gulf Properties, Inc. 363 San Miguel Drive, Suite 100 Newport Beach, California 92660 Attn: Mr. Glenn L. Carpenter (fax) 714/721-2713 - 7 - with a copy to: Cox, Castle & Nicholson 2049 Century Park East, 28th Floor Los Angeles, CA 90067 Attn: Samuel H. Gruenbaum, Esq. (fax) 310/277-7889 If to SARE: Santa Anita Realty Enterprises, Inc. 285 West Huntington Drive P.O. Box 60014 Arcadia, California 91066-6014 Attn: Mr. Sherwood C. Chillingsworth (fax) 818/447-2940 with copies to: Santa Anita Operating Co. 285 West Huntington Drive P.O. Box 60014 Arcadia, California 91066-6014 Attn: Kathryn J. McMahon, Esq. (fax) 818/446-9565 Sheppard, Mullin, Richter & Hampton 333 South Hope Street, 48th Floor Los Angeles, California 90071 Attn: Robert B. Flaig, Esq. (fax) 213/620-1398 Any party, by giving written notice to the others in the manner provided above, may change such party's address or facsimile number for purposes of this Paragraph. (b) Expenses. Except as otherwise provided herein, each of the -------- parties shall pay all costs and expenses incurred or to be incurred by it in negotiating and preparing this Agreement and carrying out the transactions contemplated by this Agreement. (c) Third Parties. No rights shall inure to any third party from ------------- the obligations, representations, or covenants of the parties herein, except as expressly so provided. - 8 - (d) Effectiveness. Any provision (or part thereof) of this ------------- Agreement which is prohibited or unenforceable in any jurisdiction or under any circumstance shall as to such jurisdiction or circumstance be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction or under any other circumstance. (e) Attorneys' Fees and Costs. In the event of any action at law ------------------------- or in equity or other proceeding between the parties hereto to enforce or to interpret any of the provisions hereof, or relating to the subject matter hereof, including any arbitration procedure as herein described, the unsuccessful party or parties shall pay to the prevailing party or parties all costs and expenses, including actual attorneys' fees, incurred therein by such prevailing party or parties; and, if such prevailing party or parties shall recover judgment in any such action or proceeding, such costs, expenses and attorneys' fees may be included in and as part of such judgment. Such fees, costs and expenses shall include post-judgment fees, costs and expenses incurred on appeal or in collection of any judgment, which shall not merge into or be barred by any judgment. (f) Governing Law. This Agreement shall be construed, ------------- interpreted, and enforced under and in accordance with, and governed by, the laws of the State of California applicable to agreements wholly made and to be performed in such State. (g) Exhibits. All exhibits attached hereto and referred to herein -------- are hereby incorporated herein by reference and made a part hereof as though fully set forth herein at length. (h) Effect of Headings. The titles or headings of the various ------------------ paragraphs hereof are intended solely for convenience of reference and are not intended and shall not be deemed to modify, explain or place any construction upon any of the provisions of this Agreement. (i) Counterparts. This Agreement may be executed in one or more ------------ counterparts by the parties hereto. All counterparts shall be construed together and shall constitute one and the same agreement. (j) Other Representations; Survival; Modification of the Purchase ------------------------------------------------------------- Agreement. The covenants, obligations, representations, and undertakings of the - - --------- parties herein, in the Purchase Agreement, and in any agreements entered into at the Closing are the sole and only consideration for this Agreement. No representations, promises or inducements have been made to the undersigned parties, or any of them, other than those which appear in this Agreement, the Purchase Agreement, or the other agreements hereinabove referred to. Except as otherwise provided elsewhere in this Agreement, this Agreement, including the documents and instruments referred to hereinabove and elsewhere herein, and the Exhibits - 9 - attached hereto, together with the Purchase Agreement, embody the entire agreement and understanding of the parties hereto with respect to the transactions contemplated hereby. The representations and warranties made by the parties one to the other in this Agreement shall survive the Closing and the deliveries made hereunder. (k) Arbitration. Any dispute or disagreement between the parties ----------- hereto with respect to any term or provision of this Agreement, the subject matter hereof, or the interpretation or enforcement hereof shall be resolved pursuant to binding arbitration in the same manner and subject to the same provisions as are set forth in Article VIII of the Purchase Agreement. ------------ (l) Legal Representation and Construction. Each party hereto has ------------------------------------- been represented by legal counsel in connection with the negotiation and drafting of this Agreement. The parties acknowledge that each party and its counsel have reviewed and revised this Agreement, and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. (m) Agreement to Perform Necessary Acts. Each party hereto here ----------------------------------- by agrees to perform any further acts and execute and deliver any further documents which may be reasonably necessary or otherwise reasonably required in order to carry out and perform the transactions contemplated under this Agreement. (n) Number and Gender. Words in the singular shall include the ----------------- plural, and words in a particular gender shall include either or both additional genders, when the context in which such words are used indicates that such is the intent. (o) Successors and Assigns. All of the terms and provisions ---------------------- contained herein shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns; however, none of the parties hereto may delegate any of their obligations or duties hereunder, in whole or in part, without the prior written consent of all of the remaining parties hereto, which consent may be granted or withheld in the sole and absolute discretion of the respective parties. - 10 - IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. PACIFIC GULF PROPERTIES INC., a Maryland corporation By: -------------------------- Its: ----------------------- SANTA ANITA REALTY ENTERPRISES, INC., a Delaware corporation By: ---------------------------- Its: ------------------------ - 11 - EX-10.3 4 AMENDED LEASE 11/09/94 AMENDED AND RESTATED LEASE -------------------------- THIS AMENDED AND RESTATED LEASE (this "Lease"), is made as of this ninth day of November, 1994, by and between SANTA ANITA REALTY ENTERPRISES, INC., a Delaware corporation (hereinafter referred to as "Lessor"), and LOS ANGELES TURF CLUB, INCORPORATED, a California corporation (hereinafter referred to as "Lessee"), and amends and restates that certain Lease made as of January 1, 1980 by and between Lessor and Lessee, as amended to the date hereof (as so amended, the "Original Lease"); W I T N E S E T H: ----------------- That for and in consideration of the mutual covenants and agreements herein contained, Lessor does hereby lease and demise to Lessee, and Lessee does hereby take and rent from Lessor, that certain parcel of real property (as described on Exhibit A hereto) and appurtenant structures situated in the City of Arcadia, County of Los Angeles, State of California, known as "Santa Anita Park," including, without limitation, the racing strip, grandstands, buildings and all improvements (other than improvements made pursuant to Section 9(b) below) situated thereon (said parcel of real property, as so improved, being hereinafter referred to as the "demised premises"): TO HAVE AND TO HOLD the demised premises for the term and at the rental hereinafter provided and upon the terms, conditions and agreements hereinafter set forth. 1. Term. The term of this Lease shall commence as of January 1, ---- 1980 and shall end on the 31st day of December, 1999, unless sooner terminated as provided herein. 2. Rental. Lessee agrees to pay Lessor, as ------ rental ("On Track Rental") for the demised premises, an amount equal to 1.5% of all pari-mutuel wagering (the "handle") that occurs at the demised premises with respect to live thoroughbred races conducted at the demised premises. In addition, Lessee agrees to pay Lessor, as an additional rental (i) an amount ("Simulcast Rental") equal to 26.50% of the gross revenues allocable to Lessee by law or agreement with respect to off track wagers attributable to the simultaneous broadcast of thoroughbred horse racing from Santa Anita Park to any location outside of Santa Anita Park ("Simulcast Facility"), including, without limitation, at any satellite wagering facility located at a fair, race track, or other site in the State of California as contemplated by Sections 19605, 19605.1, 19605.2, 19605.51 and 19605.6 of the California Business and Professions Code and at locations situated outside of the State of California or the United States; provided, however, that when wagers made or placed at a Simulcast Facility are included in Lessee's pari-mutuel pool, the Simulcast Rental attributable to any thoroughbred horse racing broadcast 2 shall not exceed 1.5% of the handle generated by such Simulcast Facility with respect to such broadcast, and (ii) an amount ("Satellite Rental") equal to 26.50% of the gross revenues allocable to Lessee by law or agreement with respect to wagers at the demised premises when Lessee operates as a satellite facility ("Satellite Facility") receiving the simultaneous broadcast of thoroughbred horse racing from any location outside of Santa Anita Park. Said rental shall be payable during the term hereof monthly on the last business day of each month (a "Payment Date") in an amount equal to the amount of On Track Rental, if any, Simulcast Rental, if any, and Satellite Rental, if any attributable to the month immediately prior to the month in which the applicable Payment Date occurs, provided that the Payment Date for December of any year -------- shall be the thirty-first day of such month and the Payment Date for January of any year shall be the last business day of March in that same year. Said rental shall be in addition to all other amounts (including, without limitation, property taxes, insurance premiums and costs of maintenance) required to be paid by Lessee pursuant to the terms of this Lease. 3. Acceptance of Premises. Lessee is familiar with the physical ---------------------- condition of the demised premises and accepts them in their present condition without any representation or warranty by Lessor as to the condition, use or operation thereof. 3 4. Use of Premises. Lessee is hereby permitted to use and occupy --------------- the demised premises for the purpose of (i) conducting horse racing meets and other events either incidental or related to the conduct of horse racing meets, including, without limitation, civic and public relations-oriented activities such as horse shows, banquets, dances, film and television production and similar activities which do not involve significant permanent changes to the demised premises, (ii) operating as a Satellite Facility and other events either incidental or related to the operation of a Satellite Facility, including, without limitation, civic and public relations-oriented activities such as horse shows, banquets, dances, film and television production and similar activities which do not involve significant permanent changes to the demised premises, and (iii) conducting not more than 7 other entertainment events and events incidental or related thereto. Lessee shall not use or permit any person to use the demised premises or any part thereof for any purpose or use in violation of the laws of the United States or of the State of California or any political subdivision thereof. 5. Property Taxes. Lessee agrees to pay, as additional rental for -------------- the demised premises, all property taxes levied upon the demised premises during the term of this Lease. All of such payments shall be made by Lessee before delinquency. Any property taxes relating to the fiscal period of the taxing authority, a part of which period is included within the term of 4 this Lease, and a part of which is included in a period of time after the termination of the term of this Lease, shall be adjusted as between Lessor and Lessee as of the termination of this Lease, so that Lessor shall pay that portion of such property taxes which that part of such fiscal period included in the period of time after the termination of this Lease bears to such fiscal period, and Lessee shall pay the remainder thereof. With respect to any assessment for public improvements or benefits which by law is payable, or at the option of the taxpayer may be paid, in installments, Lessor shall pay the installments thereof which become due and payable subsequent to the termination of the term of this Lease, and Lessee shall pay those installments which become due and payable during the term of this Lease. Any such assessment which becomes due and payable in the year of termination of this Lease shall be prorated as between Lessor and Lessee in the same manner as taxes and other assessments. Lessee shall have the right to contest the amount or validity of any property taxes which it is required to pay under the terms of this Lease, and for that purpose shall have the right, at its sole cost, risk and expense, to institute such proceeding or proceedings in the name of Lessor as Lessee may deem necessary, holding Lessor and the demised premises harmless from the consequences thereof. Any refund of any property taxes (including interest and penalties) which has been paid by Lessee, shall belong to Lessee, and Lessor agrees promptly to pay the 5 same to Lessee in the event refund thereof is initially made to Lessor. The term "property taxes" as used herein shall mean and include all taxes, assessments and other governmental charges, general and special, ordinary and extraordinary, of any kind and nature whatsoever, applicable to the demised premises or any part thereof, including but not limited to assessments for public improvements or benefits which shall during the term of this Lease be laid, assessed, levied, imposed upon or become due and payable and a lien upon the demised premises or any part thereof but excluding franchise, estate, inheritance, succession, capital levy, transfer, income or excess profits taxes imposed upon Lessor. With respect to any assessment which may be levied against or upon the demised premises and which under the laws then in force may be evidenced by improvement or other bonds, or may be paid in annual installments, Lessee shall be required to pay each year only the amount of such annual installment or portion thereof as Lessor shall be required to pay during such year (with appropriate proration for any partial year) and shall have no obligation to continue such payments after the termination of this Lease. 6. Utilities. Lessee shall pay all charges for water, gas, --------- electricity, telephone service and other utilities used, consumed or furnished on or to the demised premises during the term of this Lease. 6 7. Repairs and Maintenance. Lessee shall, at its sole cost and ----------------------- expense, maintain the demised premises (including, without limitation, the grandstands, stables, buildings, roadways, parking areas, fences and other improvements now or at any time hereafter comprising a part thereof) in good condition and repair throughout the term of this Lease, and Lessor shall be under no obligation to maintain or repair the demised premises. In the event of any damage or destruction to the demised premises, or any part thereof, this Lease shall continue in full force and effect. Lessee shall promptly, at its sole cost and expense, make and perform all such repairs, changes, maintenance and improvements in or upon the demised premises as may be necessary to restore, repair and rebuild the same and to keep the same in an attractive, neat and orderly condition. Lessee shall commence the work of restoration, repair and rebuilding as soon as reasonably possible after the occurrence of any damage or destruction to the demised premises, or any part thereof, and shall thereafter prosecute such work diligently to completion. If any such damage or destruction is attributable to factors against which Lessee is insured, the proceeds of such insurance shall be applied to such restoration, rebuilding or repair; the obligations of Lessee hereunder shall not, however, be limited in any way by the proceeds of such insurance, if any. Upon the termination of this Lease, Lessee covenants and agrees to surrender and deliver up the demised premises in the same condition and repair as they are now, ordinary wear and tear and 7 alterations, additions and changes made pursuant to Paragraph 9 hereof excepted. 8. Indemnity and Insurance. (a) Lessee agrees with Lessor that ----------------------- Lessor shall not be liable for any damage or injury to persons or property during the term of this Lease from any cause whatsoever by reason of the use, occupation and enjoyment of the demised premises by Lessee or any person thereon, and that Lessee will indemnify and hold harmless Lessor from all liability whatsoever on account of any such damage or injury, whether or not caused by the negligence or breach of an obligation by Lessee or any person holding under Lessee. (b) Lessee shall, at its sole cost and expense, maintain (i) Such fire and extended coverage insurance in full force and effect throughout the term of this Lease in such amounts and forms as are consistent with prudent business practices for a business of the nature conducted by the Lessee, considering the replacement cost of the grandstands, stables, buildings and other improvements comprising a part of the demised premises, their location and exposure to risk; Lessee shall be entitled to receive all proceeds from such insurance policy or policies. 8 (ii) General public liability insurance against claims for bodily injury, death or property damage occurring upon, in or about the demised premises, such insurance to afford protection to the limit of Fifty Million Dollars ($50,000,000) in respect of injury and/or death and/or property damage, for the mutual benefit of Lessor and Lessee. (iii) Such business interruption insurance and insurance covering loss of rents as is consistent with prudent business practices for a business of the nature conducted by the Lessee. Lessor and Lessee agree that all fire and extended coverage insurance policies carried by them covering the demised premises or any property located thereon shall contain a clause permitting the insured to waive the insurance carrier's right of subrogation against any third person arising out of the occurrence of any casualty insured against. Lessor and Lessee hereby waive any such right of subrogation against the other party hereto, and Lessor and Lessee each agree that in the event of any damage to the demised premises by fire or perils named in the extended coverage endorsement to real or personal property of either the Lessor or Lessee neither shall have or exercise any right of recovery against the other. 9 (c) Lessee shall cause to be issued to Lessor proper certificates of insurance evidencing Lessee's compliance with the foregoing covenants of Lessee with respect to insurance. Each of said certificates shall state that all right of subrogation is waived against Lessor and that no cancellation or material change in the insurance evidenced by the particular certificate shall be made unless thirty (30) days' advance notice of such cancellation or material change shall have been given to Lessor. Lessor and the holder of any assignment of the Lessor's interest in this Lease or a first mortgage or a deed of trust on the demised premises shall be named as additional insureds as their interests may appear on all insurance policies required to be maintained by Lessee under this Paragraph 8. 9. Alterations. (a) Lessor shall, during the term of this Lease, ----------- reimburse Lessee for all costs of such reasonable alterations, additions, and changes, structural or otherwise, in and to the grandstands, stables, buildings, roadways, parking areas, fences and other structures then located on the demised premises (collectively, the "Improvements") as Lessee may find necessary or convenient for its purposes, provided that Lessor shall be under no obligation to reimburse Lessee for any such Improvements to the demised premises unless Lessor has consented to the making of such Improvements prior to any expenditure by Lessee for such Improvements, and provided further that such alterations, additions, and changes constitute real estate assets as defined in Subchapter M of the Internal Revenue Code. The 10 title to, and the ownership of, any buildings, structures, and other improvements erected on the demised premises, the cost of which is reimbursed by Lessor shall vest in Lessor. Such improvements shall become part of the demised premises. (b) During the term of this Lease, Lessor may develop, at Lessor's cost, up to 50 acres of the demised premises for any purpose provided that (i) Lessor shall give Lessee at least 120 days prior written notice of such development and (ii) such development shall not unreasonably interfere with Lessee's horse racing and Satellite Facility operations. 10. Mechanic's Liens. Lessee agrees that it will pay or cause to be ---------------- paid all costs for work done by it or caused to be done by it on the demised premises of a character which will or may result in liens on Lessor's reversionary estate therein, and Lessee will keep the demised premises free and clear of all mechanic's liens and other liens on account of work done for Lessee or persons claiming under Lessee. Lessee agrees to and shall indemnify and save Lessor free and harmless against all liabilities, damages or costs on account of liens and claims of lien of laborers or materialmen or others for work performed or materials or supplies furnished for Lessee or persons claiming under it; provided, however, that Lessee shall have the right to contest the validity or amount of any such lien or claimed lien, provided Lessee shall give such reasonable security to Lessor as may be demanded by Lessor to insure payment therefor and prevent 11 any sale, foreclosure, or forfeiture of the demised premises by reason of such nonpayment; and provided further that such reasonable security shall not exceed one and one-half times the amount of such lien or claimed lien. Notwithstanding the foregoing, the imposition of a lien on the demised premises in connection with the Lessee's performance of its obligations or rights under Paragraph 7 or Paragraph 9 hereof will not constitute an event of default under Paragraph 13 hereof, provided that a bond in the amount of such lien is acquired by Lessee in favor of Lessor, or other security satisfactory to Lessor is provided and adequate measures are taken to avoid any sale of, foreclosure upon or forfeiture of the demised premises as a result of the imposition of such lien. 11. Eminent Domain. If the whole or any part of the demised premises -------------- be taken or condemned under the exercise by any competent authority of the power of eminent domain for any public or quasi-public use or purpose, then and in that event: (a) The entire award for such taking or condemnation shall be paid to and retained by Lessor for its own use and benefit, except that any part of the award made on account of damage to the portion of the demised premises, if any, not taken by condemnation shall be used by Lessor, to the extent necessary, for the restoration and reconstruction of 12 the remainder of the demised premises as set forth in subparagraph (c)(ii) hereinbelow. (b) If fifty percent (50%) or more of the parking area comprising a part of the demised premises shall be so taken, or if any portion of the demised premises (other than the parking area) essential for the conduct of horse racing meets on the demised premises shall be so taken, then and in either such event Lessee shall have the option to terminate this Lease by written notice to Lessor delivered at any time prior to thirty (30) days after Lessee's possession of the area so condemned has been taken by or on behalf of the condemning authority. Upon such termination each of the parties hereto shall be relieved of any further performance hereunder for the period from and after such termination. (c) In the event that only a portion of the demised premises are so taken, the following provisions shall apply if this Lease is not terminated as provided in paragraph (b) hereof: (i) The term of this Lease and each of the provisions hereof (except as hereinafter provided) shall continue in full force and effect as to so much of the demised premises as are not so taken; 13 (ii) Subject to due allowance and reasonable delays occasioned by strikes or scarcity of building materials or labor, or any other cause beyond Lessor's control, Lessor shall proceed with reasonable diligence to restore and reconstruct the demised premises to a complete unit in order that the remaining unit when completed shall be substantially the same in character as the demised premises prior to said taking; and (iii) Upon such taking, the annual rent hereinabove specified shall be renegotiated by Lessor and Lessee in good faith with a view toward an equitable adjustment of such rent in light of the changed nature of the demised premises. No provision of this Lease shall be deemed to be a waiver of any right of either Lessor or Lessee against any condemning authority for damages or other compensation by reason of such condemnation. 12. Assignment and Subletting. (a) Lessee may, at any time during ------------------------- the term of this Lease, sublet the whole or any part of the demised premises for any use permitted in this Lease, but Lessee shall remain liable and responsible to Lessor under this Lease in the event of any such subletting of the demised premises. 14 (b) Lessee shall not encumber or hypothecate its leasehold estate, or any interest therein or part thereof, without prior written consent of Lessor. (c) Lessor shall not be restricted by any provision hereof from assigning all or any part of its interest in the demised premises to any person, firm, association or corporation; provided that any such assignee shall agree to be bound by the provisions of this Lease. Lessee hereby attorns and agrees to attorn to any person, firm or corporation purchasing or otherwise acquiring the fee estate in the demised premises or the Lessor's interest in this Lease at any sale or other proceeding pursuant to the exercise of any rights, powers or remedies under any Deed of Trust and Assignment of Rents executed by the Lessor in favor of any institutional lender or by reason of the exercise of any rights, powers or remedies under any Assignment of Lease executed by Lessor in favor of any institutional lender covering this Lease, it being intended hereby that if this Lease would otherwise terminate, cut off or otherwise be defeated by reason of any acts or actions by the owner or holder of such Deed of Trust and Assignment of Rents or Assignment of Lease then, at the option of such person, firm or corporation so purchasing or otherwise acquiring the fee estate in the demised premises or Lessor's interest under this Lease, this Lease shall continue in full force and effect. 15 13. Defaults by Lessee. In the event that ------------------ (a) Lessee shall fail to pay any installment of rental or any other money required hereby to be paid by Lessee to Lessor or for the account of Lessor when the same shall become due, and such default shall continue for a period of five (5) days; or (b) Lessee shall default in the performance of any obligation required to be performed by Lessee (other than the payment of rental or any other money required hereby to be paid by Lessee to, or for the account of, Lessor) and shall fail, for a period of ten (10) days after written notice from Lessor specifying such default, to take appropriate steps for the purpose of curing such default or shall thereafter fail to prosecute the curing of such default diligently and in good faith; or (c) Lessee shall be adjudicated bankrupt, or a petition by or against Lessee for an adjustment of its obligations under the Federal Bankruptcy Code or any other existing or future statute shall be approved, or Lessee shall make a general assignment of its property for the benefit of its creditors; then and in each such case Lessor may at its option terminate this Lease upon written notice to Lessee. 16 14. Rights of Inspection; Maintenance of Books, Records and Accounts. ---------------------------------------------------------------- Lessor or its representatives shall have the right to go upon and inspect the demised premises at all reasonable times. Lessee shall keep full, complete and proper books, records and accounts of the handle derived from or arising out of the conduct of horse racing meets at the demised premises for a period of 36 months following each year. Lessor and its agents and employees shall have the right at any and all times, during regular business hours, to audit, examine and inspect all of the books and records of Lessee, including any tax reports pertaining to the business of the Lessee conducted in, upon or from the demised premises, for the purpose of investigating and verifying the accuracy of any statement of handle. 15. Change in Pari-Mutuel Wagering. In the event the percentage of ------------------------------ gross pari-mutuel handle, Simulcast Rental or Satellite Rental allocable to the tracks is changed by reason of any governmental action, or in the event any technological or other development (including, by way of example, but not limited to, the authorization of in-home or telephonic wagering) alters the nature of pari-mutuel wagering at Santa Anita Park or wagering at locations which receive a simultaneous broadcast of thoroughbred horse racing held at Santa Anita Park, then Lessor and Lessee shall renegotiate the rental provisions of this Lease in good faith with a view toward an equitable adjustment of such rental in light of the changed circumstances. 17 16. Cessation of Racing. If at any time the Board of Directors of ------------------- Lessor shall determine, in its complete, unfettered discretion, that Santa Anita Park shall be permanently closed to thoroughbred horse racing, Lessor shall have the option to terminate this Lease upon written notice to Lessee. 17. Recovery of Costs. In the event that any action or proceeding ----------------- shall be brought for the purpose of determining or enforcing the rights of either party hereunder, the party prevailing in such action shall be entitled to recover from the other party all costs reasonably incurred by the prevailing party in connection with such action or proceeding, including a reasonable attorney's fee to be determined by the court. 18. Waiver. No waiver by Lessor of the breach or default in the ------ performance of any of the covenants, conditions or agreements of this Lease by Lessee shall be construed to be a waiver of any succeeding breach of the same or other covenants, conditions or agreements hereof, and no delay or omission of Lessor in exercising any right or power or remedy hereunder in the event of the default of Lessee shall be construed as a waiver thereof or acquiescence therein, nor shall the acceptance of any payment made in a manner or at a time other than as herein provided be construed as a waiver of or variation in the terms of this Lease. 18 19. Notices. All written notices to Lessor or Lessee shall be deemed ------- to have been properly given if given by courier, United States express mail or United States registered mail, postage prepaid, addressed to such party at such address as shall have been given by such party by written notice to the other. 20. Successors. The covenants and agreements herein contained shall ---------- inure to the benefit of and be binding upon Lessor and Lessee and their respective successors and assigns. 21. Effectiveness. This Amended and Restated Lease (other than the ------------- provisions of Section 2 hereof which shall become effective on January 1, 1995) shall become effective as of the date hereof upon the execution hereof by each of the parties hereto. Prior to January 1, 1995, all terms and conditions of Section 2 of the Original Lease shall remain in full force and effect. 19 IN WITNESS WHEREOF, the parties hereto have executed this Lease in duplicate the day and year first above written. SANTA ANITA REALTY ENTERPRISES, INC. By _________________________________ (SEAL) Lessor LOS ANGELES TURF CLUB, INCORPORATED By _________________________________ (SEAL) Lessee 20 STATE OF CALIFORNIA ) COUNTY OF __________________ ) On ___________, 19___, before me, ____________________, a Notary Public in and for said State, personally appeared ________________________________________________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature ________________________________ (Seal) 21 STATE OF CALIFORNIA ) COUNTY OF __________________ ) On ___________, 19___, before me, ____________________, a Notary Public in and for said State, personally appeared ________________________________________________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature ________________________________ (Seal) 22 EX-10.4 5 CREDIT AGMT 11/09/94 EXHIBIT 10.4 CREDIT AGREEMENT This Credit Agreement dated as of ___________, 19__ is entered into among SANTA ANITA REALTY ENTERPRISES, INC., a Delaware corporation (the "Borrower") and FIRST INTERSTATE BANK OF CALIFORNIA, a California banking corporation (the "Bank"). The Borrower and the Bank agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Defined Terms. As used in this Agreement, the ------------- following terms have the following meanings: "Agreement": This Credit Agreement, as amended, supplemented or --------- modified from time to time. "Assessment Rate": For any period, the net annual assessment rate --------------- estimated by the Bank to be payable by it to the Federal Deposit Insurance Corporation or any successor ("FDIC"), for FDIC's insuring time deposits made in Dollars at offices of the Bank in the United States. "Assignment of Lease": That certain Assignment of Rents, Leases, ------------------- Income and Profits, in form acceptable to Bank, by which Borrower assigns to Bank, among other things, all of Borrower's rents, issues and profits in the Lease. "Bank": As set forth in the introductory paragraph of this Agreement. ---- "Base Rate": With respect to each Interest Period pertaining to CD --------- Rate Loans, the rate of interest determined by the Bank to be the prevailing rate per annum (rounded upward to the nearest 1/100 of 1%) bid at the time the Bank quotes the rate to the Borrower on the first day of such Interest Period by at least one certificate of deposit dealer of recognized standing selected by the Bank for the purchase at face value from the Bank of its certificates of deposit in an amount equal to or comparable to the CD Rate Loan to which such Interest Period applies and having a maturity equal to or comparable to such Interest Period. "Borrower": As set forth in the introductory paragraph of this -------- Agreement. "Borrowing": As defined in Section 2.01. --------- "Business Day": A day other than a Saturday, Sunday or a day on which ------------ commercial banks in California are authorized or required by law to close. "CD Rate": A rate per annum equal to the following: ------- Base Rate + Assessment Rate --------------------------------------- 1.00 - Reserve Percentage The rate per annum shall be a rate quoted by the Bank's central money desk to the Bank's lending office. "CD Rate Loans": Loans hereunder at such time as they accrue interest ------------- at a rate based upon the CD Rate. "Capital Lease": As applied to any Person, any lease of any property ------------- (whether real, personal or mixed) by that Person as lessee which would, in accordance with GAAP, be required to be accounted for as a capital lease on the balance sheet of that Person. "Commitment": The Bank's obligation to make Loans to the Borrower ---------- pursuant to Article II in the amount or amounts referred to therein. "Consolidated Cash Flow": In respect of any period, the net income ---------------------- from operations during such period of the Borrower and its consolidated Subsidiaries plus (a) all non-cash items (including, without limitation, depreciation, depletion, amortization, deferred taxes and amortization of debt discount) deducted in calculating net income of the Borrower and its consolidated Subsidiaries during such period, (b) interest payments on all long term debt net of related tax benefits, and (c) lease payments net of related tax benefits of the Borrower and its consolidated Subsidiaries during such period, all as determined in accordance with GAAP. 2 "Consolidated Current Assets": At any date of determination, the --------------------------- total assets of the Borrower and its Subsidiaries on a consolidated basis which may properly be classified as current assets in conformity with GAAP. "Consolidated Current Liabilities": At any date of determination, the -------------------------------- Consolidated Liabilities which may properly be classified as current liabilities in conformity with GAAP. "Consolidated Liabilities": At any date of determination, the total ------------------------ liabilities of the Borrower and its Subsidiaries on a consolidated basis determined in accordance with GAAP (including, without limitation, (1) any balance sheet liability with respect to a Pension Plan recognized pursuant to Financial Accounting Standards Board Statements 87 or 88 and (2) any withdrawal liability under Section 4201 of ERISA with respect to a withdrawal from a Multiemployer Plan, as such liability may be set forth in a notice of withdrawal liability under Section 4219 (and as adjusted from time to time subsequent to the date of such notice)). "Consolidated Tangible Net Worth": At any date of determination, the ------------------------------- sum of the capital stock and additional paid-in capital plus retained earnings (or minus accumulated deficit) of the Borrower and its consolidated Subsidiaries minus intangible assets (including, without limitation, franchises, patents, patent applications, trademarks, brand names, goodwill and research and development expenses), on a consolidated basis determined in conformity with GAAP. "Consolidated Working Capital": At any date of determination, the ---------------------------- Consolidated Current Assets minus the Consolidated Current Liabilities. "Debt": As applied to any Person, (i) all indebtedness for borrowed ---- money, (ii) that portion of obligations with respect to Capital Leases which is properly classified as a liability on a balance sheet in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (iv) any obligation owed for all or any part of the deferred purchase price of property or services which purchase price is (y) due more than six months from the date of incurrence of the obligation in respect thereof, or (z) evidenced by a note or similar written instrument, and (v) all indebtedness secured by any Lien on any 3 property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is non-recourse to the credit of that person. "Debt Service": In respect of any period, the sum, without ------------ duplication, of the Borrower's consolidated (a) interest expense (including, that attributable to Capital Leases in accordance with GAAP) net of related tax benefits, (b) lease payments net of related tax benefits, (c) dividends on preferred stock, and (d) the amortization of Debt, including that portion of rental payments with respect to Capital Leases which is or should be applied as a reduction to the principal of such Capital Leases in accordance with GAAP. "Dollars and $": Dollars in lawful currency of the United States of ------------- America. "Employee Benefit Plan": Any Pension Plan, any employee welfare --------------------- benefit plan, or any other employee benefit plan which is described in Section 3(3) of ERISA and which is maintained for employees of the Borrower or any ERISA affiliate of the Borrower. "ERISA": The Employee Retirement Income Security Act of 1974, as ----- amended from time to time and any successor statute. "ERISA Affiliate": As applied to any Person, any trade or business --------------- (whether or not incorporated) which is a member of a group of which that Person is a member and which is under common control within the meaning of Section 414(b) and (c) of the Internal Revenue Code. "GAAP": Generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession. "Interest Payment Date": As to any Prime Rate Loan until payment in --------------------- full, the Maturity Date and the last day of each month commencing on the first of such days to occur after a Prime Rate Loan is made. As to any CD Rate Loan or LIBO Rate Loan with an Interest Period of 30 days or one month, as the case may be, 4 or less, the last day of such Interest Period and the Maturity Date, and as to any CD Rate Loan or LIBO Rate Loan with an Interest Period in excess of 30 days or one month, as the case may be, (i) the last day of each month following the beginning of such Interest Period, (ii) the last day of such Interest Period and (iii) the Maturity Date. "Interest Period": --------------- With respect to any CD Rate Loan: (i) initially, the period commencing on, as the case may be, the Borrowing or conversion date with respect to such CD Rate Loan and ending 30, 60 or 90 days thereafter, as selected by the Borrower in its notice of Borrowing as provided in Section 2.01(b) or its notice of conversion as provided in Section 2.04; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such CD Rate Loan and ending 30, 60 or 90 days thereafter, as selected by the Borrower in its notice of continuation as provided in Section 2.04; With respect to any LIBO Rate Loan: (i) initially, the period commencing on, as the case may be, the Borrowing or conversion date with respect to such LIBO Rate Loan and ending one, two or three months thereafter as selected by the Borrower in its notice of Borrowing as provided in Section 2.01(b) or its notice of conversion as provided in Section 2.04; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such LIBO Rate Loan and ending one, two or three months thereafter as selected by the Borrower in its notice of continuation as provided in Section 2.04; provided, that all of the foregoing provisions relating to Interest Periods are - - -------- subject to the following: (a) if any Interest Period for a CD Rate Loan would otherwise end on a day which is not a Business Day, that Interest 5 Period shall be extended to end on the next succeeding Business Day; (b) if any Interest Period for a LIBO Rate Loan would otherwise end on a day which is not a LIBO Business Day, that Interest Period shall be extended to the next succeeding LIBO Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding LIBO Business Day; (c) the Borrower may not select an Interest Period with respect to any portion of principal of a CD Rate Loan or a LIBO Rate Loan which extends beyond a date on which the Borrower is required to make a scheduled payment of that portion of principal; and (d) there shall be no more than six Interest Periods (including all CD Rate Loans and LIBO Rate Loans or a combination thereof) outstanding at any time. "Internal Revenue Code": The Internal Revenue Code of 1986, as --------------------- amended to the date hereof and from time to time hereafter. "Lease": That lease by and between Borrower, as lessor, and Los ----- Angeles Turf Club, Incorporated, a California corporation, as lessee, dated January 1, 1980, as amended and restated as of November 9, 1994. "LIBO Business Day": A day which is a Business Day and on which ----------------- dealings in Dollar deposits may be carried out in the London interbank market. "LIBO Rate": For each Interest Period (i) the rate of interest --------- determined by the Bank at which deposits for the relevant Interest Period would be offered to the Bank in the approximate amount of the relevant LIBO Rate Loan in the London interbank market upon request of the Bank at 11:00 A.M. (London time) on the day which is two LIBO Business Days prior to the first day of such Interest Period, divided by (ii) a number equal to 1.00 minus the aggregate (but without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on the day which is two LIBO Business Days prior to the beginning of such Interest Period (including, without limitation, 6 basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other governmental authority having jurisdiction with respect thereto, as in effect at the time the Bank quotes the rate to the Borrower) for Eurocurrency funding of domestic assets (currently referred to as "Eurocurrency liabilities" in Regulation D of such Board) which are required to be maintained by a member bank of such System (such rate to be adjusted to the next higher 1/16 of 1%). "LIBO Rate Loans": Loans hereunder at such time as they accrue --------------- interest at a rate based upon the LIBO Rate. "Lien": Any lien, mortgage, deed of trust, pledge, security interest, ---- charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest). "Loans": Loans made to the Borrower pursuant to Section 2.01. ----- "Loan Documents": This Agreement, the Note(s) and the Assignment of -------------- Lease, and such other documents required by the Bank in connection with this Agreement and/or the credit extended hereunder. "Maturity Date": The earlier to occur of: (i) one year after the ------------- date of the Note, or (ii) November 30, 1995. "Multiemployer Plan": A "multiemployer plan" as defined in Section ------------------ 4001(a)(3) of ERISA which is maintained for employees of the Borrower or any ERISA Affiliate of the Borrower. "Note" and "Notes": The Revolving Note(s). ---- ----- "Operating Company": Santa Anita Operating Company, a Delaware ----------------- corporation. "Pension Plan": Any employee plan which is subject to Section 412 of ------------ the Internal Revenue Code and which is maintained for employees of the Borrower or any ERISA Affiliate of the Borrower, other than a Multiemployer Plan. 7 "Person": An individual, partnership, corporation, business trust, ------ joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature. "Potential Event of Default": A condition or event which, after -------------------------- notice or lapse of time or both, would constitute an Event of Default if that condition or event were not cured or removed within any applicable grace or cure period. "Prime Rate": The index rate of interest established from time to ---------- time by the Bank in connection with the pricing of certain of its loans. The Bank may make loans priced at, above or below the Prime Rate. Information concerning the Prime Rate may be obtained from the Bank. "Prime Rate Loans": Loans hereunder at such time as they accrue ---------------- interest at a rate based upon the Prime Rate. "Regulation G, T, U and X": Regulations G, T, U and X, respectively, ------------------------ promulgated by the Board of Governors of the Federal Reserve System, as amended from time to time, and any successors thereto. "Reserve Percentage": For any day, the percentage (expressed as a ------------------ decimal) which is in effect on such day as prescribed by the Board of Governors of the Federal Reserve System (or any successor) under Regulation D or any similar regulation, for determining the reserve requirement for the Bank in respect of new nonpersonal time deposits in dollars having a maturity comparable to the relevant Interest Period for any CD Rate Loan and in an amount of $100,000 or more. "Revolving Commitment": The amount of $30,000,000, as such amount may -------------------- be reduced pursuant to Section 2.01(d). "Revolving Loans": As defined in Section 2.01(a). --------------- "Revolving Note": As defined in Section 2.01(e). -------------- "S.E.C.": The United States Securities and Exchange Commission and ------ any successor institution or body which performs the functions or substantially all of the functions thereof. 8 "Subsidiary": A corporation of which shares of stock having ordinary ---------- voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation are at the time owned, directly, or indirectly through one or more intermediaries, or both, by the Borrower. "Termination Event": (i) a "Reportable Event" described in Section ----------------- 4043 of ERISA and the regulations issued thereunder (other than a "Reportable Event" not subject to the provision for 30-day notice to the Pension Benefit Guaranty Corporation under such regulations), or (ii) the withdrawal of the Borrower or any of its ERISA Affiliates from a Pension Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(1)(2) or 4068(f) of ERISA, or (iii) the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination under Section 4041 of ERISA, or (iv) the institution of proceedings to terminate a Pension Plan by the Pension Benefit Guaranty Corporation, (v) any other event or condition which might constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan, or (vi) the imposition of a lien pursuant to Section 412(n) of the Internal Revenue Code. SECTION 1.02. Other Definitional Provisions. ----------------------------- (a) All terms defined in this Agreement shall have the defined meanings when used in the Notes or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in the Notes, and any certificate or other document made or delivered pursuant hereto, accounting terms not defined in subsection 1.01, and accounting terms partly defined in subsection 1.01 to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified. 9 (d) So long as the Borrower does not have any Subsidiaries, references to a Subsidiary or Subsidiaries in this Agreement shall be deemed to be deleted. ARTICLE II THE LOANS SECTION 2.01. The Revolving Loans. ------------------- (a) The Revolving Commitment. The Bank agrees, on the terms and ------------------------ conditions hereinafter set forth, to make loans ("Revolving Loans") to the Borrower from time to time during the period from the date hereof to and including the Maturity Date in an aggregate amount not to exceed the Revolving Commitment, as such amount may be reduced pursuant to Section 2.01(d). Each borrowing under this Section (a "Borrowing") consisting of a CD Rate Loan or a LIBO Rate Loan shall be in a minimum amount of $500,000 or an integral multiple of $100,000 above such amount, and Prime Rate Loans may be in any amount. Within the limits of the Revolving Commitment and prior to the Maturity Date, the Borrower may borrow, repay pursuant to Section 2.02(b) and reborrow under this Section. (b) Making the Revolving Loans. The Borrower may borrow under the -------------------------- Revolving Commitment on any Business Day if the Borrowing is to consist of a Prime Rate Loan or CD Rate Loan and on any LIBO Business Day if the Borrowing is to consist of a LIBO Rate Loan, provided that the Borrower shall give the Bank irrevocable notice (which notice must be received by the Bank prior to 11:00 A.M., Los Angeles time) (i) three LIBO Business Days prior to the requested Borrowing date in the case of a LIBO Rate Loan, and (ii) on or before the requested Borrowing date in the case of a Prime Rate Loan or a CD Rate Loan, specifying (A) the amount of the proposed Borrowing, (B) the requested date of the Borrowing, (C) whether the Borrowing is to consist of a CD Rate Loan, a LIBO Rate Loan or a Prime Rate Loan, and (D) if the Loan is to be a LIBO Rate Loan or a CD Rate Loan, the length of the Interest Period therefor. Upon satisfaction of the applicable conditions set forth in Article IV, the proceeds of all such Loans will then be made available to the Borrower by the Bank by crediting the account of the Borrower on the books of the Bank, or as otherwise directed by the Borrower. 10 The notice of Borrowing may be given orally (including telephonically) or in writing (including telex or facsimile transmission) and any conflict regarding a notice or between an oral notice and a written notice applicable to the same Borrowing shall be conclusively determined by the Bank's books and records. The Bank's failure to receive any written notice of a particular Borrowing shall not relieve the Borrower of its obligations to repay the Borrowing made and to pay interest thereon. The Bank shall not incur any liability to the Borrower in acting upon any notice of Borrowing which the Bank believes in good faith to have been given by a Person duly authorized to borrow on behalf of the Borrower. (c) Commitment Fee. The Bank hereby acknowledges that the Borrower -------------- has paid to the Bank a non-refundable commitment fee on the Revolving Commitment in the amount of $83,750.00. (d) Reduction of the Revolving Commitment. The Borrower shall have ------------------------------------- the right, upon at least two Business Days' notice to the Bank, to terminate in whole or reduce in part the unused portion of the Revolving Commitment, without premium or penalty, provided that each partial reduction shall be in the aggregate amount of $100,000 or an integral multiple thereof and that such reduction shall not reduce the Revolving Commitment to an amount less than the amount outstanding hereunder on the effective date of the reduction. Such notice shall be irrevocable and such reduction shall not be reinstated. (e) Revolving Note. The Loans made by the Bank pursuant hereto shall -------------- be evidenced by a promissory note of the Borrower, substantially in the form of Exhibit A, with appropriate insertions (the "Revolving Note"), payable to the order of the Bank and representing the obligation of the Borrower to pay the aggregate unpaid principal amount of all Revolving Loans made by the Bank, with interest thereon as prescribed in Section 2.03. The Bank is hereby authorized to record in its books and records and on any schedule annexed to the Revolving Note, the date and amount of each Revolving Loan made by the Bank, and the date and amount of each payment of principal thereof, and in the case of CD Rate Loans and LIBO Rate Loans, the Interest Period and interest rate with respect thereto, and any such recordation shall constitute prima facie evidence of the ----- ----- accuracy of the information so recorded; provided that failure by the Bank to effect such recordation shall not affect the Borrower's obligations hereunder. Prior to the transfer of a 11 Revolving Note, the Bank shall record such information on any schedule annexed to and forming a part of such Revolving Note. SECTION 2.02. Repayment. --------- (a) Mandatory Repayments. The aggregate principal amount of the -------------------- Revolving Loans outstanding on the Maturity Date, together with accrued interest thereon, shall be due and payable in full on the Maturity Date. If at any time the aggregate outstanding Borrowings exceed the Revolving Commitment then in effect, the Borrower shall immediately repay the excess to the Bank. (b) Optional Payment. The Borrower may at its option pay the Loans, ---------------- in whole or in part, on any Business Day from time to time, provided the Bank shall have received from the Borrower notice of any such payment at least one Business Day prior to the date of the proposed payment if such date is not the last day of the then current Interest Period for each Loan being paid, in each case specifying the date and the amount of payment. For Prime Rate Loans, each day shall be defined as and constitute an "Interest Period." Partial payments hereunder shall be in an aggregate principal amount of not less than the lesser of (a) $50,000 or any whole multiple thereof and (b) the outstanding balance of the Loan being paid. SECTION 2.03. Interest Rate and Payment Dates. ------------------------------- (a) Payment of Interest. Interest with respect to each Loan shall be ------------------- payable in arrears on each Interest Payment Date for such Loan. In no event shall interest on a Loan exceed the maximum rate permitted by applicable law. (b) Prime Rate Loans. Revolving Loans which are Prime Rate Loans ---------------- shall bear interest on the unpaid principal amount thereof at a rate per annum equal to the Prime Rate. (c) CD Rate Loans. Revolving Loans which are CD Rate Loans shall bear ------------- interest for each Interest Period with respect thereto on the unpaid principal amount thereof at a rate per annum equal to the CD Rate determined for such Interest Period plus (i) from the date hereof through the Maturity Date, one percent (1%). 12 (d) LIBO Rate Loans. Revolving Loans which are LIBO Rate Loans shall --------------- bear interest for each Interest Period with respect thereto on the unpaid principal amount thereof at a rate per annum equal to the LIBO Rate determined for such Interest Period in accordance with the terms hereof plus, from the date hereof through the Maturity Date, one percent (1%). SECTION 2.04. Continuation and Conversion Options. The Borrower may ----------------------------------- elect from time to time to convert its outstand ing Loans from Loans bearing interest at a rate determined by reference to one basis to Loans bearing interest at a rate determined by reference to an alternative basis by giving the Bank (i) irrevocable notice of an election to convert Loans to Loans other than LIBO Rate Loans and (ii) at least three LIBO Business Days' prior irrevocable notice of an election to convert Loans to LIBO Rate Loans, provided that any conversion of Loans other than Prime Rate Loans shall only be made on the last day of an Interest Period with respect thereto, provided further that no Loan may be converted to a Loan other than a Prime Rate Loan so long as an Event of Default or Potential Event of Default has occurred and is continuing. The Borrower may elect from time to time to continue its outstanding Loans other than Prime Rate Loans upon the expiration of the Interest Period(s) applicable thereto by giving to the Bank irrevocable notice of continuation of such a Loan other than a LIBO Rate Loan and at least three LIBO Business Days' prior irrevocable notice of continuation of a LIBO Rate Loan, provided that no Loan may be continued as a Loan other than a Prime Rate Loan so long as an Event of Default or Potential Event of Default has occurred and is continuing. Each notice electing to convert or continue a Loan shall specify: (i) the proposed conversion/continuation date; (ii) the amount of the Loan to be converted/continued; (iii) the nature of the proposed continuation/conversion; and (iv) in the case of a conversion to, or continuation of a Loan other than a Prime Rate Loan, the requested Interest Period, and shall certify that no Event of Default or Potential Event of Default has occurred and is continuing. On the date on which such conversion or continuation is being made the Bank shall take such action as is necessary to effect such conversion or continuation. In the event that no notice of continuation or conversion is received by the Bank with respect to outstanding Loans other than Prime Rate Loans, upon expiration of the Interest Period(s) applicable thereto, such Loans shall convert to Prime Rate Loans. Subject to the limitations set forth in this Section and in the definition of Interest Period, all or any part of outstanding 13 Loans may be converted or continued as provided herein, provided that partial conversions or continuations with respect to Loans other than Prime Rate Loans shall be in an aggregate minimum amount of $500,000 and integral multiples of $100,000. SECTION 2.05 Security for Loans. As security for the payment and ------------------ performance of its obligations hereunder, the Borrower hereby grants to the Bank a security interest in all of the Borrower's right, title and interest in an to the collateral described in any security agreement or financing statement executed by the Borrower in favor of the Bank, including without limitation that certain Assignment of Lease attached hereto as Exhibit B. ARTICLE III GENERAL PROVISIONS CONCERNING THE LOANS SECTION 3.01. Use of Proceeds. The proceeds of the Loans hereunder --------------- shall be used by the Borrower for refinancing existing working capital debt and for general corporate purposes. SECTION 3.02. Post Maturity Interest. Notwithstanding anything to ---------------------- the contrary contained in Section 2.03, if all or a portion of the principal amount of any of the Loans made hereunder or any interest accrued thereon shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), any such overdue amount shall bear interest at a rate per annum which is equal to the greater of (a) two percent (2%) above the highest rate which would otherwise be applicable pursuant to Section 2.03 and (b) three percent (3%) above the Prime Rate, from the date of such nonpayment until paid in full (after as well as before judgment), payable on demand. In addition, such Loan, if a Loan other than a Prime Rate Loan, shall be converted to a Prime Rate Loan at the end of the then current Interest Period therefor. SECTION 3.03. Computation of Interest and Fees. -------------------------------- (a) Calculations. Interest in respect of the Prime Rate Loans shall ------------ be calculated on the basis of a 360 day year for the actual days elapsed. Any change in the interest rate on a Prime Rate Loan resulting from a change in the Prime Rate shall 14 become effective as of the opening of business on the day on which such change in the Prime Rate shall become effective. CD Rate Loans and LIBO Rate Loans shall be calculated on the basis of a 360 day year for the actual days elapsed. (b) Determination by Bank. Each determination of an interest rate or --------------------- fee by the Bank pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower in the absence of manifest error. SECTION 3.04. Payments. The Borrower shall make each payment of -------- principal, interest and fees hereunder and under the Notes, without setoff or counterclaim, not later than 2:00 P.M. (Los Angeles time) on the day when due in lawful money of the United States of America to the Bank at the office of the Bank designated from time to time in immediately available funds. SECTION 3.05. Payment on Non-Business Days. Whenever any payment to ---------------------------- be made hereunder or under the Notes shall be stated to be due on a day which is not a Business Day, such payment may be made on the next succeeding Business Day, and with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. SECTION 3.06. Reduced Return. If the Bank shall have determined that -------------- any applicable law, regulation, rule or regulatory requirement (collectively in this Section 3.06 "Requirement") regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Bank's capital as a consequence of its Commitments and obligations hereunder to a level below that which would have been achieved but for such Requirement, change or compliance (taking into consideration the Bank's policies with respect to capital adequacy) by an amount deemed by the Bank to be material (which amount shall be determined by the Bank's reasonable allocation of the aggregate of such reductions resulting from such events), then from time to time, within five (5) Business Days after demand by the Bank, the Borrower shall pay to the Bank such 15 additional amount or amounts as will compensate the Bank for such reduction. SECTION 3.07.(a) Indemnities. Whether or not the transactions ----------- contemplated hereby shall be consummated, the Borrower agrees to indemnify, pay and hold the Bank, and the shareholders, officers, directors, employees and agents of the Bank, harmless from and against any and all claims, liabilities, losses, damages, costs and expenses (whether or not any of the foregoing indemnified Persons is a party to any litigation), including, without limitation, reasonable attorneys' fees and costs (including, without limitation, the reasonable estimate of the allocated cost of in-house legal counsel and staff) and costs of investigation, document production, attendance at a deposition, or other discovery, with respect to or arising out of any proposed acquisition by the Borrower or any of its Subsidiaries of any Person or any securities (including a self-tender), this Agreement or any use of proceeds hereunder, or any claim, demand, action or cause of action being asserted against the Borrower or any of its Subsidiaries (collectively, the "Indemnified Liabilities"), provided that the Borrower shall have no obligation hereunder with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of any such indemnified Persons. If any claim is made, or any action, suit or proceeding is brought, against any Person indemnified pursuant to this Section, the indemnified Person shall notify the Borrower of such claim or of the commencement of such action, suit or proceeding, and the Borrower will assume the defense of such action, suit or proceeding, employing counsel selected by the Borrower and reasonably satisfactory to the indemnified Person, and pay the fees and expenses of such counsel. This covenant shall survive termination of this Agreement and payment of the outstanding Notes. (b) Funding Losses. The Borrower agrees to indemnify the Bank and to -------------- hold the Bank harmless from any loss or expense including, but not limited to, any such loss or expense arising from interest or fees payable by the Bank to lenders of funds obtained by it in order to maintain its CD Rate Loans or LIBO Rate Loans hereunder, which the Bank may sustain or incur as a consequence of (i) default by the Borrower in payment of the principal amount of or interest on the CD Rate Loans or LIBO Rate Loans of the Bank, (ii) default by the Borrower in making a conversion or continuation after the Borrower has given a notice 16 thereof, (iii) default by the Borrower in making any payment after the Borrower has given a notice of payment or (iv) the Borrower making any payment of a CD Rate Loan or a LIBO Rate Loan on a day other than the last day of the Interest Period for such Loan. For purposes of this Section and Section 3.10, it shall be assumed that the Bank had funded or would have funded 100%, as the case may be, of each CD Rate Loan by the acceptance of a non-personal time deposit for a corresponding amount and term or of each LIBO Rate Loans in the London interbank market for a corresponding amount and term. In the event of a payment set forth in (iv) above, the amount payable to the Bank shall be reduced by an amount equal to a reinvestment interest rate one sixteenth of one percent (.0625%) less than the rate of interest generally available to the Bank at the time of the payment for a period of time approximately equal to the period remaining on the then applicable Interest Period and for an amount approximately equal to the amount of the payment. The determination of such amount by the Bank shall be presumed correct in the absence of manifest error. This covenant shall survive termination of this Agreement and payment of the outstanding Notes. SECTION 3.08. Funding Sources. Nothing in this Agreement shall be --------------- deemed to obligate the Bank to obtain the funds for any Loan in any particular place or manner or to constitute a representation by the Bank that it has obtained or will obtain the funds for any Loan in any particular place or manner. SECTION 3.09. Inability to Determine Interest Rate. In the event ------------------------------------ that the Bank shall have determined (which determination shall be conclusive and binding upon the Borrower) that by reason of circumstances affecting the domestic certificate of deposit market or the interbank LIBOR market, as the case may be, adequate and reasonable means do not exist for ascertaining the CD Rate or the LIBO Rate applicable pursuant to Section 2.03 for any Interest Period with respect to a CD Rate Loan or LIBO Rate Loan that will result from a requested CD Rate Loan or LIBO Rate Loan or that such rate of interest does not adequately cover the cost of funding such Loan, the Bank shall forthwith give notice of such determination to the Borrower not later than 1:00 P.M., Los Angeles time, on the requested Borrowing date, the requested conversion date or the last day of an Interest Period of a Loan which was to have been continued as a CD Rate Loan or LIBO Rate Loan. If such notice is given and has not been withdrawn (i) any requested CD Rate Loan or LIBO 17 Rate Loan, as the case may be, shall be made as a Prime Rate Loan, or, at the Borrower's option, such Loan shall not be made, (ii) any Loan that was to have been converted to a CD Rate Loan or a LIBO Rate Loan, as the case may be, shall be continued as, or converted into, a Prime Rate Loan and (iii) any outstanding CD Rate Loan or LIBO Rate Loan, as the case may be, shall be converted, on the last day of the then current interest Period with respect thereto, to a Prime Rate Loan. Until such notice has been withdrawn by the Bank, no further CD Rate Loans or LIBO Rate Loans, as the case may be, shall be made and the Borrower shall not have the right to convert a Loan to a CD Rate Loan or a LIBO Rate Loan. The Bank will review the circumstances affecting the domestic certificate of deposit market and the interbank LIBO market from time to time and the Bank will withdraw such notice at such time as it shall determine that the circumstances giving rise to said notice no longer exist. SECTION 3.10. Requirements of Law. In the event that any law, ------------------- regulation or directive or any change therein or in the interpretation or application thereof or compliance by the Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority, agency or instrumentality: (a) does or shall subject the Bank to any tax of any kind whatsoever with respect to this Agreement, any Note or any Loan made hereunder, or change the basis of taxation of payments to the Bank of principal, commitment fee, interest or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of the Bank); (b) does or shall impose, modify or hold applicable any reserve, assessment rate, special deposit, compulsory loan or other requirement (collectively in this Section 3.10 "Require ments") against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, or other credit extended by, or any other acquisition of funds by, any office of the Bank which Requirements are not otherwise included in the determination of any CD Rate or LIBO Rate at the last Borrowing, conversion or continuation date of a Loan; (c) does or shall impose, modify or hold applicable any of the Requirements against Commitments to extend credit; 18 (d) does or shall impose on the Bank any other condition; and the result of any of the foregoing is to increase the cost to the Bank of making, renewing or maintaining its Revolving Commitment, CD Rate Loans or the LIBO Rate Loans or to reduce any amount receivable thereunder (which increase or reduction shall be determined by the Bank's reasonable allocation of the aggregate of such cost increases or reduced amounts receivable resulting from such events), then, in any such case, the Borrower shall pay to the Bank, within three Business Days of its demand, any additional amounts necessary to compensate the Bank for such additional cost or reduced amount receivable as determined by the Bank with respect to this Agreement. If the Bank becomes entitled to claim any additional amounts pursuant to this subsection, it shall notify the Borrower of the event by reason of which it has become so entitled. A statement incorporating the calculation as to any additional amounts payable pursuant to the foregoing sentence submitted by the Bank to the Borrower shall be conclusive in the absence of manifest error. SECTION 3.11. Illegality. Notwithstanding any other provisions ---------- herein, if any law, regulation, treaty or directive or any change therein or in the interpretation or application thereof, shall make it unlawful, impossible or impracticable for the Bank to make or maintain LIBO Rate Loans as contemplated by this Agreement, (a) the commitment of the Bank hereunder to make LIBO Rate Loans or convert Prime Rate Loans or CD Rate Loans to LIBO Rate Loans shall forthwith be cancelled and (b) the Bank's Loans then outstanding as LIBO Rate Loans, if any, shall be converted automatically to Prime Rate Loans on the next succeeding Interest Payment Date or within such earlier period as allowed by law. The Borrower hereby agrees to pay the Bank, within three Business Days of its demand, any additional amounts necessary to compensate the Bank for any costs incurred by the Bank in making any conversion in accordance with this Section, including, but not limited to, any interest or fees payable by the Bank to lenders of funds obtained by it in order to make or maintain its LIBO Rate Loans hereunder (the Bank's notice of such costs, as certified to the Borrower to be conclusive absent manifest error). ARTICLE IV 19 CONDITIONS OF LENDING SECTION 4.01. Conditions Precedent to Initial Loans. The obligation ------------------------------------- of the Bank to make its initial Loan is subject to the conditions precedent that: (a) The Bank shall have received on or before the day of the initial Borrowing the following, each dated such day (except for the document referred to in clause (ii)), in form and substance satisfactory to the Bank: (i) The Note(s) issued by the Borrower to the order of the Bank; (ii) Copies of the Articles, Certificate of Incorporation, partnership agreement or other organizational document of the Borrower, certified as of a recent date by the Secretary of State of its state of formation or incorporation; (iii) Copies of the Bylaws, if any, of the Borrower, certified by the Secretary or an Assistant Secretary of the Borrower; (iv) Copies of resolutions of the Board of Directors or other authorizing documents of the Borrower, in form and substance satisfactory to the Bank, approving the Loan Documents and the Borrowings hereunder; (v) An incumbency certificate executed by the Secretary or an Assistant Secretary of the Borrower or equivalent document, certifying the names and signatures of the officers of the Borrower or other Persons authorized to sign the Loan Documents and the other documents to be delivered hereunder; (vi) Executed copies of all Loan Documents; (vii) A favorable opinion of counsel to the Borrower, in the form of Exhibit C hereto, and as to such other matters as the Bank may reasonably request; (viii) Executed copies of the Assignment of Lease together with: (w) all appropriate resolutions, incumbency certificates and other authorizing documents as the Bank may request; (y) evidence satisfactory to the Bank that all other filings, recordings, and other actions the Bank deems necessary 20 or advisable to establish, preserve and perfect the Liens granted to the Bank in real or personal property shall have been made or obtained; and (b) All corporate and legal proceedings and all instruments and documents in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in content, form and substance to the Bank and its counsel, and the Bank and such counsel shall have received any and all further information and documents which the Bank or such counsel may reasonably have requested in connection therewith, such documents where appropriate to be certified by proper corporate or governmental authorities. SECTION 4.02. Conditions Precedent to Each Borrowing. The obligation -------------------------------------- of the Bank to make a Loan on the occasion of each Borrowing (including the initial Borrowing) shall be subject to the further conditions precedent that on the date of such Borrowing (a) the following statements shall be true and the Bank shall have received the notice required by Section 2.01(b), which notice shall be deemed to be a certification by the Borrower that: (i) The representations and warranties contained in Section 5.01 are correct on and as of the date of such Borrowing as though made on and as of such date, (ii) No event has occurred and is continuing, or would result from such Borrowing, which constitutes an Event of Default or Potential Event of Default, and (iii) All Loan Documents are in full force and effect, and (b) the Bank shall have received such other approvals, opinions or documents as the Bank may reasonably request. ARTICLE V REPRESENTATIONS AND WARRANTIES SECTION 5.01. Representations and Warranties. The Borrower ------------------------------ represents and warrants as follows: 21 (a) Organization. The Borrower is duly organized, validly existing ------------ and in good standing under the laws of the state of its formation. The Borrower is also duly authorized, qualified and licensed in all applicable jurisdictions, and under all applicable laws, regulations, ordinances or orders of public authorities, to carry on its business in the locations and in the manner presently conducted, except where the failure to so qualify or be licensed will not result in a material adverse effect on Borrower's financial condition. (b) Authorization. The execution, delivery and performance by the ------------- Borrower of the Loan Documents, and the making of Borrowings hereunder, are within the Borrower's corporate or partnership powers, as the case may be, have been duly authorized by all necessary corporate or partnership action, as the case may be, and do not contravene (i) the Borrower's charter, by-laws or other organizational document or (ii) any law or regulation (including Regulations G, T, U and X) or any contractual restriction binding on or affecting the Borrower. (c) Governmental Consents. No authorization or approval or other --------------------- action by, and no notice to or filing with, any governmental authority or regulatory body (except filings required under the Loan Documents to perfect security interests granted to the Bank and routine reports required pursuant to the Securities Exchange Act of 1934, as amended, which reports will be made in the ordinary course of business) is required for the due execution, delivery and performance by the Borrower of the Loan Documents. (d) Validity. The Loan Documents are the binding obligations of the -------- Borrower or other executing Person, if any, enforceable in accordance with their respective terms; except in each case as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors' rights. (e) Financial Condition. The balance sheets of the Borrower and its ------------------- consolidated Subsidiaries as at December 31, 1993, and for the nine (9) months ended September 30, 1994, and the related statements of operations and cash flows of the Borrower and its consolidated Subsidiaries for the fiscal year and fiscal quarter then ended, copies of which have been furnished to the Bank, fairly present the financial condition of 22 the Borrower and its consolidated Subsidiaries as at such dates and the results of the operations of the Borrower and its consolidated Subsidiaries for the respective periods ended on such dates, all in accordance with GAAP, consistently applied, and since September 30, 1994, there has been no material adverse change in the business, operations, properties, assets or condition (financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole. (f) Litigation. Except as set forth on Schedule 5.01(f) hereto, there ---------- is no pending or threatened action or proceeding affecting the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator, which may materially adversely affect the consolidated financial condition or operations of the Borrower or which may have a material adverse effect on the Borrower's ability to perform its obligations under the Loan Documents, having regard for its other financial obligations. (g) Employee Benefit Plans. The Borrower and each of its ERISA ---------------------- Affiliates is in compliance in all material respects with any applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to all Employee Benefit Plans. No Termination Event has occurred or is reasonably expected to occur with respect to any Pension Plan that could result in a material liability to the Borrower. The excess of the actuarial present value of all benefit liabilities under all Pension Plans (excluding in such computation Pension Plans with assets greater than benefit liabilities) over the fair market value of the assets allocable to such benefit liabilities are not greater than five percent (5%) of Consolidated Tangible Net Worth. For purposes of the preceding sentence, the terms "actuarial present value" and "benefit liabilities" shall have the meanings specified in Section 4001 of ERISA. (h) Disclosure. No representation or warranty of the Borrower ---------- contained in this Agreement or any other document, certificate or written statement furnished to the Bank by or on behalf of the Borrower for use in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state a material fact (known to the Borrower in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein not misleading. There is no fact known to the Borrower (other than matters of a general economic nature) which 23 materially adversely affects the business, operations, property, assets or condition (financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole, which has not been disclosed herein or in such other documents, certificates and statements furnished to the Bank for use in connection with the transactions contemplated hereby. (i) Margin Stock. The aggregate value of all margin stock (as defined ------------ in Regulation U) directly or indirectly owned by the Borrower and its Subsidiaries is less than 25% of the aggregate value of the Borrower's assets. (j) Environmental Matters. Except as set forth in Schedule 5.01(j) --------------------- hereto, neither the Borrower nor any Subsidiary, nor any of their respective officers, employees, representatives or agents, nor, to the best of their knowledge, any other person, has treated, stored, processed, discharged, spilled, or otherwise disposed of any substance defined as hazardous or toxic by any applicable federal, state or local law, rule, regulation, order or directive, or any waste or by-product thereof, at any real property or any other facility owned, leased or used by the Borrower or any Subsidiary, in violation of any applicable statutes, regulations, ordinances or directives of any governmental authority or court, which violations may result in liability to the Borrower or any Subsidiary or any of their respective officers, employees, representatives, agents or shareholders in an amount exceeding $100,000 for all such violations; and the unresolved violations set forth in said Schedule will not result in liability to the Borrower or any Subsidiary or any of their respective officers, employees, representatives, agents or shareholders in an amount exceeding $100,000 for all such unresolved violations. Except as set forth in said Schedule, no employee or other person has ever made a claim or demand against the Borrower or any Subsidiary based on alleged damage to health caused by any such hazardous or toxic substance or by any waste or by-product thereof; and the unsatisfied claims or demands against the Borrower or any Subsidiary set forth in said Schedule will not result in uninsured liability to the Borrower or any Subsidiary or any of their respective officers, employees, representatives, agents or shareholders in an amount exceeding $100,000 for all such unsatisfied claims or demands. Except as set forth in said Schedule, neither the Borrower nor any Subsidiary has been charged by any governmental authority with improperly using, handling, storing, discharging or disposing of any such hazardous 24 or toxic substance or waste or by-product thereof or with causing or permitting any pollution of any body of water; and the outstanding charges set forth in said Schedule will not result in liability to the Borrower or any Subsidiary or any of their respective officers, employees, representatives, agents or shareholders in an amount exceeding $100,000 for all such outstanding charges. (k) Employee Matters. There is no strike or work stoppage in ---------------- existence or threatened involving the Borrower or its Subsidiaries that may materially adversely affect the consolidated financial condition or operations of the Borrower or that may have a material adverse effect on the Borrower's ability to perform its obligations under the Loan Documents, having regard for its other financial obligations. ARTICLE VI COVENANTS SECTION 6.01. Affirmative Covenants. So long as any Note shall --------------------- remain unpaid or the Bank shall have any Commitment hereunder, the Borrower will, unless the Bank shall otherwise consent in writing: (a) Financial Information. Furnish, or cause to be furnished, to --------------------- the Bank: (i) as soon as available, but in any event within 120 days after the end of each fiscal year of the Borrower, a copy of the Borrower's consolidated balance sheet of itself and its consolidated Subsidiaries as at the end of each fiscal year and the related consolidated statements of operations (or comparable statement) employed in the business and cash flows for such year, setting forth in each case in comparative form the figures for the previous year, accompanied by an unqualified report and opinion thereon of Kenneth Leventhal & Company, or other independent certified public accountants acceptable to the Bank; (ii) as soon as available, but in any event within 45 days after the end of each fiscal quarter, the Borrower's unaudited consolidated balance sheet of itself and its consolidated Subsidiaries as at the end of such 25 period and the related unaudited consolidated statements of operations (or comparable statement) and cash flows for such period and year to date, setting forth in each case in comparative form the figures as at the end of the previous fiscal year as to the balance sheet and the figures for the previous corresponding period as to the other statements, certified by a duly authorized officer of the Borrower as being fairly stated in all material respects subject to year end adjustments; (iii) as soon as available, but in any event within 120 days after the end of each fiscal year of the Operating Company, a copy of the Operating Company's balance sheet as at the end of each fiscal year and the related statements of operations (or comparable statement) employed in the business and cash flows for such year, setting forth in each case in comparative form the figures for the previous year, accompanied by an unqualified report and opinion thereon of Kenneth Leventhal & Company, or other independent certified public accountants acceptable to the Bank; (iv) as soon as available, but in any event within 45 days after the end of each fiscal quarter, the Operating Company's unaudited balance sheet as at the end of such period and the related unaudited statements of operations (or comparable statement) and cash flows for such period and year to date, setting forth in each case in comparative form the figures as at the end of the previous fiscal year as to the balance sheet and the figures for the previous corresponding period as to the other statements, certified by a duly authorized officer of the Operating Company as being fairly stated in all material respects subject to year end adjustments; (v) together with each delivery of financial statements of the Borrower and its Subsidiaries pursuant to subdivisions (i) and (ii) above, (A) an officers' certificate stating that the signers have reviewed the terms of the Loan Documents and have made, or caused to be made under their supervision, a review in reasonable detail of the transactions and condition of the Borrower and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting 26 period, and that the signers do not have knowledge of the existence as at the date of the officers' certificate, of any condition or event which constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Borrower has taken, is taking and proposes to take with respect thereto; and (B) a Compliance Certificate in the form of Exhibit D hereto demonstrating in reasonable detail compliance during and at the end of such accounting periods with the restrictions contained in Sections 6.02(a), (b), (c), (d), (e) and (f); (vi) as soon as available, copies of all reports which the Borrower sends to any of its security holders, and copies of all reports and registration statements which the Borrower or any Subsidiary files with the S.E.C. or any national securities exchange; (vii) as soon as practicable, and in any event within 45 days after the end of each fiscal quarter, commencing with the quarter ending December 31, 1994, projected consolidated balance sheets and statements of operations (or comparable statements) and cash flows of the Borrower, its Subsidiaries, and for Operating Company, all in form and detail acceptable to the Bank; and all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail acceptable to the Bank and in accordance with GAAP applied consistently throughout the periods reflected therein (except as approved by such accountants and disclosed therein); (b) Notices and Information. Deliver to the Bank: ----------------------- (i) promptly upon any officer of the Borrower obtaining knowledge (a) of any condition or event which constitutes an Event of Default or Potential Event of Default under this Agreement or any of the Loan Documents, or under any other material agreement or indenture entered into by Borrower or Operating Company, (b) that any Person has given any notice to the Borrower or any Subsidiary of the Borrower or taken any other action with respect to a claimed default or event or condition of the type referred to in Section 7.01(e), (c) of the institution of any litigation involving an alleged liability (including 27 possible forfeiture of property) of the Borrower or any of its Subsidiaries equal to or greater than $50,000 or any adverse determination in any litigation involving a potential liability of the Borrower or any of its Subsidiaries equal to or greater than $50,000, or (d) of any matter which has resulted in or might result in a material adverse change in the business, operations, properties, assets or condition (financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole, or Operating Company, an officers' certificate specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such holder or Person and the nature of such claimed default, Event of Default, Potential Event of Default, event or condition, and what action the Borrower or Operating Company has taken, is taking and proposes to take with respect thereto; (ii) promptly upon becoming aware of the occurrence of or forthcoming occurrence of any (a) Termination Event, or (b) non-exempt "prohibited transaction," as such term is defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA, in connection with any Employee Benefit Plan or any trust created thereunder, a written notice specifying the nature thereof, what action the Borrower has taken, is taking or proposes to take with respect thereto, and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor, or the Pension Benefit Guaranty Corporation with respect thereto; (iii) with reasonable promptness copies of (a) all notices received by the Borrower or any of its ERISA Affiliates of the Pension Benefit Guaranty Corporation's intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan; (b) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by the Borrower or any of its ERISA Affiliates with the Internal Revenue Service with respect to each Pension Plan; and (c) all notices received by the Borrower or any of its ERISA Affiliates from a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA; (iv) promptly, and in any event within 30 days after receipt thereof, a copy of any notice, summons, 28 citation, directive, letter or other form of communication from any governmental authority or court in any way concerning any action or omission on the part of the Borrower or any of its Subsidiaries in connection with any substance defined as toxic or hazardous by any applicable federal, state or local law, rule, regulation, order or directive or any waste or by-product thereof, or concerning the filing of a lien upon, against or in connection with the Borrower, its Subsidiaries, or any of their leased or owned real or personal property, in connection with a Hazardous Substance Superfund or a Post-Closure Liability Fund as maintained pursuant to (S)9507 of the Internal Revenue Code; and (v) promptly, and in any event within 10 days after request, such other information and data with respect to the Borrower or any of its Subsidiaries as from time to time may be reasonably requested by the Bank. (c) Corporate Existence, Etc. At all times preserve and keep in full ------------------------- force and effect its and its Subsidiaries' corporate existence and rights and franchises material to its business and those of each of its Subsidiaries; provided, however, that the corporate existence of any such Subsidiary may be terminated if such termination is in the best interest of the Borrower and is not materially disadvantageous to the holder of any Note. (d) Payment of Taxes and Claims. Pay, and cause each of its --------------------------- Subsidiaries to pay, all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or property before any penalty or interest accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided that no such charge or claim need be paid if being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. (e) Maintenance of Properties; Insurance. ------------------------------------ 29 (i) Maintain or cause to be maintained in good repair, working order and condition all material properties used or useful in the business of the Borrower and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof; and (ii) maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and business and the properties and business of its Subsidiaries against loss or damage of the kinds customarily insured against by corporations of established reputation engaged in the same or similar businesses and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations. The Borrower will comply with any other insurance requirement set forth in any other Loan Document. (f) Inspection. Permit any authorized representatives designated by ---------- the Bank to visit and inspect any of the properties of the Borrower or any of its Subsidiaries, including its and their financial and accounting records, and to make copies and take extracts therefrom, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested. (g) Compliance with Laws, Etc., Exercise, and cause each of its --------------------------- Subsidiaries to exercise, all due diligence in order to comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, including, without limitation, all environmental laws, rules, regulations and orders, noncompliance with which would materially adversely affect the business, properties, assets, operations or condition (financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole. SECTION 6.02. Negative Covenants. So long as any Note shall remain ------------------ unpaid or the Bank shall have any Commitment hereunder, the Borrower will not, without the written consent of the Bank: (a) Liquidity. Permit the sum of its cash and marketable securities --------- at any time to be less than $5,000,000. 30 (b) Leverage Ratio. Permit the ratio of Consolidated Liabilities to -------------- Consolidated Tangible Net Worth at any time to be more than 2.15:1.00. (c) Interest Coverage Ratio. As at the end of any fiscal quarter of ----------------------- the Borrower, permit the ratio of (i) the Borrower's earnings before income taxes, plus depreciation and amortization expenses, plus interest expense for the four quarters ending on any date of determination, to (ii) interest expense for such four quarters, to be less than 2:1.00. (d) Consolidated Tangible Net Worth. Permit Consolidated Tangible ------------------------------- Net Worth at any time to be less than $60,000,000. (e) Liens, Etc. Create or suffer to exist, or permit any of its ---------- Subsidiaries to create or suffer to exist, any Lien upon or with respect to any of its properties, whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any right to receive income, in each case to secure any Debt of any Person other than (i) Liens in favor of the Bank; (ii) Liens reflected on the financial statements referred to in Section 5.01(e) hereof and other Liens existing on the date hereof and set forth in Schedule 6.02(e) hereto; and (iii) purchase money Liens upon or in any property acquired or held by the Borrower or any Subsidiary in the ordinary course of business to secure the purchase price of such property or to secure indebtedness incurred solely for the purpose of financing the acquisition of such property. (f) Debt. Create or suffer to exist, or permit any of its ---- Subsidiaries to create or suffer to exist, any Debt, other than (i) Debt reflected on the Borrower's financial statements referred to in Section 5.01(e) hereof and other Debt existing on the date hereof and set forth on Schedule 6.02(f) hereto; (ii) Debt owed to the Bank; (iii) Debt relating to liens permitted under Section 6.02(e)(iii); and (iv) Debt of a Subsidiary to another Subsidiary or to the Borrower incurred in the ordinary course of business. (g) Lease Obligations. Create or suffer to exist, or permit any of ----------------- its Subsidiaries to create or suffer to exist, any obligations for the payment of rental for any property under leases or agreements to lease (other than Capital Leases) which would cause the direct or contingent liabilities of the Borrower 31 and its Subsidiaries, on a consolidated basis, in respect of all such obligations to exceed $500,000 payable in any fiscal year of the Borrower. (h) Dividends, Etc. Declare or pay any dividends, purchase or -------------- otherwise acquire for value its capital stock now or hereafter outstanding, or make an distribution of assets to its stockholders as such, or permit any of its Subsidiaries to purchase or otherwise acquire for value any stock of the Borrower, except that the Borrower may (i) declare and deliver dividends and distributions payable in capital stock of the Borrower, and (ii) declare or pay cash dividends to its stockholders in an aggregate amount not to exceed, in any twelve (12) month period commencing on or after July 1, 1994, the lesser of: (i) the amount determined by multiplying $0.80 per share times the number of all of Borrower's outstanding shares, or (ii) $9,200,000. (i) Consolidation, Merger. Consolidate with or merge into any other --------------------- corporation or entity except that any corporation or entity may consolidate with or merge into the Borrower, provided that the Borrower shall be the surviving entity of such merger or consolidation, and provided further, that immediately after the consummation or such consolidation or merger there shall exist no condition or event which constitutes an Event of Default or a Potential Event of Default. (j) Loans, Investments, Secondary Liabilities. Make or permit to ----------------------------------------- remain outstanding, or permit any Subsidiary to make or permit to remain outstanding, any loan or advance to, or guarantee, induce or otherwise become contingently liable, directly or indirectly, in connection with the obligations, stock or dividends of, or own, purchase or acquire any stock, obligations, securities or assets of or any other interest in, or make any capital contribution to, any other Person, except that the Borrower and its Subsidiaries may: (i) own, purchase or acquire certificates of deposit issued by the Bank, commercial paper rated Moody's P-1, municipal bonds rated Moody's AA or better, direct obligations of the United States of America or its agencies, and obligations guaranteed by the United States of America; (ii) acquire and own stock, obligations or securities received from customers in connection with debts 32 created in the ordinary course of business owing to the Borrower or a Subsidiary; (iii) continue to own the existing capital stock of the Borrower's Subsidiaries and partnership and joint venture interests owned on the date hereof; (iv) endorse negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (v) allow the Borrower's Subsidiaries to make or permit to remain outstanding advances from the Borrower's Subsidiaries to the Borrower; (vi) permit to remain outstanding guarantees reflected on Borrower's financial statements referred to in Section 5.01(g) hereof; and (vii) loan or advance to, or guarantee obligations of, or purchase or acquire stock, partnership or joint venture interests, or assets of any Person (and permit to remain outstanding thereafter), so long as the total amount of such loan, advance or guarantee, or total amount of consideration paid or to be paid for such stock, partnership or joint venture interests, or assets does not exceed fifteen percent (15%) of Borrower's tangible net worth, at the time of such purchase, acquisition, loan, advance or guarantee. (k) Asset Sales. Convey, sell, lease, transfer or otherwise dispose ----------- of, or permit any Subsidiary to convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its or its Subsidiary's business, property or fixed assets outside the ordinary course of business, whether now owned or hereafter acquired, except that the Borrower and its Subsidiaries may convey, sell, lease, transfer or otherwise dispose of business, property or fixed assets for consideration which in the aggregate does not exceed $1,000,000 per year; and (ii) shares of the common stock of Pacific Gulf Properties, Inc. ("PGPI") as now owned or as may be hereafter acquired by Borrower pursuant to the provisions of that certain Purchase and Sale Agreement dated November 15, 1993, by and between Borrower and PGPI. 33 (l) Hostile Tender Offers. Make any offer to purchase or acquire, or --------------------- consummate a purchase or acquisition of, 5% or more of the capital stock of any publicly held corporation or other publicly held business entity unless the ------ board of directors of such corporation or business entity has notified the Borrower that it invites or does not oppose such offer or purchase. (m) Margin Stock. Utilize any part of the proceeds of any Loans to ------------ purchase or carry any margin stock (as defined in Regulation U) or to extend credit to others for the purpose of purchasing margin stock. (n) Management. Cause, suffer or permit Stephen Keller to cease ---------- serving as its Chairman, Sherwood Chillingworth to cease serving as its Chief Executive Officer, Christopher Stirling to cease serving as its President, or Brian L. Fleming to cease serving as its Chief Financial Officer. ARTICLE VII EVENTS OF DEFAULT SECTION 7.01. Events of Default. If any of the following events ----------------- ("Events of Default") shall occur and be continuing: (a) The Borrower shall fail to pay any installment of the principal when due, or shall fail to pay any installment of interest or other amount payable hereunder within three (3) Business Days of the date when due; or (b) Any representation or warranty made by the Borrower herein or by the Borrower (or any of its officers) in connection with the Loan Documents shall prove to have been incorrect in any material respect when made; or (c) The Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 6.01(b), (c), (d), (e)(ii), (g) or 6.02 hereof on its part to be performed or observed; or (d) The Borrower shall fail to perform or observe any term, covenant or agreement contained in this Agreement other 34 than those referred to in Subsections 7.01(a), (b) and (c) above on its part to be performed or observed and any such failure shall remain unremedied for thirty (30) days after the Borrower knows of such failure; or (e) The Borrower or any of its Subsidiaries shall default in the performance of or compliance with any term contained in any Loan Document other than this Agreement and such default shall not have been remedied or waived within any applicable grace period; or (f) The Borrower or any of its Subsidiaries shall (A) fail to pay any principal of, or premium or interest on, any Debt, the aggregate outstanding principal amount of which is at least $50,000 (excluding Debt evidenced by the Notes), when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt, or (B) fail to perform or observe any term, covenant or condition on its part to be performed or observed under any agreement or instrument relating to any such Debt, when required to be performed or observed, and such failure shall continue after the applicable grace period, if any, specified in such agreement or instrument; or (g) (i) The Borrower, any of its Subsidiaries or Operating Company shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Borrower, any of its Subsidiaries or Operating Company shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower, any of its Subsidiaries or Operating Company any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of sixty (60) days; or 35 (iii) there shall be commenced against the Borrower, any of its Subsidiaries or Operating Company any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry thereof; or (iv) the Borrower, any of its Subsidiaries or Operating Company shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii) and (iii) above; or (v) the Borrower, any of its Subsidiaries or Operating Company shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (h) One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance) equal to or greater than $100,000 and all such judgments or decrees shall not have been vacated, discharged, or stayed or bonded pending appeal within thirty (30) days from the entry thereof; or (i) Any guaranty, if any, for any reason other than satisfaction in full of all obligations of the Borrower under the Loan Documents, ceases to be in full force and effect or is declared null and void, or any guarantor denies that it has any further liability under such guaranty or gives notice to such effect; or (j) (i) The Borrower or any of its ERISA Affiliates fails to make full payment when due of all amounts which, under the provisions of any Pension Plan or Section 412 of the Internal Revenue Code, the Borrower or any of its ERISA Affiliates is required to pay as contributions thereto; (ii) any accumulated funding deficiency occurs or exists, whether or not waived, with respect to any Pension Plan; (iii) the excess of the actuarial present value of all benefit liabilities under all Pension Plans over the fair market value of the assets of such Pension Plans (excluding in such computation Pension Plans with assets greater than benefit liabilities) allocable to such benefit liabilities are greater than five percent (5%) of Consolidated Tangible Net Worth; 36 (iv) the Borrower or any of its ERISA Affiliates enters into any transaction which has as its principal purpose the evasion of liability under Subtitle D of Title IV of ERISA; (v) (A) Any Pension Plan maintained by the Borrower or any of its ERISA Affiliates shall be terminated within the meaning of Title IV of ERISA, or (B) a trustee shall be appointed by an appropriate United States district court to administer any Pension Plan, or (C) the Pension Benefit Guaranty Corporation (or any successor thereto) shall institute proceedings to terminate any Pension Plan or to appoint a trustee to administer any Pension Plan, or (D) the Borrower or any of its ERISA Affiliates shall withdraw (under Section 4063 of ERISA) from a Pension Plan, if as of the date of the event listed in subclauses (A)-(D) above or any subsequent date, either the Borrower or its ERISA Affiliates has any liability in excess of $100,000 (such liability to include, without limitation, any liability to the Pension Benefit Guaranty Corporation, or any successor thereto, or to any other party under Sections 4062, 4063 or 4064 of ERISA or any other provision of law) resulting from or otherwise associated with the events listed in subclauses (A)-(D) above; (vi) As used in this subsection 7.01(j) the term "accumulated funding deficiency" has the meaning specified in Section 412 of the Internal Revenue Code, and the terms "actuarial present value" and "benefit liabilities" have the meanings specified in Section 4001 of ERISA; or (k) There shall be instituted against the Borrower or any Subsidiary, or against any guarantor, any proceeding for which forfeiture of any property is a potential penalty; (l) Borrower fails to perform or observe any of the covenants, terms, provisions, conditions, agreements or obligations under any other agreements, indenture, document, note or other instrument (including, but not limited to the generality of the foregoing, other indebtedness owing to Bank) executed by Borrower, and such failure has a material adverse effect on the business or condition (financial or otherwise) of Borrower; (m) Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency institutes any proceeding for which forfeiture of any property, (the aggregate fair market value of which, at the time any such 37 proceedings are instituted, is in excess of $1,000,000), is a potential penalty, or assumes custody or control of the whole or any substantial position of the properties or assets of Borrower or Operating Company and is not dismissed within 30 days thereafter; (n) Any money judgment, writ or warrant of attachment, or similar process is entered or filed against Borrower or any of its properties or other similar assets and is not vacated, bonded, or stayed within the earlier of (a) a period of 15 days or (b) before 5 days prior to the date of any proposed sale thereunder; (o) Borrower voluntarily suspends the transaction of business for more than 15 consecutive days in any 12 month period after the effective date of this Agreement; (p) The Los Angeles Turf Club, Incorporated, a California corporation: (i) fails to make payments as required under the Lease when due (including any periods of grace) or (ii) declares such Lease invalid; (q) Borrower terminates, modifies or in any other manner amends the Lease without the prior express written consent of Bank; or (r) This Agreement, at any time while any amounts payable hereunder remains unpaid, ceases to be in full force and effect, or is declared null and void, or the validity or enforceability thereof is contested or any party thereto denies that it has any or further liability or obligation under the Loan Documents. Then, (i) upon the occurrence of any Event of Default described in clause (g) above, the Commitment shall immediately terminate and all Loans hereunder with accrued interest thereon, and all other amounts owing under the Loan Documents shall automatically become due and payable, and (ii) upon the occurrence of any other Event of Default, the Bank may, by notice to the Borrower, declare the Commitment to be terminated forthwith, whereupon the Commitment shall immediately terminate; and, by notice to the Borrower, declare the Loans hereunder, with accrued interest thereon, and all other amounts owing under the Loan Documents to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as 38 expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. Notwithstanding any other provision of this Agreement, including Section 8.02, notices to the Borrower under this Section may be communicated orally (including by telephone) or in writing (including telex or facsimile transmissions). ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc. No amendment or waiver of any --------------- provision of the Loan Documents nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 8.02. Notices, Etc. Except as otherwise set forth in this ------------ Agreement, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex or facsimile communication) and mailed or telegraphed or telexed or sent by facsimile or delivered, if to the Borrower, at its address set forth on the signature page hereof; and if to the Bank, at its address set forth on the signature page hereof; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall be effective when deposited in the mails, delivered to the telegraph company, sent by telex or sent by facsimile, respectively, except that notices and communications to the Bank pursuant to Article II or VII shall not be effective until received by the Bank. SECTION 8.03. Right of Setoff; Deposit Accounts. Upon and after the --------------------------------- occurrence of any Event of Default, the Bank is hereby authorized by the Borrower, at any time and from time to time, without notice, (a) to set off against, and to appropriate and apply to the payment of, the obligations and liabilities of the Borrower under the Loan Documents (whether matured or unmatured, fixed or contingent or liquidated or unliquidated) any and all amounts owing by the Bank to the Borrower (whether 39 payable in Dollars or any other currency, whether matured or unmatured, and, in the case of deposits, whether general or special, time or demand and however evidenced) and (b) pending any such action, to the extent necessary, to hold such amounts as collateral to secure such obligations and liabilities and to return as unpaid for insufficient funds any and all checks and other items drawn against any deposits so held as the Bank in its sole discretion may elect. The Borrower hereby grants to the Bank a security interest in all deposits and accounts maintained with the Bank and with any other financial institution. The Bank is authorized to debit any account maintained with it by the Borrower for any amount of principal, interest or fees which are then due and owing to the Bank. SECTION 8.04. No Waiver; Remedies. No failure on the part of the ------------------- Bank to exercise, and no delay in exercising, any right under any of the Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right under any of the Loan Documents preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.05. Costs and Expenses. The Borrower agrees to pay on ------------------ demand all costs and expenses of the Bank (including attorney's fees and the reasonable estimate of the allocated cost of in-house counsel and staff) in connection with the preparation, amendment, modification, enforcement (including, without limitation, in appellate, bankruptcy, insolvency, liquidation, reorganization, moratorium or other similar proceedings) or restructuring of the Loan Documents. SECTION 8.06. Participations. The Bank may sell, assign, transfer, -------------- negotiate or grant participations to other financial institutions in all or part of the obligations of the Borrower outstanding under the Loan Documents, provided that any such sale, assignment, transfer, negotiation or participation shall be in compliance with the applicable federal and state securities laws; and provided further that any assignee or transferee agrees to be bound by the terms and conditions of this Agreement. The Bank may, in connection with any actual or proposed assignment or participation, disclose to the actual or proposed assignee or participant, any information relating to the Borrower or any of its Subsidiaries. 40 SECTION 8.07. Effectiveness; Binding Effect; Governing Law. This ------------------------------- ------------- Agreement shall become effective when it shall have been executed by the Borrower and the Bank and thereafter shall be binding upon and inure to the benefit of the Borrower, the Bank and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Bank. THIS AGREEMENT AND THE NOTE(S) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW DOCTRINE. SECTION 8.08. Consent to Jurisdiction; Venue. Agent for Service of ------------------------------ ----- -------------- Process. All judicial proceedings brought against the Borrower with respect to - - ------- this Agreement and the Loan Documents may be brought in any state or federal court of competent jurisdiction in the County of Los Angeles in the State of California, and by execution and delivery of this Agreement, the Borrower accepts for itself and in connection with its properties, generally and unconditionally, the nonexclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. The Borrower irrevocably waives any right it may have to assert the doctrine of forum non conveniens or to object to venue to the extent ----- -------------- any proceeding is brought in accordance with this Section. A copy of any such process so served shall be mailed by registered mail to the Borrower at its address provided in the applicable signature page hereto, except that unless otherwise provided by applicable law, any failure to mail such copy shall not affect the validity of service of process. If any agent appointed by the Borrower refuses to accept service, the Borrower hereby agrees that service upon it by mail shall constitute sufficient notice. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of the Bank to bring proceedings against the Borrower in courts of any jurisdiction. SECTION 8.09. Entire Agreement. This Agreement with Exhibits and ---------------- Schedules and the other Loan Documents embody the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. SECTION 8.10. Separability of Provisions. In case any one or more of -------------------------- the provisions contained in this Agreement should 41 be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. SECTION 8.11. Execution in Counterparts. This Agreement may be ------------------------- executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 8.12. Bank Representation. The Bank will make each loan ------------------- hereunder for its own account in the ordinary course of its business; provided that the disposition of any Note(s) shall at all times be within the Bank's exclusive control subject to Section 8.06 hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. FIRST INTERSTATE BANK Attention: Jutta Graham OF CALIFORNIA By: ________________________ Title: _____________________ By: ________________________ Title: _____________________ Address: - - ------- 1000 East Garvey Avenue, South Suite 360 West Covina, CA 91790 Attention: Jutta Graham 42 SANTA ANITA REALTY ENTERPRISES, INC. By: ________________________ Title: _____________________ Address: - - ------- 301 West Huntington Drive Suite 405 Arcadia, CA 91066 Attention: Chief Financial Officer 43 LIST OF EXHIBITS ---------------- Exhibit A -- Promissory Note Exhibit B -- Assignment of Leases Exhibit C -- Opinion of Borrowers Counsel Exhibit D -- Compliance Certificate LIST OF SCHEDULES ----------------- 5.01(j) -- Environmental Matters 6.02(e) -- Liens, Etc. 6.02(f) -- Debt 44 EX-27.A 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SANTA ANITA REALTY ENTERPRISES, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000314661 SANTA ANITA REALTY ENTERPRISES, INC. 9-MOS DEC-31-1994 SEP-30-1994 $13,235,000 0 $3,141,000 0 0 0 $194,374,000 ($56,015,000) $192,305,000 0 $83,095,000 $1,125,000 0 0 $66,922,000 $192,305,000 0 $31,349,000 0 $6,904,000 $9,782,000 0 $7,105,000 $7,558,000 0 $7,558,000 0 0 0 $7,558,000 $0.67 0
EX-27.B 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SANTA ANITA OPERATING COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000313749 SANTA ANITA OPERATING COMPANY 9-MOS DEC-31-1994 SEP-30-1994 $81,000 $5,470,000 $1,084,000 0 $367,000 $7,224,000 $44,480,000 ($23,307,000) $30,519,000 $11,515,000 $2,716,000 $1,114,000 0 0 $10,271,000 $30,519,000 0 $55,359,000 0 $47,824,000 $8,092,000 0 $338,000 ($895,000) 0 ($895,000) 0 0 0 ($895,000) ($0.08) 0
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