-----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, nNtHCqq6QXZbO4RqfI1HJmE6nzoaN/ZHgb4BFrQJMextbpthHUcUJlsxGsl0BPD1 L8GFxVGPYpZ7I4UWJaBPYg== 0000898430-94-000243.txt : 19940404 0000898430-94-000243.hdr.sgml : 19940404 ACCESSION NUMBER: 0000898430-94-000243 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 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-K SEC ACT: 34 SEC FILE NUMBER: 001-08132 FILM NUMBER: 94519704 BUSINESS ADDRESS: STREET 1: 285 W HUNTINGTON DR STREET 2: PO BOX 808 CITY: ARCADIA STATE: CA ZIP: 91066-0808 BUSINESS PHONE: 8185747223 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-K SEC ACT: 34 SEC FILE NUMBER: 000-09109 FILM NUMBER: 94519705 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 10-K 1 FORM 10-K DECEMBER 31, 1993 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1993 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) 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 (Exact name of registrant as specified in its charter) as specified in its charter) DELAWARE DELAWARE - ---------------------------------------- -------------------------------------- (State or other jurisdiction (State or other jurisdiction of incorporation or organization) of incorporation or organization) 95-3520818 95-3419438 - ---------------------------------------- -------------------------------------- (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) 285 West Huntington Drive, 363 San Miguel Drive, Suite 100 P.O. Box 60014 Newport Beach, California 92660-7803 Arcadia, California 91066-6014 - ---------------------------------------- -------------------------------------- (Address of principal executive (Address of principal executive offices including ZIP code) offices including ZIP code) (714) 721-2700 (818) 574-7223 - ---------------------------------------- -------------------------------------- (Registrant's telephone number, (Registrant's telephone number, including area code) including area code) Securities registered pursuant to Section 12(b) of the Act: Santa Anita Realty Enterprises, Inc. Santa Anita Operating Company Common Stock $.10 par value Common Stock $.10 par value - ---------------------------------------- -------------------------------------- (Title of class) (Title of class) New York Stock Exchange New York Stock Exchange - ---------------------------------------- -------------------------------------- (Name of each exchange (Name of each exchange on which registered) on which registered) Santa Anita Realty Enterprises, Inc. Preferred Stock Purchase Rights - ---------------------------------------- (Title of class) New York Stock Exchange - ---------------------------------------- (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None None - ---------------------------------------- -------------------------------------- (Title of each class) (Title of each class) 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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the paired voting stock of Santa Anita Realty Enterprises, Inc. and of Santa Anita Operating Company held by nonaffiliates on March 8, 1994 was $186,886,000. Indicate the number of shares outstanding of each of the Issuer's classes of common stock, as of the close of business on March 8, 1994: Santa Anita Realty Enterprises, Inc. Common Stock 11,256,353 Santa Anita Operating Company Common Stock 11,140,853 DOCUMENTS INCORPORATED BY REFERENCE The following document is incorporated by reference in Part III of this Joint Annual Report on Form 10-K: Joint proxy statement for the annual meetings of shareholders of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company to be held on May 3, 1994. TABLE OF CONTENTS -----------------
Page ---- PART I 3 Item 1. Business 3 Introduction 3 Realty 3 Pacific Gulf Properties Inc. 3 Summary Financial Information 5 Real Estate Investments and Policies 6 Santa Anita Racetrack 7 Regional Malls 8 Santa Anita Fashion Park 8 Towson Town Center 9 Shopping Centers 10 Office Buildings 10 Land 10 Apartments 10 Industrial 11 Management of Properties 11 Competitive and Other Conditions 12 Employees 12 Seasonal Variations in Business 13 Operating Company 14 Santa Anita Racetrack 14 Pari-Mutuel Wagering 18 On-Track Wagering 18 Satellite Wagering - California 19 Satellite Wagering - Interstate 19 Simulcasting 19 Canterbury Downs 19 Competitive and Other Conditions 20 Dependence on Limited Number of Customers 20 Employee and Labor Relations 20 Seasonal Variations in Business 21 Income Tax Matters 22 Item 2. Properties 27 Item 3. Legal Proceedings 28 Item 4. Submission of Matters to a Vote of Security Holders 28 Item 4a. Executive Officers of Realty and Operating Company 28 PART II 29 Item 5. Market for the Registrants' Common Equity and Related Shareholder Matters 29 Item 6. Selected Financial Data 30 Item 7. Managements' Discussion and Analysis of Financial Condition and Results of Operations 34 Item 8. Financial Statements and Supplementary Data 39 Item 9. Disagreements on Accounting and Financial Disclosure 39 PART III 40 PART IV 40 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 40 SIGNATURES 41 INDEX TO FINANCIAL STATEMENTS 43 INDEX TO FINANCIAL STATEMENT SCHEDULES 44 EXHIBIT INDEX 109
2 SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES PART I ITEM 1. BUSINESS - ----------------- INTRODUCTION Santa Anita Realty Enterprises, Inc. ("Realty") and Santa Anita Operating Company ("Operating Company") are two separate companies, the stocks of which trade as a single unit under a stock-pairing arrangement on the New York Stock Exchange. Realty and Operating Company were each incorporated in 1979 and are the successors of a corporation originally organized in 1934 to conduct thoroughbred horse racing in Southern California. As used herein, the terms "Realty" and "Operating Company" include wholly owned subsidiaries of Realty and Operating Company, respectively, unless the context requires otherwise. This document constitutes the annual report on Form 10-K for both Realty and Operating Company. REALTY Realty is incorporated under the laws of the State of Delaware. Realty's principal executive offices are located at 363 San Miguel Drive, Suite 100, Newport Beach, California 92660-7805. Realty operates as a real estate investment trust ("REIT") under the provisions of the Internal Revenue Code of 1986 (the "Code"). As such, Realty is principally engaged in investing in and holding real property, including Santa Anita Racetrack, 622,000 square feet of industrial space, the real estate underlying the Santa Anita Fashion Park shopping center ("Fashion Park"), a 50 percent interest in the operation of Fashion Park and a 32.5 percent interest in Towson Town Center (major regional shopping centers), and a number of neighborhood shopping centers and office buildings. Until February 18, 1994, Realty also owned 2,654 apartment units and an additional 185,000 square feet of industrial space. Realty is a self-administered equity REIT. PACIFIC GULF PROPERTIES INC. In June 1993, Realty's Board of Directors approved management's recommendation to recapitalize certain assets of Realty. Pursuant to this recapitalization, 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. The transaction was structured into two parts: (1) Realty would sell all of its apartments and industrial properties to Pacific with the exception of Realty's interest in the Baldwin Industrial Park joint venture; and (2) Pacific would enter into a binding agreement to buy Realty's interest in Baldwin Industrial Park. 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. The sale of the Transferred Properties followed the public offerings of common stock and convertible subordinated debentures by Pacific. Pursuant to the Purchase and Sale Agreement, Pacific agreed to buy Realty's interest in Baldwin Industrial Park subject to satisfaction of certain conditions, for a minimum price of $8.9 million payable in additional shares of Pacific common stock, with the final price dependent upon completion of negotiations with other owners of Baldwin Industrial Park and an appraisal process. Management believes the sale of Realty's interest in Baldwin Industrial Park will be completed in the second half of 1994. Pacific is required to issue to Realty non-refundable letters of credit totaling up to $2.5 million by March 31, 1994 to secure its obligation to 3 ITEM 1. BUSINESS (CONTINUED) - ---------------- acquire Realty's interest in Baldwin Industrial Park and pay for the corporate headquarters building and other assets related to the Transferred Properties. In consideration of the sale of the Transferred Properties, Realty received approximately $44.4 million in cash and 149,900 shares of the common stock of Pacific. In addition, Realty was relieved of approximately $44.3 million of mortgage debt on the Transferred Properties. Realty will also receive, at the time the acquisition of Baldwin Industrial Park is completed, up to $1.2 million in additional common stock of Pacific as consideration for its corporate headquarters and other net assets related to the Transferred Properties. The two parts of the above transaction will result in a loss of $10,974,000. This loss has been reflected in the Realty and Realty and Operating Company combined statements of operations for the year ended December 31, 1993. If the Baldwin Industrial Park portion of the transaction described above does not occur, an additional loss of approximately $5,900,000 will be recognized by Realty in 1994. (See "Notes to Financial Statements - Note 2 - Disposition of Multifamily and Industrial Properties Subsequent to Year End.") In connection with the sale, the executive officers, various managers and most other employees of Realty resigned and became officers and employees of Pacific on February 18, 1994. Realty and Pacific have also entered into a one-year management agreement whereby Pacific has agreed to provide management services to Realty. Finally, with respect to the common stock of Pacific owned by Realty, Pacific has entered into a registration rights agreement with Realty which, under certain circumstances, allows Realty to require the registration of the Pacific stock it owns. As a result of the February 18, 1994 sale to Pacific, Realty owns approximately 3.6% of Pacific's outstanding common shares. Upon completion of Pacific's acquisition of Baldwin Industrial Park assuming a price per share equal to $18.25 (the public offering price of Pacific's common shares) and the minimum price for Realty's interest in Baldwin Industrial Park and the corporate headquarters building and certain other assets related to the Transferred Properties, Realty will own approximately 14.9% of Pacific's outstanding common shares. The February 18, 1994 sale also accomplished the following objectives: (1) the transaction de-leveraged Realty by paying down its lines of credit by $44.4 million and transferring certain debt in the amount of $44.3 million related to the apartment and industrial properties to Pacific; (2) Realty's existing shareholders' interest in Santa Anita Racetrack and Fashion Park was not diluted; and (3) Realty shareholders will participate in the potential growth of Pacific through Realty's ownership position. 4 Item 1. Business (continued) - ---------------- SUMMARY FINANCIAL INFORMATION The following table sets forth certain unaudited financial information with respect to Realty:
SUMMARY OF FINANCIAL INFORMATION YEAR ENDED DECEMBER 31 (IN THOUSANDS, EXCEPT PER SHARE FIGURES) ----------------------------------------------------- 1993 1992 1991 1990 1989 -------- -------- -------- -------- -------- Revenues $55,578 $50,291 $45,408 $44,101 $41,594 Net income 2,619(a) 10,211 9,699 13,861 14,290 Funds from operations (b) 18,647(c) 19,167 17,273 19,113 20,500 Per share: Net income .23 .91 .86 1.23 1.35 Dividends paid 1.36 1.36 2.08 2.08 2.08 Dividends declared 1.36 1.36 1.90 2.08 2.08 Weighted average shares outstanding 11,256 11,256 11,257 11,224 10,582
- ------------------------- (a) See Item 1. "Business - Realty - Pacific Gulf Properties." (b) Calculated in accordance with the definition of funds from operations as defined by the National Association of Real Estate Investment Trusts ("NAREIT"), except 1993 which excludes $5,734,000 received from the California Franchise Tax Board related to the settlement of certain state tax issues. Net income (computed in accordance with generally accepted accounting principles), excluding gains (losses) from debt restructuring and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated joint ventures were calculated by adding distributions from unconsolidated joint ventures net of equity in the earnings (losses) of the venture and excluding distributions associated with the sale of property by the venture. (c) Pro forma funds from operations for the year ended December 31, 1993, after giving effect to the Pacific transaction, was $16,151,000. 5 ITEM 1. BUSINESS (CONTINUED) - ---------------- REAL ESTATE INVESTMENTS AND POLICIES Realty's portfolio of real estate investments is outlined below. Information with respect to the real estate investments subject to the Pacific transaction are separately listed: SUMMARY OF REAL ESTATE INVESTMENTS AS OF DECEMBER 31, 1993
NET BOOK PERCENT LEASABLE PERCENT VALUE (B) ENCUMBRANCES (C) LEASED AREA (A) OWNERSHIP (IN THOUSANDS) (IN THOUSANDS) -------- ---------- ------------- -------------- ---------------- REALTY RACING FACILITY: Santa Anita Racetrack 100% 312 acres 100.0% $ 6,997 $ - REGIONAL MALLS: California Fashion Park 92 900,000 50.0 42,552 25,314 (d) Land underlying Fashion Park 100 73 acres 100.0 102 4,100 Maryland Towson Town Center (e) 91 980,000 32.5 (f) 175,555 164,641 Joppa Associates (g) - 240,000 33.3 28,834 16,495 SHOPPING CENTERS: California Yorba Linda 91 66,000 100.0 7,881 - Orange 100 21,000 100.0 4,633 - Encinitas 83 79,000 100.0 11,158 - Arizona, Phoenix Tatum and Thunderbird 98 25,000 100.0 3,735 - 28th and Indian School 100 31,000 100.0 2,141 870 67th and Indian School 79 74,000 100.0 5,699 - OFFICE BUILDINGS: California Civic Center Plaza Towers 79 166,000 100.0 16,976 11,822 Upland 94 37,000 100.0 4,629 - Medical Office Building 81 72,000 100.0 12,989 10,000 LAND: California Temecula N/A 24 acres 50.0 (h) 1,788 857 PACIFIC APARTMENTS: California Santa Ana 85 406 units 100.0 26,428 - Washington Everett 95 504 units 100.0 22,496 15,625 Burien 96 380 units 100.0 16,447 12,900 Oregon Beaverton 95 279 units 100.0 11,295 8,042 Texas San Antonio 96 224 units 100.0 4,958 - San Antonio 94 327 units 100.0 4,951 - Houston 94 278 units 100.0 7,542 2,997 Austin 96 256 units 100.0 6,772 - OFFICE BUILDING: California Newport Beach (i) 7,000 100.0 1,019 - INDUSTRIAL: California Baldwin Park 90 622,000 50.0 (f)(j) 8,988 9,454 Washington Seattle 95 185,000 100.0 7,314 4,751 ALLOWANCE FOR LOSS ON DISPOSITION OF (10,974) MULTIFAMILY AND INDUSTRIAL OPERATIONS -------- $107,236 ========
- ------------------------------------- (a) Square feet except as indicated. (b) Net book value (total cost of project less accumulated depreciation) at December 31, 1993. Amounts represent 100% of project net book value. (c) Amounts represent 100% of project encumbrances. (d) Subsequent to December 31, 1993, the loan was refinanced (see Item 1. "Business - Realty - Regional Malls - Santa Anita Fashion Park"). (e) A major shopping center which was expanded into a 980,000 square foot regional mall. Expanded mall area opened in October 1991. Additional anchor tenant opened in fall of 1992. (f) Realty is entitled to receive a preferred return on its equity investment. (g) A retail building adjacent to the Towson Town Center project that is expected to become part of the regional mall described in (e) above. (h) Pacific has an option to acquire this property (see Item 1. "Business - Realty - Land"). (i) Corporate offices of Realty and Pacific. (j) Pacific has agreed to acquire this property during 1994 (see Item 1. "Business - Realty - Pacific Gulf Properties"). 6 ITEM 1. BUSINESS (CONTINUED) - ----------------- The following table presents information with respect to Realty's wholly owned and consolidated joint venture projects, other than Santa Anita Racetrack, by type as of December 31, 1993. Information with respect to the projects subject to the Pacific transaction is separately listed. Information on the consolidated joint venture projects represents 100% of the projects' leasable area and net operating income.
SQUARE FOOTAGE ------------------------- PERCENT NET OPERATING LEASABLE AREA OF TOTAL INCOME (a) --------------- -------- -------------- Realty Regional mall 900,000 (b) 21 $ 6,116,000 Shopping centers 296,000 7 2,741,000 Office buildings 275,000 6 2,721,000 Pacific Apartments (c) 2,080,000 48 8,139,000 Industrial (d) 807,000 18 3,463,000 Office building 7,000 - 27,000 --------- --- ----------- Total 4,365,000 100 $23,207,000 ========= === ===========
- ---------------------- (a) Rental property revenues less rental property operating expenses for all wholly owned properties and consolidated joint venture properties. (b) Does not include square footage in Towson Town Center (980,000 square feet) or Joppa Associates (240,000 square feet), or land underlying Fashion Park of 73 acres. (c) Net operating income includes only actual number of months of activity for each project. (d) Includes - property Pacific has agreed to acquire during 1994 (see Item 1. "Business - Realty - Pacific Gulf Properties"). The disposition of the multifamily and industrial operations to Pacific is consistent with Realty's plan to focus its efforts on the Santa Anita Racetrack and related property in Arcadia. Realty's current investment policy is to focus its efforts on the Santa Anita Racetrack and related property in Arcadia. Realty's investment policies are subject to ongoing review by its Board of Directors and may be changed in the future depending on various factors, including the general climate for real estate investments. SANTA ANITA RACETRACK Santa Anita Racetrack, which is leased by Realty to the Los Angeles Turf Club, Incorporated ("LATC"), a subsidiary of Operating Company, is located on approximately 312 acres, 14 miles northeast of downtown Los Angeles, adjacent to major transportation routes. LATC conducts one of the largest thoroughbred horse racing meets in the United States in terms of both average daily attendance and average daily pari-mutuel wagering. The Santa Anita Racetrack was opened for thoroughbred horse racing in 1934 by a group of investors led by Dr. Charles H. Strub. The Santa Anita Meet has been held at Santa Anita Racetrack each year since its founding except for three years during World War II. Over the years, the racetrack facilities have been expanded. At present, the physical plant consists of a large grandstand structure, stalls for approximately 2,000 horses, and a parking area covering approximately 128 acres which can accommodate approximately 20,000 automobiles. The grandstand facilities include clubhouse and Turf Club accommodations, a general admission 7 Item 1. Business (continued) - ---------------- area, and food and beverage facilities, which range from fast food stands to restaurants, both at outdoor terrace tables and indoor dining areas. The grandstand has seating capacity for 25,000 as well as standing room for additional patrons. The structure also contains Operating Company's executive and administrative offices. The grounds surrounding the grandstand are extensively landscaped and contain a European-style paddock and infield accommodations, including picnic facilities for special groups and the general public. The lease rental payable to Realty by LATC is 1.5% of total live on-track wagering at Santa Anita Racetrack, including live on-track wagering during the meet conducted by the Oak Tree Racing Association ("Oak Tree"). In addition, Realty receives 40% of LATC's revenues from satellite wagering (not to exceed 1.5% of such wagering) and the simulcasting of races originating from Santa Anita Racetrack after mandated payments to the State, to horse owners and to breeders. Accordingly, the rental income which Realty receives from Santa Anita Racetrack is directly affected by and dependent upon the racing activities and the wagering by patrons (see Item 1. "Business -- Operating Company -- Santa Anita Racetrack"). Based upon the rental formula for the year ended December 31, 1993, Realty received approximately $11.6 million in rental income from horse racing. The lease expires in December 1994 at which time it is expected to be renewed on terms to be renegotiated by Realty and LATC which, in light of Operating Company's declining profitability, may result in reduced revenue to Realty (see Item 1. "Business -- Operating Company" and Item 6. "Selected Financial Data - - - Operating Company"). The following table shows rental earned by Realty under the LATC lease for the last five years:
RACING MEETS ENDED IN (IN THOUSANDS, EXCEPT FOR RACING DAYS) ---------------------------------------------------- 1993 1992 1991 1990 1989 -------- -------- -------- -------- -------- Combined racing days 114 121 120 117 122 ======= ======= ======= ======= ======= Santa Anita Meet $ 9,233 $10,955 $ 9,928 $10,436 $10,283 Oak Tree Meet and Charity Days (a) 2,401 1,728 1,889 2,069 2,863 ------- ------- ------- ------- ------- Total $11,634 $12,683 $11,817 $12,505 $13,146 ======= ======= ======= ======= =======
- ------------------------- (a) Oak Tree races five weeks in even-numbered years and six weeks in odd- numbered years. For a further description of the Santa Anita Meet and the Oak Tree Meet, see Item 1. "Business -- Operating Company -- Santa Anita Racetrack." REGIONAL MALLS SANTA ANITA FASHION PARK Santa Anita Fashion Park is a completely enclosed, climate-controlled regional mall located adjacent to Santa Anita Racetrack with approximately 900,000 square feet of leasable area. Fashion Park is owned and operated by a partnership, Anita Associates, of which Realty is a 50% limited partner. The general partner of Anita Associates is Hahn-UPI, which in turn is a limited partnership of which The Hahn Company, a developer of shopping centers, is the general partner. Fashion Park is currently undergoing an expansion which is anticipated to be completed in the fall of 1994. In addition to the existing major tenants, Robinsons/May, J.C. Penney and Broadway, a new 146,000 square foot Nordstrom store is being added. During 1993, the Robinsons/May store was expanded by 8 Item 1. Business (continued) - ---------------- approximately 40,000 square feet. In 1994, an additional 45,000 square feet of mall stores will be completed with the Nordstrom expansion. During 1993, a food court of approximately 13,000 square feet was completed and opened. In January 1994, the partnership refinanced its existing debt by entering into a loan agreement with an insurance company whereby a maximum of $62,355,000 may be borrowed, bearing interest at 9%, with repayment over ten years. On January 25, 1994, $46,577,193 of the total loan amount was drawn. There are currently 116 tenants operating mall stores with original lease terms varying up to 10 years. New leases are generally seven to ten years with clauses providing for escalation of the basic rent every three years. Typically, leases with mall tenants are structured to provide Anita Associates with overage rents upon attainment by the tenant of certain sales levels, which are specified under the individual leases of the various stores. Overage rents represent a fixed percentage of the gross sales of a tenant less its base rent. Realty has leased the land underlying Fashion Park to Anita Associates and to the major tenants of Fashion Park until 2037, with two additional ten-year option periods and one additional five-year option period. The ground rent is $527,000 annually until 1996 when the annual rent will increase to $794,000 through 2007. During the remaining 30-year term and the three additional option periods, the annual ground rent may be increased up to 25% based upon the appraised value of the land. Under the provisions of the ground leases, Anita Associates is responsible for real estate taxes and other operating expenses. Robinsons/May, J. C. Penney and The Broadway pay their own real estate taxes. The following table contains certain information pertaining to the mall stores in Fashion Park (excluding major tenants):
Year Ended December 31, ---------------------------------------------------- 1993 1992 1991 1990 1989 -------- -------- -------- -------- -------- Number of mall tenants 116 107(a) 134 139 141 ======== ======== ======== ======== ======== Average annual rental rates per square foot including overage rents $16.42 $16.98 $15.80 $14.99 $14.70 -------- -------- -------- -------- --------
- ------------------- (a) Decline due primarily to certain leases not being renewed in anticipation of the expansion discussed above. The land underlying Fashion Park is security for a loan maturing in 2009 with a balance at December 31, 1993 of $4,100,000. Payments on this indebtedness, which is without recourse to Realty, are approximately $473,000 annually. The security to the lender also includes an assignment of the ground rents received by Realty and a collateral assignment of the ground leases. TOWSON TOWN CENTER Towson Town Center located in Towson, Maryland, is a 563,000 square foot (excluding major tenants) regional mall which opened in 1991. Realty is a 50% partner with The Hahn Company in H-T Associates, a joint venture which owns a 65% interest in a partnership which owns the Towson Town Center. Realty has invested a total of $7.5 million in H-T Associates. The major tenants at Towson Town Center are Nordstrom and Hecht's department stores. There are 183 other tenants operating mall stores with original lease terms varying up to 15 years. The average annual rental rate per square foot including overage rents was $28.23 per square foot for the operating mall stores. The mall tenant leases generally provide for escalation of the basic rent every three years and are structured to provide Towson Town Center with overage rents upon attainment by the tenant of certain sales levels, which are specified under the individual leases of the various stores. Overage rents represent a fixed percentage of the gross sales of a tenant less its base rent. 9 ITEM 1. BUSINESS (CONTINUED) - ----------------- Realty is a joint and several guarantor of loans used to expand the Towson Town Center and a department store and land adjacent to the Towson Town Center in the amount of $82,630,000. In 1993 the guarantee amount was reduced by $93,337,000. Annually, the guarantors may request a reduction in the amount of the guaranty based on the economic performance of the regional mall (see "Notes to Financial Statements -- Note 3 -- Investments in Joint Ventures"). SHOPPING CENTERS Realty owns a portfolio of six neighborhood shopping centers. The shopping centers typically consist of a major supermarket, retail store or drugstore as a major tenant and often include a variety or general merchandise store and smaller service store tenants. The major tenant in two centers owns its building and the underlying land, while in the four other centers, the land or improvements are leased to the major tenant. Leases on the properties range from two to ten years in duration, but typically are from three to five years. They are generally triple net leases (tenant pays all operating costs, insurance and property taxes) and provide for future rental increases. At December 31, 1993, the average occupancy of the three shopping centers located in California was 88% and the average occupancy of the three shopping centers located in Arizona was 90%. OFFICE BUILDINGS Realty owns interests in four office buildings located in Arcadia, Santa Ana, Upland and Newport Beach, California. The office buildings in Santa Ana and Upland are for general office use, the building in Arcadia is a medical office building and the building in Newport Beach was occupied by Realty in March 1993 and was sold to Pacific on February 18, 1994. Office leases are typically for a period of five to ten years and are offered on a full-service gross basis. In addition, tenants are given a tenant improvement allowance and rental concessions in the form of additional tenant improvement allowances or free rent. At December 31, 1993, the occupancy of the office buildings, was 82%. Effective as of December 31, 1993, Realty acquired the minority partnership interest in the office building located in Santa Ana. The partnership interest was acquired in consideration for the cancellation of certain receivables from the minority partner, payment of $250,000 and the assumption of the minority partner's capital account. LAND Realty is a 50% partner in French Valley Ventures, a partnership which acquired 24 acres of unimproved land located in Temecula, California. The partnership is actively seeking the necessary entitlements on the property and is reviewing the possibility of developing an industrial project on the site. Subsequent to year-end, Realty granted to Pacific an option to acquire this partnership interest in the undeveloped parcel of land for $1,957,000. The option is exercisable beginning March 1, 1994 and expires December 31, 1994. APARTMENTS On July 1, 1993, Realty acquired a 256-unit apartment complex located in Austin, Texas, which was subsequently sold to Pacific. Realty acquired the project for $6,750,000. At December 31, 1993 the complex was 96% leased. During 1993, prior to the sale of its apartments to Pacific, Realty acquired the minority partnership interests in Applewood Village Partners and SAREFIM, partnerships which owned 406 and 504 units, respectively, from the minority partners. The partnership interests were acquired in consideration for cash, the cancellation of certain receivables from the minority partners and the assumption of the minority partners' share of the excess of partnership liabilities over assets. 10 ITEM 1. BUSINESS (CONTINUED) - ---------------- INDUSTRIAL BALDWIN INDUSTRIAL PARK Realty is a 50% limited partner in a partnership formed to develop an industrial park on a 45-acre parcel of land in Baldwin Park, California. The land is leased from one of the partners for a period of 55 years. The industrial park is comprised of a total of approximately 622,000 square feet of office and industrial space in a complex of buildings ranging in size from 25,000 to 65,000 square feet. The park is currently 90% leased to tenants which include Gerber's Foods, Federal Express and Home Savings of America ("Home"). Home, the current lessee of a ten-acre parcel in the industrial park and of a 55,656 square foot building in the industrial park, has options to purchase both the ten-acre parcel and the building and land underlying the building under the terms of its leases. Home has exercised its options under both agreements. Under the partnership agreement, Realty is entitled to receive 80% of the cash flow from the partnership in order to provide Realty with a cumulative return of 12% per annum on its invested capital. To the extent there is sufficient cash flow for Realty to receive its 12% cumulative return, the remaining partners are entitled to 80% of the excess cash flow to provide them with a cumulative annual return equal to that received by Realty. Additional cash flow is to be divided equally between Realty and the remaining partners. The partnership exercised an option to buy the land underlying the Home parcel in 1991 and has the option to acquire the remaining parcels in 1994. If the partnership does not exercise any portion of its option to acquire the land, Realty then has the right to exercise that portion of the option under the same terms as the partnership. In addition to the above-mentioned partnership option, Realty has an option to purchase the partnership interests of the other partners in 1994 at the fair market value of the interests in 1994. Subsequent to year-end, Realty agreed to sell its interest in the partnership and assigned its option to purchase the partnership interest of the other partners to Pacific. (See Item 1. "Business - Realty-Pacific Gulf Properties Inc." and "Notes to Financial Statements - Note 2 - Disposition of Multifamily and Industrial Operations Subsequent to Year End"). Pacific has exercised this option to purchase the partnership interest of the other partners. SEATTLE INDUSTRIAL BUILDINGS During 1993, prior to the sale of its industrial properties to Pacific, Realty acquired the minority partnership interest in SARESAM Ventures, a partnership which owned 185,000 square feet of industrial buildings located in the Seattle, Washington area. The partnership interest was acquired in consideration for the cancellation of certain receivables from the minority partners and the assumption of the minority partners' share of the excess of partnership liabilities over assets. MANAGEMENT OF PROPERTIES Realty manages its shopping centers (other than the regional malls) and office buildings directly. Based on a normal property management fee charged by outside managers, Realty believes it realizes an economic benefit as well as the benefits of direct control by managing the properties directly. 11 ITEM 1. BUSINESS (CONTINUED) - ---------------- COMPETITIVE AND OTHER CONDITIONS The industrial buildings, regional shopping malls, shopping centers and office buildings owned by Realty encounter significant competition from similar or larger industrial buildings, regional shopping malls, shopping centers and office buildings developed and owned by other companies. Realty's income from its real estate assets is also affected by general economic conditions. The current recession has adversely affected vacancy rates in office buildings and industrial parks generally. The current recession and other competitive conditions have also affected the rent payable by LATC (see Item 1. "Business -- Operating Company -- Competitive and Other Conditions"). Continuation of the recession could adversely impact vacancy rates, the nature of Realty's tenants, the rents Realty is able to obtain from its tenants and its financial results. Some of Realty's properties are located in Southern California, which is an area prone to earthquakes. To date, none of Realty's projects have sustained any significant damage as a result of earthquakes. However, there can be no assurance that any potential earthquakes will not damage Realty's properties or negatively impact the financial position or results of Realty. EMPLOYEES At December 31, 1993, Realty employed 58 persons on a full-time basis. In connection with the sale to Pacific, the executive officers, various managers and most other employees of Realty resigned and became officers and employees of Pacific on February 18, 1994. Realty has entered into a one-year management agreement with Pacific to assure an orderly transaction, and, as of March 16, 1994, appointed a new Chief Executive Officer (see Item 4a. "Executive Officers of Realty and Operating Company"). Realty believes that relations with its employees are satisfactory. 12 Item 1. Business (continued) SEASONAL VARIATIONS IN BUSINESS Realty is subject to significant seasonal variation in revenues due primarily to the seasonality of thoroughbred horse racing. The following table presents unaudited quarterly results of operations for Realty during 1993 and 1992:
Quarters Ended 1993 (in thousands, except per share figures) ---------------------------------------------- March June Sept. Dec. --------- --------- --------- ---------- Total revenues $18,876 $12,822 $10,452 $ 13,428 Costs and expenses 7,123 7,241 7,227 10,440 Interest and other 3,277 3,350 3,100 2,750 Loss on disposition of multifamily and industrial operations - - - 10,974 ------- ------- ------- -------- Income (loss) before income taxes 8,476 2,231 125 (10,736) Benefit for income taxes (1,458) (1,065) - - ------- ------- ------- -------- Net income (loss) $ 9,934 $ 3,296 $ 125 $(10,736) ======= ======= ======= ======== Net income (loss) per common share $.88 $ .29 $ .01 $ (.95) ======= ======= ======= ======== Quarters Ended 1992 (in thousands, except per share figures) --------------------------------------------- March June Sept. Dec. ------- ------ ------- ---------- Total revenues $16,544 $11 ,243 $ 9,501 $ 13,003 Costs and expenses 6,488 6,299 6,845 8,117 Interest expense and other 2,967 3,113 3,874 2,377 ------- ------- ------- -------- Net income (loss) $ 7,089 $ 1,831 $(1,218) $ 2,509 ======= ======= ======= ======== Net income (loss) per common share $.63 $ .16 $ (.11) $ .23 ======= ======= ======= ========
13 ITEM 1. BUSINESS (CONTINUED) - ---------------- Operating Company Santa Anita Operating Company ("Operating Company") is organized under the laws of the State of Delaware. Operating Company's principal executive offices are located at Santa Anita Racetrack, 285 West Huntington Drive, Post Office Box 60014, Arcadia, California 91066-6014. Operating Company is engaged in thoroughbred horse racing. The thoroughbred horse racing operation is conducted by a subsidiary of Operating Company, Los Angeles Turf Club, Incorporated ("LATC"), which leases Santa Anita Racetrack from Realty. The lease expires in December 1994 when its terms will be renegotiated (see Item 1. "Business -- Realty -- Santa Anita Racetrack"). SANTA ANITA RACETRACK LATC conducts an annual 17-week thoroughbred horse racing meet which commences immediately after Christmas and continues through mid-April. LATC conducts one of the largest thoroughbred racing meets in the United States in terms of both average daily attendance and average daily pari-mutuel wagering. LATC leases the racetrack from Realty for the full year under a master lease for a fee of 1.5% of the total live on-track wagering at Santa Anita Racetrack, which includes the Oak Tree meet. In addition, LATC pays to Realty 40% of its revenues from satellite wagering (not to exceed 1.5% of such wagering) and the simulcasting of races originating from Santa Anita Racetrack after mandated payments to the State, to horse owners and to breeders. When LATC operates as a satellite for Hollywood Park Racetrack ("Hollywood Park") and Del Mar Racetrack ("Del Mar"), LATC does not pay any additional rent to Realty. LATC has sublet the racetrack to Oak Tree to conduct its annual thoroughbred horse racing meet (31 days in 1993), which commences in late September or early October. Oak Tree races five weeks in even-numbered years and six weeks in odd- numbered years. Under a sublease which expires in 2000, Oak Tree makes annual rental payments to LATC equal to 1.5% of the total live on-track pari-mutuel wagering from its racing meet and 25% of its satellite and simulcast revenues after mandated payments to the State, to horse owners and to breeders. LATC pays to Realty 40% of all satellite and simulcast revenues received from Oak Tree. Because the rental received from Oak Tree's on-track pari-mutuel wagering is identical to the rental paid to Realty, LATC does not reflect these amounts in its financial statements. In addition, Oak Tree reimburses LATC an amount equal to 0.8% of its on-track pari-mutuel wagering for certain expenses of operating Santa Anita Racetrack on behalf of Oak Tree. LATC also receives supplemental rent representing Oak Tree's adjusted profits above an agreed-upon level and will rebate rent to Oak Tree if Oak Tree's adjusted profits fall below such level (see Item 1. "Business -- Operating Company -- Santa Anita Racetrack -- Pari-Mutuel Wagering"). The number of racing days at the Santa Anita meet declined from 90 in 1989 to 83 in 1993. Total pari-mutuel wagering on the Santa Anita meet decreased from $654.1 million in 1989 to $613.5 million in 1993. For all years prior to 1989, all of Santa Anita pari-mutuel wagering was conducted on-track. In 1989, $122.1 million of the total amount wagered was wagered at satellite locations with $532.0 million being wagered on-track. In 1993, $362.8 million of the total amount wagered was wagered at satellite locations with $250.7 million being wagered on-track. Total attendance was 2.9 million in 1989, of which 621,000 was at satellite locations. By 1993, on-track attendance had declined to 1.2 million, down from 1.5 million in 1992. Although 1,332,126 and 1,576,763 patrons attended satellite locations during the Santa Anita meets in 1993 and 1992, respectively, LATC does not share in the revenues from admissions, parking and food and beverage sales at the satellite locations. 14 Item 1. Business (continued) - ---------------------------- The following tables summarize key operating statistics for the 1989-1993 Santa Anita meets and the 1989-1993 Oak Tree meets, together with the attendance and wagering statistics relating to the transmission of the Del Mar and Hollywood Park signals to Santa Anita Racetrack.
Racing Meets Ended in ---------------------------------------------------------- 1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- ---------- LIVE RACING - ----------- SANTA ANITA MEET: Number of racing day 83 94 88 90 90 == == == == == Attendance On-track 1,215,208 1,531,538 2,014,618 2,157,583 2,291,700 Satellite locations 1,332,126 1,576,763 666,611 707,675 620,734 ---------- ---------- ---------- ---------- ---------- Total 2,547,334 3,108,301 2,681,229 2,865,258 2,912,434 ========== ========== ========== ========== ========== Average daily (a) 30,698 33,067 30,524 31,915 32,360 ========== ========== ========== ========== ========== Wagering ($000) (b) On-track $ 250,729 $ 323,223 $ 470,471 $ 519,443 $ 531,977 Satellite locations (c) 267,346 315,851 133,791 144,303 122,101 Interstate locations (d) 95,411 68,689 39,445 - - ---------- ---------- ---------- ---------- ---------- Total $ 613,486 $ 707,763 $ 643,707 $ 663,746 $ 654,078 ========== ========== ========== ========== ========== Average daily (a) $ 7,767 $ 7,716 $ 7,366 $ 7,391 $ 7,268 ========== ========== ========== ========== ========== OAK TREE MEET: Number of racing days (e) 31 27 32 27 32 == == == == == Attendance (c) On-track 499,617 425,774 506,833 590,743 700,891 Satellite locations 444,932 390,088 454,264 171,177 199,607 ---------- ---------- ---------- ---------- ---------- Total 944,549 815,862 961,097 761,920 900,498 ========== ========== ========== ========== ========== Average daily (a) 30,598 30,389 30,417 28,219 28,475 ========== ========== ========== ========== ========== Wagering ($000) (b)(c) On-track $ 99,789 $ 79,162 $ 102,740 $ 133,644 $ 160,523 Satellite locations 86,427 75,714 88,699 33,555 38,599 Interstate locations (d) 58,467 20,198 17,445 6,878 - ---------- ---------- ---------- ---------- ---------- Total $ 244,683 $ 175,074 $ 208,884 $ 174,077 $ 199,122 ========== ========== ========== ========== ========== Average daily (a) $ 8,567 $ 6,676 $ 6,767 $ 6,620 $ 6,268 ========== ========== ========== ========== ==========
- ------------------ (a) Total handle or total attendance divided by the number of race days will produce a different average daily result due to the fact that satellite locations may not have operated from the beginning of the Santa Anita meet, therefore, average daily attendance and wagering is calculated based upon the number of days each satellite location is open. (b) Includes simulcast wagering on races originating at other racetracks. (c) Satellite wagering expanded to include Hollywood Park and Los Alamitos effective with the 1991 Oak Tree meet. (d) Interstate wagering (common pooling) began in October 1990. (e) Oak Tree races five weeks in even-numbered years and six weeks in odd- numbered years. 15
Racing Meets Ended in ----------------------------------------------------- 1993 1992 1991 1990 1989 -------- -------- -------- -------- -------- AS A SATELLITE - --------------------------- SANTA ANITA AS SATELLITE FOR DEL MAR RACETRACK: Number of racing days 42 43 43 43 43 == == == == == Attendance Total 223,599 242,947 273,333 271,525 279,163 ======== ======== ======== ======== ======== Average daily 5,324 5,650 6,357 6,315 6,492 ======== ======== ======== ======== ======== Wagering ($000) Total $ 54,928 $ 55,435 $ 66,068 $ 68,807 $ 72,648 ======== ======== ======== ======== ======== Average daily $ 1,308 $ 1,289 $ 1,536 $ 1,600 $ 1,689 ======== ======== ======== ======== ======== SANTA ANITA AS SATELLITE FOR HOLLYWOOD PARK (a): Number of racing days 99 101 32 == === == Attendance Total 505,239 515,510 154,233 ======== ======== ======== Average daily 5,103 5,104 4,820 ======== ======== ======== Wagering ($000) Total $112,623 $114,858 $ 36,233 ======== ======== ======== Average daily $ 1,138 $ 1,137 $ 1,132 ======== ======== ========
- ------------------- (a) Began in November 1991. Management anticipates that the general trend of increases in off-track wagering will continue and the decrease experienced in on-track attendance and on-track wagering will also continue albeit at a slower rate. 16 During the last five years, 54% of the annual revenues of LATC resulted from pari-mutuel and other wagering commissions. The remaining revenues resulted from admissions, parking, food and beverage sales, sale of programs and interest and other income. The following table sets forth certain unaudited financial information with respect to LATC:
Year Ended December 31, (in thousands) ------------------------------------------------------------- 1993 1992 1991 1990 1989 -------- --------- --------- --------- --------- REVENUES: Pari-mutuel and other wagering commissions: On-track $15,327 $18,031 $25,277 $29,256 $29,368 Satellite origination 11,106 13,158 5,501 5,577 4,391 Simulcasting 3,120 2,738 2,284 1,416 1,208 Satellite for Del Mar and Hollywood Park 3,391 3,422 2,005 1,376 1,453 Admission-related 27,833 28,923 30,262 28,630 29,625 Interest and other 326 1,075 2,655 3,684 1,464 ------- ------- ------- ------- ------- Total revenues 61,103 67,347 67,984 69,939 67,509 ------- ------- ------- ------- ------- COSTS AND EXPENSES: Direct operating costs 44,436 48,551 48,648 48,863 46,872 Plant rental 9,233 10,955 9,928 10,436 10,283 Other 7,879 8,678 7,544 7,771 6,683 ------- ------- ------- ------- ------- Total costs and expenses 61,548 68,184 66,120 67,070 63,838 ------- ------- ------- ------- ------- Income (loss) before taxes $ (445) $ (837) $ 1,864 $ 2,869 $ 3,671 ======= ======= ======= ======= =======
The mix of revenues has changed significantly from 1989 to 1993 primarily as a result of the introduction of satellite wagering on races originating at Santa Anita Racetrack, operating as a satellite location for Del Mar and Hollywood Park, changes in average daily pari-mutuel wagering, selective price increases, the introduction of additional exotic wagering opportunities on which the retention amount is higher than on conventional wagering and a new lease with Oak Tree, all of which have largely offset declines in commissions from on- track wagering. In addition, LATC recognized $400,000 in 1990 and $1,000,000 in 1991 from the 1990 sale of the Canterbury Downs management consulting contract. Also, interest income has fluctuated as a function of cash balances available for investments and changing interest rates. LATC's total expenses decreased from $63.8 million in 1989 to $61.5 million in 1993. The majority of these expenses are pari-mutuel wagering or attendance- related, the result of operating as a satellite location for Del Mar and Hollywood Park and the aggregate effect of a new lease with Oak Tree. In 1991, costs and expenses included $1.1 million in earthquake damage. From 1991 to 1992, total costs and expenses increased by $2,064,000 primarily due to the fact that LATC operated as a satellite location for the first time for Hollywood Park's spring thoroughbred meet, the engagement of outside consultants in the amount of $660,000 to review the company's operations, and additional rent paid to Realty in the amount of $1,027,000. From 1992 to 1993, total costs and expenses decreased primarily due to fewer race days and lower on-track attendance and wagering. 17 ITEM 1. BUSINESS (CONTINUED) - ---------------- For further information regarding operating results, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Santa Anita Operating Company." PARI-MUTUEL WAGERING Pari-mutuel means literally a mutual wager, or wagering by individuals against each other. The racetrack acts as the broker for the wagers made by the public and deducts a "take-out" or gross commission which is fixed by the State and shared with the State, the racetrack operator, the horse owners and breeders, and the municipality in which the racetrack is located. The racetrack operator has no interest in which horse wins a given race. As a condition of the issuance of a racing license, California law requires that a certain number of racing days be conducted as charity days. The net proceeds from these charity days are distributed to beneficiaries through a nonprofit organization approved by the California Horse Racing Board (the "Horse Racing Board"). LATC is required to conduct five charity days. ON-TRACK WAGERING The State has vested administrative authority for racing and wagering at horse racing meets with the Horse Racing Board. The Horse Racing Board, which consists of seven members appointed by the governor of the State, is charged with the responsibility of regulating the form of wagering, the length and conduct of meets and the distribution of the pari-mutuel wagering within the limits set by the California legislature. The Horse Racing Board is also charged with the responsibility of licensing horse racing associations on an annual basis to conduct horse racing meets and of licensing directors, officers and persons employed by the associations to operate such meets. California law specifies the percentage distribution of pari-mutuel wagering with the percentage varying based upon the total wagering for the meet, breed of horse and type of wager. The following table sets forth the allocation of the total pari-mutuel wagering, on- and off-track, by percentage and dollar amount during the 1992-93 Santa Anita meet:
DISTRIBUTION OF PARI-MUTUEL WAGERING -------------------------------------- DOLLAR AMOUNT PERCENTAGE (IN THOUSANDS) ---------- -------------- Return to Wagerers 81.05% $497,224 State of California 4.37 26,809 Track Commissions 4.71 28,877 Horse Owners and Breeders 4.74 29,087 Satellite Operator and Location Fees 4.85 29,780 Others .28 1,709 ------ -------- 100.00% $613,486 ====== ========
18 ITEM 1. BUSINESS (CONTINUED) - ---------------- SATELLITE WAGERING - CALIFORNIA LATC and Oak Tree send televised racing signals to other southern California racetracks, wagering facilities on Indian reservation land in California and non-racing fair sites in central and southern California. Pari- mutuel wagering at a satellite facility is included in the pari-mutuel pools at the host racing associations. LATC's and Oak Tree's share of the satellite wagering was approximately 4.3% of the satellite pari-mutuel wagering on races originating at Santa Anita Racetrack. In the fall of 1993, California law permitted LATC and Oak Tree to send and receive televised racing signals on races with purses exceeding $20,000 to and from northern California racetracks and nonracing fairs. In 1993, Bay Meadows, San Mateo, California became an additional satellite location during the Santa Anita meet. LATC's commission on the northern California satellite wagering was about 3.3%. LATC has been advised that other Indian tribes are planning satellite wagering facilities on reservation land in southern California. Any other facilities opened by an Indian tribe must obtain approval from the State and must enter into an agreement with the racing associations with respect to the pari-mutuel operations. During the Hollywood Park and Del Mar meets, LATC and other Southern California racing associations and fairs operate as satellite facilities. In addition to retaining 2% of the pari-mutuel wagering at Santa Anita Racetrack as its commission, LATC receives income from admissions, parking and food and beverage sales. In 1993, Santa Anita Racetrack operated 141 days as a satellite for Hollywood Park and Del Mar. SATELLITE WAGERING - INTERSTATE Legislation has been enacted in certain states permitting the transmission of pari-mutuel wagers across state lines. This format permits patrons wagering in those states on races held at Santa Anita Racetrack to participate in the same pari-mutuel pool payouts available to LATC's on-track patrons and Southern California satellite patrons. LATC currently participates in satellite wagering with numerous sites in Nevada, and additional locations in Alabama, Arizona, Colorado, Connecticut, Delaware, Florida, Idaho, Iowa, Kansas, Louisiana, Maryland, Massachusetts, Montana, Nebraska, New Hampshire, New Jersey, New York, North Dakota, Oregon, Pennsylvania, Rhode Island, Texas, Washington and West Virginia and receives a negotiated percentage of the pari-mutuel wagering at such sites. Interstate satellite wagering started in 1991 with total pari-mutuel wagering of $39,445,000 which increased to $95,411,000 for 1993. LATC's share of the commissions from interstate satellite wagering was $1,811,000 for 1993. SIMULCASTING In 1993, LATC and Oak Tree transmitted their live racing signals (simulcast) to numerous locations in the United States, Mexico and Canada. LATC's share of the commissions for transmitting its racing signal, was $1,280,000 in 1993 and $1,416,000 in 1992. During the Oak Tree meet, LATC receives 25% of Oak Tree's share of simulcasting revenues. LATC is pursuing the opportunity to transmit its signal to other locations. CANTERBURY DOWNS In 1984, LATC entered into a management consulting contract with Minnesota Racetrack, Inc. ("MRI"). MRI developed and owned a horse racing facility, Canterbury Downs, in the Minneapolis area of Minnesota, which opened in June 1985. In 1990, LATC sold its interest in the management consulting contract with Canterbury Downs and recognized $400,000 as income. In 1991, LATC recognized an additional $1,000,000 as income. 19 ITEM 1. BUSINESS (CONTINUED) - ---------------- COMPETITIVE AND OTHER CONDITIONS The southern California area offers a wide range of leisure time spectator activities, including professional and college teams which participate in all major sports. LATC and Oak Tree compete with such sporting events for their share of the leisure time market and with other numerous leisure time activities available to the community, some of which are broadcast on television. As an outdoor activity, horse racing is more susceptible to inclement weather than some other leisure time activities. This is particularly true of the Santa Anita meet which is held during the winter. Prior to the 1992-1993 meet, LATC had never lost a race due to inclement weather. During the 1992-1993 meet, LATC lost two full days and two partial days of racing because of inclement weather. A local Arcadia ordinance presently limits live horse racing to daylight hours but allows the importation of a horse racing broadcast signal one evening per week. The Horse Racing Board has annually licensed LATC and Oak Tree to conduct racing meets at Santa Anita Racetrack. At present, the Horse Racing Board has not licensed other thoroughbred racetracks in Southern California to conduct racing during these meets. Since 1972, however, night harness racing and night quarterhorse meets have been conducted at other racetracks in Southern California during portions of these meets. LATC and Oak Tree could be adversely affected by legislative or Horse Racing Board action which would increase the number of competitive racing days, reduce the number of racing days available to LATC and Oak Tree, or authorize other forms of wagering. The California State Lottery Act of 1984, which provides for the establishment of a state-operated lottery, was implemented in 1985. In the opinion of management, the State lottery has had an adverse impact and will continue to have an adverse impact on total attendance and pari-mutuel wagering at Santa Anita Racetrack (see Item 1 "Business -- Operating Company -- Santa Anita Racetrack"). Although it is unaware of any empirical studies, management believes that the State lottery has had and will continue to have an adverse impact on many other businesses in the State of California. In the future, legislation could be enacted to allow casino gaming or other forms of gaming which are competitive with pari-mutuel wagering at Santa Anita Park. Under federal law, certain types of gaming are lawful on Indian lands if conducted in conformance with a Tribal-State compact, which the applicable state must negotiate with an Indian tribe in good faith. Certain Indian tribes seeking to establish gaming in California have instituted litigation against the State of California to compel the State to permit them to do so. In 1993, one court held that California has a public policy prohibiting casino gaming and need not negotiate a compact with respect to casino gaming. However, the court also held that certain other forms of gaming were the proper subject of a compact. Other courts are not bound by that decision and may hold differently. If the Indian tribes are successful in establishing casino gaming or other forms of gaming in California, such gaming could have an adverse impact on LATC. DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS No material part of Operating Company's business is dependent upon a single customer or a few customers; therefore, the loss of any one customer would not have a materially adverse effect on the business of Operating Company. EMPLOYEE AND LABOR RELATIONS During the year ended December 31, 1993, LATC regularly employed approximately 1,600 employees. Substantially all are employed on a seasonal basis in connection with live thoroughbred horse racing or satellite meets at Santa Anita Racetrack. During the relatively short periods when live or satellite racing meets at Santa Anita Racetrack are not being conducted, LATC maintains a staff of approximately 260 employees, most of 20 whom are engaged in maintaining or improving the physical facilities at Santa Anita Racetrack or are engaged in preparing for the next live or satellite meet. All of LATC's employees, except for approximately 70 full-time management and clerical employees, are covered by collective bargaining agreements with labor unions. A majority of the current labor agreements covering racetrack employees will expire in April 1995 after the Santa Anita meet. SEASONAL VARIATIONS IN BUSINESS Operating Company is also subject to significant seasonal variation. LATC conducts an annual meet commencing immediately after Christmas and continuing through mid-April. This seasonal variation is indicated by the following unaudited quarterly results of operations for Operating Company during 1993 and 1992:
Quarters Ended 1993 (in thousands, except per share figures) ---------------------------------------------- March June Sept. Dec. ------- ------- ------- ------- Total revenues $33,164 $13,542 $ 5,334 $ 9,307 Costs and expenses 33,633 14,362 5,473 9,618 Interest 145 132 119 97 ------- ------- ------- ------- Net loss $ (614) $ (952) $ (258) $ (408) ======= ======= ======= ======= Net loss per common share $ (.06) $ (.09) $ (.02) $ (.04) ======= ======= ======= ======= Quarters Ended 1992 (Restated) (in thousands, except per share figures) ------------------------------------------ March June Sept. Dec. ------- ------- ------- ------- Total revenues $37,030 $16,407 $ 5,576 $ 8,641 Costs and expenses 34,797 17,437 6,954 11,411 Interest 45 44 45 60 ------- ------- ------- ------- Income (loss) before income taxes 2,188 (1,074) (1,423) (2,830) Provision (benefit) for income taxes 209 (105) (133) (214) ------- ------- ------- ------- $ 1,979 $ (969) $(1,290) $(2,616) Net income (loss) ======= ======= ======= ======= Net income (loss) per common share $ .18 $ (.09) $ (.12) $ (.23) ======= ======= ======= =======
In 1993, revenues and cost of sales from food and beverage operations have been reflected as a separate component in Operating Company's and Combined Realty and Operating Company's statement of operations. In prior years these operations were in horse racing revenues. All prior year and interim financial statements and disclosures for Operating Company and Combined Realty and Operating Company have been restated to reflect this reclassification. 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. 21 ITEM 1. BUSINESS (CONTINUED) - ---------------- INCOME TAX MATTERS In the opinion of management, Realty has operated in a manner which has qualified it as a REIT under Sections 856 through 860 of the Code. Realty intends to continue to operate in a manner which will allow it to qualify as a REIT under the Code. Under these sections, a corporation that is principally engaged in the business of investing in real estate and that, in any taxable year, meets certain requirements that qualify it as a REIT generally is not subject to federal income tax on its taxable income and gains that it distributes to its shareholders. Income and gains that are not so distributed will be taxed to a REIT at regular corporate rates. In addition, a REIT is subject to certain taxes on net income from "foreclosure property" as defined in the Code, income from the sale of property held primarily for sale to customers in the ordinary course of business and excessive unqualified income. REIT REQUIREMENTS To qualify for tax treatment as a REIT under the Code, Realty at a minimum must meet the following requirements: (1) At least 95% of Realty's gross income each taxable year (excluding gains from the sale of property other than foreclosure property held primarily for sale to customers in the ordinary course of its trade or business) must be derived from: (a) rents from real property; (b) gain from the sale or disposition of real property that is not held primarily for sale to customers in the ordinary course of business; (c) interest on obligations secured by mortgages on real property (with certain minor exceptions); (d) dividends or other distributions from, or gains from the sale of, shares of qualified REITs that are not held primarily for sale to customers in the ordinary course of business; (e) abatements and refunds of real property taxes; (f) income and gain derived from foreclosure property; (g) most types of commitment fees related to either real property or mortgage loans; (h) gains from sales or dispositions of real estate assets that are not "prohibited transactions" under the Code; (i) income attributable to stock or debt instruments acquired with the proceeds from the sale of stock or certain debt obligations ("new capital") of Realty received during a one-year period beginning on the day such proceeds were received ("qualified temporary investment income"); (j) dividends; (k) interest on obligations other than those secured by mortgages on properties; and (l) gains from sales or dispositions of securities not held primarily for sale to customers in the ordinary course of business. 22 ITEM 1. BUSINESS (CONTINUED) - ---------------- In addition, at least 75% of Realty's gross income each taxable year (excluding gains from the sale of property other than foreclosure property held primarily for sale to customers in the ordinary course of its trade or business) must be derived from items (a) through (i) above. For purposes of these requirements, the term "rents from real property" is defined in the Code to include charges for services customarily furnished or rendered in connection with the rental of real property, whether or not such charges are separately stated, and rent attributable to incidental personal property that is leased under, or in connection with, a lease of real property, provided that the rent attributable to such personal property for the taxable year does not exceed 15% of the total rent for the taxable year attributable to both the real and personal property leased under such lease. The term "rents from real property" is also defined to exclude: (i) any amount received or accrued with respect to real property, if the determination of such amount depends in whole or in part on the income or profits derived by any person from the property (except that any amount so received or accrued shall not be excluded from "rents from real property" solely by reason of being determined on the basis of a fixed percentage of receipts or sales); (ii) any amount received or accrued, directly or indirectly, from any person or corporation if ownership of a 10% or greater interest in the stock, assets or net profits of such person or corporation is attributed to Realty; (iii) any amount received or accrued from property that Realty manages or operates or for which Realty furnishes services to the tenants, which would constitute unrelated trade or business income if received by certain tax-exempt entities, either itself or through another person who is not an "independent contractor" (as defined in the Code) from whom Realty does not derive or receive income; and (iv) any amount received or accrued from property with respect to which Realty furnishes (whether or not through an independent contractor) services not customarily rendered to tenants in properties of a similar class in the geographic market in which the property is located. If Realty should fail to satisfy the foregoing income tests but otherwise satisfies the requirements for taxation as a REIT and if such failure is held to be due to reasonable cause and not willful neglect and if certain other requirements are met, then Realty would continue to qualify as a REIT but would be subject to a 100% tax on the excessive unqualified income reduced by an approximation of the expenses incurred in earning that income. (2) Less than 30% of Realty's gross income during any taxable year can be derived from the sale or disposition of: (i) stock or securities held for less than one year; (ii) property held primarily for sale to customers in the ordinary course of business (other than foreclosure property); and (iii) real property (including interests in mortgages on each property) held for less than four years (other than foreclosure property and gains arising from involuntary conversions). (3) At the end of each calendar quarter, at least 75% of the value of Realty's total assets must consist of real estate assets (real property, interests in real property, interests in mortgages on real property, shares in qualified real estate investment trusts and stock or debt instruments attributable to the temporary investment of new capital), cash and cash items (including receivables) and government securities. With respect to securities that are not included in the 75% asset class, Realty may not at the end of any calendar quarter own either (i) securities representing more than 10% of the outstanding voting securities of any one issuer or (ii) securities of any one issuer having a value that is more than 5% of the value of Realty's total assets. Realty's share of income earned or assets held by a partnership in which Realty is a partner will be characterized by Realty in the same manner as they are characterized by the partnership for purposes of the assets and income requirements described in this paragraph (3) and in paragraphs (1) and (2) above. (4) The shares of Realty must be "transferable" and beneficial ownership of them must be held by 100 or more persons during at least 335 days of each taxable year (or a proportionate part of a short taxable year). More than 50% of the outstanding stock may not be owned, directly or indirectly, actually or constructively, by or for five or fewer "individuals" at any time during the last half of any taxable year. For the purpose of such determination, shares owned directly or indirectly by or for a 23 ITEM 1. BUSINESS (CONTINUED) - ---------------- corporation, partnership, estate or trust are considered as being owned proportionately by its shareholders, partners or beneficiaries; an individual is considered as owning shares directly or indirectly owned by or for members of his family; and the holder of an option to acquire shares is considered as owning such shares. In addition, because of the lessor- lessee relationship between Realty and LATC, no person may own, actually or constructively, 10% or more of the outstanding voting power or total number of shares of stock of the two companies. The bylaws of Operating Company and Realty preclude any transfer of shares which would cause the ownership of shares not to be in conformity with the above requirements. Each year Realty must demand written statements from the record holders of designated percentages of its shares disclosing the actual owners of the shares and must maintain, within the Internal Revenue District in which it is required to file its federal income tax return, permanent records showing the information it has thus received as to the actual ownership of such shares and a list of those persons failing or refusing to comply with such demand. (5) Realty must distribute to its shareholders dividends in an amount at least equal to the sum of 95% of its "real estate investment trust taxable income" before deduction of dividends paid (i.e., taxable income less any net capital gain and less any net income from foreclosure property or from property held primarily for sale to customers, and subject to certain other adjustments provided in the Code); plus (i) 95% of the excess of the net income from foreclosure property over the tax imposed on such income by the Code; less (ii) a portion of certain noncash items of Realty that are required to be included in income, such as the amounts includable in gross income under Section 467 of the Code (relating to certain payments for use of property or services). The distribution requirement is reduced by the amount by which the sum of such noncash items exceeds 5% of real estate investment trust taxable income. Such undistributed amount remains subject to tax at the tax rate then otherwise applicable to corporate taxpayers. During 1993, Realty has, or will be deemed to have, distributed at least 95% of its real estate investment trust taxable income as adjusted. For this purpose, certain dividends paid by Realty after the close of the taxable year may be considered as having been paid during the taxable year. However, if Realty does not actually distribute each year at least the sum of (i) 85% of its real estate investment taxable income, (ii) 95% of its capital gain net income and (iii) any undistributed taxable income from prior periods, then the amount by which such sums exceed the actual distributions during the taxable year will be subject to a 4% excise tax. If a determination (by a court or by the Internal Revenue Service) requires an adjustment to Realty's taxable income that results in a failure to meet the percentage distribution requirements (e.g., a determination that increases the amount of Realty's real estate investment taxable income), Realty may, by following the "deficiency dividend" procedure of the Code, cure the failure to meet the annual percentage distribution requirement by distributing a dividend within 90 days after the determination, even though this deficiency dividend is not distributed to the shareholders in the same taxable year as that in which income was earned. Realty will, however, be liable for interest based on the amount of the deficiency dividend. (6) The directors of Realty must have authority over the management of Realty, the conduct of its affairs and, with certain limitations, the management and disposition of Realty's property. (7) Realty must have the calendar year as its annual accounting period. (8) Realty must satisfy certain procedural requirements. TAXATION OF REALTY AS A REIT In any year in which Realty qualifies under the requirements summarized above, it generally will not be taxed on that portion of its ordinary income or net capital gain that is distributed to shareholders, other than net income from foreclosure property, excess unqualified income and gains from property held primarily for sale. 24 ITEM 1. BUSINESS (CONTINUED) - ---------------- Realty will be taxed at applicable corporate rates on any undistributed taxable income or net capital gain and will not be entitled to carry back any net operating losses. It also will be taxed at the highest rate of tax applicable to corporations on any net income from foreclosure property and, subject to the safe harbor described below, at the rate of 100% on any income derived from the sale or other disposition of property, other than foreclosure property, held primarily for sale. In computing its net operating losses and the income subject to these latter taxes, Realty will not be allowed a deduction for dividends paid or received. Although Realty will also be subject to a 100% tax on the gain derived from the sale of property (other than foreclosure property) held primarily for sale, a safe harbor is provided such that gains from the sale of real property are excluded from this 100% tax for a given year if each of the following conditions is satisfied: (a) the property has been held by Realty for at least four years; (b) total capital expenditures with respect to the property during the four-year period preceding the date of sale do not exceed 30% of the net selling price of the property; (c) either (i) Realty does not make more than seven sales of properties (other than foreclosure property) during the taxable year or (ii) the aggregate adjusted bases (as determined for purposes of computing earnings and profits) of property (other than foreclosure property) sold by Realty during the taxable year do not exceed 10% of the aggregate adjusted bases (as so determined) of all of the assets of Realty as of the beginning of the taxable year; (d) if the property has not been acquired through foreclosure or lease termination, the property has been held by Realty for the production of rental income for at least four years; and (e) if the requirement of paragraph (c)(i) is not satisfied, substantially all of the marketing and development expenditures with respect to the sold properties were made through independent contractors from whom Realty does not derive or receive any income. TERMINATION OR REVOCATION OF REIT STATUS If, in any taxable year after it has filed an election with the Internal Revenue Service to be treated as a REIT, Realty fails to so qualify, Realty's election will be terminated, and Realty will not be permitted to file a new election to obtain such tax treatment until the fifth taxable year following the termination. However, if Realty's failure to qualify was due to reasonable cause and not due to willful neglect and if certain other requirements are met, Realty would be permitted to file a new election to be treated as a REIT for the year following the termination. If Realty voluntarily revokes its election for any year, it will not be eligible to file a new election until the fifth taxable year following such revocation. If Realty fails to qualify for taxation as a REIT in any taxable year and the above relief provisions do not apply, then Realty would be subject to tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. Distributions to shareholders of Realty with respect to any year in which Realty failed to qualify would not be deductible by Realty nor would they be required to be made. In such event, distributions to shareholders, to the extent out of current or accumulated earnings and profits, would be taxed as ordinary income and subject to certain limitations of the Code, eligible for the dividends-received deduction for corporations (see "Taxation of Realty's Shareholders"). Failure to qualify could result in Realty incurring substantial indebtedness (to the extent borrowings are feasible) or disposing of substantial investments, in order to pay the resulting taxes or, in the discretion of Realty, to maintain the level of Realty's distributions to its shareholders. 25 ITEM 1. BUSINESS (CONTINUED) - ---------------- TAXATION OF REALTY'S SHAREHOLDERS So long as Realty qualifies for taxation as a REIT, distributions made to its shareholders out of current or accumulated earnings and profits (or deemed to be from current or accumulated earnings or profits), other than capital gain dividends (discussed below), will be dividends taxable as ordinary income. Distributions to shareholders of a REIT are not eligible for the dividends- received deduction for a corporation. Dividends to shareholders that are properly designated by Realty as capital gain dividends generally will be treated as long-term capital gain (to the extent they do not exceed Realty's actual net capital gain for the taxable year) regardless of how long a shareholder has owned his or her shares. However, corporate shareholders may be required to treat up to 20% of certain capital gain dividends as ordinary income. In general, any gain or loss realized upon a taxable disposition of shares will be treated as long-term capital gain or loss if the shares have been held for more than twelve months and otherwise as short-term capital gain or loss. However, if a shareholder receives a long-term capital gain dividend and such shareholder has held his or her stock for six months or less, any loss realized on the subsequent sale of the shares will, to the extent of the gain, be treated as long-term capital loss. Certain constructive ownership rules apply to determine the holding period. In the event that Realty distributes cash generated by its activities which exceeds its net earnings, and provided there are no undistributed current or accumulated earnings and profits and the distribution does not qualify as a "deficiency dividend," such distributions will constitute a return of capital to the extent they do not exceed a shareholder's tax basis for the shareholder's shares and will be tax free to the shareholder. In such event, the tax basis of the shares held by each shareholder must be reduced correspondingly by the amount of such distributions. If such distributions exceed the tax basis of the shares of a shareholder, the shareholder will recognize capital gain in an amount equal to such excess, provided the shareholder holds the shares as a capital asset. Shareholders may not include on their own returns any of Realty's ordinary or capital losses. Realty will notify each shareholder after the close of its taxable year as to the portions of the distributions that constitute ordinary income, return of capital and capital gain. For this purpose, any dividends declared in October, November or December of a year, which are payable to shareholders of record on any day of such a month, shall be treated as if they had been paid and received on December 31 of such year, provided such dividends are actually paid in January of the following year. Shareholders are required to include on their own returns any ordinary dividends in the taxable year in which such dividends are received. If in any taxable year Realty does not qualify as a REIT, it will be taxed as a corporation, and distributions to its shareholders will neither be required to be made nor will they be deductible by Realty in computing its taxable income, with the result that the assets of Realty and the amounts available for distribution to shareholders would be reduced to the extent of any tax payable. Disqualification as a REIT could occur even though Realty had previously distributed to its shareholders all of its income for such year, or years, in which it did not qualify as a REIT. In such circumstances, distributions, to the extent made out of Realty's current or accumulated earnings and profits, would be taxable to the shareholders as dividends, but, subject to certain limitations of the Code, would be eligible for the dividends-received deduction for corporations. TAX-EXEMPT INVESTORS The Internal Revenue Service has ruled that amounts distributed by a REIT to a tax-exempt employee's pension trust do not constitute ''unrelated trade or business income" and should therefore be nontaxable to such trust. This ruling does not apply to the extent the tax-exempt investor has borrowed to acquire shares of the REIT's stock. Moreover, the application of this ruling is subject to additional limitations that are beyond the scope of this disclosure. 26 ITEM 1. BUSINESS (CONTINUED) - ---------------- STATE AND TERRITORIAL TAXES The state or territorial income tax treatment of Realty and its shareholders may not conform to the federal income tax treatment above. As a result, prospective shareholders should consult their own tax advisors for an explanation of the effect of state and territorial tax laws on their investment in Realty. FOREIGN INVESTORS The preceding discussion does not address the federal income tax consequences to foreign investors of an investment in Realty. Foreign investors should consult their own tax advisors concerning the federal income tax considerations to them of the ownership of shares in Realty. BACKUP WITHHOLDING The Code imposes a modified form of "backup withholding" for payments of interest and dividends. This withholding applies only if a shareholder, among other things: (i) fails to furnish Realty with a properly certified taxpayer identification number; (ii) furnishes Realty with an incorrect taxpayer identification number; (iii) fails to report properly interest or dividends from any source or; (iv) under certain circumstances, fails to provide Realty or his or her securities broker with a certified statement, under penalty of perjury, that he or she is not subject to backup withholding. The backup withholding rate is 31% of "reportable payments" which include dividends. Shareholders should consult their tax advisors as to the procedure for ensuring that Realty distributions to them will not be subject to backup withholding. TAXATION OF OPERATING COMPANY Operating Company pays ordinary corporate income taxes on its taxable income. Any income, net of taxes, will be available for retention in Operating Company's business or for distribution to shareholders as dividends. Any dividends distributed by Operating Company will be subject to tax at ordinary rates and generally will be eligible for the dividends received deduction for corporate shareholders to the extent of Operating Company's current or accumulated earnings and profits. Distributions in excess of current or accumulated earnings and profits are treated first, as a return of investment and then, to the extent that such distribution excludes a shareholder's investment, as gain from the sale or exchange of such shares. However, there is no tax provision which requires Operating Company to distribute any of its after-tax earnings and Operating Company does not expect to pay cash dividends in the foreseeable future. FUTURE LEGISLATION It should be noted that future legislation could be enacted or regulations promulgated, the nature and likelihood of which cannot be predicted, that might change in whole or in part, the income tax consequences summarized herein and reduce or eliminate the advantages which may be derived from the ownership of paired common stock. The foregoing is a summary of some of the more significant provisions of the Code as it relates to REITs and is qualified in its entirety by reference to the Code and regulations promulgated thereunder. ITEM 2. PROPERTIES - ------------------- Information concerning property owned by Realty and Operating Company may be found under Item 1. "Business." 27 ITEM 3. LEGAL PROCEEDINGS - ------------------------- Certain claims, suits and complaints arising in the ordinary course of business have been filed or were pending against Realty and/or Operating Company and its subsidiaries at December 31, 1993. In the opinion of the managements of Realty and Operating Company, all such matters are adequately covered by insurance or, if not so covered, are without merit or are of such kind, or involve such amounts, as would not have a significant effect on the financial position or results of operations of Realty and Operating Company if disposed of unfavorably. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ----------------------------------------------------------- Not applicable. ITEM 4A. EXECUTIVE OFFICERS OF REALTY AND OPERATING COMPANY - ----------------------------------------------------------- (a) The names, ages and business experience of Realty's executive officers during the past five years are set forth below:
NAME AND AGE BUSINESS EXPERIENCE DURING ------------ THE PAST FIVE YEARS ----------------------------------------------- Sherwood C. Chillingworth, 67 Vice Chairman of the Board and Chief Executive Officer since March 16, 1994; Executive Vice President, Oak Tree Racing Association January 1993-present; Vice President and General Counsel, Oak Tree Racing Association April 1992- December 1992; President, Chillingworth Corporation 1975-1992. Glennon E. King, 50 Acting Chief Financial Officer since March 16,1994; Acting Chief Executive Officer February 18-March 15, 1994; Vice President-Finance of Operating Company 1982-1993; Controller of Operating Company 1973-1993.
Each executive officer of Realty is appointed by the Board of Directors annually and holds office until his successor is duly appointed. (b) The names, ages and business experience of Operating Company's executive officers during the past five years are set forth below:
NAME AND AGE BUSINESS EXPERIENCE DURING ------------ THE PAST FIVE YEARS ----------------------------------------------- Stephen F. Keller, 55 President and Chief Executive Officer since February 1993; President and Chief Operating Officer 1991-February 1993; Attorney, Fulbright & Jaworski, of counsel, 1991; Attorney, Lillick & McHose, 1962-1990; Vice Chairman, Seidler Amdec Securities, Inc. 1988-1990. Clifford C. Goodrich, 51 Vice President since 1989; President, LATC since 1989; Executive Vice President and General Manager, LATC, 1989; Vice President and Assistant General Manager, LATC, 1980-1988. Alexander W. Ingle, 51 Vice President since 1986; Secretary/Treasurer since 1979. Richard D. Brumbaugh, 47 Vice President - Finance since March 1, 1994; Controller, LATC, since 1985; Assistant Controller, LATC 1972-1985.
Each executive officer of Operating Company is appointed by the Board of Directors annually and holds office until a successor is duly appointed. 28 PART II ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED SHAREHOLDER - -------------------------------------------------------------------------- MATTERS - ------- The paired Common Stock of Realty and Operating Company is traded on the New York Stock Exchange as Santa Anita Realty Enterprises under the symbol SAR. The following table sets forth the high and low closing prices for the paired Common Stock on the New York Stock Exchange Composite Tape and the cash dividends declared by Realty for the periods indicated. Operating Company has not declared cash dividends.
CASH DIVIDENDS HIGH LOW DECLARED ----- ----- ----------- 1992 1st Quarter $20-7/8 $17-1/2 $ .34 2nd Quarter 18-5/8 16-7/8 .34 3rd Quarter 18-1/2 17-1/2 .34 4th Quarter 18-3/4 17-1/8 .34 ------- $ 1.36(a) ======= 1993 1st Quarter $21-5/8 $17-1/2 $ .34 2nd Quarter 20-3/8 16 .34 3rd Quarter 19-1/8 16-5/8 .34 4th Quarter 19-1/2 17-3/8 .34 ------- $ 1.36(b) ======= 1994 1st Quarter (through March 8) $18-1/8 $16-3/4 $ .34 =======
- ---------- (a) $.56 of the dividends paid per share during 1992 represented a return of capital. (b) $.56 of the dividends paid per share during 1993 represented a return of capital. A regular quarterly dividend of $.34 per share is payable on April 8, 1994 to shareholders of record on March 8, 1994. The closing price of the paired Common Stock on the New York Stock Exchange Composite Tape on March 8, 1994 was $17- 5/8 per share. As of March 8, 1994, there were approximately 22,000 holders of the paired Common Stock, including the beneficial owners of shares held in nominee accounts. Realty intends to pay regular quarterly dividends based upon a percentage of management's estimate of funds from operations for the entire year and, if necessary, to pay special dividends after the close of the year to effect distribution of at least 95% of its taxable income (other than net capital gains) (see item 1. "Business -- Income Tax Matters -- REIT Requirements"). In order to retain earnings to finance its capital improvement program and for the growth of its business, Operating Company has not paid cash dividends since its formation and does not expect to pay cash dividends in the foreseeable future. 29 ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED SHAREHOLDER - -------------------------------------------------------------------------- MATTERS (CONTINUED) - ------- The statement on the face of this annual report on Form 10-K regarding the aggregate market value of paired voting stock of Realty and Operating Company held by nonaffiliates is based on the assumption that all directors and officers of Realty and Operating Company were, for purposes of this calculation only (and not for any other purpose), affiliates of Realty or Operating Company. ITEM 6. SELECTED FINANCIAL DATA - -------------------------------- The financial data set forth on the following pages includes the information for Realty and Operating Company combined and separate for the five- year period ended December 31, 1993. The separate results of operations and separate net income (loss) per share of Realty and Operating Company cannot usually be added together to total the combined results of operations and net income per share because of adjustments and eliminations arising from inter-entity transactions. The following data should be read in conjunction with the information set forth elsewhere herein regarding income tax matters (see item 1. "Business -- Income Tax Matters"). The statements of operations of Realty and Operating Company combined and separate for each of the five years ended December 31, 1993 have been audited by Kenneth Leventhal & Company, independent certified public accountants. The selected financial data should be read in conjunction with the other financial statements and related notes thereto included elsewhere in this Joint Annual Report. 30 ITEM 6. SELECTED FINANCIAL DATA (CONTINUED) - --------------------------------
REALTY AND OPERATING COMPANY COMBINED Year Ended December 31, (in thousands, except per share figures) --------------------------------------------------------- 1993 1992 1991 1990 1989 -------- -------- -------- -------- --------- STATEMENTS OF OPERATIONS DATA: Total revenues $107,535 $107,002 $103,814 $103,928 $ 98,855 Costs and expenses 109,657 99,783 93,861 88,131 82,070 -------- -------- -------- -------- -------- Income (loss) before income taxes (2,122) 7,219 9,953 15,797 16,785 Provision (benefit) for income taxes (2,523) (158) 37 206 - -------- -------- -------- -------- -------- Net income $ 401 $ 7,377 $ 9,916 $ 15,591 $ 16,785 ======== ======== ======== ======== ======== Net income per common share $ .04 $ .66 $ .89 $ 1.41 $ 1.61 ======== ======== ======== ======== ======== Dividends paid by Realty per common share $ 1.36 $ 1.36 $ 2.08 $ 2.08 $ 2.08 ======== ======== ======== ======== ======== Dividends declared by Realty per common share $ 1.36 $ 1.36 $ 1.90 $ 2.08 $ 2.08 ======== ======== ======== ======== ======== Weighted average shares outstanding 11,141 11,141 11,141 11,092 10,426 ======== ======== ======== ======== ======== BALANCE SHEET DATA: Total assets $308,266 $288,931 $263,646 $255,987 $260,366 ======== ======== ======== ======== ======== Loans payable $187,898 $168,505 $136,718 $113,491 $114,489 ======== ======== ======== ======== ======== Shareholders' equity $ 75,522 $ 90,274 $ 98,051 $109,461 $113,332 ======== ======== ======== ======== ========
31 ITEM 6. SELECTED FINANCIAL DATA (CONTINUED) - -------------------------------
SANTA ANITA REALTY ENTERPRISES, INC. YEAR ENDED DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE FIGURES) ------------------------------------------------------------------ 1993 1992 1991 1990 1989 ---------- ---------- ----------- ----------- ----------- STATEMENTS OF OPERATIONS DATA: Revenues Rental property $ 38,953 $ 35,290 $ 30,882 $ 28,093 $ 22,253 Rental income from Operating Company (a) 11,634 12,683 11,817 12,505 13,146 Interest and other 4,991 2,318 2,709 3,503 6,195 -------- -------- -------- -------- -------- Total revenues 55,578 50,291 45,408 44,101 41,594 -------- -------- -------- -------- -------- Costs and expenses Rental property operating expense 16,522 13,533 12,039 10,636 7,616 Depreciation and amortization 8,795 8,156 7,418 6,563 5,875 General and administrative 4,244 4,156 4,292 3,952 3,002 Interest and other 12,477 12,331 11,991 10,497 10,655 Losses (earnings) from unconsolidated joint ventures 1,993 1,446 83 (1,311) (115) Minority interest in earnings (losses) of consolidated joint ventures 477 458 (114) (97) 271 Loss on disposition of multifamily and industrial operations 10,974 - - - - -------- -------- -------- -------- -------- Total costs and expenses 55,482 40,080 35,709 30,240 27,304 -------- -------- -------- -------- -------- Income before income taxes 96 10,211 9,699 13,861 14,290 Benefit for income taxes (2,523) - - - - -------- -------- -------- -------- -------- Net income $ 2,619 $ 10,211 $ 9,699 $ 13,861 $ 14,290 ======== ======== ======== ======== ======== Net income per common share $.23 $.91 $.86 $1.23 $1.35 ======== ======== ======== ======== ======== Dividends paid per common share $1.36 $1.36 $2.08 $2.08 $2.08 ======== ======== ======== ======== ======== Dividends declared per common share $1.36 $1.36 $1.90 $2.08 $2.08 ======== ======== ======== ======== ======== Weighted average shares outstanding 11,256 11,256 11,257 11,224 10,582 ======== ======== ======== ======== ======== BALANCE SHEET DATA: Total assets $271,685 $254,254 $229,736 $219,400 $229,445 ======== ======== ======== ======== ======== Loans payable $184,644 $164,587 $136,718 $113,491 $114,489 ======== ======== ======== ======== ======== Shareholders' equity $ 68,819 $ 81,509 $ 86,608 $ 98,447 $105,808 ======== ======== ======== ======== ========
- ---------- (a) includes LATC, Oak Tree and charity days 32 ITEM 6. SELECTED FINANCIAL DATA (CONTINUED) - --------------------------------
SANTA ANITA OPERATING COMPANY YEAR ENDED DECEMBER 31, (IN THOUSANDS,EXCEPT PER SHARE FIGURES) ------------------------------------------------------ 1993 1992 1991 1990 1989 --------- --------- -------- -------- -------- STATEMENTS OF OPERATIONS DATA: Revenues Horse racing $49,081 $53,683 $51,521 $52,562 $52,345 Food and beverage 11,695 12,589 13,808 13,693 13,700 Interest and other 571 1,382 3,224 4,329 1,953 ------- ------- ------- ------- ------- Total revenues 61,347 67,654 68,553 70,584 67,998 ------- ------- ------- ------- ------- Costs and expenses Direct operating costs 40,981 45,089 45,093 45,351 43,325 Food and beverage cost of sales 3,411 3,462 3,555 3,512 3,547 Depreciation and amortization 2,768 2,732 2,634 2,403 2,058 General and administrative 6,693 8,361 6,868 6,683 5,834 Interest 493 194 179 119 203 Rental expense to Realty 9,233 10,955 9,928 10,436 10,283 ------- ------- ------- ------- ------- Total costs and expenses 63,579 70,793 68,257 68,504 65,250 ------- ------- ------- ------- ------- Income (loss) before income taxes (2,232) (3,139) 296 2,080 2,748 Provision (benefit) for income taxes - (243) 37 206 - ------- ------- ------- ------- ------- Net income (loss) $(2,232) $(2,896) $ 259 $ 1,874 $ 2,748 ======= ======= ======= ======= ======= Net earnings (loss) per common share $ (.20) $ (.26) $ .02 $ .17 $ .26 ======= ======= ======= ======= ======= Dividends declared per common share $ - $ - $ - $ - $ - ======== ======== ======== ======== ======== BALANCE SHEET DATA: Total assets $42,621 $39,458 $39,828 $42,752 $38,497 ======= ======= ======= ======= ======= Loans payable $ 3,254 $ 3,918 $ - $ - $ - ======= ======= ======== ======== ======== Shareholders' equity $12,274 $14,506 $17,402 $17,150 $14,591 ======= ======= ======= ======= =======
33 ITEM 7. 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 years ended December 31, 1993, 1992 and 1991, together with the liquidity and capital resources as of December 31, 1993. RESULTS OF OPERATIONS -- 1993 COMPARED WITH 1992 Realty's revenues are derived principally from the rental of real property and interest on investments. Total revenues for the year ended December 31, 1993 were $55,578,000 compared with $50,291,000 reported for the year ended December 31, 1992, a 10.5% increase. The higher 1993 revenues were primarily due to increases in rental revenue from real estate properties along with the interest earned on the California Franchise Tax Board refund discussed below. Rental revenue from real estate properties accounted for $50,587,000 of the total revenues for the year ended December 31, 1993, a 5.4% increase from the $47,973,000 recorded for 1992. The most significant source of rental revenue is the lease of Santa Anita Racetrack. Revenues for the year ended December 31, 1993 were $11,634,000, a decrease of 8.3% from the $12,683,000 reported for the year ended December 31, 1992. The decrease in rental income resulted from a decline in average daily wagering and fewer race days. Management believes that the decline is attributable to a weak California economy and the continued negative effect of inter-track wagering on the on-track attendance and wagering. The lease with LATC for Santa Anita Racetrack expires in 1994. It is anticipated by management that the lease will be renewed on terms which, in light of Operating Company's declining profitability, may result in reduced revenue to Realty (see Item 1. "Business - Operating Company" and Item 6. "Selected Financial Data - Operating Company"). Rental revenues from other real estate investments for the year ended December 31, 1993 were $38,953,000, an increase of 10.4% from those reported in 1992 of $35,290,000. The 1993 increases are due primarily to additional revenues from a new multifamily property acquisition in 1993 and the full year inclusion of several multifamily properties acquired in 1992. Interest and other income increased 115.3% to $4,991,000 for the year ended December 31, 1993 from $2,318,000 reported for 1992. The increase is primarily attributable to $3,211,000 of interest income in 1993 on a tax settlement from the California Franchise Tax Board. The settlement was for tax years prior to 1980 related to Realty's predecessor. In addition to the interest earned on the settlement, Realty recorded a $2,523,000 income tax benefit. Costs and expenses of $55,482,000 for the year ended December 31, 1993 increased 38.4% from those reported for 1992 of $40,080,000. The increase is primarily due to the loss on the disposition of the multifamily and industrial operations to Pacific and increases in depreciation and rental property operating expenses associated with the acquisitions of real estate projects noted above. In June 1993, Realty's Board of Directors approved management's recommendation to recapitalize certain assets of Realty. Pursuant to this recapitalization, 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 its proposed public offering of common stock. The transaction was scheduled to be completed in two parts: (1) Realty would sell all of its apartments and industrial properties to Pacific with the exception of Realty's interest in the Baldwin Industrial Park joint venture; and (2) Pacific would enter into a binding agreement to buy Realty's interest in Baldwin Industrial Park. 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 34 ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ----------------------------------------------------------------------- RESULTS OF OPERATIONS (continued) --------------------- space, located in the State of Washington (the "Transferred Properties"). Realty's corporate headquarters building and related assets were also acquired by Pacific. The sale of the Transferred Properties followed the public offerings of common stock and convertible subordinated debentures by Pacific. Pursuant to the Purchase and Sale Agreement, Pacific agreed to buy Realty's interest in Baldwin Industrial Park subject to satisfaction of certain conditions, for a minimum price of $8.9 million payable in additional shares of Pacific common stock with the final price dependent upon completion of negotiations with other owners of Baldwin Industrial Park and an appraisal process. Management believes the sale of Realty's interest in Baldwin Industrial Park will be completed in the second half of 1994. Pacific is required to issue to Realty non-refundable letters of credit totaling up to $2.5 million by March 31, 1994 to secure its obligation to acquire Realty's interest in Baldwin Industrial Park and pay for the corporate headquarters building and other assets related to the Transferred Properties. In consideration of the sale of the Transferred Properties, Realty received approximately $44.4 million in cash and 149,900 shares of the common stock of Pacific. In addition, Realty was relieved of approximately $44.3 million of mortgage debt on the Transferred Properties. Realty will also receive, at the time the acquisition of Baldwin Industrial Park is completed, up to $1.2 million in additional common stock of Pacific as consideration for its corporate headquarters and other net assets related to the Transferred Properties. The two parts of the above transaction will result in a loss of $10,974,000. This loss has been reflected in the Realty and Realty and Operating Company combined statements of operations for the year ended December 31, 1993. If the Baldwin Industrial Park portion of the transaction described above does not occur, an additional loss of approximately $5,900,000 will be recognized by Realty in 1994. (See "Notes to Financial Statements - Note 2 - Disposition of Multifamily and Industrial Properties Subsequent to Year End.") In connection with the sale, the executive officers, various managers and most other employees of Realty resigned and became officers and employees of Pacific on February 18, 1994. Realty and Pacific have also entered into a one-year management agreement whereby Pacific has agreed to provide management services to Realty. Finally, with respect to the common stock of Pacific owned by Realty, Pacific has entered into a registration rights agreement with Realty which, under certain circumstances, allows Realty to require the registration of the Pacific stock it owns. Net income for the year ended December 31, 1993 was $2,619,000, a decrease of 74.4% compared with the $10,211,000 reported in 1992 due to the factors described above. RESULTS OF OPERATIONS -- 1992 COMPARED WITH 1991 Realty's revenues were derived principally from the rental of real property. Total revenues for the year ended December 31, 1992 were $50,291,000 compared with $45,408,000 reported for the year ended December 31, 1991, a 10.8% increase. Rental revenue from real estate properties amounted to $47,973,000 for the year ended December 31, 1992, up 12.4% from the year-earlier level of $42,699,000. In 1992, the most significant source of rental revenue was the lease with Santa Anita Racetrack. Revenues for 1992 rose to $12,683,000, up 7.3% from $11,817,000 reported in 1991. The increase resulted from an increase in total wagering at Santa Anita Racetrack due to six additional racing days during 1992 and increases in out-of-state simulcast revenues. Rental revenues from other real estate investments for 1992 increased to $35,290,000, up 14.3% from $30,882,000 in 1991. This increase was due primarily to additional revenues from new property 35 ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ----------------------------------------------------------------------- RESULTS OF OPERATIONS (continued) --------------------- acquisitions, the receipt of previously reserved past due rents and increased revenues from Santa Anita Fashion Park. Interest and other income declined 14.4% to $2,318,000 in 1992 from $2,709,000 in 1991. The decrease is due to reduced funds held for investment and lower interest rates on funds held for investment, offset in part by the sale of a neighborhood shopping center in Phoenix, Arizona, net of a loss on a lease agreement, which generated a net gain of $646,000 (net of cost of $4,475,000). Realty reported a gain of $177,000 (net of cost of $223,000) in 1991 from the sale of a small land parcel in Southern California. Costs and expenses increased 12.2 percent to $40,080,000 in 1992, up from $35,709,000 in 1991. The increase is due primarily to higher levels of depreciation, interest and rental property operating expenses associated with the acquisition of 1,109 new apartment units, and the expensing in 1992 of $580,000 of nonrecurring charges for the engagement of consultants to review the operations of the Realty and to assist in preparing a long range strategic plan. Realty reported a loss of $1,446,000 from the Towson Town Center unconsolidated joint venture primarily due to depreciation (the project was under construction in the prior periods). Net income for the year ended December 31, 1992 increased 5.3% to $10,211,000 compared with income of $9,699,000 reported in 1991 due to the factors described above. LIQUIDITY AND CAPITAL RESOURCES Realty had liquidity available from a combination of short- and long- term sources. Short-term sources included cash of $7,633,000 at December 31, 1993. In connection with the sale of properties to Pacific, Realty paid down its lines of credit by $44.4 million and transferred to Pacific $44.3 million of indebtedness associated with the multifamily and industrial properties. As of December 31, 1993, Realty was not in compliance with certain covenants contained in its credit agreements. The banks have waived such noncompliance through April 30, 1994 conditioned, among other things, on no additional borrowings under the credit agreements (at December 31, 1993, $78,361,000 loans and letters of credit were outstanding under these agreements). Realty is in the process of renegotiating these credit agreements. Management is of the opinion that Realty has sufficient liquidity from other sources to assure that its operations will not be adversely affected pending this renegotiation. Realty had approximately $13,591,000 of long-term receivables at December 31, 1993, with maturities ranging from 1994 to 2002. For the year ended December 31, 1993, long-term receivables earned interest income of $996,000. In the opinion of management, as of December 31, 1993 Realty's real estate investments had a 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. IMPACT OF INFLATION Realty's management believes that, for the foreseeable future, revenues and income from Santa Anita Racetrack, Fashion Park and its other real estate should not be adversely affected in a material way by inflationary pressures. Leases at Fashion Park include clauses enabling Realty to participate in tenants' future increases and gross revenues. Tenant leases on many other properties include provisions which tie the lease payments to the Consumer Price Index or include step-up provisions. 36 ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ----------------------------------------------------------------------- RESULTS OF OPERATIONS (continued) - --------------------- SANTA ANITA OPERATING COMPANY 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 years ended December 31, 1993, 1992 and 1991 together with liquidity and capital resources as of December 31, 1993. RESULTS OF OPERATIONS -- 1993 COMPARED WITH 1992 Operating Company derives its revenues from thoroughbred horse racing activities. Total revenues were $61,347,000 in 1993, down 9.3% from $67,654,000 in 1992. In 1993, live thoroughbred horse racing at Santa Anita Racetrack totaled 83 days compared with 94 days in 1992. Total and average daily on- track attendance at the live racing events in 1993 were down 20.4% and 9.8%, respectively, from 1992. Total wagering at the live racing events was down 10.6% while average daily wagering increased 1.2% in 1993 compared with 1992. On-track wagering and inter-track wagering declined 20.2% and 13.6%, respectively, while interstate wagering increased 43.8% in 1993 compared with 1992. In addition to a weak California economy and the continued negative effect of inter-track wagering on the on-track attendance and wagering, management believes the declines in average daily attendance and wagering were the result of inclement weather (in excess of 41 inches of rain, three times normal) during much of the 1992-1993 race meet, which caused the cancellation of two full race days and two partial race days in January. Also, Santa Anita Racetrack operated 42 days in 1993 and 43 days in 1992 as a satellite wagering facility for Del Mar and 99 days in 1993 and 101 days in 1992 as a satellite wagering facility for Hollywood Park. Total attendance and wagering as a satellite wagering facility were down 3.5% and 2.5%, respectively, in 1993 compared with 1992. Average daily attendance and wagering were down 1.4% and 0.4%, respectively, in 1993 compared with 1992. Horse racing revenues and direct operating costs declined in 1993 compared with 1992 due to fewer race days, lower attendance and lower wagering at both the live racing events and as a satellite wagering facility. Horse racing revenues in 1993 were $49,081,000 down 8.6% from $53,683,000 in 1992. Direct horse racing operating costs in 1993 were $40,981,000, down 9.1% from $45,089,000 in 1992. Food and beverage revenues and cost of sales were also lower in 1993 compared with 1992 due to the factors described above. As a percentage of sales, cost of sales increased to 29.2% in 1993 compared with 27.5% in 1992. General and administrative expenses were $6,693,000 in 1993, down 19.9% from $8,361,000 in 1992 due to administrative staff reductions in 1993 and to the costs related to the engagement of outside consultants in the prior year to review the Operating Company's operations. Partially offsetting the declines in general and administrative expenses, however, was the one-time charge of $759,000 in 1993 for the post-retirement benefits payable as a result of the death of the former Chairman of the Board of Operating Company. Interest expense increased to $493,000 in 1993 from $194,000 in 1992 due to a higher level of debt at LATC. Rental expense to Realty was $9,233,000 in 1993 compared with $10,955,000 in 1992. The decrease in rental expense of $1,722,000 reflects the decline in wagering. 37 ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ----------------------------------------------------------------------- RESULTS OF OPERATIONS (continued) - --------------------- Due to the revenue and expense items previously discussed, Operating Company reported a net loss of $2,232,000 or $.20 per share in 1993 compared with a net loss of $2,896,000 or $.26 per share in 1992. RESULTS OF OPERATIONS -- 1992 COMPARED WITH 1991 In 1992, the expansion of intertrack wagering within Los Angeles and Orange Counties caused intertrack revenues to increase $7,657,000 while on-track revenues decreased $7,246,000. On-track attendance-related revenues declined as a result of a 24.0% drop in on-track attendance at the 1991-1992 Santa Anita race meet and a decline in on-track wagering of $147,248,000, or 31.3 percent at the same meet. The on-track attendance and wagering decreases were, in part, caused by the continuing economic recession in Southern California. These changes, combined with a decline in interest income of $1,842,000 as a result of declining interest rates, primarily account for the total decline of $899,000 in total revenues to $67,654,000 for the year ended December 31, 1992. The decline in revenues from live racing events was partially offset by an increase in revenue by Santa Anita Racetrack operating as a satellite location, selected price increases and increased interstate simulcasting revenues. Santa Anita Racetrack operated as a satellite location for Hollywood Park for an additional 69 days in 1992. Direct operating costs related to horse racing operations were $45,089,000 in 1992, virtually equal with $45,093,000 reported in 1991, in spite of the fact Santa Anita Racetrack operated as a satellite location for Hollywood Park for an additional 69 days. General and administrative expenses were $8,361,000 for 1992, an increase of $1,493,000 or 21.7 percent, compared with the $6,868,000 in 1991. The increase resulted primarily from the expanded satellite racing season at Santa Anita Racetrack and the engagement of outside consultants ($660,000) to review the company's operations, including cost efficiencies, and to identify opportunities to enhance revenue. Depreciation and amortization expenses were $2,732,000 for 1992, an increase of $98,000 or 3.7 percent, compared with $2,634,000 reported for 1991. These non-cash charges resulted from the ongoing capital improvement program at Santa Anita Racetrack. Total rent paid to Realty was $10,955,000 for the year ended December 31, 1992, compared with $9,928,000 in 1991. The increase of $1,027,000 reflects increases in interstate simulcast revenues offset by decreases in the on-track and intertrack wagering. Due to the revenue and expense items previously discussed, Operating Company reported a net loss of $2,896,000 or $.26 per share in 1992 compared with net income of $259,000 or $.02 per share in 1991. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1993, Operating Company's sources of liquidity included cash and short-term investments of $14,388,000 and an unsecured line of credit with Realty of $10,000,000, of which approximately $3,500,000 was utilized in connection with a guarantee of a capital lease. Operating Company's ability to utilize Realty's line of credit is dependent upon Realty's liquidity and capital resources. As a result of Realty's noncompliance with certain covenants contained within its credit agreements, Realty is currently unable to borrow additional moneys under its lines of credit. Accordingly, borrowings by Realty under these agreements would not provide a source of liquidity for Operating Company. Realty is in the process of renegotiating its credit agreements. (See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Realty - Liquidity and Capital Resources"). For the year ended December 31, 1993, short-term investments earned interest income of $326,000. 38 ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ----------------------------------------------------------------------- RESULTS OF OPERATIONS (continued) - --------------------- 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 uncashed winning pari-mutuel tickets payable to the public. IMPACT OF INFLATION LATC's expenses are heavily labor-intensive with labor rates being covered by negotiated contracts with labor unions. Labor contracts with the pari- mutuel, service and operational employees were successfully renegotiated in April 1992. These new contracts expire in 1995. Management continues to address cost containment and labor productivity in all areas. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- See Index to Financial Statements for a listing of the financial statements and supplementary data filed with this report. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ------------------------------------------------------------- Not applicable. 39 PART III Pursuant to General Instruction G(3) to Form 10-K, the information called for by this part of Form 10-K is incorporated herein by reference to the registrants' definitive joint proxy statement to be filed, pursuant to Regulation 14A, with the Securities and Exchange Commission not later than 120 days after the end of the year ended December 31, 1993. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- (a) The following documents are filed as part of this report: 1. Financial Statements See Index to Financial Statements 2. Financial Statement Schedules See Index to Financial Statement Schedules 3. Exhibits See Exhibit Index (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the last quarter of the fiscal year ended December 31, 1993. 40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Realty and Operating Company 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: /s/ SHERWOOD C. CHILLINGWORTH By: /s/ 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) March 29, 1994 March 29, 1994 ---------------------------- ---------------------------- Date Date By: /s/ GLENNON E. KING /s/ RICHARD D. BRUMBAUGH ---------------------------- ---------------------------- Glennon E. King Richard D. Brumbaugh Acting Chief Financial Officer Vice President-Finance (Principal Financial and (Principal Financial and Accounting Officer) Accounting Officer) March 29, 1994 March 29, 1994 ---------------------------- ----------------------------- Date Date 41 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants and in the capacity and on the date indicated. /s/ STEPHEN F. KELLER Chairman of the Board and Director of Realty, President, Chief - ------------------------ Executive Officer (Principal Executive Officer), and Director Stephen F. Keller of Operating Company /s/ WILLIAM C. BAKER Director of Operating Company and Director of Realty - ------------------------ William C. Baker /s/ RICHARD S. COHEN Director of Operating Company and Director of Realty - ------------------------ Richard S. Cohen /s/ ARTHUR LEE CROWE Director of Operating Company and Director of Realty - ------------------------ Arthur Lee Crowe /s/ CLIFFORD C. GOODRICH Vice President and Director of Operating Company and Director - ------------------------ of Realty Clifford C. Goodrich /s/ ROBERT H. GRANT Director of Operating Company and Director of Realty - ------------------------ Robert H. Grant /s/ TAYLOR B. GRANT Director of Realty - ------------------------ Taylor B. Grant /s/ LINDA K. MENNIS Director of Operating Company - ------------------------ Linda K. Mennis /s/ ROBERT E. MORGAN Director of Operating Company and Director of Realty - ------------------------ Robert E. Morgan /s/ THOMAS P. MULLANEY Director of Operating Company and Director of Realty - ------------------------ Thomas P. Mullaney /s/ CHARLES H. STRUB II Director of Realty - ------------------------ Charles H. Strub II /s/ JOHN M. STRUB Director of Operating Company - ------------------------ John M. Strub /s/ ROBERT H. STRUB Director of Realty - ------------------------ Robert H. Strub
Date: March 29, 1994 --------------- 42 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS
PAGE ---- INDEPENDENT AUDITORS' REPORT 45 SANTA ANITA REALTY ENTERPRISES, INC. Consolidated Balance Sheets as of December 31,1993 and 1992 46 Consolidated Statements of Operations for the years ended December 31, 1993, 1992 and 1991 47 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1993, 1992 and 1991 48 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991 49 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES Consolidated Balance Sheets as of December 31, 1993 and 1992 50 Consolidated Statements of Operations for the years ended December 31, 1993, 1992 and 1991 51 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1993, 1992 and 1991 52 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991 53 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES COMBINED Combined Balance Sheets as of December 31, 1993 and 1992 54 Combined Statements of Operations for the years ended December 31, 1993, 1992 and 1991 55 Combined Statements of Shareholders' Equity for the years ended December 31, 1993, 1992 and 1991 56 Combined Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991 57 NOTES TO FINANCIAL STATEMENTS 58 H-T ASSOCIATES Independent Auditors' Reports 96 --Current Year Auditor --Predecessor Auditors Financial Statements and Notes 99
43 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENT SCHEDULES The schedules listed below relate to Realty and Operating Company as indicated:
SCHEDULES FOR --------------------------- SCHEDULE OPERATING - --------- REALTY COMPANY ------------ ------------ (REFERENCE IS TO PAGE NUMBER) I Marketable Securities - Other Investments as of December 31, 1993 Omitted 84 II Amounts Receivable from Related Parties and Underwriters, Promoters and Employees Other Than Related Parties for the years ended December 31, 1993, 1992 and 1991 85 87 V Property, Plant and Equipment for the years ended December 31, 1993, 1992 and 1991 Omitted 89 VI Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment for the years ended December 31, 1993, 1992 and 1991 Omitted 90 VIII Valuation and Qualifying Accounts as of December 31, 1993 91 Omitted X Supplementary Income Statement Information for the years ended December 31, 1993, 1992 and 1991 92 93 XI Real Estate and Accumulated Depreciation as of December 31, 1993 94 Omitted
Schedules not listed above have been omitted because either the conditions under which they are required are absent, not applicable, or the required information is included in the financial statements and related notes thereto. 44 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company We have audited the financial statements and the related financial statement schedules, listed on pages 42 and 43 of: (a) Santa Anita Realty Enterprises, Inc.; (b) Santa Anita Operating Company and Subsidiaries; and (c) Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company and Subsidiaries Combined. These financial statements and financial statement schedules are the responsibility of the companies' management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the above-listed entities at December 31, 1993 and 1992 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Further, it is our opinion that the financial statement schedules referred to above present fairly, in all material respects, the information set forth therein. KENNETH LEVENTHAL & COMPANY Newport Beach, California March 1, 1994 45 SANTA ANITA REALTY ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1993 AND 1992 ASSETS
1993 1992 ------------- -------------- Real estate assets Santa Anita Racetrack, less accumulated depreciation of $18,670,000 and $18,006,000, respectively (Schedule XI) $ 6,997,000 $ 8,349,000 Commercial properties, less accumulated depreciation of $42,503,000 and $41,032,000, respectively (Notes 2, 3, 8 and Schedule XI) 221,876,000 206,677,000 Investments in unconsolidated joint ventures (Note 3) 3,616,000 5,925,000 Real estate loans and advances receivable (Note 4) 22,084,000 24,855,000 ------------ ------------ 254,573,000 245,806,000 Cash (Note 5) 7,633,000 1,671,000 Accounts receivable 4,305,000 2,716,000 Due from a former officer and a former officer of Operating Company (Note 11 and Schedule II) 81,000 184,000 Prepaid expenses and other assets 4,624,000 4,836,000 Due from (to) Operating Company 469,000 (959,000) ------------ ------------ $271,685,000 $254,254,000 ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY Real estate loans payable (Note 5 and Schedule XI) $106,731,000 $107,655,000 Other loans payable (Note 5) 77,913,000 56,932,000 Accounts payable 3,678,000 2,301,000 Other liabilities (Notes 6 and 9) 15,346,000 4,820,000 Dividends payable 3,788,000 3,788,000 ------------ ------------ 207,456,000 175,496,000 ------------ ------------ Minority interest in consolidated joint ventures (Note 3) (4,590,000) (2,751,000) Commitments and contingencies (Note 8) Shareholders' equity (Note 10) Preferred stock, $.10 par value; authorized 6,000,000 shares; none issued - - Common stock, $.10 par value; authorized 19,000,000 and 40,000,000 shares, respectively; issued and outstanding 11,256,353 and 11,256,353 shares, respectively 1,125,000 1,125,000 Additional paid-in capital 117,084,000 117,084,000 Retained earnings (deficit) (49,390,000) (36,700,000) ------------ ------------ 68,819,000 81,509,000 ------------ ------------ $271,685,000 $254,254,000 ============ ============
See accompanying notes. 46 SANTA ANITA REALTY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991 ------------- ------------ ------------- Revenues Rental property (Note 8) $38,953,000 $35,290,000 $30,882,000 Rental income from Operating Company (Note 11) 11,634,000 12,683,000 11,817,000 Interest and other (Note 7) 4,991,000 2,318,000 2,709,000 ----------- ----------- ----------- 55,578,000 50,291,000 45,408,000 ----------- ----------- ----------- Costs and expenses Rental property operating expenses 16,522,000 13,533,000 12,039,000 Depreciation and amortization 8,795,000 8,156,000 7,418,000 General and administrative 4,244,000 4,156,000 4,292,000 Interest and other (Note 5) 12,477,000 12,331,000 11,991,000 Losses from unconsolidated joint ventures (Note 3) 1,993,000 1,446,000 83,000 Minority interest in earnings (losses) of consolidated joint ventures (Note 3) 477,000 458,000 (114,000) Loss on disposition of multifamily and industrial operations (Note 2) 10,974,000 - - ----------- ----------- ----------- 55,482,000 40,080,000 35,709,000 ----------- ----------- ----------- Income before income taxes 96,000 10,211,000 9,699,000 Benefit for income taxes (Note 7) (2,523,000) - - ----------- ----------- ----------- Net income $ 2,619,000 $10,211,000 $ 9,699,000 =========== =========== =========== Weighted average number of common shares outstanding 11,256,353 11,256,413 11,256,520 =========== =========== =========== Net income per common share $.23 $.91 $.86 =========== =========== =========== Dividends declared per common share $1.36 $1.36 $1.90 =========== =========== ===========
See accompanying notes. 47 SANTA ANITA REALTY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COMMON STOCK ADDITIONAL RETAINED ------------------------- PAID-IN EARNINGS SHARES AMOUNT CAPITAL (DEFICIT) TOTAL ---------- ------------- -------------- -------------- ------------- Balance, December 31, 1990 11,256,586 $1,125,000 $117,233,000 $(19,911,000) $ 98,447,000 Dividend reinvestment plan, net (Note 1) (121) - (148,000) - (148,000) Dividends declared on common stock - - - (21,390,000) (21,390,000) Net income - - - 9,699,000 9,699,000 ---------- ---------- ------------ ------------ ------------ Balance, December 31, 1991 11,256,465 1,125,000 117,085,000 (31,602,000) 86,608,000 Dividend reinvestment plan, net (Note 1) (112) - (1,000) - (1,000) Dividends declared on common stock - - - (15,309,000) (15,309,000) Net income - - - 10,211,000 10,211,000 ---------- ---------- ------------ ------------ ------------ Balance, December 31, 1992 11,256,353 1,125,000 117,084,000 (36,700,000) 81,509,000 Dividends declared on common stock - - - (15,309,000) (15,309,000) Net income - - - 2,619,000 2,619,000 ---------- ---------- ------------ ------------ ------------ Balance, December 31, 1993 11,256,353 $1,125,000 $117,084,000 $(49,390,000) $ 68,819,000 ========== ========== ============ ============ ============
48 SANTA ANITA REALTY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991 ------------ ------------- ------------ Cash flows from operating activities: Net income $ 2,619,000 $ 10,211,000 $ 9,699,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,795,000 8,156,000 7,418,000 Net gain on sale of real estate - (646,000) (177,000) Loss on disposition of multifamily and industrial operations 10,974,000 - - Minority interest in earnings (losses) of consolidated joint ventures 477,000 458,000 (114,000) Equity in losses of unconsolidated joint ventures 1,993,000 1,446,000 83,000 Distributions from unconsolidated joint ventures - - 250,000 Net decrease (increase) in certain other assets (1,455,000) 18,000 191,000 Net increase in certain other liabilities 2,268,000 602,000 805,000 ------------ ------------ ------------ Net cash provided by operating activities 25,671,000 20,245,000 18,155,000 ------------ ------------ ------------ Cash flows from investing activities: Proceeds from sales of real estate - 5,425,000 400,000 Payments received on loans and advances receivable 4,076,000 1,152,000 362,000 Origination of loans and advances receivable (1,305,000) (9,345,000) (3,176,000) Additions and improvements to real estate assets (33,424,000) (35,588,000) (24,544,000) Investments in unconsolidated joint ventures (1,100,000) (664,000) (5,950,000) Capital distributions from unconsolidated joint ventures 1,405,000 664,000 - ------------ ------------ ------------ Net cash used in investing activities (30,348,000) (38,356,000) (32,908,000) ------------ ------------ ------------ Cash flows from financing activities: Proceeds from real estate loans payable - 11,191,000 13,789,000 Proceeds from other loans payable 20,981,000 22,832,000 34,100,000 Repayment of real estate loans payable (924,000) (6,154,000) (24,865,000) Net increase (decrease) in due from Operating Company (1,428,000) 1,000,000 (12,000) Net increase in certain other liabilities 9,635,000 728,000 1,409,000 Dividends paid (15,309,000) (15,309,000) (23,416,000) Distributions to minority interest in consolidated joint ventures, net (2,316,000) (81,000) (1,086,000) Proceeds from stock issued in connection with exercise of stock options and dividend reinvestment plan, net - (1,000) (148,000) ------------ ------------ ------------ Net cash provided by (used in) financing activities 10,639,000 14,206,000 (229,000) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 5,962,000 (3,905,000) (14,982,000) Cash and cash equivalents at beginning of year 1,671,000 5,576,000 20,558,000 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 7,633,000 $ 1,671,000 $ 5,576,000 ============ ============ ============
See accompanying notes. 49 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1993 AND 1992 ASSETS
1993 1992 ------------- ------------- Current Assets Cash $ 9,695,000 $ 6,226,000 Short-term investments, at cost (approximates market) (Schedule I) 4,693,000 3,750,000 Accounts receivable 2,789,000 1,657,000 Due from officers and a former officer (Note 11 and Schedule II) 393,000 890,000 Prepaid expenses and other assets 1,041,000 1,607,000 ------------ ------------ Total current assets 18,611,000 14,130,000 ------------ ------------ Investment in common stock of Realty 2,179,000 2,179,000 Property, plant and equipment, at cost (Note 5 and Schedule V) Machinery and other equipment 21,943,000 21,524,000 Leasehold improvements 20,976,000 19,968,000 ------------ ------------ 42,919,000 41,492,000 Less accumulated depreciation (Schedule VI) (21,088,000) (18,343,000) ------------ ------------ 21,831,000 23,149,000 ------------ ------------ $ 42,621,000 $ 39,458,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 10,070,000 $ 7,455,000 Other liabilities (Notes 6 and 9) 10,117,000 7,735,000 Other loans payable (Note 5) 726,000 663,000 Due to (from) Realty 469,000 (959,000) ------------ ------------ Total current liabilities 21,382,000 14,894,000 ------------ ------------ Other loans payable (Note 5) 2,528,000 3,255,000 Deferred revenues 2,872,000 3,130,000 Deferred income taxes (Note 7) 3,565,000 3,673,000 ------------ ------------ 30,347,000 24,952,000 ------------ ------------ Commitments and contingencies (Note 8) Shareholders' Equity (Note 10) Preferred stock, $.10 par value; authorized 6,000,000 shares; none issued - - Common stock, $.10 par value; authorized 19,000,000 and 40,000,000 shares, respectively; issued and outstanding 11,140,853 and 11,140,853 shares, respectively 1,114,000 1,114,000 Additional paid-in capital 20,592,000 20,592,000 Retained earnings (deficit) (9,432,000) (7,200,000) ------------ ------------ 12,274,000 14,506,000 ------------ ------------ $ 42,621,000 $ 39,458,000 ============ ============
See accompanying notes. 50 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31 ,1993, 1992 AND 1991
1993 1992 1991 ------------- ------------- ------------ Revenues Horse racing (Note 2) $49,081,000 $53,683,000 $51,521,000 Food and beverage 11,695,000 12,589,000 13,808,000 Interest and other 571,000 1,382,000 3,224,000 ----------- ----------- ----------- 61,347,000 67,654,000 68,553,000 ----------- ----------- ----------- Costs and expenses Direct horse racing operating costs 40,981,000 45,089,000 45,093,000 Food and beverage cost of sales 3,411,000 3,462,000 3,555,000 Depreciation and amortization (Schedule VI) 2,768,000 2,732,000 2,634,000 General and administrative 6,693,000 8,361,000 6,868,000 Interest (Note 5) 493,000 194,000 179,000 Rental expense to Realty (Note 11) 9,233,000 10,955,000 9,928,000 ----------- ----------- ----------- 63,579,000 70,793,000 68,257,000 ----------- ----------- ----------- Income (loss) before income taxes (2,232,000) (3,139,000) 296,000 Provision (benefit) for income taxes (Note 7) - (243,000) 37,000 ----------- ----------- ----------- Net income (loss) $(2,232,000) $(2,896,000) $ 259,000 =========== =========== =========== Weighted average number of common shares outstanding 11,140,853 11,140,913 11,141,020 =========== =========== =========== Net income (loss) per common share $(.20) $(.26) $.02 =========== =========== ===========
See accompanying notes. 51 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COMMON STOCK ADDITIONAL RETAINED --------------------------- PAID-IN EARNINGS SHARES AMOUNT CAPITAL (DEFICIT) TOTAL ------------- ------------ ------------- ------------- ------------- Balance, December 31, 1990 11,141,086 $1,114,000 $20,594,000 $(4,558,000) $17,150,000 Dividend reinvestment plan, net (Note 1) (121) - (2,000) (5,000) (7,000) Net income - - - 259,000 259,000 ---------- ---------- ----------- ----------- ----------- Balance, December 31, 1991 11,140,965 1,114,000 20,592,000 (4,304,000) 17,402,000 Dividend reinvestment plan, net (Note 1) (112) - - - - Net loss - - - (2,896,000) (2,896,000) ---------- ---------- ----------- ----------- ----------- Balance, December 31, 1992 11,140,853 1,114,000 20,592,000 (7,200,000) 14,506,000 Net loss - - - (2,232,000) (2,232,000) ---------- ---------- ----------- ----------- ----------- Balance, December 31, 1993 11,140,853 $1,114,000 $20,592,000 $(9,432,000) $12,274,000 ========== ========== =========== =========== ===========
See accompanying notes. 52 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991 ------------- ------------- ------------- Cash flows from operating activities: Net income (loss) $(2,232,000) $(2,896,000) $ 259,000 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,768,000 2,732,000 2,634,000 Deferred income taxes (108,000) (141,000) (31,000) Net (increase) decrease in certain other assets (69,000) 931,000 (1,334,000) Net increase (decrease) in certain other liabilities 4,739,000 708,000 (3,123,000) ----------- ----------- ----------- Net cash provided by (used in) operating activities 5,098,000 1,334,000 (1,595,000) ----------- ----------- ----------- Cash flows from investing activities: Additions to property, plant and equipment, net (1,450,000) (6,030,000) (3,348,000) ----------- ----------- ----------- Net cash used in investing activities (1,450,000) (6,030,000) (3,348,000) ----------- ----------- ----------- Cash flows from financing activities: Proceeds from other loans payable - 4,000,000 - Repayment of other loans payable (664,000) (82,000) - Net (increase) decrease in due from Realty 1,428,000 (1,000,000) 12,000 ----------- ----------- ----------- Net cash provided by financing activities 764,000 2,918,000 12,000 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 4,412,000 (1,778,000) (4,931,000) Cash and cash equivalents at beginning of year 9,976,000 11,754,000 16,685,000 ----------- ----------- ----------- Cash and cash equivalents at end of year $14,388,000 $ 9,976,000 $11,754,000 =========== =========== ===========
See accompanying notes. 53 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES COMBINED BALANCE SHEETS DECEMBER 31, 1993 AND 1992 ASSETS
1993 1992 --------------- --------------- Real estate assets Santa Anita Racetrack, less accumulated depreciation of $18,670,000 and $18,006,000, respectively $ 6,997,000 $ 8,349,000 Commercial properties, less accumulated depreciation of $41,079,000 and $39,779,000, respectively (Notes 2, 3 and 8) 216,832,000 201,462,000 Investments in unconsolidated joint ventures (Note 3) 3,616,000 5,925,000 Real estate loans and advances receivable (Note 4) 22,084,000 24,855,000 ------------ ------------ 249,529,000 240,591,000 Cash (Note 5) 17,328,000 7,897,000 Short-term investments, at cost (approximates market) 4,693,000 3,750,000 Accounts receivable 7,094,000 4,373,000 Due from officers and former officers (Note 11) 474,000 1,074,000 Prepaid expenses and other assets 7,019,000 8,097,000 Property, plant and equipment, at cost, less accumulated depreciation of $21,088,000 and $18,343,000, respectively (Note 5) 22,129,000 23,149,000 ------------ ------------ $308,266,000 $288,931,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Real estate loans payable (Note 5) $106,731,000 $107,655,000 Other loans payable (Note 5) 81,167,000 60,850,000 Accounts payable 13,748,000 9,757,000 Other liabilities (Notes 6 and 9) 25,463,000 12,555,000 Dividends payable 3,788,000 3,788,000 Deferred revenues 2,872,000 3,130,000 Deferred income taxes (Note 7) 3,565,000 3,673,000 ------------ ------------ 237,334,000 201,408,000 ------------ ------------ Minority interest in consolidated joint ventures (Note 3) (4,590,000) (2,751,000) Commitments and contingencies (Note 8) Shareholders' equity (Note 10) Preferred stock $.10 par value; authorized 6,000,000 shares none issued - - Common stock, $.10 par value; authorized 19,000,000 and 40,000,000 shares, respectively; issued and outstanding 11,140,853 and 11,140,853 shares, respectively 2,227,000 2,227,000 Additional paid-in capital 134,554,000 134,554,000 Retained earnings (deficit) (61,259,000) (46,507,000) ------------ ------------ 75,522,000 90,274,000 ------------ ------------ $308,266,000 $288,931,000 ============ ============
See accompanying notes. 54 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES COMBINED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991 ------------- ------------- ------------- Revenues Horse racing (Note 2) $ 49,081,000 $ 53,683,000 $ 51,521,000 Rental property (Note 8) 41,354,000 37,018,000 32,771,000 Food and beverage 11,695,000 12,589,000 13,808,000 Interest and other (Note 7) 5,405,000 3,712,000 5,714,000 ------------ ------------ ------------ 107,535,000 107,002,000 103,814,000 ------------ ------------ ------------ Costs and expenses Direct horse racing operating costs 40,981,000 45,089,000 45,093,000 Rental property operating expenses 16,522,000 13,533,000 12,039,000 Food and beverage cost of sales 3,411,000 3,462,000 3,555,000 Depreciation and amortization 11,392,000 10,753,000 9,875,000 General and administrative 10,937,000 12,517,000 11,160,000 Interest and other (Note 5) 12,970,000 12,525,000 12,170,000 Losses from unconsolidated joint ventures (Note 3) 1,993,000 1,446,000 83,000 Minority interest in earnings (losses) of consolidated joint ventures (Note 3) 477,000 458,000 (114,000) Loss on disposition of multifamily and industrial operations (Note 2) 10,974,000 - - ------------ ------------ ------------ 109,657,000 99,783,000 93,861,000 ------------ ------------ ------------ Income (loss) before income taxes (2,122,000) 7,219,000 9,953,000 Provision (benefit) for income taxes (Note 7) (2,523,000) (158,000) 37,000 ------------ ------------ ------------ Net income $ 401,000 $ 7,377,000 $ 9,916,000 ============ ============ ============ Weighted average number of common shares outstanding 11,140,853 11,140,913 11,141,020 ============ ============ ============ Net income per common share $.04 $.66 $.89 ==== ==== ==== Dividends declared per common share $1.36 $1.36 $1.90 ===== ===== =====
See accompanying notes. 55 SANTA ANITA REALTY ENTERPRISES INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COMMON STOCK ADDITIONAL RETAINED ------------------------- PAID-IN EARNINGS SHARES AMOUNT CAPITAL (DEFICIT) TOTAL ------------------------- -------------- ------------- -------------- Combined balance, December 31, 1990 11,141,086 $2,227,000 $134,705,000 $(27,471,000) $109,461,000 Dividends declared on common stock - - - (21,176,000) (21,176,000) Dividend reinvestment plan, net (Note 1) (121) - (150,000) - (150,000) Net income - - - 9,916,000 9,916,000 ---------- ---------- ------------ ------------ ------------ Combined balance, December 31, 1991 11,140,965 2,227,000 134,555,000 (38,731,000) 98,051,000 Dividends declared on common stock - - - (15,153,000) (15,153,000) Dividend reinvestment plan, net (Note 1) (112) - (1,000) - (1,000) Net income - - - 7,377,000 7,377,000 ---------- ---------- ------------ ------------ ------------ Combined balance, December 31, 1992 11,140,853 2,227,000 134,554,000 (46,507,000) 90,274,000 Dividends declared on common stock - - - (15,153,000) (15,153,000) Net income - - - 401,000 401,000 ---------- ---------- ------------ ------------ ------------ Combined balance, December 31, 1993 11,140,853 $2,227,000 $134,554,000 $(61,259,000) $ 75,522,000 ========== ========== ============ ============ ============
See accompanying notes. 56 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991 ------------- ------------- ------------- Cash flows from operating activities: Net income $ 401,000 $ 7,377,000 $ 9,916,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,392,000 10,753,000 9,875,000 Net gain on sale of real estate - (646,000) (177,000) Loss on disposition of multifamily and industrial operations 10,974,000 - - Deferred income taxes (108,000) (141,000) (31,000) Minority interest in earnings (losses) of consolidated joint ventures 477,000 458,000 (114,000) Equity in losses of unconsolidated joint ventures 1,993,000 1,446,000 83,000 Distributions from unconsolidated joint ventures - - 250,000 Net decrease (increase) in certain other assets (1,523,000) 1,866,000 (1,143,000) Net increase (decrease) in certain other liabilities 7,007,000 310,000 (2,316,000) ------------ ------------ ------------ Net cash provided by operating activities 30,613,000 21,423,000 16,343,000 ------------ ------------ ------------ Cash flows from investing activities: Proceeds from sales of real estate - 5,425,000 400,000 Payments received on loans and advances receivable 4,076,000 1,152,000 362,000 Origination of loans and advances receivable (1,305,000) (9,345,000) (3,176,000) Additions and improvements to real estate assets (33,424,000) (35,588,000) (24,544,000) Additions to property, plant and equipment (1,450,000) (6,030,000) (3,348,000) Investments in unconsolidated joint ventures (1,100,000) (664,000) (5,950,000) Capital distributions from unconsolidated joint ventures 1,405,000 664,000 - ------------ ------------ ------------ Net cash used in investing activities (31,798,000) (44,386,000) (36,256,000) ------------ ------------ ------------ Cash flows from financing activities: Proceeds from real estate loans payable - 11,191,000 13,789,000 Proceeds from other loans payable 20,981,000 26,832,000 34,100,000 Repayment of real estate loans payable (924,000) (6,154,000) (24,865,000) Repayment of other loans payable (664,000) (82,000) - Distributions to minority interest in consolidated joint ventures, net (2,316,000) (81,000) (1,086,000) Net increase in certain other liabilities 9,635,000 728,000 1,409,000 Dividends paid (15,153,000) (15,153,000) (23,197,000) Proceeds from stock issued in connection with exercise of stock options and dividend reinvestment plan, net - (1,000) (150,000) ------------ ------------ ------------ Net cash provided by financing activities 11,559,000 17,280,000 - ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 10,374,000 (5,683,000) (19,913,000) Cash and cash equivalents at beginning of year 11,647,000 17,330,000 37,243,000 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 22,021,000 $ 11,647,000 $ 17,330,000 ============ ============ ============
See accompanying notes. 57 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31 , 1993, 1992 AND 1991 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION Santa Anita Realty Enterprises, Inc. ("Realty") and Santa Anita Operating Company and Subsidiaries ("Operating Company") are two separate companies, the stock of which trades as a single unit under a stock-pairing arrangement on the New York Stock Exchange. Realty and Operating Company were each incorporated in 1979 and are the successors of a corporation originally organized in 1934 to conduct thoroughbred horse racing in Southern California. Realty is principally engaged in holding and investing in retail, commercial, industrial and multifamily real property located primarily in the western United States. Subsequent to year-end Realty disposed of its multifamily and industrial properties (Note 2). Realty operates as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986 and, accordingly, pays no income taxes on earnings distributed to shareholders. Operating Company is engaged in thoroughbred horse racing. The thoroughbred horse racing operation is conducted by a subsidiary of Operating Company, Los Angeles Turf Club, Incorporated ("LATC"), which leases the Santa Anita Racetrack from Realty. Separate and combined financial statements have been presented for Realty and Operating Company. Realty and Combined Realty and Operating Company use an unclassified balance sheet presentation. The separate results of operations and the separate net income per share of Realty and Operating Company cannot usually be added together to total the combined results of operations and net income per share because of adjustments and eliminations arising from inter-entity transactions. All significant intercompany and inter-entity balances and transactions have been eliminated in consolidation and combination. REAL ESTATE ASSETS Investment properties are carried at cost and consist of land, buildings, and related improvements. Depreciation is provided on a straight-line basis over the estimated useful lives of the properties, ranging primarily from 15 to 40 years. INVESTMENTS IN JOINT VENTURES All joint ventures in which Realty exercises significant control and has a 50% or greater ownership interest are consolidated. The ownership interests of outside partners in Realty's consolidated joint ventures are reflected as minority interest (excess of liabilities over assets) on the balance sheets for Realty and Combined Realty and Operating Company. Investments in unconsolidated joint ventures are accounted for using the equity method of accounting. 58 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH AND CASH EQUIVALENTS Highly liquid short-term investments, with maturities of three months or less, at the date of acquisition, are considered cash equivalents. PROPERTY, PLANT AND EQUIPMENT Depreciation of property, plant and equipment and the capital lease obligation is provided primarily on the straight-line method generally over the following estimated useful lives: Building and improvements 25 to 45 years Machinery and other equipment 5 to 15 years Leasehold improvements 5 to 32 years Expenditures which materially increase property lives are capitalized. The cost of maintenance and repairs is charged to expense as incurred. When depreciable property is retired or disposed of, the related cost and accumulated depreciation is removed from the accounts and any gain or loss is reflected in current operations. INCOME TAXES Realty and Operating Company adopted SFAS No. 109, "Accounting for Income Taxes," effective January 1, 1993. The new standard of accounting replaces SFAS No. 96 which the company adopted in 1988. The cumulative effect of adopting Statement 109 was immaterial for the year ended December 31, 1993. DEFERRED REVENUES Operating Company's deferred revenues consist of prepaid admission tickets and parking, which are recognized as income ratably over the period of the related race meets. Also, deferred revenue includes prepaid rent from Oak Tree which is recognized over the remaining term of the lease. SHAREHOLDERS' EQUITY The outstanding shares of Realty common stock and Operating Company common stock are only transferable and tradable in combination as a paired unit consisting of one share of Realty common stock and one share of Operating Company common stock. OPERATING COMPANY'S REVENUES AND COSTS Operating Company has adopted an accounting policy 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 periods in which the thoroughbred horse racing revenues are recognized. Other costs and expenses are recognized as they actually occur throughout the year. The rental fee paid by Operating Company to Realty is recognized by both Realty and Operating Company as it is earned. 59 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RENTAL PROPERTY REVENUES Rental property revenues are recorded on a straight-line basis over the related lease term. As a result, deferred rent is created when rental income is recognized during free rent periods of a lease. The deferred rent is included in prepaid expenses and other assets, evaluated for collectibility and amortized over the remaining term of the lease. HORSE RACING REVENUES AND DIRECT OPERATING COSTS Operating Company's horse racing revenues and direct operating costs are shown net of state and local taxes, stakes, purses and awards. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject Realty and Operating Company to concentrations of credit risk are primarily cash investments and receivables. Realty and Operating Company place their cash investments in investment grade short-term instruments and limit the amount of credit exposure to any one commercial issuer. Concentrations of credit risk with respect to accounts receivable are limited due to the number of retail, commercial and residential tenants, and Santa Anita catering patrons. Real estate receivables are secured by first trust deeds on commercial real estate located in Southern California, and Phoenix, Arizona. Advances to unconsolidated joint ventures are unsecured and due from partnerships in which Realty is a 50% or less general partner. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK Realty is an issuer of financial instruments with off-balance sheet risk in the normal course of business which exposes Realty to credit risks. These financial instruments include commitments to extend credit, financial guarantees and letters of credit. FAIR VALUE OF FINANCIAL INSTRUMENTS Management has estimated the fair value of its financial instruments using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimated values for Realty and Operating Company as of December 31, 1993 are not necessarily indicative of the amounts that could be realized in current market exchanges. For those financial instruments for which it is practicable to estimate value, management has determined that the carrying amounts of Realty's and Operating Company's financial instruments approximate their fair value as of December 31,1993. DIVIDEND REINVESTMENT PLAN In November 1992 Realty and Operating Company terminated their dividend reinvestment and stock purchase plan (the "Plan") which had enabled shareholders to reinvest dividends and purchase shares of Realty and Operating Company stock. Since October 1990, shares issued under the terms of the Plan had been purchased in the open market. Prior to that date, new shares had been issued. 60 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) COMMON STOCK AND NET INCOME (LOSS) PER COMMON SHARE Net income (loss) per common share is computed based upon the weighted average number of common shares outstanding during each period for each company. Stock options have not been included in the computation since they have no material dilutive effect. Operating Company holds shares of Realty's common stock which are unpaired pursuant to a stock option plan approved by the shareholders. The shares held totaled 115,500 as of December 31, 1993, 1992 and 1991, respectively. These shares affect the calculation of Realty's net income per common share but are eliminated in the combined calculation of net income per common share. RECLASSIFICATIONS Certain prior year amounts have been restated to conform to current year presentation. NOTE 2 - DISPOSITION OF MULTIFAMILY AND INDUSTRIAL PROPERTIES SUBSEQUENT TO YEAR END 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. The transaction was structured into two parts: (1) Realty would sell all of its apartments and industrial properties to Pacific with the exception of Realty's interest in the Baldwin Industrial Park joint venture; and (2) Pacific would enter into a binding agreement to buy Realty's interest in Baldwin Industrial Park. 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. The sale of the Transferred Properties followed the public offerings of common stock and convertible subordinated debentures by Pacific. Pursuant to the Purchase and Sale Agreement, Pacific agreed to buy Realty's interest in Baldwin Industrial Park subject to satisfaction of certain conditions, for a minimum price of $8.9 million payable in additional shares of Pacific common stock, with the final price dependent upon completion of negotiations with the other owners of Baldwin Industrial Park and an appraisal process. Management believes the sale of Realty's interest in Baldwin Industrial Park will be completed in the second half of 1994. Pacific is required to issue to Realty non-refundable letters of credit totaling $2.5 million by March 31, 1994 to secure its obligation to acquire Realty's interest in Baldwin Industrial Park and pay for the corporate headquarters building and other assets related to the Transferred Properties. In consideration of the sale of the Transferred Properties, Realty received approximately $44.4 million in cash and 149,900 shares of the common stock of Pacific. In addition, Realty was relieved of approximately $44.3 million of mortgage debt on the Transferred Properties. Realty will also receive, at the time the acquisition of Baldwin Industrial Park is completed, up to $1.2 million in additional common stock of Pacific as consideration for its corporate headquarters and other net assets related to the Transferred Properties. 61 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 2 - DISPOSITION OF MULTIFAMILY AND INDUSTRIAL OPERATIONS SUBSEQUENT TO YEAR END (CONTINUED) The two parts of the above transaction will result in a loss of $10,974,000. This loss has been reflected in the Realty and Realty and Operating Company combined statements of operations for the year ended December 31, 1993. If the Baldwin Industrial Park portion of the transaction described above does not occur, an additional loss will be recognized by Realty in 1994. The loss could approximate $5,900,000, depending upon whether the $2.5 million in letters of credit are drawn. Realty and Pacific have also entered into a one-year management agreement whereby Pacific has agreed to provide management services to Realty. Finally, with respect to the common stock of Pacific owned by Realty, Pacific has entered into a registration rights agreement with Realty which, under certain circumstances, allows Realty to require the registration of the Pacific stock it owns. The following unaudited pro forma condensed balance sheets of Realty and Realty and Operating Company combined are presented as if both parts of the transaction had occurred on December 31, 1993. The unaudited pro forma condensed balance sheets are not necessarily indicative of what the actual financial position of Realty or Realty and Operating Company combined would have been at December 31, 1993 nor do they purport to represent the future financial position of Realty or Realty and Operating Company combined.
December 31, 1993 ------------------------------------------------- Realty Realty Historical Pro Forma Cost Basis Adjustments (a) (Unaudited) -------------- ---------------- -------------- Real estate assets Santa Anita Racetrack, net $ 6,997,000 $ - $ 6,997,000 Commercial properties, net 221,876,000 (107,593,000) 114,283,000 Investments in unconsolidated joint ventures 3,616,000 - 3,616,000 Real estate loans and advances receivable 22,084,000 - 22,084,000 ------------ ------------- ------------ 254,573,000 (107,593,000) 146,980,000 ------------ ------------- ------------ Cash 7,633,000 (703,000) 6,930,000 Other assets 9,479,000 (1,387,000) 8,092,000 Investment in Pacific Gulf Properties Inc. (b) - 12,802,000 12,802,000 ------------ ------------- ------------ $271,685,000 $ (96,881,000) $174,804,000 ============ ============= ============ Real estate loans payable $106,731,000 $ (53,769,000) $ 52,962,000 Other loans payable 77,913,000 (44,425,000) 33,488,000 Other liabilities 22,812,000 (1,719,000) 21,093,000 ------------ ------------- ------------ 207,456,000 (99,913,000) 107,543,000 ------------ ------------- ------------ Minority interest in consolidated joint ventures (4,590,000) 3,032,000 (1,558,000) Shareholders' equity 68,819,000 - 68,819,000 ------------ ------------- ------------ $271,685,000 $ (96,881,000) $174,804,000 ============ ============= ============
The accompanying notes are an integral part of this pro forma balance sheet. 62 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 2 - DISPOSITION OF MULTIFAMILY AND INDUSTRIAL OPERATIONS SUBSEQUENT TO YEAR END (CONTINUED)
December 31, 1993 ------------------------------------------------- Combined Combined Historical Pro Forma Cost Basis Adjustments (a) (Unaudited) -------------- ---------------- -------------- Real estate assets Santa Anita Racetrack, net $ 6,997,000 $ - $ 6,997,000 Commercial properties, net 216,832,000 (107,593,000) 109,239,000 Investments in unconsolidated joint ventures 3,616,000 - 3,616,000 Real estate loans and advances receivable 22,084,000 - 22,084,000 ------------ ------------- ------------ 249,529,000 (107,593,000) 141,936,000 ------------ ------------- ------------ Cash and short-term investments 22,021,000 (703,000) 21,318,000 Other assets 36,716,000 (1,387,000) 35,329,000 Investment in Pacific Gulf Properties Inc. (b) - 12,802,000 12,802,000 ------------ ------------- ------------ $308,266,000 $ (96,881,000) $211,385,000 ============ ============= ============ Real estate loans payable $106,731,000 $ (53,769,000) $ 52,962,000 Other loans payable 81,167,000 (44,425,000) 36,742,000 Other liabilities 49,436,000 (1,719,000) 47,717,000 ------------ ------------- ------------ 237,334,000 (99,913,000) 137,421,000 ------------ ------------- ------------ Minority interest in consolidated joint ventures (4,590,000) 3,032,000 (1,558,000) Shareholders' equity 75,522,000 - 75,522,000 ------------ ------------- ------------ $308,266,000 $ (96,881,000) $211,385,000 ============ ============= ============
Notes: - ------ (a) Reflects the disposition of the assets and liabilities of the Multifamily and Industrial Operations as if both parts of the transaction had occurred on December 31, 1993. The amounts reflected represent the assets and liabilities directly identifiable with the Multifamily and Industrial Operations transferred by Realty to Pacific. (b) As a result of the February 18, 1994 sale to Pacific, Realty will have an investment in the common shares of Pacific totaling $2,738,000. Upon completion of Realty's disposition of Baldwin Industrial Park, assuming a price per share equal to $18.25 (the initial public offering price of Pacific's common shares) and the minimum price for Realty's interest in Baldwin Industrial Park and the corporate headquarters building and certain other assets related to the Transferred Properties, Realty will receive additional Pacific stock totaling approximately $10,064,000. 63 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 2 - DISPOSITION OF MULTIFAMILY AND INDUSTRIAL OPERATIONS SUBSEQUENT TO YEAR END (CONTINUED) The following unaudited pro forma statements of operation of Realty and Realty and Operating Company combined are presented as if both parts of the transaction had occurred on January 1, 1993. The unaudited pro forma statements of operation are not necessarily indicative of what the actual results of operations would have been if the transaction had been consummated on January 1, 1993 nor do they purport to represent the results of operations of Realty or Realty and Operating Company combined for any future period.
For the Year Ended December 31, 1993 ----------------------------------------------- Realty Realty Historical Pro Forma Cost Basis Adjustments (1) (Unaudited) ------------- --------------- ------------- Revenues Rental property $38,953,000 $(20,007,000) $18,946,000 Rental income from Operating Company 11,634,000 - 11,634,000 Interest and other (2) 4,991,000 695,000 5,686,000 ----------- ------------ ----------- 55,578,000 (19,312,000) 36,266,000 ----------- ------------ ----------- Costs and expenses Rental property operating expenses 16,522,000 (8,562,000) 7,960,000 Depreciation and amortization 8,795,000 (3,264,000) 5,531,000 General and administrative 4,244,000 (1,538,000) 2,706,000 Interest and other (3) 12,477,000 (7,005,000) 5,472,000 Losses from unconsolidated joint ventures 1,993,000 - 1,993,000 Minority interest in earnings of consolidated joint ventures (4) 477,000 289,000 766,000 Loss on disposition of multifamily and industrial operations 10,974,000 - 10,974,000 ----------- ------------ ----------- 55,482,000 (20,080,000) 35,402,000 ----------- ------------ ----------- Income before income tax benefit 96,000 768,000 864,000 Income tax benefit (2,523,000) - (2,523,000) ----------- ------------ ----------- Net income $ 2,619,000 $ 768,000 $ 3,387,000 =========== ============ ===========
The accompanying notes are an integral part of this pro forma statement of operations. 64 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 2 - DISPOSITION OF MULTIFAMILY AND INDUSTRIAL OPERATIONS SUBSEQUENT TO YEAR END (CONTINUED)
For the Year Ended December 31, 1993 ----------------------------------------------- Combined Combined Historical Pro Forma Cost Basis Adjustments (1) (Unaudited) ------------- --------------- ------------- Revenues Horse racing $ 49,081,000 $ - $49,081,000 Rental property 41,354,000 (20,007,000) 21,347,000 Food and beverage 11,695,000 - 11,695,000 Interest and other (2) 5,405,000 695,000 6,100,000 ------------ ------------ ----------- 107,535,000 (19,312,000) 88,223,000 ------------ ------------ ----------- Costs and expenses Direct horse racing operating costs 40,981,000 - 40,981,000 Rental property operating expenses 16,522,000 (8,562,000) 7,960,000 Food and beverage cost of sales 3,411,000 - 3,411,000 Depreciation and amortization 11,392,000 (3,264,000) 8,128,000 General and administrative 10,937,000 (1,538,000) 9,399,000 Interest and other (3) 12,970,000 (7,005,000) 5,965,000 Losses from unconsolidated joint ventures 1,993,000 - 1,993,000 Minority interest in earnings of consolidated joint ventures (4) 477,000 289,000 766,000 Loss on disposition of multifamily and industrial operations 10,974,000 - 10,974,000 ------------ ------------ ----------- 109,657,000 (20,080,000) 89,577,000 ------------ ------------ ----------- Income (loss) before income tax benefit (2,122,000) 768,000 (1,354,000) Income tax benefit (2,523,000) - (2,523,000) ------------ ------------ ----------- Net income $ 401,000 $ 768,000 $ 1,169,000 ============ ============ ===========
Notes: - ------ (1) Reflects the operations for the year ended December 31, 1993 of the Multifamily and Industrial Operations directly identifiable with, and allocations of other costs and expenses related to, the Multifamily and Industrial Operations being transferred by Realty to Pacific. (2) Estimated annual distributions to be received on Realty's investment in Pacific ($1.56 per common share) less the amount of such distributions estimated to represent the return of capital ($.56 per common share). (3) Elimination of interest expense on real estate and other loans payable repaid or assumed by Pacific. (4) Elimination of the minority interest in earnings of joint ventures resulting from Realty's acquisition of the Partnership interests and subsequent transfer to Pacific. 65 NOTES TO FINANCIAL STATEMENTS (continued) Note 3 - Investments in Joint Ventures Realty's real estate properties include investments in the following consolidated real estate joint ventures:
OWNERSHIP NAME PERCENTAGE PROJECT - ---- ---------- --------------- Anita Associates 50% Regional mall Baldwin Industrial Properties 50% Industrial park French Valley Partners 50% Industrial land
The financial condition and operations of the above-listed joint ventures are consolidated with the financial statements of Realty and Combined Realty and Operating Company. Combined condensed financial information for consolidated joint ventures as of December 31, 1993, 1992 and 1991 and for the years then ended is as follows:
1993 1992 1991 ------------- -------------- -------------- Real estate assets $74,570,000 $115,778,000 $115,366,000 =========== ============ ============ Liabilities $71,532,000 $ 89,741,000 $ 90,693,000 =========== ============ ============ Partners' equity (deficit) Realty $ 7,628,000 $ 28,788,000 $ 27,801,000 Others (4,590,000) (2,751,000) (3,128,000) ----------- ------------ ------------ $ 3,038,000 $ 26,037,000 $ 24,673,000 =========== ============ ============ Revenues $21,992,000 $ 23,912,000 $ 23,668,000 =========== ============ ============ Net income (loss) Realty $ 2,113,000 $ 2,727,000 $ 2,202,000 Others 477,000 458,000 (114,000) ----------- ------------ ------------ $ 2,590,000 $ 3,185,000 $ 2,088,000 =========== ============ ============
66 NOTE 3 - INVESTMENTS IN JOINT VENTURES (CONTINUED) During 1993, Realty acquired the partnership interests of its minority partners in the following joint ventures: SARESAM, SAREFIM, Applewood Village Partners and Hubanita. The partnership interests were acquired in consideration for cash, the cancellation of certain receivables from the minority partners and the assumption of the minority partners' capital account and payment of $250,000 related to Hubanita. The financial statements of Realty and Combined Realty and Operating Company reflect the acquisition of the minority interests. Realty's investments in unconsolidated joint ventures include investments in the following commercial real estate ventures:
OWNERSHIP NAME PERCENTAGE PROJECT - ----------------- ----------- ------------- 33-1/3% Retail Joppa Associates H-T Associates 50% Regional mall
Unaudited combined condensed financial statement information for unconsolidated joint ventures as of December 31, 1993, 1992 and 1991 and for the years then ended is as follows:
1993 1992 1991 -------------- -------------- -------------- Real estate assets $212,979,000 $216,137,000 $206,184,000 ============ ============ ============ Liabilities Advances from Realty $ 8,375,000 $ 7,030,000 $ 6,215,000 Other 200,735,000 197,971,000 185,642,000 ------------ ------------ ------------ $209,110,000 $205,001,000 $191,857,000 ============ ============ ============ Partners' equity Realty $ 3,616,000 $ 5,925,000 $ 7,390,000 Others 253,000 5,211,000 6,937,000 ------------ ------------ ------------ $ 3,869,000 $ 11,136,000 $ 14,327,000 ============ ============ ============ Revenues $ 19,991,000 $ 15,666,000 $ 7,501,000 ============ ============ ============ Net loss Realty $ (1,993,000) $ (1,446,000) $ (83,000) Others (1,263,000) (418,000) (581,000) ------------ ------------ ------------ $ (3,256,000) $ (1,864,000) $ (664,000) ============ ============ ============
67 NOTE 3 - INVESTMENTS IN JOINT VENTURES (CONTINUED) Realty is a joint and several guarantor of loans issued to expand the Towson Town Center located in Towson, Maryland (owned 65% by H-T Associates) and a department store and land (owned 100% by Joppa Associates) adjacent to Towson Town Center in the amount of $82,630,000. The maximum loan balance to which the guarantees relate is $188,500,000. Realty's two partners in the ventures have also each executed repayment guarantees, although one of the partners has a limited repayment guaranty. Annually, the guarantors may request a reduction in the amount of the guaranty based on the economic performance of the regional mall. NOTE 4 - REAL ESTATE LOANS AND ADVANCES RECEIVABLE Realty's real estate loans and advances receivable as of December 31, 1993 and 1992 consist of the following:
1993 1992 ------------ ------------ 6.5% to 8.5% notes receivable secured by trust deeds on commercial real estate due through 2002 $13,824,000 $17,825,000 Unsecured advances to unconsolidated joint ventures, bearing interest at prime plus 2%, interest and principal due on demand 8,260,000 7,030,000 ----------- ----------- $22,084,000 $24,855,000 =========== ===========
Contractual principal repayments on real estate loans and advances receivable as of December 31, 1993 are due as follows:
1994 $8,494,000 1995 243,000 1996 1,736,000 1997 6,614,000 1998 212,000 Thereafter 4,785,000
The prime rate was 6.0% during 1993 and at December 31, 1993. 68 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 5 - LOANS PAYABLE Realty's real estate loans payable related to real estate as of December 31, 1993 and 1992 consist of the following:
1993 1992 ------------- ------------- Realty 9.75% note, secured by real estate assets, interest only, due in 1994 $ 10,000,000 $ 10,000,000 8.5% note, secured by land with assignment of ground lease and rent as collateral, due in installments through 2009 4,100,000 4,218,000 10.375% notes, secured by real estate assets, due in installments through 2008 870,000 896,000 10% note, secured by real estate assets, interest only, due in 1994 857,000 857,000 9.375% note, secured by real estate assets, interest only, due in 1998 11,822,000 11,932,000 8.5% notes, secured by real estate assets, due in installments through 2011 15,269,000 15,647,000 10% note, secured by real estate assets, due in installments through 1998 10,044,000 10,140,000 ------------ ------------ 52,962,000 53,690,000 ------------ ------------ Loans subject to the Pacific transaction 9.5% note, secured by real estate assets, interest only, due in 1999 8,625,000 8,625,000 10.5% notes, secured by real estate assets, due in installments through 1996 4,751,000 4,758,000 9.5% note, secured by real estate assets, interest only through 1995, installments through 2000 7,000,000 7,000,000 9.25% note, secured by real estate assets, interest only, due in 1996 12,900,000 12,900,000 8.25% note, secured by real estate assets, interest only, due in 1997 8,042,000 8,128,000 8% - 10% note, secured by real estate assets, due in installments through 1998 2,997,000 3,052,000 11.1% note, secured by real estate assets, interest only, due in 1996 889,000 889,000 11.2% note, secured by real estate assets, due in installments through 1995 8,565,000 8,613,000 ------------ ------------ 53,769,000 53,965,000 ------------ ------------ $106,731,000 $107,655,000 ============ ============
69 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 5 - LOANS PAYABLE (CONTINUED) Realty's other loans payable as of December 31, 1993 and 1992 consist of the following:
1993 1992 ---- ---- Realty Unsecured notes, subject to lines of credit agreements, interest only, due on various dates through 1996 $33,488,000 $22,782,000 Other loans payable subject to the Pacific transaction Unsecured notes, subject to lines of credit agreements, interest only, due on various dates through 1996 44,425,000 34,150,000 ----------- ----------- $77,913,000 $56,932,000 =========== =========== Principal payments due on real estate and other loans payable as of December 31,1993 are as follows: 1994 $55,230,000 1995 9,609,000 1996 54,155,000 1997 8,979,000 1998 24,396,000 Thereafter 32,275,000
As of December 31, 1993, Realty was not in compliance with certain covenants contained in its credit agreements. The banks have waived such noncompliance through April 30, 1994 conditioned, among other things, on no additional borrowings under the credit agreements. Realty is in the process of renegotiating these credit agreements. Management is of the opinion that Realty has sufficient liquidity from other sources to assure that its operations will not be adversely affected pending this renegotiation. Under the terms of these agreements, Realty may borrow funds, at Realty's option, based upon prime rates, LIBOR (London Interbank Offered Rate) based rates or Certificate of Deposit rates. At December 31, 1993, all funds are borrowed on prime or LIBOR-based rates. LIBOR-based rates ranged from 2.80% to 3.84% and the prime rate was 6.0% at December 31, 1993. The revolving lines of credit require certain compensating balances. Under the lines of credit agreements, the compensating balance requirements at December 31, 1993, which represent cash balances that are not available for withdrawal, amounted to $1,000,000. In addition, Realty is required to pay annual commitment fees ranging from 0.15% to 0.25% on the unused portion of these lines of credit. Operating Company entered into a sale-leaseback transaction related to the financing of certain television, video monitoring and production equipment under a five-year lease expiring in December 1997. This financing arrangement is accounted for as a capital lease. Accordingly, the equipment and related lease obligation are reflected as machinery and other equipment and other loans payable, respectively, on Operating Company's and Realty and Operating Company's combined balance sheets. Realty has guaranteed $3,500,000 of the lease obligation. 70 NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 5 - LOANS PAYABLE (CONTINUED) The assets recorded under this capital lease are:
1993 1992 ------------ ------------ Equipment leased under capital lease $4,000,000 $4,000,000 Accumulated amortization (513,000) (128,000) ---------- ---------- $3,487,000 $3,872,000 ========== ==========
Total future minimum lease payments under this capital lease and the present value of the minimum lease payments as of December 31, 1993 consist of the following: For the year ending December 31,
1994 $ 989,000 1995 989,000 1996 989,000 1997 907,000 ----------- 3,874,000 Less amount representing interest (620,000) ----------- Present value of minimum lease payments $ 3,254,000 =========== Current portion $ 726,000 Long-term portion 2,528,000 ----------- $ 3,254,000 ===========
Interest costs for the years ended December 31, 1993, 1992 and 1991 are as follows:
DECEMBER 31, 1993 ------------------------------------------ OPERATING REALTY COMPANY COMBINED ------ -------- -------- Total incurred $13,959,000 $493,000 $14,452,000 Capitalized (1,482,000) - (1,482,000) ----------- -------- ----------- Total interest expense $12,477,000 $493,000 $12,970,000 =========== ======== =========== Total interest paid $12,463,000 $493,000 $12,956,000 =========== ======== ===========
71 NOTES TO FINANCIAL STATEMENTS (COINTINUED) NOTE 5 - LOANS PAYABLE (CONTINUED)
DECEMBER 31, 1992 ----------------------------------------- OPERATING REALTY COMPANY COMBINED ------------- --------- ------------- Total incurred $13,000,000 $194,000 $13,194,000 Capitalized (669,000) - (669,000) ----------- -------- ----------- Total interest expense $12,331,000 $194,000 $12,525,000 =========== ======== =========== Total interest paid $12,670,000 $194,000 $12,864,000 =========== ======== =========== DECEMBER 31, 1991 --------------------------------------- OPERATING REALTY COMPANY COMBINED ----------- --------- ----------- Total incurred $12,265,000 $179,000 $12,444,000 Capitalized (274,000) - (274,000) ----------- -------- ----------- Total interest expense $11,991,000 $179,000 $12,170,000 =========== ======== =========== Total interest paid $11,891,000 $179,000 $12,070,000 =========== ======== ===========
NOTE 6 - OTHER LIABILITIES Other liabilities as of December 31, 1993 and 1992 consist of the following:
DECEMBER 31, 1993 ------------------------------------------ OPERATING REALTY COMPANY COMBINED ------------ ------------ ----------- Accrued salaries $ - $ 765,000 $ 765,000 Deferred compensation (Note 9) 1,075,000 3,682,000 4,757,000 Accrued interest 554,000 - 554,000 State license fees - 1,500,000 1,500,000 Other 678,000 4,170,000 4,848,000 Advances payable 11,997,000 - 11,997,000 Accrued liabilities subject to the Pacific transaction 1,042,000 - 1,042,000 ----------- ----------- ----------- $15,346,000 $10,117,000 $25,463,000 =========== =========== ===========
72 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 6 - OTHER LIABILITIES (CONTINUED)
DECEMBER 31, 1992 ---------------------------------------- OPERATING REALTY COMPANY COMBINED ----------- ----------- ------------ Accrued salaries $ 4,000 $ 750,000 $ 754,000 Deferred compensation (Note 9) 589,000 2,405,000 2,994,000 Accrued interest 540,000 - 540,000 State license fees - 752,000 752,000 Other 474,000 3,828,000 4,302,000 Advances payable 2,362,000 - 2,362,000 Accrued liabilities subject to the Pacific transaction 851,000 - 851,000 ---------- ---------- ----------- $4,820,000 $7,735,000 $12,555,000 ========== ========== ===========
Advances payable represent amounts due to Realty's other partner in Anita Associates. The amount is expected to be repaid from the proceeds of the refinancing of Anita Associates' existing debt. The advances bear interest at 10% and are unsecured. NOTE 7 - INCOME TAXES As a REIT, Realty is taxed only on undistributed REIT income. During each of the years ended December 31, 1993, 1992 and 1991, Realty distributed at least 95% of its REIT taxable earnings to its shareholders. For the years ended December 31, 1993, 1992 and 1991, 41.2%, 41.2% and 52.9%, respectively, of the dividends distributed to shareholders represented a return of capital. None of the dividends distributed to shareholders during 1993, 1992 and 1991 represented capital gains. The composition of Combined Realty and Operating Company's income tax provision (benefit) and income taxes paid for the years ended December 31, 1993, 1992 and 1991 is as follows:
1993 1992 1991 ------------- ----------- --------- Current state provision (benefit) $(2,415,000) $ (17,000) $ 6,000 Deferred provision (benefit) (108,000) (141,000) 31,000 ----------- --------- -------- $(2,523,000) $(158,000) $ 37,000 =========== ========= ======== Income taxes paid $ 313,000 $ 5,000 $148,000 =========== ========= ========
73 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 7 - INCOME TAXES (CONTINUED) Deferred income taxes arise from temporary differences in the recognition of certain items of revenues and expenses for financial statement and tax reporting purposes. The sources of temporary differences and their related tax effect for the years ended December 31, 1993, 1992 and 1991 are as follows:
1993 1992 1991 ------------ ----------- ----------- Accelerated depreciation and amortization methods utilized for tax reporting purposes $ 109,000 $ (92,000) $(102,000) Reinstatement (reduction) of deferred taxes due to tax net operating loss carryovers 1,733,000 173,000 (228,000) State income tax provision (benefit) deductible when paid for federal income tax purposes (485,000) (191,000) 86,000 Income previously included for tax purposes, includable for book purposes currently - 34,000 340,000 Income resulting from settlement of state unitary tax issues (1,426,000) - - Other, net (39,000) (65,000) (65,000) ----------- --------- --------- $ (108,000) $(141,000) $ 31,000 =========== ========= =========
A reconciliation of Combined Realty and Operating Company's total income tax provision for the years ended December 31, 1993, 1992 and 1991 to the statutory federal corporate income tax rate of 34% follows:
1993 1992 1991 ------------- ------------- ---------- Computed "expected" tax provision $ (759,000) $(1,067,000) $100,000 State income taxes, net of federal income taxes 34,000 (271,000) 29,000 Nondeductible political contributions 28,000 49,000 30,000 Increase in cash surrender value of life insurance (269,000) (28,000) (60,000) Establishment (utilization) of book net operating loss carryforwards 982,000 1,169,000 (28,000) Other, net (16,000) (10,000) (34,000) Settlement of state unitary tax issues (2,523,000) - - ----------- ----------- -------- $(2,523,000) $ (158,000) $ 37,000 =========== =========== ========
74 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 7 - INCOME TAXES (CONTINUED) The deferred tax assets (liabilities) as of December 31, 1993 and 1992 consist of the following:
1993 1992 ------------- ------------- Deferred tax assets Income previously included for tax purposes, not includable for book purposes $ 32,000 $ 32,000 Difference between tax and book depreciation and amortization 26,000 (7,000) ----------- ----------- 58,000 25,000 ----------- ----------- Deferred tax liabilities State income tax provisions deductible when paid for federal tax purposes (3,307,000) (3,478,000) Compensation deductible for tax purposes when paid (291,000) (172,000) Other (25,000) (48,000) ----------- ----------- (3,623,000) (3,698,000) ----------- ----------- Net liability for deferred income taxes $(3,565,000) $(3,673,000) =========== ===========
In prior years, Realty had filed claims with the California Franchise Tax Board for refunds with respect to the 1970 through 1979 tax years; LATC was assessed California franchise tax and interest for the years 1980 through 1982; and, Operating Company was assessed additional franchise tax for the years 1983 through 1985. In 1993, a refund of interest and taxes in the amount of $6,082,000 was received from the California Franchise Tax Board in the settlement of the above claims. Realty has recognized $3,211,000 of interest income, net of expenses of $120,000 and an income tax benefit in the amount of $2,523,000. Operating Company has recorded additional deferred taxes payable in the amount of $228,000. The Franchise Tax Board has audited the 1986 through 1988 tax years of Operating Company. Operating Company has protested these proposed assessments. The additional assessment has been accrued by Operating Company. In February 1994, the Franchise Tax Board initiated an audit of Operating Company's 1989 through 1991 tax years. At December 31, 1993, for federal income tax purposes, Operating Company's net operating loss carryforward is approximately $6,504,000 which substantially expires in 2004. 75 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 8 - COMMITMENTS AND CONTINGENCIES Realty's wholly owned and consolidated real estate investments consist of Santa Anita Racetrack, Fashion Park (a regional mall), various neighborhood shopping centers, industrial parks, apartment complexes and office buildings. The racetrack is leased to LATC (Note 11); the land underlying Fashion Park has been ground leased for 65 years; each of the various neighborhood shopping centers has been leased to non-anchor tenants with terms ranging from three to five years; and, the office buildings have been leased with terms generally ranging from two to ten years. The minimum future lease payments to be received from Realty's wholly owned and consolidated real estate investments (excluding rentals relating to the Santa Anita Racetrack which are paid by LATC to Realty) for the five years ending December 31, are as follows:
1994 $14,990,000 1995 12,853,000 1996 11,229,000 1997 9,598,000 1998 8,247,000
Substantially all of the retail leases provide for additional contingent rentals based upon the gross income of the tenants in excess of stipulated minimums. Realty's share of these contingent rentals totaled $258,000 in 1993, $337,000 in 1992 and $362,000 in 1991. Realty leases the Santa Anita Racetrack to Operating Company's subsidiary, LATC. The lease provides for a rental fee of 1.5% of the total gross on-track pari-mutuel wagering generated at the racetrack. The lease, which is subject to renewal, expires in 1994. Realty also receives 40% of LATC's revenues from satellite wagering and the simulcasting of races originating from the Santa Anita Racetrack after mandated payments to the State of California and to horse owners. The lease amounts are eliminated in combination. Realty has entered into several general and limited partnerships to own and operate real estate. As of December 31, 1993, Realty has committed to invest an additional $307,000 in these partnerships. Realty has obtained a standby letter of credit totaling $448,000 related to financing on a real estate investment. In 1992, Realty and Operating Company entered into severance agreements with certain officers. Under certain circumstances, the severance agreements provide for a lump sum payment if there is a "change in control" of the entities. No provision under these severance agreements has been accrued or funded. Certain other claims, suits and complaints arising in the ordinary course of business have been filed or are pending against Realty and Operating Company. In the opinion of management, all such matters are adequately covered by insurance or, if not so covered, are without merit or are of such kind or involve such amounts as would not have a significant effect on the financial position or results of operations if disposed of unfavorably. 76 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 9 - STOCK OPTION PROGRAM AND EMPLOYEE DEFINED BENEFIT PLANS STOCK OPTION PROGRAM During 1984, Realty reserved 400,000 shares of common stock for sale under its Stock Incentive Plan. During 1984, Operating Company also reserved 400,000 shares for sale under its Stock Option Program. Each company also reserved 400,000 shares for issuance under the other company's plan. During 1993, Operating Company reserved an additional 222,820 shares for sale. The shares are to be issued either as Incentive Stock Options or Non-Qualified Stock Options. The options, which are contingent upon continuous employment, are exercisable at any time once vested, for up to three years after the date of retirement or death and for up to 90 days after resignation. For both Realty and Operating Company, Incentive Stock Options and Non-Qualified Stock Options expire in 1995 through 2003. Information with respect to shares under option as of December 31, 1993, 1992 and 1991 is as follows:
REALTY OPERATING COMPANY ----------------------------------------- --------------------------- AVAILABLE AVAILABLE SHARES FOR SHARES FOR SUBJECT TO FUTURE SUBJECT TO FUTURE OPTION (A) PRICE GRANT OPTION PRICE GRANT ----------- --------------- --------- ----------- --------------- --------- Outstanding December 31, 1991 67,506 $24.75 - $29.00 321,000 160,000 $24.75 - $29.55 155,500 Granted 47,000 $ 17.63 158,500 $ 17.63 Exercised - - Canceled - (3,000) $ 29.00 Outstanding December 31, 1992 114,506 $17.63 - $29.00 274,000 315,500 $17.63 - $29.55 - Granted - 111,000 $ 17.38 Exercised - - Canceled - (74,400) $17.63 - $29.00 Outstanding December 31, 1993 114,506 $17.63 - $29.00 274,000 130,100 $17.38 - $29.55 186,220
(a) In connection with the disposition of the multifamily and industrial operations (Note 2), the executive officers of Realty resigned effective February 18, 1994. In accordance with the stock option program, the nonvested portion of their stock options terminated on February 18, 1994. The nonvested stock options totaled 41,200 as of December 31, 1993. The unexercised vested portion of their stock options still outstanding 90 days subsequent to the resignation date will be terminated on that date. As of December 31, 1993 the vested portion of their stock options totaled 33,800. Certain officers and/or directors of Realty and Operating Company have exercised stock options. At the time of the exercise, the individuals signed notes for the purchase price of the stock (Note 11). At the time of exercise of Realty options, employees also have to buy directly from Operating Company shares of Operating Company stock at its fair market value per share to pair with Realty shares. 77 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 9 - STOCK OPTION PROGRAM AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED) In addition, Operating Company is required to purchase Realty shares to pair with the Operating Company shares being purchased by its employees. In 1984, Operating Company purchased 200,000 shares of Realty stock for this purpose. RETIREMENT INCOME PLAN Realty and Operating Company have a defined benefit retirement plan for year-round employees who are at least 21 years of age with one or more years of service and who are not covered by collective bargaining agreements. Plan assets consist of investments in a life insurance group annuity contract. Plan benefits are based primarily on years of service and qualifying compensation during the final years of employment. Funding requirements comply with federal requirements that are imposed by law. The net periodic pension cost for 1993 for Realty and Operating Company was $104,000 and $367,000 respectively; for 1992 was $109,000 and $339,000, respectively; and for 1991 was $87,000 and $300,000, respectively. The provisions include amortization of past service cost over 30 years. Based upon an actuarial valuation date of January 1, 1993, the present value of accumulated plan benefits (calculated using a rate of return of 8.5%) at December 31, 1993 was $6,280,000, and the plan's net assets available for benefits were $5,607,000. The combined net periodic pension cost for the years ended December 31, 1993, 1992 and 1991 for the retirement income plan included the following components:
1993 1992 1991 ---------- ---------- ---------- Service cost $ 288,000 $ 286,000 $ 278,000 Interest cost on projected benefit obligation 569,000 550,000 500,000 Expected return on plan assets (464,000) (466,000) (469,000) Amortization of unrecognized prior service cost and unrecognized net obligation 78,000 78,000 78,000 --------- --------- --------- Net periodic pension cost $ 471,000 $ 448,000 $ 387,000 ========= ========= =========
78 NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 9 - STOCK OPTION PROGRAM AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED) The following table sets forth the funded status of Realty's and Operating Company's retirement income plan and amounts recognized in the balance sheets at December 31, 1993 and 1992:
1993 1992 ---------- ----------- Actuarial present value of accumulated benefit obligations at January 1: Vested $ 5,897,000 $ 5,676,000 Nonvested 383,000 46,000 ----------- ----------- 6,280,000 5,722,000 Additional amounts related to projected compensation levels at January 1 937,000 1,272,000 ----------- ----------- Total actuarial projected benefit obligations for service rendered 7,217,000 6,994,000 Plan assets at fair value at January 1 5,607,000 5,367,000 ----------- ----------- Projected benefit obligations in excess of plan assets (1,610,000) (1,627,000) Unrecognized net actuarial loss from difference in actual experience from that assumed 540,000 571,000 Unrecognized prior service cost 251,000 269,000 Initial unrecognized transition obligation being recognized over 15 years 545,000 606,000 ----------- ----------- Accrued pension liability $ (274,000) $ (181,000) =========== ===========
Assumptions used in determining the funded status of the retirement income plan are as follows:
1993 1992 1991 ---- ---- ---- Weighted average discount rate 7.5% 8.5% 8.5% Weighted average rate of increase in compensation levels 6.0% 6.0% 6.0% Expected long-term rate of return on plan assets 8.5% 9.0% 9.5%
79 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 9 - STOCK OPTION PROGRAM AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED) DEFERRED COMPENSATION PLAN Realty and Operating Company have defined benefit deferred compensation agreements which provide selected management employees with a fixed benefit at retirement. Plan benefits are based primarily on years of service and qualifying compensation during the final years of employment. The net periodic pension cost for 1993 for Realty and Operating Company was $263,000 and $860,000, respectively; for 1992 was $93,000 and $243,000, respectively; and for 1991 was $98,000 and $233,000 respectively. During 1993, Realty and Operating Company recorded a combined $961,000 of pension expense, net of $793,000 of life insurance proceeds as a nonrecurring charge to the plan resulting from the death of an officer. It is the policy of Realty and Operating Company to fund only amounts sufficient to cover current deferred compensation benefits payable to retirees. The present value of unfunded benefits at December 31, 1993, based upon an actuarial valuation date of January 1, 1993, was $4,280,000 (calculated using a rate of return of 10%) and Realty's and Operating Company's combined accrued liability totaled $3,792,000. Net periodic pension cost for the years ended December 31, 1993, 1992 and 1991 for the deferred compensation plan included the following components:
1993 1992 1991 ------------ ---------- ---------- Service costs $ 152,000 $ 199,000 $ 189,000 Interest cost on projected benefit obligation 404,000 409,000 384,000 Nonrecurring charge resulting from the death of an officer 961,000 - - Expected return on plan assets (394,000) (354,000) (324,000) Amortization of unrecognized prior service cost and unrecognized net obligation - 82,000 82,000 ---------- --------- --------- Net periodic pension cost $1,123,000 $ 336,000 $ 331,000 ========== ========= =========
80 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 9 - STOCK OPTION PROGRAM AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED) The following table sets forth the funded status of Realty's and Operating Company's deferred compensation plan and amounts recognized in the balance sheets at December 31, 1993 and 1992:
1993 1992 ------------- ------------ Actuarial present value of accumulated benefit obligations at January 1: Vested $3,481,000 $3,537,000 Nonvested 93,000 84,000 ---------- ---------- 3,574,000 3,621,000 Additional amounts related to projected compensation levels at January 1 706,000 697,000 ---------- ---------- Total actuarial projected benefit obligations for service rendered 4,280,000 4,318,000 Plan accrued liability at January 1 3,792,000 3,412,000 ---------- ---------- Projected benefit obligations in excess of plan accrued liability (488,000) (906,000) Initial unrecognized transition obligation being recognized over six years - 82,000 ---------- ---------- Accrued pension liability $ (488,000) $ (824,000) ========== ==========
Assumptions used in determining the funded status of the deferred compensation plan are as follows:
1993 1992 1991 ---- ---- ---- Weighted average discount rate 10% 10% 10% Weighted average rate of increase in compensation levels 6% 6% 6% Long-term rate of return 10% 10% 10%
NOTE 10 - SHAREHOLDER RIGHTS PLAN In June 1989, the Board of Directors of Realty adopted a shareholder rights plan and declared the distribution of one right for each outstanding share of common stock. The distribution was made in August 1989. Each right entitles the holder to purchase from Realty, initially, one one-hundredth of a share of junior participating preferred stock at a price of $100 per share, subject to adjustment. The rights are attached to all outstanding common shares, and no separate rights certificates will be distributed. The rights are not exercisable or transferable apart from the common stock until the earlier of ten business days following a public announcement that a person or group has acquired beneficial ownership of 10% or more of Realty's general voting power or ten business days following the commencement of, or announcement of the intention to commence, a tender or exchange offer that would result in a person or group beneficially owning 10% or more of Realty's general voting power. Upon the occurrence of certain other events related to changes in the ownership of Realty's outstanding common stock or business combinations involving a holder of more than 10% of Realty's general voting power, each holder of a right would be entitled to purchase shares of Realty's common stock, or an acquiring corporation's common stock, having a market value of two times the exercise price of the right. 81 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 10 - SHAREHOLDER RIGHTS PLAN (CONTINUED) During such time as the stock-pairing arrangement between Realty and Operating Company shall remain in effect, Operating Company will issue, on a share-for-share basis, Operating Company common shares, or, as the case may be, Operating Company junior participating preferred shares to each person receiving Realty common shares or preferred shares upon exercise or in exchange for one or more rights. Realty is entitled to redeem the rights in whole, but not in part, at a price of $.001 per right prior to the earlier of the expiration of the rights in August 1999 or the close of business ten days after the announcement that a 10% position has been acquired. NOTE 11 - RELATED PARTY TRANSACTIONS LATC leases the Santa Anita Racetrack from Realty. Rent is based upon 1.5% of the aggregate live on-track wagering and 40% of LATC's revenues received from simulcast and satellite wagering on races originating at Santa Anita Racetrack. For the years ended December 31, 1993, 1992 and 1991, LATC paid Realty (including charity days) $11,634,000, $12,683,000 and $11,817,000, respectively, in rent, of which $9,233,000, $10,955,000 and $9,928,000, respectively, were attributable to the Santa Anita meets (exclusive of charity days), with the remainder being attributable to the Oak Tree meets and charity days. The lease arrangement between LATC and Realty requires LATC to assume costs attributable to taxes, maintenance and insurance. Both Realty and Operating Company have notes receivable from certain officers, former officers and/or former directors resulting from their exercise of stock options (Note 9). Notes receivable from officers, former officers and/or former directors as of December 31, 1993 and 1992, for Realty were $81,000 and $184,000, respectively, and for Operating Company were $393,000 and $ 890,000, respectively. NOTE 12 - COMBINED QUARTERLY FINANCIAL INFORMATION - UNAUDITED Condensed combined unaudited quarterly results of operations for Combined Realty and Operating Company are as follows:
NET INCOME NET INCOME PER QUARTER ENDED REVENUES (LOSS) COMMON SHARE - ------------- ---------- -------------- ------------ 1993 December 31 $22,243,000 $(11,140,000) $(1.00) =========== ============ ====== September 30 $15,757,000 $ (170,000) $ (.02) =========== ============ ====== June 30 $24,447,000 $ 2,387,000 $ .21 =========== ============ ====== March 31 $45,088,000 $ 9,324,000 $ .84 =========== ============ ====== 1992 (Restated) December 31 $21,270,000 $ (60,000) $ (.01) =========== ============ ====== September 30 $15,003,000 $ (2,502,000) $ (.22) =========== ============ ====== June 30 $24,966,000 $ 866,000 $ .08 =========== ============ ====== March 31 $45,763,000 $ 9,073,000 $ .81 =========== ============ ====== 1991 (Restated) December 31 $21,921,000 $ 2,241,000 $ .20 =========== ============ ====== September 30 $13,472,000 $ (1,527,000) $ (.14) =========== ============ ====== June 30 $19,079,000 $ (236,000) $ (.02) =========== ============ ====== March 31 $49,342,000 $ 9,438,000 $ .85 =========== ============ ======
82 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 12 - COMBINED QUARTERLY FINANCIAL INFORMATION - UNAUDITED (CONTINUED) In 1993, revenues and cost of sales from food and beverage operations have been reflected as a separate component in Operating Company's and Combined Realty and Operating Company's statements of operations. In prior years these operations were reflected in horse racing revenues. All prior year and interim financial statements and disclosures for Operating Company and Combined Realty and Operating Company have been restated to reflect this reclassification. Operating Company 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. The total of the amounts shown above as quarterly net income per common share may differ from the amount shown on the Combined Statements of Operations because the annual computation is made separately and is based upon the average number of shares outstanding for the year. Realty and Operating Company are subject to significant seasonal variations in revenues and net income (loss) due primarily to the seasonality of thoroughbred horse racing. 83 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES SCHEDULE I - MARKETABLE SECURITIES - OTHER INVESTMENTS
DECEMBER 31, 1993 - ------------------------------------------------------------------------------------------------------------------ COL. A COL. B COL. C COL. D COL. E ------ ------ ------ ------ ------ AMOUNT AT WHICH EACH PORTFOLIO OF EQUITY SECURITY NUMBER OF ISSUES AND EACH SHARES OR UNITS -- MARKET VALUE OF OTHER SECURITY PRINCIPAL EACH ISSUE AT ISSUE CARRIED IN NAME OF ISSUER AND TITLE AMOUNT OF COST BALANCE SHEET THE BALANCE OF EACH ISSUE BONDS AND NOTES OF EACH ISSUE DATE SHEET - ---------------------------------- ------------------ -------------- --------------- ---------------- Commercial paper (a) $4,693,000 $4,693,000 $4,693,000 $4,693,000 - ------------------- (a) Federal Home Loan $2,546,000 Transamerica Finance Corporation 1,249,000 So. California Edison 898,000 ---------- $4,693,000 ==========
84 SANTA ANITA REALTY ENTERPRISES, INC. SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COL. A COL. B COL. C COL. D COL. E ------ ------ ------ ------ ------ BALANCE AT DEDUCTIONS END OF PERIOD BALANCE AT ------------------------ ------------------------- BEGINNING OF AMOUNTS AMOUNTS NAME OF DEBTOR PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT -------------- ------------ --------- ---------- ----------- ----------- ----------- 1993 R. B. McKinley, a Director of Operating Company and Director of Realty (a) (b) $ 88,000 $ - $ 88,000 $ - $ - $ - R.B. McKinley, a Director of Operating Company and Director of Realty (c) 96,000 - 15,000 - 81,000 - -------- --------- -------- ----------- -------- ------- $184,000 $ - $103,000 $ - $ 81,000 $ - ======== ========= ======== =========== ======== ======= 1992 R. B. McKinley, a Director of Operating Company and a Director of Realty (a) $103,000 $ - $ 15,000 $ - $ 88,000 $ - R.B. McKinley, a Director of Operating Company and a Director of Realty (c) 109,000 - 13,000 - 14,000 82,000 R.P. Strub, Vice Chairman of the Board of Directors of Realty, Chairman of the Board of Directors and Chief Executive Office of Operating Company (d) 78,000 - 78,000 - - - -------- --------- -------- ----------- -------- ------- $290,000 $ - $106,000 $ - $102,000 $82,000 ======== ========= ======== =========== ======== =======
- -------------- (a) Note receivable at the prime rate, adjusted annually, payable in five annual installments through 1993, arising from the exercise of stock options of Realty. (b) Resigned effective December 27, 1993. (c) Note receivable at the prime rate, adjusted annually, payable in five annual installments through 1994, arising from the exercise of stock options of Realty. (d) Note receivable at 7% interest, payable in five annual installments through 1992, arising from the exercise of stock options of Realty. 85 SANTA ANITA REALTY ENTERPRISES, INC. SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COL. A COL. B COL. C COL. D COL. E ------ ------ ------ ------- ------ BALANCE AT DEDUCTIONS END OF PERIOD BALANCE AT ------------------------ ------------------------- BEGINNING OF AMOUNTS AMOUNTS NAME OF DEBTOR PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT -------------- ------------ --------- ---------- ----------- ----------- ----------- 1991 R. B McKinley, a Director of Operating Company and Chairman of the Board of Directors and Chief Executive Officer of Realty (a) $133,000 $ - $30,000 - $ 15,000 $ 88,000 R.B. McKinley, a Director of Operating Company and Chairman of the Board of Directors and Chief Executive Officer of Realty (b) 122,000 - 13,000 - 13,000 96,000 R.P. Strub, Vice Chairman of the Board of Directors of Realty, Chairman of the Board of Directors and Chief Executive Officer of Operating Company (c) 91,000 - 13,000 - 78,000 - -------- --------- ------- --------- -------- -------- $346,000 $ - $56,000 $ - $106,000 $184,000 ======== ========= ======= ========= ======== ========
- -------------- (a) Note receivable at the prime rate, adjusted annually, payable in five annual installments through 1993, arising from the exercise of stock options of Realty. (b) Note receivable at the prime rate, adjusted annually, payable in five annual installments through 1994, arising from the exercise of stock options of Realty. (c) Note receivable at 7% interest, payable in five annual installments through 1992, arising from the exercise of stock options of Realty. 86 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COL. A COL. B COL. C COL. D COL. E ------- --------- ------ -------- ------ BALANCE AT DEDUCTIONS END OF PERIOD BALANCE AT ------------------------ ------------------------- BEGINNING OF AMOUNTS AMOUNTS NAME OF DEBTOR PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT -------------- ------------ --------- ---------- ----------- ----------- ----------- 1993 C. Goodrich, Director and Vice President of Operating Company and President of a subsidiary of Operating Company (a) $ 100,000 $ 6,000 $ 18,000 $ - $ 13,000 $ 75,000 A.W. Ingle, an officer of Operating Company (b) 89,000 4,000 93,000 - - - R.P. Strub, Vice Chairman of the Board of Directors of Realty and Chairman of the Board of Directors and Chief Executive Officer of Operating Company (c) 701,000 42,000 438,000 - 60,000(d) 245,000 ---------- ------- -------- ---------- -------- -------- $ 890,000 $52,000 $549,000 $ - $ 73,000 $320,000 ========== ======= ======== ========== ======== ======== 1992 C. Goodrich, Director and Vice President of Operating Company and President of a subsidiary of Operating Company (a) $ 141,000 $11,000 $ 52,000 $ - $ 13,000 $ 87,000 A.W. Ingle, an officer of Operating Company (b) 102,000 7,000 20,000 - 89,000 - R.P. Strub, Vice Chairman of the Board of Directors of Realty and Chairman of the Board of Directors and Chief Executive Officer of Operating Company (a) 843,000 48,000 190,000 - 92,000 609,000 ---------- ------- -------- ---------- -------- -------- $1,086,000 $66,000 $262,000 $ - $194,000 $696,000 ========== ======= ======== ========== ======== ========
- -------------- (a) Note receivable at the prime rate, adjusted annually, payable in five annual installments through 1995, arising from the exercise of stock options of Operating Company. (b) Note receivable at the prime rate, adjusted annually, payable in five annual installments through 1993, arising from the exercise of stock options of Operating Company. (c) Decreased May 5, 1993. (d) The balance of Mr. Strub's note will be reduced at the rate of $5,000 per month by his widow, Mrs. Elizabeth Strub, who has personally guaranteed the note. Additionally, irrevocable escrow instructions have been executed by the trustee of Mr. Strub's estate wherein escrow proceeds arising from the sale of a single family residence will be applied to the outstanding balance. 87 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COL. A COL. B COL. C COL. D COL. E ------ ------ ------ ------ ------ BALANCE AT DEDUCTIONS END OF PERIOD BALANCE AT ------------------------ ------------------------- BEGINNING OF AMOUNTS AMOUNTS NAME OF DEBTOR PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT -------------- ------------ --------- ---------- ----------- ----------- ----------- 1991 C. Goodrich, Director and Vice President of Operating Company and President of a subsidiary of Operating Company (a) (b) $ 159,000 $ 14,000 $ 32,000 $ - $ 43,000 $ 98,000 A.W. Ingle, an officer of Operating Company (c) 120,000 10,000 28,000 - 14,000 88,000 R.P. Strub, Vice Chairman of the Board of Directors of Realty and Chairman of the Board of Directors and Chief Executive Officer of Operating Company (b) (d) 942,000 80,000 179,000 - 147,000 696,000 ---------- -------- -------- ----------- -------- -------- $1,221,000 $104,000 $239,000 $ - $204,000 $882,000 ========== ======== ======== =========== ======== ========
- -------------- (a) Note receivable at the prime rate, adjusted annually, payable in five annual installments through 1992, arising from the exercise of stock options of Operating Company. (b) Note receivable at the prime rate, adjusted annually, payable in five annual installments through 1995, arising from the exercise of stock options of Operating Company. (c) Note receivable at the prime rate, adjusted annually, payable in five annual installments through 1993, arising from the exercise of stock options of Operating Company. (d) Note receivable at 7% interest, payable in five annual installments through 1992, arising from the exercise of stock options of Operating Company. 88 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
BALANCE AT BALANCE AT BEGINNING OF ADDITIONS END OF CLASSIFICATION PERIOD AT COST RETIREMENTS PERIOD - --------------------------------------- ------------ ----------- ----------- ------------ For the year ended December 31, 1993 Machinery and other equipment $21,524,000 $ 442,000 $ 23,000 $21,943,000 Leasehold improvements 19,968,000 1,008,000 - 20,976,000 ----------- ---------- -------- ----------- $41,492,000 $1,450,000 $ 23,000 $42,919,000 =========== ========== ======== =========== For the year ended December 31, 1992 Machinery and other equipment $15,046,000 $6,527,000 $ 49,000 $21,524,000 Leasehold improvements 20,679,000 170,000 881,000 19,968,000 ----------- ---------- -------- ----------- $35,725,000 $6,697,000 $930,000 $41,492,000 =========== ========== ======== =========== For the year ended December 31, 1991 Machinery and other equipment $13,107,000 $1,943,000 $ 4,000 $15,046,000 Leasehold improvements 19,274,000 1,405,000 - 20,679,000 ----------- ---------- -------- ----------- $32,381,000 $3,348,000 $ 4,000 $35,725,000 =========== ========== ======== ===========
89 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
ADDITIONS BALANCE AT CHARGED TO BALANCE AT BEGINNING OF COSTS AND END OF DESCRIPTION PERIOD EXPENSES RETIREMENTS PERIOD - --------------------------------------- ------------ ----------- ----------- ------------ For the year ended December 31, 1993 Machinery and other equipment $11,054,000 $1,588,000 $ 23,000 $12,619,000 Leasehold improvements 7,289,000 1,180,000 - 8,469,000 ----------- ---------- -------- ----------- $18,343,000 $2,768,000 $ 23,000 $21,088,000 =========== ========== ======== =========== For the year ended December 31, 1992 Machinery and other equipment $ 9,700,000 $1,390,000 $ 36,000 $11,054,000 Leasehold improvements 6,174,000 1,342,000 227,000 7,289,000 ----------- ---------- -------- ----------- $15,874,000 $2,732,000 $263,000 $18,343,000 =========== ========== ======== =========== For the year ended December 31, 1991 Machinery and other equipment $ 8,443,000 $1,261,000 $ 4,000 $ 9,700,000 Leasehold improvements 4,801,000 1,373,000 - 6,174,000 ----------- ---------- -------- ----------- $13,244,000 $2,634,000 $ 4,000 $15,874,000 =========== ========== ======== ===========
90 SANTA ANITA REALTY ENTERPRISES, INC. SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS DECEMBER 31, 1993
Col. A Col. B Col. C Col. D Col. E ------- ------ ------ ------ ------ Additions Balance at ----------------------------------- Beginning Charged to Charged to Balance at Descriptions of Period Costs and Expenses Other Accounts Deductions End of Period - --------------------------------------- ---------- ------------------ -------------- ---------- ------------- Deducted from commercial properties: Allowance for loss on disposition of multifamily and industrial operations $ - $ 10,974,000 $ - $ - $ 10,974,000 ========== ================= ============== ========== =============
91 SANTA ANITA REALTY ENTERPRISES, INC. SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COL. A COL. B ------ ------ CHARGED TO COSTS AND EXPENSES --------------------------------------- 1993 1992 1991 ----------- ----------- ----------- Property Taxes $2,331,000 $2,742,000 $2,271,000 ========== ========== ==========
92 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COL. A COL. B ------- ------ CHARGED TO COSTS AND EXPENSES --------------------------------------- 1993 1992 1991 ----------- ----------- ----------- Maintenance and repairs $2,344,000 $2,566,000 $2,325,000 ========== ========== ========== Advertising costs $2,631,000 $3,400,000 $3,955,000 ========== ========== ========== Property taxes $ 692,000 $ 687,000 $1,210,000 ========== ========== ==========
93 SANTA ANITA REALTY ENTERPRISES, INC. SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1993
COSTS CAPITALIZED INITIAL COSTS TO COMPANY SUBSEQUENT TO ACQUISITION ----------------------------- ----------------------------- BUILDINGS AND BUILDINGS AND DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS - ----------------------------- ------------ ------------ -------------- ------------ -------------- REALTY RACING FACILITY Santa Anita Racetrack (a) $ - $ 549,000 $ 15,150,000 $2,665,000 $ 7,303,000 REGIONAL MALLS California Fashion Park (a)(c) 25,313,000 17,688,000 36,929,000 Land underlying Fashion Park 4,100,000 102,000 SHOPPING CENTERS California Yorba Linda 2,038,000 6,162,000 1,689,000 Orange 1,800,000 3,275,000 246,000 Encinitas 2,842,000 8,954,000 479,000 Phoenix, Arizona Tatum & Thunderbird 728,000 1,672,000 233,000 1,800,000 28th and Indian School 870,000 807,000 1,793,000 140,000 67th and Indian School 1,751,000 3,396,000 1,553,000 OFFICE BUILDINGS California Santa Ana 11,822,000 6,670,000 16,130,000 200,000 661,000 Upland 1,560,000 3,440,000 193,000 1,077,000 Arcadia 10,000,000 9,122,000 6,989,000 LAND California Temecula 857,000 1,208,000 580,000 ------------ ----------- ------------- ---------- ------------ 52,962,000 20,055,000 86,782,000 3,871,000 58,866,000 ------------ ----------- ------------- ---------- ------------ SUBJECT TO THE PACIFIC TRANSACTION Apartments California Santa Ana 7,089,000 16,861,000 1,339,000 5,031,000 Santa Ana 345,000 Washington Everett 15,625,000 7,709,000 14,541,000 84,000 2,269,000 Burien 12,900,000 2,945,000 14,203,000 385,000 Oregon Beaverton 8,042,000 1,127,000 9,048,000 1,540,000 Texas San Antonio 950,000 3,750,000 425,000 San Antonio 1,465,000 3,035,000 593,000 Houston 2,997,000 2,005,000 4,645,000 1,025,000 Austin 1,359,000 5,472,000 19,000 California Vista, Ontario, Rancho Cucamonga 12,000 OFFICE BUILDING California Newport Beach 211,000 531,000 329,000 INDUSTRIAL Washington Seattle 4,751,000 2,349,000 4,700,000 26,000 1,117,000 California Baldwin Park (c) (d) (e) 9,454,000 10,000,000 999,000 1,913,000 ALLOWANCE FOR LOSS ON DISPOSITION OF MULTIFAMILY AND INDUSTRIAL OPERATIONS (10,974,000) ------------ ----------- ------------- ---------- ------------ 53,769,000 27,209,000 87,143,000 2,448,000 3,672,000 ------------ ----------- ------------- ---------- ------------ $106,731,000 $47,264,000 $173,925,000 $6,319,000 $ 62,538,000 ============ =========== ============ ========== ============ GROSS AMOUNT OF WHICH CARRIED AT CLOSE OF PERIOD ------------------------------------------------ BUILDINGS AND ACCUMULATED DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION - ----------------------------- ------------ -------------- ------------ ----------------- REALTY RACING FACILITY Santa Anita Racetrack (a) $ 3,214,000 $ 22,453,000 $ 25,667,000 $18,670,000 REGIONAL MALLS California Fashion Park (a)(c) 54,617,000 54,617,000 12,065,000 Land underlying Fashion Park 102,000 102,000 SHOPPING CENTERS California Yorba Linda 2,038,000 7,851,000 9,889,000 2,008,000 Orange 1,800,000 3,521,000 5,321,000 688,000 Encinitas 2,842,000 9,433,000 12,275,000 1,117,000 Phoenix, Arizona Tatum & Thunderbird 961,000 3,472,000 4,433,000 698,000 28th and Indian School 807,000 1,933,000 2,740,000 599,000 67th and Indian School 1,751,000 4,949,000 6,700,000 1,001,000 OFFICE BUILDINGS California Santa Ana 6,870,000 16,791,000 23,661,000 6,685,000 Upland 1,753,000 4,517,000 6,270,000 1,641,000 Arcadia 16,111,000 16,111,000 3,122,000 LAND California Temecula 1,788,000 1,788,000 ----------- ------------ ------------ ----------- 23,926,000 145,648,000 169,574,000 48,294,000 ----------- ------------ ------------ ----------- SUBJECT TO THE PACIFIC TRANSACTION Apartments California Santa Ana 8,428,000 21,892,000 30,320,000 3,892,000 Santa Ana 345,000 345,000 Washington Everett 7,793,000 16,810,000 24,603,000 2,107,000 Burien 2,945,000 14,588,000 17,533,000 1,087,000 Oregon Beaverton 1,127,000 10,588,000 11,715,000 420,000 Texas San Antonio 950,000 4,175,000 5,125,000 167,000 San Antonio 1,465,000 3,628,000 5,093,000 142,000 Houston 2,005,000 5,670,000 7,675,000 132,000 Austin 1,359,000 5,491,000 6,850,000 78,000 California Vista, Ontario, Rancho Cucamonga 12,000 12,000 OFFICE BUILDING California Newport Beach 211,000 860,000 1,071,000 52,000 INDUSTRIAL Washington Seattle 2,375,000 5,817,000 8,192,000 878,000 California Baldwin Park (c) (d) (e) 999,000 11,913,000 12,912,000 3,924,000 ALLOWANCE FOR LOSS ON DISPOSITION OF MULTIFAMILY AND INDUSTRIAL OPERATIONS (10,974,000) (10,974,000) ----------- ------------ ------------ ----------- 29,657,000 90,815,000 120,472,000 12,879,000 ----------- ------------ ------------ ----------- $53,583,000 $236,463,000 $290,046,000 (f) $61,173,000 (g) =========== ============ ============ =========== LIFE ON WHICH DEPRECIATION IN LATEST INCOME DATE OF DATE STATEMENT IS DESCRIPTION CONSTRUCTION ACQUIRED COMPUTED - ----------------------------- ------------------------- ------------- --------------------------------- REALTY RACING FACILITY Santa Anita Racetrack (a) 1934 1934 5-35 Years (b) REGIONAL MALLS California Fashion Park (a)(c) 1974 1974 40 Years Land underlying Fashion Park 1934 SHOPPING CENTERS California Yorba Linda 1985 1985 3-40 Years Orange 1986 1985 3-40 Years Encinitas 1985 1985 3-40 Years Phoenix, Arizona Tatum & Thunderbird 1981 1983 3-40 Years 28th and Indian School 1979 1983 3-40 Years (b) 67th and Indian School 1968 1986 3-40 Years OFFICE BUILDINGS California Santa Ana 1980 1984 5-40 Years Upland 1982 1984 5-35 Years Arcadia 1986 1987 5-45 Years LAND California Temecula 1989 SUBJECT TO THE PACIFIC TRANSACTION Apartments California Santa Ana 1972 1986 40 Years Santa Ana 1990 Washington Everett 1988, 1986 1989 35 Years Burien 1987 1991 40 Years Oregon Beaverton 1990 1992 40 Years Texas San Antonio 1983 1992 40 Years San Antonio 1979 1992 40 Years Houston 1978 1992 40 Years Austin 1986 1993 40 Years California Vista, Ontario, Rancho Cucamonga 1990, 1991, 1990 OFFICE BUILDING California Newport Beach 1970 1992 5-40 Years INDUSTRIAL Washington Seattle 1986, 1981 1990 3-31 Years California Baldwin Park (c) (d) (e) 1986 1981 5-30 Years ALLOWANCE FOR LOSS ON DISPOSITION OF MULTIFAMILY AND INDUSTRIAL OPERATIONS
The accompanying notes are an integral part of this schedule. 94 SANTA ANITA REALTY ENTERPRISES, INC. SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1993 (CONTINUED) - ------------ Notes (a) Initial costs December 31, 1979 book value (b) Component depreciation used (c) All dollar figures represent 100% of amounts attributable to the property (d) Initial costs December 31, 1987 book value (e) Property subject to Pacific transaction (Note 2)
1993 1992 1991 -------------- -------------- -------------- (f) Balance at beginning of period $274,064,000 $242,812,000 $218,726,000 Additions - capital expenditures 33,424,000 35,588,000 24,544,000 Disposals (6,468,000) (4,336,000) (400,000) Allowance for loss on disposition of multifamily and industrial operations (10,974,000) - - Other - - (58,000) ------------ ------------ ------------ Balance at end of period $290,046,000 $274,064,000 $242,812,000 ============ ============ ============ (g) Balance at beginning of period $ 59,038,000 $ 50,811,000 $ 44,009,000 Additions - depreciation expense 8,795,000 8,156,000 7,418,000 Disposals (6,660,000) 71,000 (616,000) ------------ ------------ ------------ Balance at end of period $ 61,173,000 $ 59,038,000 $ 50,811,000 ============ ============ ============
95 INDEPENDENT AUDITORS' REPORT ----------------------------- To the Partners H-T Associates We have audited the accompanying consolidated balance sheet of H-T Associates (a Maryland general partnership) and subsidiary (a Maryland general partnership) as of December 31, 1993, and the related consolidated statements of operations, partners' capital and cash flows for the year then ended. These consolidated financial statements are the responsibility of H-T Associates' management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of H-T Associates and subsidiary as of December 31, 1993, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. KPMG PEAT MARWICK San Diego, California February 11, 1994 96 INDEPENDENT AUDITORS' REPORT ----------------------------- To the Partners H-T Associates San Diego, California We have audited the accompanying consolidated balance sheet of H-T Associates (a Maryland general partnership) and subsidiary (a Maryland general partnership) as of December 31, 1992, and the related consolidated statements of operations, partners' capital and cash flows for the year then ended. These financial statements are the responsibility of H-T Associates' management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1992 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of H-T Associates and subsidiary as of December 31, 1992, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. KENNETH LEVENTHAL & COMPANY Newport Beach, California January 28, 1993 97 INDEPENDENT AUDITORS' REPORT ---------------------------- To the Partners H-T Associates San Diego, California We have audited the accompanying consolidated statements of operations, partners' capital and cash flows of H-T Associates (a Maryland general partnership) and subsidiary (a Maryland general partnership) for the year ended December 31, 1991. These financial statements are the responsibility of H-T Associates' management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such 1991 consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of H-T Associates and subsidiary for the year ended December 31, 1991, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE San Diego, California February 3, 1992 98 H-T ASSOCIATES (a Maryland general partnership) AND SUBSIDIARY (a Maryland general partnership) CONSOLIDATED BALANCE SHEETS ---------------------------
ASSETS December 31 ------ ------------------------------- 1993 1992 -------------- -------------- SHOPPING CENTER PROPERTY (Note B): Land $ 11,726,213 $ 11,726,213 Buildings and improvements 177,052,996 175,971,397 Deferred charges 2,415,529 1,968,632 ------------ ------------ 191,194,738 189,666,242 Less accumulated depreciation and amortization (15,639,380) (9,294,339) ------------ ------------ 175,555,358 180,371,903 CASH 2,871,962 3,745,506 ACCOUNTS RECEIVABLE, less allowance for doubtful accounts of $1,000,277 (1993) and $656,080 (1992) 773,051 927,441 NOTES RECEIVABLE 390,561 567,828 CONSTRUCTION COSTS RECEIVABLE FROM TENANTS 90,606 141,732 DEFERRED RENT RECEIVABLE 2,542,881 1,356,860 PREPAID EXPENSES AND OTHER ASSETS 1,397,663 2,477,513 ------------ ------------ $183,622,082 $189,588,783 ============ ============ LIABILITIES AND PARTNERS' CAPITAL --------------------------------- NOTES PAYABLE (Note B) $164,641,000 $159,473,000 ADVANCES FROM PARTNERS (Note D) Ernest W. Hahn, Inc. 4,021,196 3,746,479 Santa Anita Realty Enterprises, Inc. 4,016,083 3,750,247 ACCOUNTS PAYABLE TO Ernest W. Hahn, Inc. 119,847 148,657 Tenants 82,679 109,660 Others 970,791 1,009,324 Accrued construction costs - 20,000 ------------ ------------ 173,851,596 168,257,367 COMMITMENTS (Note C) MINORITY INTEREST 5,932,847 12,021,673 PARTNERS' CAPITAL (Note E) 3,837,639 9,309,743 ------------ ------------ $183,622,082 $189,588,783 ============ ============
See notes to consolidated financial statements. 99 H-T ASSOCIATES -------------- (a Maryland general partnership) AND SUBSIDIARY (a Maryland general partnership) CONSOLIDATED STATEMENTS OF OPERATIONS -------------------------------------
Years Ended December 31, --------------------------------------------- 1993 1992 1991 ------------- ------------- ------------- REVENUES: Minimum rent (Note C) $14,198,970 $10,561,845 $ 4,068,533 Overage rent (Note C) 366,600 213,501 339,161 Recoveries from tenants (Note C) 4,845,865 4,688,655 1,699,943 Other income 579,235 456,634 102,414 ----------- ----------- ----------- 19,990,670 15,920,635 6,210,051 ----------- ----------- ----------- EXPENSES: Operating expenses 3,691,166 3,586,645 1,727,378 Property taxes 1,212,191 1,112,832 456,240 Office and management 795,641 674,366 414,929 Promotion 134,078 178,196 58,067 Professional services 79,410 154,154 39,429 Other expenses 652,589 386,396 242,865 ----------- ----------- ----------- 6,565,075 6,092,589 2,938,908 ----------- ----------- ----------- INCOME FROM OPERATIONS 13,425,595 9,828,046 3,271,143 ----------- ----------- ----------- NON-OPERATING REVENUE: Interest income 233,305 185,833 147,854 ----------- ----------- ----------- NON-OPERATING EXPENSES: Interest expense (Notes B and D) 11,923,884 8,487,995 2,607,650 Depreciation and amortization 6,350,407 4,107,219 1,692,761 Write-off of assets 39,186 - - ----------- ----------- ----------- 18,313,477 12,595,214 4,300,411 ----------- ----------- ----------- LOSS BEFORE MINORITY INTEREST (4,654,577) (2,581,335) (881,414) MINORITY INTEREST 1,382,472 700,534 (299,341) ----------- ----------- ----------- NET LOSS $(3,272,105) $(1,880,801) $(1,180,755) =========== =========== ===========
See notes to consolidated financial statements. 100 H-T ASSOCIATES -------------- (a Maryland general partnership) AND SUBSIDIARY (a Maryland general partnership) CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL -------------------------------------------- YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 --------------------------------------------
Santa Anita Realty Ernest W. Enterprises, Hahn, Inc. Inc. Total ------------ ------------- ------------- $ 7,099,837 $ 7,099,838 $14,199,675 BALANCE, December 31, 1990 (590,377) (590,378) (1,180,755) Net loss Cash distributions (Note E) (250,000) (250,000) (500,000) ----------- ----------- ----------- BALANCE, December 31, 1991 6,259,460 6,259,460 12,518,920 Net loss (940,401) (940,400) (1,880,801) Cash distributions (Note E) (664,188) (664,188) (1,328,376) ----------- ----------- ----------- BALANCE, December 31, 1992 4,654,871 4,654,872 9,309,743 Net loss (1,636,052) (1,636,053) (3,272,105) Cash distributions (Note E) (1,100,000) (1,099,999) (2,199,999) ----------- ----------- ----------- BALANCE, December 31, 1993 $ 1,918,819 $ 1,918,820 $ 3,837,639 =========== =========== ===========
See notes to consolidated financial statements. 101 H-T ASSOCIATES -------------- (a Maryland general partnership) AND SUBSIDIARY (a Maryland general partnership) CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------
Years Ended December 31 --------------------------------------------- 1993 1992 1991 ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $(3,272,105) $(1,880,801) $ (1,180,755) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 6,350,407 4,107,219 1,692,761 Provision for doubtful accounts receivable 531,345 291,976 110,087 Write-down of assets 39,186 - - Minority interest (1,382,472) (700,534) 299,341 Changes in assets and liabilities: Accounts receivable (376,955) 443,023 (1,225,524) Notes receivable 177,267 (401,520) (107,873) Deferred rent receivable (1,186,021) (804,426) (197,036) Prepaid expenses and other assets 1,079,850 (1,594,283) (601,312) Accounts payable to: Ernest W. Hahn, Inc. (28,810) (421,392) 459,677 Tenants (26,981) 84,020 16,358 Others (38,533) (386,854) 685,047 ----------- ----------- ------------ Net cash provided by (used in) operating activities 1,866,178 (1,263,572) (49,229) ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property under development - - (53,275,972) Additions to shopping center property (1,573,048) (9,271,754) (439,080) Decrease (increase) in construction costs receivable from tenants 51,126 688,235 (828,105) Decrease in accrued construction costs (20,000) (741,522) (7,103,494) ----------- ----------- ------------ Net cash used in investing activities (1,541,922) (9,325,041) (61,646,651) ----------- ----------- ------------ (continued)
See notes to consolidated financial statements. 102 H-T ASSOCIATES (a Maryland general partnership) AND SUBSIDIARY (a Maryland general partnership) CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (Continued)
Years Ended December 31 ---------------------------------------- 1993 1992 1991 --------- ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable 5,168,000 16,889,993 60,600,757 Advances from partners 540,553 812,078 2,094,719 Repayment of partner advances - (1,876,657) - Distributions to minority interest (4,706,354) (3,626,011) (269,232) Distributions to partners (2,199,999) (1,328,376) (500,000) ----------- ---------- ---------- Net cash provided by (used in) financing activities (1,197,800) 10,871,027 61,926,244 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH (873,544) 282,414 230,364 CASH, BEGINNING OF YEAR 3,745,506 3,463,092 3,232,728 ----------- ----------- ----------- CASH, END OF YEAR $ 2,871,962 $ 3,745,506 $ 3,463,092 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION ------------------------------------------------ Interest paid (net of amounts capitalized) $10,443,161 $10,474,729 $ 1,612,772 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES -------------------------------------------------------- During 1993, the following non-cash activity occurred: Reduction in Reduction Accumulated in Depreciation Property and Amortization --------- ---------------- Write-down of assets: Buildings and improvements $36,452 $4,556 Deferred charges 8,100 810 ------- ------ Total $44,552 $5,366 ======= ======
See notes to consolidated financial statements. 103 H-T ASSOCIATES -------------- (a Maryland general partnership) AND SUBSIDIARY (a Maryland general partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1993, 1992 AND 1991 -------------------------------- A. Organization and Accounting Policies: ------------------------------------ H-T Associates (the "Partnership") is a Maryland general partnership formed on July 28, 1987. Its primary asset is a 65% ownership in Towson Town Center Associates ("TTCA"), formed to develop and operate a regional shopping center near Baltimore, Maryland. The general partners of the Partnership are Ernest W. Hahn, Inc. and Santa Anita Realty Enterprises, Inc. The Partnership is to continue until December 31, 2087, unless terminated earlier. Profits and losses are shared as follows: Ernest W. Hahn, Inc. ("Hahn") 50% Santa Anita Realty Enterprises, Inc. ("Santa Anita") 50% The consolidated financial statements of the Partnership include the accounts of the Partnership and TTCA. TTCA is a Maryland general partnership comprised of the Partnership and DeChiaro Associates ("DeChiaro") as 65% and 35% general partners, respectively. All significant intercompany balances and transactions have been eliminated. Certain reclassifications of prior year amounts have been made in order to conform with the current year presentation. The Partnership's accounting policies are as follows: 1. Shopping center property is recorded at cost and includes direct construction costs, interest, construction loan fees, property taxes and related costs capitalized during the construction period, as these amounts are expected to be recovered from operations. 2. The costs of shopping center buildings and improvements, less a 5% salvage value, are depreciated using the straight-line method over the estimated useful life of 40 years. 3. Direct costs of obtaining leases and permanent financing are deferred and are being amortized over the lease and loan periods, respectively. 4. Maintenance and repairs are charged to operations as incurred. 5. Expenditures for betterments are capitalized and depreciated over the remaining depreciable life of the property. 6. Costs incurred in connection with early termination of a tenant lease are amortized over the life of the lease with the replacement tenant. To the extent payments received from an incoming tenant do not represent future rentals or cost recoveries for tenant improvements, they are recorded as income when received. 104 H-T ASSOCIATES -------------- (a Maryland general partnership) AND SUBSIDIARY (a Maryland general partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------------------ A. Organization and Accounting Policies: (continued) ------------------------------------ 7. Taxable income or loss of the Partnership is reported by, and is the responsibility of, the respective partners. Accordingly, the Partnership makes no provision for income taxes. 8. The Partnership recognizes scheduled rent increases on a straight-line basis. Accordingly, a deferred receivable for rents which are to be received in subsequent years is reflected in the accompanying consolidated balance sheets. 9. The differential to be paid or received under interest rate swap agreements is accrued as interest rates change, and is recognized over the life of the agreements (Note B). B. Notes payable: ------------- In 1990, TTCA entered into a building loan agreement with a commercial bank, secured by an indemnity deed of trust encumbering the property. In connection with the loan, Hahn and Santa Anita executed a repayment guaranty of $66,135,000 each and DeChiaro executed a limited repayment guaranty of $4,513,000. TTCA can borrow up to $170,000,000. The principal balance of the loan is due May 1999. The agreement provides that TTCA can: (1) obtain funds at the then current prime rate of the commercial bank; (2) obtain funds based on the then current London Interbank Offered Rate ("LIBOR") plus a spread (as defined); or, (3) obtain funds through the issuance of commercial paper at rates based upon the interest rates offered in the commercial paper market plus letter of credit fees. For the years ended December 31, 1993 and 1992, all funds were obtained under the commercial paper option for a total outstanding balance of $164,641,000 and $159,473,000, respectively. Interest is payable monthly. The variable interest rate in effect on the outstanding balance as of December 31, 1993 and 1992 was 3.2% and 3.7%, respectively. TTCA has also entered into interest rate swap agreements to reduce the impact of changes in interest rates on its loan. As of December 31, 1993 and 1992, TTCA had two interest rate swap agreements outstanding with a commercial bank which have a total notional principal amount of $82,000,000. The agreements provide for TTCA to pay fixed rates of interest of 9.3% and 8.8% on swaps of $45,000,000 and $37,000,000, respectively, and to receive floating interest based on 30 day commercial paper rates. The effective variable rate of interest on the swap agreements as of December 31, 1993 is 3.2%. The interest rate swap agreements mature at the time the building loan matures. TTCA is exposed to credit loss in the event of nonperformance by the commercial bank with the interest rate swap agreements. The net effective interest rates on amounts outstanding under the building loan agreement at December 31, 1993, 1992 and 1991, after giving effect to the interest rate swaps, was 6.9%, 6.4% and 8.3%, respectively. 105 H-T ASSOCIATES (a Maryland general partnership) AND SUBSIDIARY (a Maryland general partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) B. Notes payable: (continued) ------------- The differential between the amounts paid and received under the interest rate contract is included as either an addition to, or a reduction in, interest incurred. Total interest incurred was $11,383,329, $11,420,746, and $10,419,887 of which $0, $3,491,669 and $8,515,010 was capitalized, for the years ended December 31, 1993, 1992, and 1991, respectively. C. Commitments: ------------ Partnership as Lessor: --------------------- TTCA leases space to tenants in the shopping center for which it charges minimum rents and receives reimbursement for real estate taxes and certain other operating expenses. The terms of the leases range from 5 to 30 years and generally provide for additional overage rents during any year that tenants' gross sales exceed stated amounts. Future minimum rental revenues to be received under leases in force at December 31, 1993 are as follows:
Year ending December 31 Amount --------------- ------------- 1994 $ 13,985,642 1995 14,089,510 1996 14,055,103 1997 13,712,487 1998 13,683,948 Thereafter 60,989,803 ------------ $130,516,493 ============
Property Under Development: --------------------------- During 1991, TTCA completed a major expansion and renovation of the previously existing shopping center. Pursuant to the Development Manager's Agreement between TTCA and Hahn, Hahn is to receive an estimated $5.1 million as compensation for managing the development of the project. Of this amount $5,080,619, $5,041,792 and $4,682,015 were incurred as of December 31, 1993, 1992 and 1991, respectively. 106 H-T ASSOCIATES -------------- (a Maryland general partnersip) AND SUBSIDIARY (A Maryland general partnership) D. Advances from Partners: ---------------------- Hahn and Santa Anita have both made advances to the Partnership to finance certain construction funding requirements and other cash flow needs. These advances bear interest at 1% above the prime rate and they are required to be repaid prior to any distributions to the partners, other than distributions of Net Cash Flow from Operations (Note E). Interest incurred on the advances totaled $540,555, $558,918 and $702,773 for the years ended December 31, 1993, 1992 and 1991, respectively. The prime rate was 6.0%, 6.0% and 6.5% at December 31, 1993, 1992 and 1991, respectively. E. Partnership Distributions: ------------------------- Distributions of Net Cash flow from Operations of the Partnership (as defined by the Amended and Restated Partnership Agreement) are subject to certain priorities. The period from inception of the Partnership through October 16, 1991 (the Grand Opening Date of the shopping center) is referred to as the Initial Term. During the Initial Term, both partners were entitled to a cumulative, compounded return (at the Prime Rate, as defined) on their capital contributions. A $500,000 distribution was made during the Initial Term. The "Primary Term" follows the Initial Term, and ends when cash flow for a consecutive 12-month period exceeds the sum of $1,192,000 plus any unpaid cumulative returns. During the "Primary Term," Santa Anita receives a cumulative return of $447,000 for the first year, $521,500 for the second year, and $596,000 for each year thereafter. Hahn receives non-cumulative returns of the same amounts. Following the Primary Term, distributions of Net Cash Flow from Operations are made to the partners in accordance with their percentage interests. F. Related Party Transactions: -------------------------- Hahn and its wholly owned subsidiary, Hahn Property Management Corporation ("HMPC"), provide property management, leasing and various legal services to TTCA. A summary of costs and fees incurred by Hahn and HMPC by TTCA during 1993, 1992 and 1991 is presented below:
Years ended December 31 --------------------------------------- 1993 1992 1991 ----------- ----------- ----------- Payroll and related benefits $1,444,592 $1,608,788 $1,405,067 Management fee 545,964 410,277 156,291 Professional service 33,071 15,644 79,095 Leasing commissions 399,345 532,818 782,378 Legal 111,043 87,456 117,736 Development fee (Note C) 38,827 359,777 2,082,740
107 H-T ASSOCIATES -------------- (a Maryland general partnership) AND SUBSIDIARY (a Maryland general partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------------------ F. Related Party Transactions: (continued) -------------------------- Related Property: ----------------- Certain property adjacent to TTCA's regional shopping center is owned by Joppa Associates ("Joppa"). The partners of TTCA are also the partners of Joppa. TTCA has benefitted from Joppa's ownership of the adjacent property. The partners consider the two properties one project. G. Disclosures About the Fair Value of Financial Instruments: --------------------------------------------------------- In the opinion of management, the carrying amounts of TTCA's financial instruments approximate fair value except: Interest Rate Swaps (Note B): ---------------------------- The fair value of interest rate swaps (used for hedging purposes) is the estimated amount that TTCA would pay to terminate the swap agreements at the reporting date, taking into account current interest rates and the current credit worthiness of the swap counterparties. The fair value of the interest rate swaps is a net payable of $13,593,031. 108 EXHIBIT INDEX
Exhibit Number - ------- 3.1 Certificate of Incorporation of Santa Anita Realty Enterprises, Inc., as amended through October 1993. 3.2 Certificate of Incorporation of Santa Anita Operating Company, as amended through October 1993. 3.3 Bylaws of Santa Anita Realty Enterprises, Inc., as amended through February 1994. 3.4 Bylaws of Santa Anita Operating Company, as amended through February 1994. 4.1 Pairing Agreement by and between Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company, dated as of December 20, 1979 (incorporated by reference to Exhibit 5 to Registration Statement on Form 8-A of Santa Anita Operating Company filed February 5, 1980). 4.2 Rights Agreement, dated June 15, 1989, among Santa Anita Realty Enterprises, Inc., Santa Anita Operating Company, and Union Bank, as Rights Agent (incorporated by reference to Exhibit 2.1 to Registration Statement on Form 8-A of Santa Anita Realty Enterprises, Inc. filed June 19, 1989). 4.3 Amended and Restated Credit Agreement, dated November 14, 1989, between Wells Fargo Bank, N.A. and Santa Anita Realty Enterprises, Inc. (incorporated by reference to Exhibit 4.4 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, 1989). 4.4 Revolving Credit and Term Note Agreement, dated November 21, 1989, between The Bank of California, N.A. and Santa Anita Realty Enterprises, Inc. (incorporated by reference to Exhibit 4.5 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, 1989). 4.5 Revolving Credit Agreement, dated October 29, 1991, between Santa Anita Realty Enterprises, Inc. and Union Bank (incorporated by reference to Exhibit 3.2 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, 1991). Each other outstanding long-term indebtedness of Santa Anita Realty Enterprises, Inc. and each outstanding long-term indebtedness of Santa Anita Operating Company and its subsidiaries does not exceed 10% of the total assets of Santa Anita Realty Enterprises, Inc. or Santa Anita Operating Company and its subsidiaries on a consolidated basis, as the case may be. Each such company agrees to furnish copies of such instruments to the Securities and Exchange Commission upon request. 4.6 Letter Agreement, dated March 25, 1994, between Wells Fargo Bank, N.A. and Santa Anita Realty Enterprises, Inc. 4.7 Letter Agreement, dated March 25, 1994, between The Bank of California, N.A. and Santa Anita Realty Enterprises, Inc. 4.8 Letter Agreement, dated March 25, 1994, between Union Bank and Santa Anita Realty Enterprises, Inc.
109 EXHIBIT INDEX (CONTINUED)
Exhibit Number - ------- 10.1 Anita Associates Articles of Limited Partnership dated as of April 6, 1972 (incorporated by reference to Exhibit 6(c) to Registration Statement No. 2-65894). 10.2 First Amendment to Articles of Limited Partnership of Anita Associates, dated December 26, 1979 (incorporated by reference to Exhibit 10.13 to Registration Statement No. 2-72866). 10.3 Form of Compensation Agreement of certain officers of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company (incorporated by reference to Exhibit 10.3 to Registration Statement No. 33-27011). 10.4 Form of Salary Reduction and Deferral Agreement of certain officers of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company (incorporated by reference to Exhibit 10.4 to Registration Statement No. 33- 27011). 10.5 Ground lease between Santa Anita Realty Enterprises, Inc. and Anita Associates, dated as of April 6, 1972 (incorporated by reference to Exhibit 10.5 to 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). 10.6 Second Amendment to ground lease between Santa Anita Realty Enterprises, Inc., and Anita Associates dated as of December 29, 1993. 10.7 Lease between Los Angeles Turf Club, Incorporated and Santa Anita Realty Enterprises, Inc., dated as of January 1, 1980 (incorporated by reference to Exhibit 10.12 to Registration Statement No. 2-72866). 10.8 Lease Amendment between Santa Anita Realty Enterprises, Inc. and Los Angeles Turf Club, Incorporated, dated as of December 31, 1987, to the Lease between Los Angeles Turf Club, Incorporated and Santa Anita Realty Enterprises, Inc., dated as of January 1, 1980 (incorporated by reference to Exhibit 10.8 to Registration Statement No. 33-27011). 10.9 Lease Amendment between Santa Anita Realty Enterprises, Inc. and Los Angeles Turf Club, Incorporated, dated as of December 26, 1989, to the Lease between Los Angeles Turf Club, Incorporated and Santa Anita Realty Enterprises, Inc., dated as of January 1, 1980 (incorporated by reference to Exhibit 10.8 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, 1989). 10.10 Santa Anita Realty Enterprises, Inc. 1984 Stock Option Plan (as amended and restated September 22,1988) (incorporated by reference to Exhibit 4.2 to Registration Statement No. 2-95228).
110 EXHIBIT INDEX (CONTINUED)
Exhibit Number - -------- 10.11 Amendment 1993-1 to Santa Anita Realty Enterprises, Inc. 1984 Stock Option Program. 10.12 Santa Anita Operating Company 1984 Stock Option Program (as amended and restated September 22, 1988) (incorporated by reference to Exhibit 4.3 to Registration Statement No. 2-95228). 10.13 Amendment 1993-1 to Santa Anita Operating Company 1984 Stock Option Program (incorporated by reference to Exhibit 4.3 to Registration Statement on Form S-8 No. 33-51843). 10.14 First Amended Certificate and Agreement of Limited Partnership of Baldwin Industrial Properties, Ltd., dated November 2, 1981 (incorporated by reference to Exhibit 10.12 to 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). 10.15 Limited Partnership Agreement, dated as of March 16, 1988, among Southern California Off Track Wagering Incorporated and the limited partners listed therein (incorporated by reference to Exhibit 10.17 to Registration Statement No. 33-27011). 10.16 Amended and Restated Partnership Agreement of H-T Associates, dated as of July 28, 1987, between Ernest W. Hahn, Inc. and Santa Anita Realty Enterprises, Inc. (incorporated by reference to Exhibit 10.18 to Registration Statement No. 33-27011). 10.17 Amended and Restated Agreement of Joppa Associates, dated as of April 14, 1988, between Ernest W. Hahn, Inc., Santa Anita Realty Enterprises, Inc. and Dechiaro Associates, a Maryland general partnership (incorporated by reference to Exhibit 10.19 to Registration Statement No. 33-27011). 10.18 Amendment dated November 1, 1989, to Partnership Agreement of H-T Associates (incorporated by reference to Exhibit 10.21 of 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, 1989). 10.19 Partnership Agreement of French Valley Ventures dated November 1989, between Santa Anita Realty Enterprises, Inc. and William J. Rousey, Jr. (incorporated by reference to Exhibit 10.23 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, 1989).
111 EXHIBIT INDEX (CONTINUED)
Exhibit Number - -------- 10.20 Indenture of Lease by and between Los Angeles Turf Club, Incorporated and Oak Tree Racing Association, dated as of January 1, 1990 (incorporated by reference to Exhibit 10.21 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, 1990). 10.21 Form of Severance Agreement of Certain Officers of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company (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). 10.22 Purchase and Sale Agreement, dated as of November 15, 1993, between Santa Anita Realty Enterprises, Inc., and Pacific Gulf Properties Inc. (incorporated by reference to Exhibit 1 to the Current Report on Form 8-K of Santa Anita Realty Enterprises, Inc., dated February 18, 1994) . 10.23 Management Agreement, dated as of February 17, 1994, between Santa Anita Realty Enterprises, Inc., and Pacific Gulf Properties Inc. 10.24 Registration Rights Agreement, dated as of February 1, 1994, between Santa Anita Realty Enterprises, Inc. and Pacific Gulf Properties Inc. 10.25 Employment Agreement between Santa Anita Realty Enterprises, Inc. and Sherwood C. Chillingworth, dated as of March 16, 1994. 22 Subsidiaries of Santa Anita Operating Company (incorporated by reference to Exhibit 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). 23.1 Consent of Kenneth Leventhal & Company (to be incorporated by reference into the Prospectus contained in Registration Statement No. 2-95228 and the Prospectus contained in Registration Statement No. 33-51843). 23.2 Consent of Deloitte & Touche (to be incorporated by reference into the Prospectus contained in Registration Statement No. 2-95228 and the Prospectus contained in Registration Statement No. 33-51843). 23.3 Consent of KPMG Peat Marwick (to be incorporated by reference into the Prospectus contained in Registration Statement No. 2-95228 and the Prospectus contained in Registration Statement No. 33-51843).
112 EX-3.1 2 CERTIFICATE OF INCORPORATION Exhibit 3.1 ----------- CERTIFICATE OF INCORPORATION OF SANTA ANITA REALTY ENTERPRISES, INC. FIRST. Name. The name of the Corporation is Santa Anita Realty Enterprises, Inc. SECOND. Registered Office. The address of its registered office in the State of Delaware is No. 100 West 10th Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD. Purposes. The nature of the business or purposes to be conducted or promoted is: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware and to do all things and exercise all powers, rights and privileges which a business corporation may now or hereafter be organized or authorized to do or to exercise under the laws of the State of Delaware. FOURTH. Capitalization. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 13,000,000, of which 10,000,000 shares of the par value of $.10 each are to be of a class designated Common Stock and 3,000,000 of the par value of $.10 each are to be of a class designated Preferred Stock. The shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation is hereby authorized to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued series of Preferred Stock and the number of shares constituting any such series and the designation thereof, or all or any of them; and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any designated series shall be decreased, shares in the amount of the decrease shall resume the status of authorized but undesignated shares of Preferred Stock. FIFTH. Incorporator. The name and mailing address of the incorporator is as follows: NAME MAILING ADDRESS -------- Royce B. McKinley Santa Anita Consolidated, Inc. One Wilshire Building Los Angeles, California 90017 SIXTH. By-laws. The original by-laws of the Corporation shall be adopted by the incorporator. Thereafter, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized, without stockholder approval, to make, alter or repeal the by-laws of the Corporation. SEVENTH. Right to Amend Certificate of Incorporation. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. EIGHTH. Cumulative Voting. (a) Every stockholder complying with subdivision (b) hereof and entitled to vote at any election of directors may cumulate such stockholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the stockholder's shares are normally entitled, or distribute the stockholder's votes on the same principal among as many candidates as the shareholder thinks fit. (b) No stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such stockholder normally is entitled to cast) unless such candidate or candidates' names have been placed in nomination prior to the voting and the stockholder has given notice at the meeting prior to the voting of the stockholder's intention to cumulate the stockholder's votes. If any one stockholder has given such notice, all stockholders may cumulate their votes for candidates in nomination. (c) In any election of directors, the candidates receiving the highest number of votes of the shares entitled to be voted for them up to the number of directors to be elected by such shares are elected. THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate, hereby declaring and certifying that this is his act and deed and the facts herein stated are true and accordingly has hereunto set his hand this 16th day of August, 1979. By /s/ ROYCE B. MCKINLEY ------------------------------ Royce B. McKinley CITY OF LOS ANGELES ) ) SS. STATE OF CALIFORNIA ) BE IT REMEMBERED, that on this 16th day of August, 1979, personally came before me Huldah C. Withers, a Notary Public in and for the State of California, Royce B. McKinley, the party to the foregoing Certificate of Incorporation, known to me personally to be such, and acknowledged the said Certificate to be his act and deed and that the facts stated therein are true. GIVEN under my hand and seal of office the day and year aforesaid. /s/ HULDAH C. WITHERS --------------------------- Notary Public [SEAL ] - --------------------------------------- [GREAT SEAL OF THE STATE OF CALIFORNIA] OFFICIAL SEAL HULDAH C. WITHERS NOTARY PUBLIC CALIFORNIA LOS ANGELES COUNTY My comm. expires JUL 16, 1982 - --------------------------------------- CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SANTA ANITA REALTY ENTERPRISES, INC. We, the undersigned, being the duly elected President and Chief Executive Officer and Secretary of Santa Anita Realty Enterprises, Inc. (the "Company"), a corporation organized under the laws of the State of Delaware, to hereby certify: FIRST, that by unanimous written consent of the Board of Directors of the Company acting without a meeting and effective as of April 15, 1981, the Board approved a proposed amendment to the Certificate of Incorporation of the Company by approving the following recitals and resolutions: WHEREAS, Article FOURTH of this corporation's Certificate of Incorporation currently authorizes the issuance of 10,000,000 shares of this corporation's Common Stock, $.10 par value, and 3,000,000 shares of this corporation's Preferred Stock, $.10 par value; and WHEREAS, as of March 18, 1981, 5,629,192 shares of Common Stock were issued and outstanding, 30,000 shares of Common Stock were reserved for issuance pursuant to this corporation's Employee Stock Option Plan and 10,000 shares of Common Stock were reserved for issuance pursuant to options granted under the Santa Anita Operating Company ("Operating Company") Employee Stock Option Plan; and WHEREAS, this Board of Directors deems it advisable and in the best interests of this corporation to increase the authorized number of shares of Common 1 Stock and Preferred Stock in order to have the flexibility to issue additional shares when appropriate to strengthen the corporation. NOW, THEREFORE, BE IT RESOLVED, that the proposed amendment to this corporation's Certificate of Incorporation described under "Approval of Amendment to Certificate of Incorporation" in the April 3, 1981 draft of this corporation's proxy statement in connection with 1981 Annual Meeting of Shareholders (the "Draft Proxy Statement") is hereby approved. RESOLVED, FURTHER, that the officers of this corporation, and each of them, are hereby authorized and directed to take whatever steps are necessary to present the proposed amendment to shareholders for their approval at the 1981 Annual Meeting of Shareholders. RESOLVED, FURTHER, that if the shareholders approve the proposed amendment, the officers of this corporation, and each of them, are hereby authorized and directed to file with the Secretary of State of the State of Delaware a certificate setting forth the amendment and certifying that it has been duly adopted in accordance with Delaware Law. SECOND: That the following is a true and correct excerpt from the section entitled "Approval of Amendment to Certificate of Incorporation" in the April 3, 1981 draft of the Company's proxy statement in connection with the 1981 Annual Meeting of Shareholders, which section was incorporated by reference into the foregoing resolutions: "As amended, the first paragraph of Article FOURTH of the Company's Certificate of Incorporation would read as follows: 2 'FOURTH: Capitalization. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 26,000,000, of which 20,000,000 shares of the par value of $.10 each are to be of a class designated Common Stock and 6,000,000 of the par value of $.10 each are to be of a class designated Preferred Stock.' The remaining paragraph of Article FOURTH would be unchanged." THIRD: That at the Annual Meeting of Shareholders held May 28, 1981, and pursuant to notice duly given, the holders of a majority of the outstanding shares of the Company's Common Stock voted in favor of the proposed amendment. FOURTH: That this certificate is filed pursuant to Section 242 of the Delaware General Corporation Law, as amended. Executed this 29th day of May, 1981. SANTA ANITA REALTY ENTERPRISES, INC. By /s/ ROYCE B. MCKINLEY ---------------------------- Royce B. McKinley President and Chief Executive Officer ATTEST: /s/ GLENN L. CARPENTER - ---------------------- Glenn L. Carpenter Secretary 3 STATE OF CALIFORNIA ) ) SS. COUNTY OF ORANGE ) On this 29 day of May 1981, personally appeared before me Royce B. --- McKinley and Glenn L. Carpenter, known to me to be President and Chief Executive Officer and Secretary, respectively, of Santa Anita Realty Enterprises, Inc., a Delaware corporation, and executed the within Instrument on behalf of the corporation therein named. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. /s/ PAMELA L. LAIPPLE --------------------------------------- Notary Public in and for said State Pamela L. Laipple (SEAL) - --------------------------------------- [GREAT SEAL OF THE STATE OF CALIFORNIA] OFFICIAL SEAL PAMELA L. LAIPPLE NOTARY PUBLIC - CALIFORNIA PRINCIPAL OFFICE IN ORANGE COUNTY My Commission Expires Aug. 9, 1982 - --------------------------------------- 4 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SANTA ANITA REALTY ENTERPRISES, INC. We, the undersigned, being the duly elected President and Chief Executive Officer and Secretary of Santa Anita Realty Enterprises, Inc. (the "Company"), a corporation organized under the laws of the State of Delaware, do hereby certify: FIRST: That by unanimous vote of the Board of Directors of the Company at a special meeting held on March 17, 1986, the Board approved the amendment of the Certificate of Incorporation of the Company by the addition of Articles Ninth, Tenth and Eleventh. The Board approved the following amendments to the Certificate of Incorporation of the Company: NINTH: Part 1. Vote Required for Certain Business Combinations - ------------------------------------------------------- 1.1. Higher Vote for Certain Business Combinations. In addition to any affirmative vote required by law or any other Article of this Certificate of Incorporation, and except as otherwise expressly provided in Part 2 of this Article Ninth: (a) any merger or consolidation of the Corporation or any Subsidiary with (i) any Interested Stockholder or (ii) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate or Associate of an Interested Stockholder; or (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value of $5,000,000 or more; or (c) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $5,000,000 or more, other than the issuance of securities by the Corporation or any Subsidiary upon the conversion of convertible securities of the Corporation or any Subsidiary into stock of the Corporation or any Subsidiary; or (d) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or (e) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; shall require the affirmative vote of the holders of at least (a) 80% of the combined voting power of the then outstanding shares of stock of all classes and series of the Corporation entitled to vote in the election of directors (the "Voting Stock"), and (b) a majority of the combined voting power of the then outstanding shares of Voting Stock held by persons who are Disinterested Stockholders, provided, however, that the majority vote requirement of this ---------- clause (b) shall not be 2 applicable if the Business Combination is approved by the affirmative vote of the holders of not less than 90% of combined voting power of the then outstanding shares of Voting Stock. The foregoing affirmative vote requirements are here-inafter referred to as the "Special Vote Requirement." The Special Vote Requirement shall be applicable notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. 1.2. Definition of "Business Combination." The term "Business Combination" as used in this Article Ninth shall mean any transaction which is referred to in any one or more of clauses (a) through (e) of Section 1.1. Part 2. When Special Vote Requirement Is Not Applicable - ------------------------------------------------------- The provisions of Part 1 of this Article Ninth shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law and any other Article of this Certificate of Incorporation, if all of the conditions specified in either of the following Sections 2.1 and 2.2 are met: 2.1. Approval by Continuing Directors. The Business Combination shall have been approved by a majority of the Continuing Directors. 2.2. Price and Procedural Requirements. All of the following conditions shall have been met: (a) The aggregate amount of the cash and the Fair Market Value, as of the date of the consummation of the Business Combination, of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the higher of (i) the highest price paid for any share of Common Stock by any person who is an Interested Stockholder within the two-year period immediately prior to the time of the first public announcement of the proposed Business Combination (the "Announcement Date") or in the transaction in which such person became an Interested Stockholder, whichever price is the higher; or (ii) the Fair Market Value per share of the Corporation's Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (the "Determination Date"), whichever is higher. The price paid for any share of Common Stock shall be the amount of cash plus the Fair Market Value of any other consideration to be received therefor, determined at the time of payment thereof. 3 (b) The aggregate amount of the cash and the Fair Market Value, as of the date of the consummation of the Business Combination, of consideration other than cash to be received in such Business Combination by holders of securities of the Corporation other than Common Stock shall be at least equal to the higher of (i) if applicable, the highest preferential amount to which the holders of such securities are entitled in the event of any voluntary liquidation, dissolution or winding up of the Corporation, (ii) the highest price paid for any of such securities by any person who is an Interested Stockholder within the two-year period immediately prior to the Announcement Date or in the transaction in which such person became an Interested Stockholder, whichever price is higher, (iii) the Fair Market Value of such securities on the Announcement Date or the Determination Date, whichever is higher, or (iv) if such securities are convertible into or exchangeable for shares of Common Stock, the amount per share of such Common Stock determined pursuant to the foregoing paragraph (a) reduced by any amount payable by the holders of such securities in accordance with the terms of such securities, per share, upon such conversion or exchange, multiplied by the total number of shares of Common Stock into which or for which such securities are convertible or exchangeable. (c) The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same forms the Interested Stockholder has previously paid for shares of such class of Voting Stock. If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration for such class of Voting Stock shall be either cash or the form of consideration used to acquire the largest number of shares of such class of Voting Stock previously acquired by it. (d) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (i) there shall have been (1) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Continuing Directors, and (2) an increase in such annual rate of dividends necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved 4 by a majority of the Continuing Directors; and (ii) such Interested Stockholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder. (e) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (f) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to all stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). Part 3. Certain Definitions - --------------------------- For the purposes of this Article Ninth: 3.1. A "person" shall mean any individual, firm, corporation, partnership, trust or other entity. 3.2. "Interested Stockholder" shall mean any person (other than the Corporation or any Subsidiary) who or which: (a) is the beneficial owner, directly or indirectly, of more than 10% of the combined voting power of the then outstanding Voting Stock; or (b) is an Affiliate of the Corporation and at any time within the two- year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the combined voting power of the then outstanding Voting Stock; or (c) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date 5 in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. 3.3. A person shall be a "beneficial owner" of any Voting Stock: (a) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or (b) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote or to direct the vote pursuant to any agreement, arrangement or understanding; or (c) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. 3.4. For the purposes of determining whether a person is an Interested Stockholder pursuant to Section 3.2, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of Section 3.3 but shall not include any other shares of Voting Stock which may be issuable to other persons pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. 3.5. "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on January 1, 1984. 3.6. "Subsidiary" means any corporation of which more than a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for purposes of the definition of Interested Stockholder set forth in Section 3.2, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned by the Corporation, by a Subsidiary, or by the Corporation and one or more Subsidiaries. 6 3.7. "Continuing Director" means any member of the Board of Directors of the Corporation who is unaffiliated with, and not a nominee of, the Interested Stockholder and was a member of the Board of Directors prior to the time that the Interested Stockholder became an Interested Stockholder and any successor of a Continuing Director who is unaffiliated with, and not a nominee of, the Interested Stockholder and who is recommended to succeed a Continuing Director by a majority of Continuing Directors then on the Board of Directors. 3.8. "Disinterested Stockholder" means a holder of Voting Stock who is not an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder and whose shares are not deemed owned by an Interested Stockholder through application of Section 3.3. 3.9. "Fair Market Value" means: (a) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the Fair Market Value on the date in question of a share of such stock as determined by a majority of the Continuing Directors in good faith; and (b) in the case of stock of any class of securities not traded on any securities exchange or in the over-the-counter market or in the case of property other than cash or stock, the Fair Market Value of such securities or property on the date in question as determined by a majority of the Continuing Directors in good faith. If the stock is paired for purposes of trading with that of any other corporation, the Fair Market Value of the paired stock shall be determined pursuant to the pairing or other agreement which provides for the determination of the relative values of the stock of the Corporation and the stock of such other corporation, after determining the Fair Market Value of the paired stock as set forth above. 3.10. In the event of any Business Combination in which the Corporation survives, the phrase "consideration to be received" as used in Sections 2.2(a), (b) and (c) shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. 7 Part 4. Directors' Duty to Determine Certain Facts - -------------------------------------------------- The majority of the Continuing Directors of the Corporation shall have the power and duty to determine for the purpose of this Article Ninth, on the basis of information known to them after reasonable inquiry, all facts necessary to determine the applicability of the various provisions of this Article Ninth, including (A) whether a person is an Interested Stockholder, (B) the number of shares of Voting Stock beneficially owned by any person, (C) whether a person is an Affiliate or Associate of another, (D) whether the requirements of Section 2.2 have been met with respect to any Business Combination, and (E) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $5,000,000 or more; and the good faith determination of a majority of the Continuing Directors shall be conclusive and binding for all purposes of this Article Ninth. Part 5. No Effect on Fiduciary Obligations of Interested Stockholders - --------------------------------------------------------------------- Nothing contained in this Article Ninth shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. Part 6. Amendment, Repeal, Inconsistent Provisions - -------------------------------------------------- Notwithstanding any other provisions of law or of this Certificate of Incorporation or the by-laws of the Corporation which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of securities which may be required by law or by this Certificate of Incorporation, any proposal to amend or repeal, or adopt any provisions inconsistent with, this Article Ninth of this Certificate of Incorporation shall require for approval the affirmative vote of at least (a) 80% of the combined voting power of the then outstanding shares of Voting Stock and (b) a majority of the combined voting power of the then outstanding shares of Voting Stock held by persons who are Disinterested Stockholders, provided that the majority vote requirement of this clause (b) shall not be applicable if the proposal is approved by the affirmative vote of not less than 90% of the combined voting power of the then outstanding shares of Voting Stock. TENTH: (a) The number of directors shall be as provided in the by-laws. The Board of Directors shall be divided into 8 three classes, designated Class I, Class II and Class III, such classes to be as nearly equal in number as possible and to have the number provided in the by-laws. At the annual meeting of stockholders in 1986, directors of Class I shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of Class II shall be elected to hold office for a term expiring at the second succeeding annual meeting, and directors of Class III shall be elected to hold office for a term expiring at the third succeeding annual meeting. Thereafter at each annual meeting of stockholders, directors shall be chosen for a term of three years to succeed those whose terms then expire and shall hold office until the third following annual meeting of stockholders and until the election of their respective successors. Any vacancy on the Board of Directors, whether arising through death, resignation or removal of a director or through an increase in the number of directors of any class, shall be filled by a majority vote of all the remaining directors. The term of office of any director elected to fill such a vacancy shall expire at the expiration of the term of office of directors of the class in which the vacancy occurred. Notwithstanding any other provision of this Article, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock or other securities of the Corporation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the term of office, the filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation applicable thereto, and unless the terms of this Certificate of Incorporation expressly provide otherwise, such directorships shall be in addition to the number of directors provided in the by-laws and such directors shall not be classified pursuant to this Article. (b) Any action required or permitted to be taken by holders of stock of the Corporation must be taken at a meeting of such holders and may not be taken by consent in writing. The by-laws of the Corporation may be amended by the stockholders only by the affirmative vote of at least 80% of the voting power of the Corporation. Notwithstanding any other provision of law or of this Certificate of Incorporation or the by-laws of the Corporation which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of securities which may be required by law or by this Certificate of Incorporation, any proposal to amend or repeal, or adopt any provisions inconsistent with, this Article Tenth shall require for approval the affirmative vote of at least 80% of the voting power of the Corporation. 9 ELEVENTH: The Board of Directors shall base the response of this Corporation to any proposed Business Combination on the Board of Directors' evaluation of what is in the best interest of this Corporation. In evaluating what is in the best interest of this Corporation, the Board of Directors shall consider: (a) The best interest of the shareholders. For this purpose, the Board shall consider among other factors, not only the consideration offered in the proposed Business Combination in relation to the then current market price of this Corporation's stock, but also in relation to the then current value of this Corporation in a freely negotiated transaction and in relation to the Board of Directors' then estimate of the future value of this Corporation as an independent entity; and (b) Such other factors as the Board of Directors determines to be relevant, including, among other factors, the social, legal and economic effects on the communities in which this Corporation and its subsidiaries operate and are located. SECOND: That the above-referenced amendments to the Certificate of Incorporation were set forth in the Company's proxy statement dated March 26, 1986 in connection with the Company's Annual Meeting of Shareholders. THIRD: That at the Annual Meeting of Shareholders held May 13, 1986, and pursuant to notice duly given, the holders of a majority of the outstanding shares of the Company's Common Stock voted in favor of the above- referenced amendments. 10 FOURTH: That this certificate is filed pursuant to Section 242 of the Delaware Corporation Law, as amended. Executed this 19th day of May, 1986. SANTA ANITA REALTY ENTERPRISES, INC. By /s/ ROYCE B. MCKINLEY ----------------------------- Royce B. McKinley President and Chief Executive Officer ATTEST: /s/ GLENN L. CARPENTER - ---------------------- Glenn L. Carpenter Secretary 11 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SANTA ANITA REALTY ENTERPRISES, INC. We, the undersigned, being the duly elected President and Chief Executive Officer and Secretary of Santa Anita Realty Enterprises, Inc. (the "Company"), a corporation organized under the laws of the State of Delaware, do hereby certify: FIRST: That by unanimous vote of the Board of Directors of the Company at a regular, quarterly meeting held on February 26, 1987, the Board approved an amendment of the Certificate of Incorporation of the Company by the addition of Article Twelfth thereto, which reads as follows: TWELFTH: To the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended, a director of the corporation shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as director. Any repeal or modification of this Article shall not result in any liability for a director with respect to any action or omission occurring prior to such repeal or modification. 1 SECOND: That the above-referenced amendment to the Certificate of Incorporation was set forth in the Company's proxy statement dated March 31, 1987 in connection with the Company's Annual Meeting of Shareholders. THIRD: That at the Annual Meeting of Shareholders held May 19, 1987, and pursuant to notice duly given, the holders of a majority of the outstanding shares of the Company's Common Stock voted in favor of the above- referenced amendment. FOURTH: That this certificate is filed pursuant to Section 242 of the Delaware Corporation Law, as amended. Executed this 5th day of June, 1987. SANTA ANITA REALTY ENTERPRISES, INC. By /s/ ROYCE B. MCKINLEY ------------------------------------- Royce B. McKinley President and Chief Executive Officer ATTEST: /s/ GLENN L. CARPENTER - ---------------------- Glenn L. Carpenter Secretary 2 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SANTA ANITA REALTY ENTERPRISES, INC. We, the undersigned, being the duly elected Chairman of the Board of Directors and Chief Executive Officer, and President and Secretary of Santa Anita Realty Enterprises, Inc. (the "Company"), a corporation organized and existing under the laws of the State of Delaware, do hereby certify: FIRST, That by unanimous written consent of the Board of Directors of the Company acting without a meeting and effective as of March 9, 1990, the Board of Directors approved a proposed amendment of the Certificate of Incorporation of the Company, declaring said amendment to be advisable and authorizing the proposed amendment to be presented to the stockholders of the Company at the next annual meeting of stockholders for their consideration. The resolution setting for the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of the Corporation be amended in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware by amending the first paragraph of Article FOURTH thereof to read as follows: "FOURTH: Capitalization: The total number of shares of all classes of stock which the Corporation shall have the authority to issue is 46,000,000, of which 40,000,000 shares of the par value of $0.10 each are to be of a class designated Common Stock and 6,000,000 of the par value of $0.10 each are to be of a class designated Preferred Stock." SECOND: That at the Annual Meeting of Shareholders held May 3, 1990, and pursuant to notice duly given, the holders of a majority of the outstanding shares of the Company's Common Stock voted in favor of the above-referenced amendment. THIRD: That the above-referenced amendment was duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law, as amended. IN WITNESS WHEREOF, this Certificate of Amendment of Certificate of Incorporation has been executed on behalf of Santa Anita Realty Enterprises, Inc. by its duly authorized officers this 3rd day of May, 1990. SANTA ANITA REALTY ENTERPRISES, INC. By /s/ ROYCE B. MCKINLEY ------------------------------------- Royce B. McKinley Chairman of the Board of Directors and Chief Executive Officer ATTEST: /s/ GLENN L. CARPENTER ---------------------- Glenn L. Carpenter President and Secretary 2 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SANTA ANITA REALTY ENTERPRISES, INC. We, the undersigned, being the duly elected President and Secretary of Santa Anita Realty Enterprises, Inc. (the "Company"), a corporation organized and existing under the laws of the State of Delaware, do hereby certify: FIRST, That at a meeting held on February 11, 1993, the Board of Directors of the Company approved a proposed amendment of the Certificate of Incorporation of the Company, declaring said amendment to be advisable and authorizing the proposed amendment to be presented to the stockholders of the Company at the next annual meeting of stockholders for their consideration. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of the Corporation be amended in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware by amending the first paragraph of Article FOURTH thereof to read as follows: "FOURTH: Capitalization: The total number of shares of all classes of stock which the Corporation shall have the authority to issue is 25,000,000 of which 19,000,000 shares of the par value of $0.10 each are to be of a class designated Common Stock and 6,000,000 of the par value of $0.10 each are to be of a class designated Preferred Stock." SECOND, That at the Annual Meeting of Shareholders held May 4, 1993, and pursuant to notice duly given, the holders of a majority of the outstanding shares of the Company's Common Stock voted in favor of the above-referenced amendment. THIRD, That the above-referenced amendment was duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law, as amended. IN WITNESS WHEREOF, this Certificate of Amendment of Certificate of Incorporation has been executed on behalf of Santa Anita Realty Enterprises, Inc. by its duly authorized officers this 28th day of May, 1993. SANTA ANITA REALTY ENTERPRISES, INC. By /s/ GLENN L. CARPENTER ------------------------------- Glenn L. Carpenter President ATTEST: /s/ DONALD G. HERRMAN - ------------------------ Donald G. Herrman Secretary EX-3.2 3 CERTIFICATE OF INCORPORATION Exhibit 3.2 ----------- CERTIFICATE OF INCORPORATION OF SANTA ANITA OPERATING COMPANY FIRST: Name. The name of the Corporation is Santa Anita Operating Company. SECOND: Registered Office. The address of its registered office in the State of Delaware is No. 100 West 10th Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD: Purposes. The nature of the business or purposes to be conducted or promoted is: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware and to do all things and exercise all powers, rights and privileges which a business corporation may now or hereafter be organized or authorized to do or to exercise under the laws of the State of Delaware. FOURTH: Capitalization. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 13,000,000, of which 10,000,000 shares of the par value of $.10 each are to be of a class designated Common Stock and 3,000,000 of the par value of $.10 each are to be of a class designated Preferred Stock. The shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation is hereby authorized to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued series of Preferred Stock and the number of shares constituting any such series and the designation thereof, or all or any of them; and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any designated series shall be decreased, shares in the amount of the decrease shall resume the status of authorized but undesignated shares of Preferred Stock. FIFTH: Incorporator. The name and mailing address of the incorporator is as follows: Name Mailing Address ---- --------------- Royce B. McKinley Santa Anita Consolidated, Inc. One Wilshire Building Los Angeles, California 90017 SIXTH. By-laws. The original by-laws of the Corporation shall be adopted by the incorporator. Thereafter, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized, without stockholder approval, to make, alter or repeal the by-laws of the Corporation. SEVENTH. Right to Amend Certificate of Incorporation. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. EIGHTH. Cumulative Voting. (a) Every stockholder complying with subdivision (b) hereof and entitled to vote at any election of directors may cumulate such stockholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the stockholder's shares are normally entitled, or distribute the stockholder's votes on the same principle among as many candidates as the stockholder thinks fit. (b) No stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such stockholder normally is entitled to cast) unless such candidate or candidates' names have been placed in nomination prior to the voting and the stockholder has given notice at the meeting prior to the voting of the stockholder's intention to cumulate the stockholder's votes. If any one stockholder has given such notice, all stockholders may cumulate their votes for candidates in nomination. (c) In any election of directors, the candidates receiving the highest number of votes of the shares entitled to be voted for them up to the number of directors to be elected by such shares are elected. THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate, hereby declaring and certifying that this is his act and deed and the facts herein stated are true and accordingly has hereunto set his hand this 16th day of August, 1979. By /s/ ROYCE B. MCKINLEY ---------------------- Royce B. McKinley CITY OF LOS ANGELES STATE OF CALIFORNIA SS. BE IT REMEMBERED, that on this 16th day of August, 1979, personally came before me Huldah C. Withers, a Notary Public in and for the State of California, Royce B. McKinley, the party to the foregoing Certificate of Incorporation, known to me personally to be such, and acknowledged the said Certificate to be his act and deed and that the facts stated therein are true. GIVEN under my hand and seal of office the day and year aforesaid. /s/ HULDAH C. WITHERS --------------------- Notary Public [SEAL] - --------------------------------------- [GREAT SEAL OF THE STATE OF CALIFORNIA] OFFICIAL SEAL HULDAH C. WITHERS NOTARY PUBLIC - CALIFORNIA LOS ANGELES COUNTY My comm. expires JUL 16, 1982 - --------------------------------------- CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SANTA ANITA OPERATING COMPANY We, the undersigned, being the duly elected President and Chief Executive Officer and Secretary of Santa Anita Operating Company (the "Company"), a corporation organized under the laws of the State of Delaware, to hereby certify: FIRST, that by unanimous written consent of the Board of Directors of the Company acting without a meeting and effective as of April 15, 1981, the Board approved a proposed amendment to the Certificate of Incorporation of the Company by approving the following recitals and resolutions: WHEREAS, Article FOURTH of this corporation's Certificate of Incorporation currently authorizes the issuance of 10,000,000 shares of this corporation's Common Stock, $.10 par value, and 3,000,000 shares of this corporation's Preferred Stock, $.10 par value; and WHEREAS, as of March 18, 1981, 5,629,192 shares of Common Stock were issued and outstanding, 10,000 shares of Common Stock were reserved for issuance pursuant to this corporation's Employee Stock Option Plan and 30,000 shares of Common Stock were reserved for issuance pursuant to options granted under the Santa Anita Realty Enterprises, Inc. ("Realty") Employee Stock Option Plan; and WHEREAS, this Board of Directors deems it advisable and in the best interests of this corporation to increase the authorized number of shares of Common 1 Stock and Preferred Stock in order to have the flexibility to issue additional shares when appropriate to strengthen the corporation. NOW, THEREFORE, BE IT RESOLVED, that the proposed amendment to this corporation's Certificate of Incorporation described under "Approval of Amendment to Certificate of Incorporation" in the April 3, 1981 draft of this corporation's proxy statement in connection with 1981 Annual Meeting of Shareholders (the "Draft Proxy Statement") is hereby approved. RESOLVED, FURTHER, that the officers of this corporation, and each of them, are hereby authorized and directed to take whatever steps are necessary to present the proposed amendment to shareholders for their approval at the 1981 Annual Meeting of Shareholders. RESOLVED, FURTHER, that if the shareholders approve the proposed amendment, the officers of this corporation, and each of them, are hereby authorized and directed to file with the Secretary of State of the State of Delaware a certificate setting forth the amendment and certifying that it has been duly adopted in accordance with Delaware Law. SECOND: That the following is a true and correct excerpt from the section entitled "Approval of Amendment to Certificate of Incorporation" in the April 3, 1981 draft of the Company's proxy statement in connection with the 1981 Annual Meeting of Shareholders, which section was incorporated by reference into the foregoing resolutions: "As amended, the first paragraph of Article FOURTH of the Company's Certificate of Incorporation would read as follows: 2 'FOURTH: Capitalization. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 26,000,000, of which 20,000,000 shares of the par value of $.10 each are to be of a class designated Common Stock and 6,000,000 of the par value of $.10 each are to be of a class designated Preferred Stock.' The remaining paragraph of Article FOURTH would be unchanged." THIRD: That at the Annual Meeting of Shareholders held May 28, 1981, and pursuant to notice duly given, the holders of a majority of the outstanding shares of the Company's Common Stock voted in favor of the proposed amendment. FOURTH: That this certificate is filed pursuant to Section 242 of the Delaware General Corporation Law, as amended. Executed this 29 day of May, 1981. SANTA ANITA OPERATING COMPANY By /s/ ROBERT P. STRUB --------------------- Robert P. Strub President and Chief Executive Officer ATTEST: /s/ ALEXANDER W. INGLE - ---------------------- Alexander W. Ingle, Secretary 3 STATE OF CALIFORNIA ) ) SS. COUNTY OF LOS ANGELES ) On this 29th day of May 1981, personally appeared before me Robert P. ---- Strub and Alexander W. Ingle, known to me to be President and Chief Executive Officer and Secretary, respectively, of Santa Anita Operating Company, a Delaware corporation, and executed the within Instrument on behalf of the corporation therein named. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. /s/ SUSIE S. NAVARRO ----------------------------------- Notary Public in and for said State [SEAL] - --------------------------------------- [GREAT SEAL OF THE STATE OF CALIFORNIA] OFFICIAL SEAL SUSIE S. NAVARRO NOTARY PUBLIC - CALIFORNIA PRINCIPAL OFFICE IN LOS ANGELES COUNTY My Commission Expires June 1, 1984 - --------------------------------------- 4 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SANTA ANITA OPERATING COMPANY We, the undersigned, being the duly elected President and Chief Executive Officer and Secretary of Santa Anita Operating Company (the "Company"), a corporation organized under the laws of the State of Delaware, do hereby certify: FIRST: That by unanimous vote of the Board of Directors of the Company at a special meeting held on March 17, 1986, the Board approved the amendment of the Certificate of Incorporation of the Company by the addition of Articles Ninth, Tenth and Eleventh. The Board approved the following amendments to the Certificate of Incorporation of the Company: NINTH: Part 1. Vote Required for Certain Business Combinations - ------------------------------------------------------- 1.1. Higher Vote for Certain Business Combinations. In addition to any affirmative vote required by law or any other Article of this Certificate of Incorporation, and except as otherwise expressly provided in Part 2 of this Article Ninth: (a) any merger or consolidation of the Corporation or any Subsidiary with (i) any Interested Stockholder or (ii) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate or Associate of an Interested Stockholder; or (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value of $5,000,000 or more; or (c) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $5,000,000 or more, other than the issuance of securities by the Corporation or any Subsidiary upon the conversion of convertible securities of the Corporation or any Subsidiary into stock of the Corporation or any Subsidiary; or (d) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or (e) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; shall require the affirmative vote of the holders of at least (a) 80% of the combined voting power of the then outstanding shares of stock of all classes and series of the Corporation entitled to vote in the election of directors (the "Voting Stock"), and (b) a majority of the combined voting power of the then outstanding shares of Voting Stock held by persons who are Disinterested Stockholders, provided, however, that the majority vote requirement of this ---------- clause (b) shall not be applicable if the Business Combination is approved by the affirmative vote of the holders of not less than 90% of 2 combined voting power of the then outstanding shares of Voting Stock. The foregoing affirmative vote requirements are hereinafter referred to as the "Special Vote Requirement." The Special Vote Requirement shall be applicable notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. 1.2. Definition of "Business Combination." The term "Business Combination" as used in this Article Ninth shall mean any transaction which is referred to in any one or more of clauses (a) through (e) of Section 1.1. Part 2. When Special Vote Requirement Is Not Applicable - ------------------------------------------------------- The provisions of Part 1 of this Article Ninth shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law and any other Article of this Certificate of Incorporation, if all of the conditions specified in either of the following Sections 2.1 and 2.2 are met: 2.1. Approval by Continuing Directors. The Business Combination shall have been approved by a majority of the Continuing Directors. 2.2. Price and Procedural Requirements. All of the following conditions shall have been met: (a) The aggregate amount of the cash and the Fair Market Value, as of the date of the consummation of the Business Combination, of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the higher of (i) the highest price paid for any share of Common Stock by any person who is an Interested Stockholder within the two-year period immediately prior to the time of the first public announcement of the proposed Business Combination (the "Announcement Date") or in the transaction in which such person became an Interested Stockholder, whichever price is the higher or (ii) the Fair Market Value per share of the Corporation's Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (the "Determination Date"), whichever is higher. The price paid for any share of Common Stock shall be the amount of cash plus the Fair Market Value of any other consideration to be received therefor, determined at the time of payment thereof. 3 (b) The aggregate amount of the cash and the Fair Market Value, as of the date of the consummation of the Business Combination, of consideration other than cash to be received in such Business Combination by holders of securities of the Corporation other than Common Stock shall be at least equal to the higher of (i) if applicable, the highest preferential amount to which the holders of such securities are entitled in the event of any voluntary liquidation, dissolution or winding up of the Corporation, (ii) the highest price paid for any of such securities by any person who is an Interested Stockholder within the two-year period immediately prior to the Announcement Date or in the transaction in which such person became an Interested Stockholder, whichever price is higher, (iii) the Fair Market Value of such securities on the Announcement Date or the Determination Date, whichever is higher, or (iv) if such securities are convertible into or exchangeable for shares of Common Stock, the amount per share of such Common Stock determined pursuant to the foregoing paragraph (a) reduced by any amount payable by the holders of such securities in accordance with the terms of such securities, per share, upon such conversion or exchange, multiplied by the total number of shares of Common Stock into which or for which such securities are convertible or exchangeable. (c) The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same forms the Interested Stockholder has previously paid for shares of such class of Voting Stock. If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration for such class of Voting Stock shall be either cash or the form of consideration used to acquire the largest number of shares of such class of Voting Stock previously acquired by it. (d) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (i) there shall have been (1) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Continuing Directors, and (2) an increase in such annual rate of dividends necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved 4 by a majority of the Continuing Directors; and (ii) such Interested Stockholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder. (e) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (f) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to all stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). Part 3. Certain Definitions - --------------------------- For the purposes of this Article Ninth: 3.1. A "person" shall mean any individual, firm, corporation, partnership, trust or other entity. 3.2. "Interested Stockholder" shall mean any person (other than the Corporation or any Subsidiary) who or which: (a) is the beneficial owner, directly or indirectly, of more than 10% of the combined voting power of the then outstanding Voting Stock; or (b) is an Affiliate of the Corporation and at any time within the two- year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the combined voting power of the then outstanding Voting Stock; or (c) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date 5 in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. 3.3. A person shall be a "beneficial owner" of any Voting Stock: (a) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or (b) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote or to direct the vote pursuant to any agreement, arrangement or understanding; or (c) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. 3.4. For the purposes of determining whether a person is an Interested Stockholder pursuant to Section 3.2, the number of shares of Voting Stock deemed to be outstanding shal1 include shares deemed owned through application of Section 3.3 but shall not include any other shares of Voting Stock which may be issuable to other persons pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. 3.5. "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on January 1, 1984. 3.6. "Subsidiary" means any corporation of which more than a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for purposes of the definition of Interested Stockholder set forth in Section 3.2, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned by the Corporation, by a Subsidiary, or by the Corporation and one or more Subsidiaries. 6 3.7. "Continuing Director" means any member of the Board of Directors of the Corporation who is unaffiliated with, and not a nominee of, the Interested Stockholder and was a member of the Board of Directors prior to the time that the Interested Stockholder became an Interested Stockholder and any successor of a Continuing Director who is unaffiliated with, and not a nominee of, the Interested Stockholder and who is recommended to succeed a Continuing Director by a majority of Continuing Directors then on the Board of Directors. 3.8. "Disinterested Stockholder" means a holder of Voting Stock who is not an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder and whose shares are not deemed owned by an Interested Stockholder through application of Section 3.3. 3.9. "Fair Market Value" means: (a) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the Fair Market Value on the date in question of a share of such stock as determined by a majority of the Continuing Directors in good faith; and (b) in the case of stock of any class of securities not traded on any securities exchange or in the over-the-counter market or in the case of property other than cash or stock, the Fair Market Value of such securities or property on the date in question as determined by a majority of the Continuing Directors in good faith. If the stock is paired for purposes of trading with that of any other corporation, the Fair Market Value of the paired stock shall be determined pursuant to the pairing or other agreement which provides for the determination of the relative values of the stock of the Corporation and the stock of such other corporation, after determining the Fair Market Value of the paired stock as set forth above. 3.10. In the event of any Business Combination in which the Corporation survives, the phrase "consideration to be received" as used in Sections 2.2(a), (b) and (c) shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. 7 Part 4. Directors' Duty to Determine Certain Facts - -------------------------------------------------- The majority of the Continuing Directors of the Corporation shall have the power and duty to determine for the purpose of this Article Ninth, on the basis of information known to them after reasonable inquiry, all facts necessary to determine the applicability of the various provisions of this Article Ninth, including (A) whether a person is an Interested Stockholder, (B) the number of shares of Voting Stock beneficially owned by any person, (C) whether a person is an Affiliate or Associate of another, (D) whether the requirements of Section 2.2 have been met with respect to any Business Combination, and (E) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $5,000,000 or more; and the good faith determination of a majority of the Continuing Directors shall be conclusive and binding for all purposes of this Article Ninth. Part 5. No Effect on Fiduciary Obligations of Interested Stockholders - --------------------------------------------------------------------- Nothing contained in this Article Ninth shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. Part 6. Amendment, Repeal, Inconsistent Provisions - -------------------------------------------------- Notwithstanding any other provisions of law or of this Certificate of Incorporation or the by-laws of the Corporation which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of securities which may be required by law or by this Certificate of Incorporation, any proposal to amend or repeal, or adopt any provisions inconsistent with, this Article Ninth of this Certificate of Incorporation shall require for approval the affirmative vote of at least (a) 80% of the combined voting power of the then outstanding shares of Voting Stock and (b) a majority of the combined voting power of the then outstanding shares of Voting Stock held by persons who are Disinterested Stockholders, provided that the majority vote requirement of this clause (b) shall not be applicable if the proposal is approved by the affirmative vote of not less than 90% of the combined voting power of the then outstanding shares of Voting Stock. TENTH: (a) The number of directors shall be as provided in the by-laws. The Board of Directors shall be divided into 8 three classes, designated Class I, Class II and Class III, such classes to be as nearly equal in number as possible and to have the number provided in the by- laws. At the annual meeting of stockholders in 1986, directors of Class I shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of Class II shall be elected to hold office for a term expiring at the second succeeding annual meeting, and directors of Class III shall be elected to hold office for a term expiring at the third succeeding annual meeting. Thereafter at each annual meeting of stockholders, directors shall be chosen for a term of three years to succeed those whose terms then expire and shall hold office until the third following annual meeting of stockholders and until the election of their respective successors. Any vacancy on the Board of Directors, whether arising through death, resignation or removal of a director or through an increase in the number of directors of any class, shall be filled by a majority vote of all the remaining directors. The term of office of any director elected to fill such a vacancy shall expire at the expiration of the term of office of directors of the class in which the vacancy occurred. Notwithstanding any other provision of this Article, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock or other securities of the Corporation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the term of office, the filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation applicable thereto, and unless the terms of this Certificate of Incorporation expressly provide otherwise, such directorships shall be in addition to the number of directors provided in the by-laws and such directors shall not be classified pursuant to this Article. (b) Any action required or permitted to be taken by holders of stock of the Corporation must be taken at a meeting of such holders and may not be taken by consent in writing. The by-laws of the Corporation may be amended by the stockholders only by the affirmative vote of at least 80% of the voting power of the Corporation. Notwithstanding any other provision of law or of this Certificate of Incorporation or the by-laws of the Corporation which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of securities which may be required by law or by this Certificate of Incorporation, any proposal to amend or repeal, or adopt any provisions inconsistent with, this Article Tenth shall require for approval the affirmative vote of at least 80% of the voting power of the Corporation. 9 ELEVENTH: The Board of Directors shall base the response of this Corporation to any proposed Business Combination on the Board of Directors' evaluation of what is in the best interest of this Corporation. In evaluating what is in the best interest of this Corporation, the Board of Directors shall consider: (a) The best interest of the shareholders. For this purpose, the Board shall consider among other factors, not only the consideration offered in the proposed Business Combination in relation to the then current market price of this Corporation's stock, but also in relation to the then current value of this Corporation in a freely negotiated transaction and in relation to the Board of Directors' then estimate of the future value of this Corporation as an independent entity; and (b) Such other factors as the Board of Directors determines to be relevant, including, among other factors, the social, legal and economic effects on the communities in which this Corporation and its subsidiaries operate and are located. SECOND: That the above-referenced amendments to the Certificate of Incorporation were set forth in the Company's proxy statement dated March 26, 1986 in connection with the Company's Annual Meeting of Shareholders. THIRD: That at the Annual Meeting of Shareholders held May 13, 1986, and pursuant to notice duly given, the holders of a majority of the outstanding shares of the Company's Common Stock voted in favor of the above- referenced amendments. 10 FOURTH: That this certificate is filed pursuant to Section 242 of the Delaware Corporation Law, as amended. Executed this 13th day of May, 1986. SANTA ANITA OPERATING COMPANY By /s/ ROBERT P. STRUB ------------------------------------- Robert P. Strub President and Chief Executive Officer ATTEST: /s/ ALEXANDER W. INGLE - ---------------------- Alexander W. Ingle Secretary 11 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SANTA ANITA OPERATING COMPANY We, the undersigned, being the duly elected President and Chief Executive Officer and Secretary of Santa Anita Operating Company (the "Company"), a corporation organized under the laws of the State of Delaware, do hereby certify: FIRST: That by unanimous vote of the Board of Directors of the Company at a regular, quarterly meeting held on February 26, 1987, the Board approved an amendment of the Certificate of Incorporation of the Company by the addition of Article Twelfth thereto, which reads as follows: TWELFTH: To the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended, a director of the corporation shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as director. Any repeal or modification of this Article shall not result in any liability for a director with respect to any action or omission occurring prior to such repeal or modification. 1 SECOND: That the above-referenced amendment to the Certificate of Incorporation was set forth in the Company's proxy statement dated March 31, 1987 in connection with the Company's Annual Meeting of Shareholders. THIRD: That at the Annual Meeting of Shareholders held May 19, 1987, and pursuant to notice duly given, the holders of a majority of the outstanding shares of the Company's Common Stock voted in favor of the above- referenced amendment. FOURTH: That this certificate is filed pursuant to Section 242 of the Delaware Corporation Law, as amended. Executed this 31st day of May, 1987. SANTA ANITA OPERATING COMPANY By /s/ ROBERT P. STRUB ------------------------------------- Robert P. Strub President and Chief Executive Officer ATTEST: /s/ ALEXANDER W. INGLE - ---------------------- Alexander W. Ingle Secretary 2 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SANTA ANITA OPERATING COMPANY We, the undersigned, being the duly elected President and Chief Executive Officer, and Vice President and Secretary of Santa Anita Operating Company (the "Company"), a corporation organized and existing under the laws of the State of Delaware, do hereby certify: FIRST, That by unanimous written consent of the Board of Directors of the Company acting without a meeting and effective as of March 9, 1990, the Board of Directors approved a proposed amendment of the Certificate of Incorporation of the Company, declaring said amendment to be advisable and authorizing the proposed amendment to be presented to the stockholders of the Company at the next annual meeting of stockholders for their consideration. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of the Corporation be amended in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware by amending the first paragraph of Article FOURTH thereof to read as follows: "FOURTH: Capitalization: The total number of shares of all classes of stock which the Corporation shall have the authority to issue is 46,000,000, of which 40,000,000 shares of the par value of $0.10 each are to be of a class designated Common Stock and 6,000,000 of the par value of $0.10 each are to be of a class designated Preferred Stock." SECOND: That at the Annual Meeting of Shareholders held May 3, 1990, and pursuant to notice duly given, the holders of a majority of the outstanding shares of the Company's Common Stock voted in favor of the above-referenced amendment. THIRD: That the above-referenced amendment was duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law, as amended. IN WITNESS WHEREOF, this Certificate of Amendment of Incorporation has been executed on behalf of Santa Anita Operating Company by its duly authorized officers this 3rd day of May, 1990. --- SANTA ANITA OPERATING COMPANY By /s/ ROBERT P. STRUB --------------------- Robert P. Strub President and Chief Executive Officer ATTEST: /s/ ALEXANDER W. INGLE - ---------------------- Alexander W. Ingle Vice President and Secretary CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SANTA ANITA OPERATING COMPANY We, the undersigned, being the duly elected President and Chief Executive Officer and Secretary and Treasurer of Santa Anita Operating Company (the "Company"), a corporation organized and existing under the laws of the State of Delaware, do hereby certify: FIRST, That at a meeting held on February 11, 1993, the Board of Directors of the Company approved a proposed amendment of the Certificate of Incorporation of the Company, declaring said amendment to be advisable and authorizing the proposed amendment to be presented to the stockholders of the Company at the next annual meeting of stockholders for their consideration. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of the Corporation be amended in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware by amending the first paragraph of Article FOURTH thereof to read as follows: "FOURTH: Capitalization: The total number of shares of all classes of stock which the Corporation shall have the authority to issue is 25,000,000 of which 19,000,000 shares of the par value of $0.10 each are to be of a class designated Common Stock and 6,000,000 of the par value of $0.10 each are to be of a class designated Preferred Stock." SECOND, That at the Annual Meeting of Shareholders held May 4, 1993, and pursuant to notice duly given, the holders of a majority of the outstanding shares of the Company's Common Stock voted in favor of the above-referenced amendment. THIRD, That the above-referenced amendment was duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law, as amended. IN WITNESS WHEREOF, this Certificate of Amendment of Certificate of Incorporation has been executed on behalf of Santa Anita Operating Company by its duly authorized officers this first day of June, 1993. SANTA ANITA OPERATING COMPANY By /s/ STEPHEN F. KELLER ----------------------------- Stephen F. Keller President and Chief Executive Officer ATTEST: /s/ ALEXANDER W. INGLE - ------------------------- Alexander W. Ingle Secretary and Treasurer EX-3.3 4 CERTIFICATE OF INCORPORATION EXHIBIT 3.3 ----------- REVISED 2-10-94 --------------- BY-LAWS OF SANTA ANITA REALTY ENTERPRISES, INC. (a Delaware corporation) ARTICLE I Offices Section 1.1. Registered Office. The registered office shall be in ----------------- the City of Wilmington, County of New Castle, State of Delaware. Section 1.2. Other Offices. The Corporation may also have offices at ------------- such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II Business Purpose and Investment Policy Section 2.1. Corporation Taxed as Real Estate Investment Trust. The ------------------------------------------------- Corporation shall conduct its business in such a manner as to be qualified to be taxed as a real estate investment trust under Sections 856-858 of the Internal Revenue Code of 1954, as heretofore or hereafter amended. Section 2.2. Investment Policy. It is the general purpose of the ----------------- Corporation that the assets of the Corporation be invested principally in real property and interests in real estate. ARTICLE III Meetings of Stockholders Section 3.1. Place. All meetings of the stockholders for the ----- election of directors shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time or place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 3.2. Annual Meetings. The annual meetings of stockholders --------------- shall be held on the third Thursday in May of each year at 10 o'clock A.M. of said day, the first such meeting to be held on the third Thursday in May 1981; provided, however, that should said day fall upon a -2- legal holiday, then any such annual meeting of stockholders shall be held at the same time and place on the next day thereafter ensuing which is a full business day. At such meetings directors shall be elected, reports of the affairs of the Corporation shall be considered, and any other business may be transacted which is within the powers of the stockholders. If for any annual meeting the Board of Directors shall fix a different day or hour, such action shall be deemed an amendment of this Section 3.2 effective until the adjournment of that annual meeting sine die. ---- --- Written notice of each annual meeting shall be given to each stockholder entitled to vote, either personally or by mail or other means of written communication, charges prepaid, addressed to such stockholder at his address appearing on the books of the Corporation or given by him to the Corporation for the purpose of notice. If a stockholder gives no address, notice shall be deemed to have been given him if sent by mail or other means of written communication addressed to the place where the principal office of the Corporation is situated, or if published at least once in some newspaper of general circulation in the county in which said office is located. All such notices shall be sent to each stockholder entitled thereto not less than ten nor more than sixty days before each annual meeting. Such notices shall specify the place, the day and the hour of such meeting and shall state -3- such other matters if any, as may be expressly required by statute. Section 3.3. Special Meetings. Special meetings of the stockholders, ---------------- for any purpose or purposes whatsoever, may be called at any time by the Board of Directors. Except in special cases where other express provision is made by statute, notice of such special meetings shall be given in the same manner as for annual meetings of stockholders. Notices of any special meeting shall specify, in addition to the place, day and hour of such meeting, the general nature of the business to be transacted. Section 3.4. List of Stockholders. The officer who has charge of the -------------------- stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the -4- time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 3.5. Quorum. The holders of a majority of the stock issued ------ and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute. If, however, such quorum shall not be present or represented at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 3.6. Questions Before Meeting. When a quorum is present at ------------------------ any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting unless the question is one upon -5- which by express provision of the statutes, of these By-laws or of the Certificate of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 3.7. Action Without Meeting. Any action required or ---------------------- permitted to be taken by holders of stock of the Corporation must be taken at a meeting of such holders and may not be taken by consent in writing. Section 3.8. Waiver of Notice. Whenever notice is required to be ---------------- given under the Delaware Corporation Law or the Certificate of Incorporation or the By-laws, a written waiver, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation. -6- ARTICLE IV Directors Section 4.1. Size of Board. The Board of Directors shall consist of ------------- eleven members, or as many as shall be determined from time to time by resolution of the Board. Section 4.2. Election of Directors. The directors shall be divided --------------------- into three classes, designated Class I, Class II, and Class III, such classes to be as nearly equal in number as possible. At the annual meeting of stockholders in 1986, directors of Class I shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of Class II shall be elected to hold office for a term expiring at the second succeeding annual meeting, and directors of Class III shall be elected to hold office for a term expiring at the third succeeding annual meeting. Thereafter at each annual meeting of stockholders, directors shall be chosen for a term of three years to succeed those whose terms then expire and shall hold office until the third following annual meeting of stockholders and until the election of their respective successors. Directors need not be stockholders. Section 4.3. Vacancies. Vacancies and newly created directorships --------- resulting from any increase in the -7- authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office for the unexpired term of the vacant directorship, or, in the case of any increase in the number of directors, as designated by the directors then in office, consistent with the provisions of Section 4.2. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office. Section 4.4. Powers. The business of the Corporation shall be ------ managed by its Board of Directors which -8- may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-laws directed or required to be exercised or done by the stockholders. Section 4.5. Meetings. The Board of Directors of the Corporation may -------- hold meetings, both regular and special, either within or without the State of Delaware. Section 4.6. First Meeting. The first meeting of each newly elected ------------- Board of Directors shall be held immediately following the annual meeting of stockholders at which such directors are elected and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present; or the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors. Section 4.7. Regular Meetings. Regular meetings of the Board may be ---------------- held without notice at such time and at such place as shall from time to time be determined by the Board. -9- Section 4.8. Special Meetings. Special meetings of the Board may be ---------------- called by the Secretary at the request of the Chairman of the Board or President on two business days' notice to each director, either personally or by mail, by telegram or by telephone; special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of two directors. Section 4.9. Quorum. At all meetings of the Board a majority of the ------ total number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 4.10. Conference Telephone. Unless otherwise restricted by -------------------- the Certificate of Incorporation or these By-laws, members of the Board of Directors (or any committee designated by the Board) may participate in a meeting of the Board or committee by means of conference telephone or similar communications equipment by means of -10- which all persons participating in the meeting can hear each other. Section 4.11. Unanimous Consent. Unless otherwise restricted by the ----------------- Certificate of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 4.12. Committees. The Board of Directors may, by resolution ---------- passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the power of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any -11- meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Section 4.13. Minutes. Each committee shall keep regular minutes of ------- its meetings and report the same to the Board of Directors when required. Section 4.14. Fees and Compensation. Directors and members of --------------------- committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board. ARTICLE V Notices Section 5.1. Methods of Notice. Whenever, under the provisions of ----------------- the Laws of the State of Delaware or of the Certificate of Incorporation or of these By-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such -12- notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram or telephone. Section 5.2. Waiver. Whenever any notice is required to be given ------ under the provisions of the statutes or of the Certificates of Incorporation or of these By-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VI Officers Section 6.1. Officers. The Officers of the Corporation shall be a -------- President, a Vice President, a Secretary and a Treasurer. The Corporation may also have, at the discretion of the Board of Directors, one or more additional Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 6.3 and Section 6.5 of this Article. The Board of Directors may also choose, in its discretion, a Chairman of the Board and one or more Vice Chairmen of the Board. The positions of Chairman of the Board and Vice -13- Chairman of the Board shall not constitute officers of the Corporation. One person may hold two or more offices. Section 6.2. Election. The officers of the Corporation, except such -------- officers as may be appointed in accordance with the provisions of Section 6.3 or Section 6.5 of this Article, shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 6.3. Subordinate Officers, etc. The Board of Directors may -------------------------- appoint, and may empower the President to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By- laws or as the Board of Directors may from time to time determine. Section 6.4. Removal and Resignation. Any officer may be removed, ----------------------- either with or without cause, by the Board of Directors, at any regular or special meeting thereof, or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. -14- Any officer may resign at any time by giving written notice to the Board of Directors or to the President, or to the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 6.5. Vacancies. A vacancy in any office because of death, --------- resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the By-laws for regular appointments to such office. Section 6.6. Salaries. The salaries and other compensation of all -------- officers of the Corporation shall be fixed by the Board of Directors. Section 6.7. Chairman of the Board. The Chairman of the Board shall, --------------------- if present, preside at all meetings of the Board of Directors. Section 6.7A. Vice Chairman of the Board. In the absence of the -------------------------- Chairman of the Board, the Vice Chairman of the Board designated by the Board of Directors shall preside at all meetings of the Board of Directors. -15- Section 6.8. President. The President shall be the Chief Executive --------- Officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the Corporation. He shall preside at all meetings of the stockholders and, in the absence of the Chairman of the Board and the Vice Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be ex-officio a member of all the standing committees, including the Executive Committee, if any, and shall have the general powers and duties of management usually vested in the office of the president of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-laws. Section 6.9. Vice President. In the absence or disability of the -------------- President, the Vice Presidents in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-laws. -16- Section 6.10. Secretary. The Secretary shall keep or cause to be --------- kept, at the principal office or such other place as the Board of Directors may order, a book of minutes of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at stockholders meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the names of the stockholders and their addresses, the number and class of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the stockholders and of the Board of Directors required by the By- laws or bylaw to be given, and he shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the By-laws. -17- Section 6.11. Treasurer. The Treasurer shall keep and maintain, or --------- cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and shares. Any surplus, including earned surplus, paid-in surplus and surplus arising from a reduction of stated capital, shall be classified according to source and shown in a separate account. The books of account shall at all reasonable times be open to inspection by any director. The Treasurer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all of his transactions as Treasurer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-laws. -18- ARTICLE VII Stock and Stock Certificates Section 7.1. Right to Certificate. Every holder of stock in the -------------------- Corporation shall be entitled to have a certificate, signed by or in the name of the Corporation, by the Chairman of the Board of Directors or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Section 7.2. Statements Setting Forth Rights. If the Corporation ------------------------------- shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will -19- furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations and restrictions of such preferences and rights. Section 7.3. Facsimile Signatures. Any of or all the signatures on -------------------- the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 7.4. Lost Certificates. Except as hereinafter in this ----------------- section provided, no new certificate for shares shall be issued in lieu of an old one unless the latter is surrendered and cancelled at the same time. The Board of Directors may, however, in case any certificate for shares is lost, stolen, mutilated or destroyed, authorize the issuance of a new certificate in lieu thereof, upon such terms and conditions, including reasonable indemnification of the Corporation, as the Board shall determine. -20- Section 7.5. Transfers of Stock. ------------------ (a) Subject to paragraphs (b), (c) and (d) of this Section 7.5, upon surrender to any transfer agent of the Corporation of a certificate for shares of the Corporation duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. (b) Subject to the provisions of subparagraph (vi) of this paragraph (b), beginning at the time that (A) the merger of Santa Anita Consolidated, Inc. ("Santa Anita") into the Corporation and (B) the payment by the Corporation of the dividend in kind of the shares of Santa Anita Operating Company, a Delaware corporation ("Operating Company"), shall have both occurred (hereinafter called the "effective time of the restriction"), and continuing thereafter until such time as the limitation on transfer provided for in the Pairing Agreement between the Corporation and Operating Company shall be terminated in the manner therein provided: (i) The shares of common stock of the Corporation shall not be transferable, and shall not be transferred on the books of the Corporation, unless -21- (1) a simultaneous transfer is made by the same transferor to the same transferee, or (2) such transferor has previously arranged with Operating Company for the transfer to the transferee, of a like number of common shares of Operating Company and such shares are paired with one another. (ii) Except for certificates representing shares of common stock of this Corporation referred to in subparagraph (vi) below, each certificate evidencing ownership of shares of common stock of this Corporation (including certificates issued by Santa Anita) issued and not cancelled prior to the effective time of the restriction shall be deemed to evidence a like number of shares of common stock of Operating Company. (iii) Except for certificates representing common stock of this Corporation referred to in subparagraph (vi) below, any registered holder of a certificate evidencing ownership of shares of common stock of the Corporation (including certificates issued by Santa Anita) issued prior to the effective time of the restriction may, upon request and presentation of said certificate to the Corporation's transfer agent, obtain in substitution therefor a certificate or certificates registered in such holder's name evidencing the same number of shares of common stock of -22- the Corporation and a like number of common shares of Operating Company. (iv) A conspicuous legend shall be placed on the face of each certificate evidencing ownership of shares of common stock of the Corporation issued after the effective time of the restriction, referring to the restrictions on transfer set forth in the Corporation's By-laws. (v) For purposes of this paragraph (b) only, the terms "common stock" and "common shares" shall include preferred stock which is convertible into shares of common stock. (vi) Notwithstanding the other provisions of this paragraph (b), any stockholder whose ownership of Operating Company common stock at the effective time of the restriction would be deemed, after application of the attribution rules of the Internal Revenue Code of 1954 (the "Code"), to result in the Corporation owning, directly or indirectly, more than 9.25% of the Operating Company common stock will not be subject to the restrictions imposed by this paragraph (b) to the extent that such ownership would cause the Corporation, directly or indirectly, to be deemed to own, after application of the attribution rules of the Code, more -23- than 9.25% of the total number of the outstanding shares of Operating Company, provided that (1) a sufficient amount of Operating Company common stock (or the right to receive such common stock) which would otherwise be paired with common stock of the Corporation is sold to a transferee so that the Corporation, directly or indirectly, after application of the attribution rules of the Code, will not own in excess of 9.25% of the outstanding Operating Company common stock, (2) all holders of the unpaired shares enter into an agreement, satisfactory to the Boards of Directors of the Corporation, Operating Company and Santa Anita, providing that such shares not be transferable by sale or any other means, without arranging for such shares to be paired with an equal number of shares of Operating Company, unless such sale is made to the Corporation or Operating Company, and (3) such stockholder executes a waiver of any claims he or she may have arising out of the close business relationship between the Corporation and Operating Company and claims arising out of conflicts of interest inherent in such business relationship. The other provisions of this paragraph (b) shall apply to all shares of the Corporation otherwise held by any stockholder unless they are specifically exempted by this subparagraph (vi). -24- (c) If the Board of Directors shall at any time and in good faith be of the opinion that direct or indirect ownership of shares of either common stock or preferred stock, or both, of the Corporation has or may become concentrated to an extent which would cause this Corporation to fail to qualify or be disqualified as a real estate investment trust by virtue of Section 856(a)(5) and (6) of the Code, or similar provisions of successor statutes, the Board of Directors shall have the power (i) by lot or other means deemed equitable by them to call for purchase from any stockholder of the Corporation such number of shares sufficient in the opinion of the Board of Directors to maintain or bring the direct or indirect ownership of shares of stock of the Corporation into conformity with the requirements of said Section 856(a)(5) and (6) and (ii) to refuse to register the transfer of shares of stock to any person whose acquisition of such shares would, in the opinion of the Board of Directors, result in the Corporation being unable to conform to the requirements of said Section 856(a)(5) and (6). The purchase price for the shares of stock purchased pursuant hereto shall be equal to the fair market value of such shares as reflected in the closing price for such shares on the principal stock exchange on which such shares are listed or, if such shares are not listed, then the last bid quotation for shares of stock as of the close of business on the date fixed by the Board of Directors for such purchase or, if no quotation for the -25- shares is available, as determined in good faith by the Board of Directors. From and after the date fixed for purchase by the Board of Directors, the holder of any shares so called for purchase shall cease to be entitled to dividends, voting rights and other benefits with respect to such shares, excepting only the right to payment of the purchase price fixed as aforesaid. In order to further assure that ownership of the shares of stock does not become so concentrated, any transfer of shares that would prevent the Corporation from continuing to be qualified as a real estate investment trust by virtue of the application of Section 856(a)(5) and (6) of the Code shall be void ab initio and the intended -- ------ transferee of such shares shall be deemed never to have had an interest therein. If the foregoing provision is determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then the transferee of such shares shall be deemed to have acted as agent on behalf of the Corporation in acquiring such shares and to hold such shares on behalf of the Corporation. For purposes of determining whether the Corporation is in compliance with Section 856(a)(5) and (6), Section 542(a)2) and Section 544 of the Code, or similar provisions of successor statutes, shall be applied. (d) In addition to the requirements of subparagraph (c) above, if the Board of Directors shall at any time and in good faith be of the opinion that direct or -26- indirect ownership of shares of either common stock or preferred stock, or both, of the Corporation has or may become concentrated to an extent which would cause any rent to be paid to this Corporation to fail to qualify or be disqualified as rent from real property by virtue of Section 856(d)(2)(B) of the Code, or similar provisions of successor statutes, the Board of Directors shall have the power (i) by lot or other means deemed equitable by them to call for purchase from any stockholder of the Corporation such number of shares sufficient in the opinion of the Board of Directors to maintain or bring the direct or indirect ownership of shares of stock of the Corporation into conformity with the requirements of Section 856(d)(2)(B) and (ii) to refuse to register the transfer of shares of stock to any person whose acquisition of such shares would, in the opinion of the Board of Directors, result in this Corporation being unable to conform to the requirements of said Section 856(d)(2)(B). The purchase price for the shares of stock purchased pursuant hereto shall be equal to the fair market value of such shares as reflected in the closing price for such shares on the principal stock exchange on which such shares are listed, or if such shares are not listed, then the last bid quotation for shares of stock, as of the close of business on the date fixed by the Board of Directors for such purchase or, if no quotation for the shares is available, as determined in good faith by the Board of Directors. From and after the date fixed for -27- purchase by the Board of Directors, the holder of any shares so called for purchase shall cease to be entitled to dividends, voting rights and other benefits with respect to such shares, excepting only the right to payment of the purchase price fixed as aforesaid. In order to further assure that ownership of the shares of stock does not become so concentrated, any transfer of shares that would prevent this Corporation from continuing to be qualified as a real estate investment trust by virtue of the application of Section 856(d)(2)(B) of the Code shall be void ab initio and the intended transferee of such shares shall be -- ------ deemed never to have had an interest therein. If the foregoing provision is determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then the transferee of such shares shall be deemed to have acted as agent on behalf of the Corporation in acquiring such shares and to hold such shares on behalf of the Corporation. For purposes of determining whether this Corporation is in compliance with Section 856(d)(2)(B), Section 856(d)(5) of the Code, or similar provisions of successor statutes, shall be applied. (e) The stockholders of the Corporation shall upon demand disclose to the Board of Directors in writing such information with respect to their direct and indirect ownership of the stock of the Corporation as the Board of Directors deems necessary to determine whether the Corporation satisfies the provisions of Section 856(a)(5) -28- and (6) and 856(d) of the Code and the regulations thereunder as the same shall be from time to time amended, or to comply with the requirements of any other taxing authority. Section 7.6. Form of Consideration. In purchasing such shares from --------------------- any shareholder in accordance with the foregoing provisions, the Corporation may pay consideration in the form of cash or, at the option of the Board of Directors, in the form of subordinated indebtedness of the Corporation. The principal amount of such subordinated indebtedness shall be equal to the purchase price of the shares (less amounts paid in cash, if any) and it shall have such other terms as may be determined by the Board of Directors at the time of issuance. Section 7.7. Record Date. In order that the Corporation may ----------- determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereto, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A -29- determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 7.8. Registered Stockholders. The Corporation shall be ----------------------- entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. Section 7.9. Transfer Agents and Registrars. The Board of Directors ------------------------------ may appoint one or more corporate transfer agents and registrars. Section 7.10. Dividends. Dividends upon the capital stock of the --------- Corporation may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock. -30- Section 7.11. Reserves. Before payment of any dividend, there may be -------- set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE VIII Indemnification and Insurance Section 8.1. Right to Indemnification. Each person who was or is a ------------------------ party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employer or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding -31- is alleged action or inaction in an official capacity or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the laws of Delaware, as the same exist or may hereafter be amended, against all costs, charges, expenses, liabilities and losses (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in Section 8.2 hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Article shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person -32- while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. Section 8.2. Right of Claimant to Bring Suit. If a claim under ------------------------------- Section 8.1 of this Article is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has failed to meet a standard of conduct which makes it permissible under -33- Delaware law for the Corporation to indemnify the claimant for the amount claimed. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he or she has met such standard of conduct, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such standard of conduct, shall be a defense to the action or create a presumption that the claimant has failed to meet such standard of conduct. Section 8.3. Non-Exclusivity of Rights. The right to indemnification ------------------------- and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. Section 8.4. Insurance. The Corporation may maintain insurance, at --------- its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or -34- other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under Delaware law. Section 8.5. Expenses as a Witness. To the extent that any director, --------------------- officer, employee or agent of the Corporation is by reason of such position, or a position with another entity at the request of the Corporation, a witness in any action, suit or proceeding, he or she shall be indemnified against all costs and expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith. Section 8.6. Indemnity Agreements. The Corporation may enter into -------------------- agreements with any director, officer, employee or agent of the Corporation providing for indemnification to the full extent permitted by Delaware law. -35- ARTICLE IX General Provisions Section 9.1. Annual Reports. Not later than one hundred twenty (120) -------------- days after the close of each fiscal year of the Corporation, the Board of Directors shall mail a report of the business and operation of the Corporation during such fiscal year to the stockholders. The report shall be in such form and have such content as the Board deems proper. This report shall include a balance sheet and a statement of income and surplus and a statement of changes in financial position of the Corporation. Such financial statements shall be accompanied by the report of an independent certified public accountant thereon. Section 9.2. Quarterly Reports. Within 90 days after the close of ----------------- each of the first three quarters of each fiscal year of the Corporation, the Board of Directors shall send interim reports to the stockholders, having such form and content as the Board of Directors deems proper. Section 9.3. Fiscal Year. The fiscal year of the Corporation shall be ----------- fixed by resolution of the Board of Directors. Section 9.4. Seal. The corporate seal shall have inscribed thereon ---- the name of the Corporation, the year of -36- its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 9.5. Checks, Drafts, etc. All checks, drafts or other orders ------------------- for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board of Directors. Section 9.6. Representation of Shares of Other Corporations. The ---------------------------------------------- President or any Vice President and the Secretary or Assistant Secretary of this Corporation are authorized to vote, represent and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority herein granted to said officers to vote or represent on behalf of this Corporation any and all shares held by this Corporation in any other corporation or corporations may be exercised either by such officers in person or by any other person authorized so to do by proxy or power of attorney duly executed by said officers. Section 9.7. Employee Stock Purchase Plans. The Corporation may, ----------------------------- upon terms and conditions herein -37- authorized, provide and carry out an employee stock purchase plan or plans providing for the issue and sale, or for the granting of options for the purchase, of its unissued shares, or of issued shares purchased or to be purchased or acquired, to employees of the Corporation or of any subsidiary or to a trustee on their behalf. Such plan may provide for such consideration as may be fixed therein, for the payment of such shares in installments or at one time and for aiding any such employees in paying for such shares by compensation for services or by loans from the Corporation or otherwise. Any such plan before becoming effective must be approved or authorized by the Board of Directors of the Corporation. Such plan may include, among other things, provisions determining or providing for the determination by the Board of Directors, or any committee thereof designated by the Board of Directors, of: (a) eligibility of employees (including officers and directors) to participate therein, (b) the number and class of shares which may be subscribed for or for which options may be granted under the plan, (c) the time and method of payment therefor, (d) the price or prices at which such shares shall be issued or sold, (e) whether or not title to the shares shall be reserved to the Corporation until full payment therefor, (f) the effect of the death of an employee participating in the plan or termination of his employment, including whether there shall -38- be any option or obligation on the part of the Corporation to repurchase the shares thereupon, (g) restrictions, if any, upon the transfer of the shares, and the time limits and termination of the plan, (h) termination, continuation or adjustments of the rights of participating employees upon the happening of specified contingencies, including increase or decrease in the number of issued shares of the class covered by the plan without receipt of consideration by the Corporation or any exchange of shares of such class for stock or securities of another corporation pursuant to a reorganization or merger, consolidation or dissolution of the Corporation, (i) amendment, termination, interpretation and administration of such plan by the Board of Directors or any committee thereof designated by the Board of Directors, and (j) any other matters, not repugnant to law, as may be included in the plan as approved or authorized by the Board of Directors or any such committee. ARTICLE X Amendments Section 10.1. Power of Stockholders. New By-laws may be adopted or --------------------- these By-laws may be amended or repealed by the stockholders only by the affirmative vote of at least 80% of the voting power of the Corporation, except as otherwise provided by law. Any proposal to amend or repeal, -39- or adopt any provisions inconsistent with, Article Tenth of the Certificate of Incorporation shall require for approval the affirmative vote of at least 80% of the voting power of the Corporation. Section 10.2. Power of Directors. Subject to the right of ------------------ stockholders as provided in Section 10.1 of this Article X to adopt, amend or repeal By-laws, By-laws may be adopted, amended or repealed by the Board of Directors; provided, however, that Section 7.5 of these By-laws may not be amended or repealed except with approval of the holders of 80% of the outstanding common stock of the Corporation. -40- EX-3.4 5 CERTIFICATE OF INCORPORATION EXHIBIT 3.4 ----------- REVISED 2-10-94 --------------- BY-LAWS OF SANTA ANITA OPERATING COMPANY (a Delaware corporation) ARTICLE I Offices Section 1.1. Registered Office. The registered office shall be in ----------------- the City of Wilmington, County of New Castle, State of Delaware. Section 1.2. Other Offices. The Corporation may also have offices at ------------- such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II Meetings of Stockholders Section 2.1. Place. All meetings of the stockholders for the ----- election of directors shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the Board of -1- Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time or place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2.2. Annual Meetings. The annual meetings of stockholders --------------- shall be held on the third Thursday in May of each year at 10 o'clock A.M. of said day, the first such meeting to be held on the third Thursday in May 1981; provided, however, that should said day fall upon a legal holiday, then any such annual meeting of stockholders shall be held at the same time and place on the next day thereafter ensuing which is a full business day. At such meetings directors shall be elected, reports of the affairs of the Corporation shall be considered, and any other business may be transacted which is within the powers of the stockholders. If for any annual meeting the Board of Directors shall fix a different day or hour, such action shall be deemed an amendment of this Section 2.2 effective until the adjournment of that annual meeting sine die. ---- --- Written notice of each annual meeting shall be given to each stockholder entitled to vote, either personally or by mail or other means of written communication, charges prepaid, addressed to such stockholder at his address appearing on the books of the Corporation or -2- given by him to the Corporation for the purpose of notice. If a stockholder gives no address, notice shall be deemed to have been given him if sent by mail or other means of written communication addressed to the place where the principal office of the Corporation is situated, or if published at least once in some newspaper of general circulation in the county in which said office is located. All such notices shall be sent to each stockholder entitled thereto not less than ten nor more than sixty days before each annual meeting. Such notices shall specify the place, the day and the hour of such meeting and shall state such other matters if any, as may be expressly required by statute. Section 2.3. Special Meetings. Special meetings of the stockholders, ---------------- for any purpose or purposes whatsoever, may be called at any time by the Board of Directors. Except in special cases where other express provision is made by statute, notice of such special meetings shall be given in the same manner as for annual meetings of stockholders. Notices of any special meeting shall specify, in addition to the place, day and hour of such meeting, the general nature of the business to be transacted. Section 2.4. List of Stockholders. The officer who has charge of the -------------------- stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of -3- stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 2.5. Quorum. The holders of a majority of the stock issued ------ and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute. If, however, such quorum shall not be present or represented at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally noticed. If -4- the adjournment is for more than thirty days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 2.6. Questions Before Meeting. When a quorum is present at ------------------------ any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting unless the question is one upon which by express provision of the statutes, of these By-laws or of the Certificate of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 2.7. Action Without Meeting. Any action required or ---------------------- permitted to be taken by holders of stock of the Corporation must be taken at a meeting of such holders and may not be taken by consent in writing. Section 2.8. Waiver of Notice. Whenever notice is required to be ---------------- given under the Delaware Corporation Law or the Certificate of Incorporation or the By-laws, a written waiver, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, -5- except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation. ARTICLE III Directors Section 3.1. Size of Board. The Board of Directors shall consist of ------------- ten members, or as many as shall be determined from time to time by resolution of the Board. Section 3.2. Election of Directors. The directors shall be divided --------------------- into three classes, designated Class I, Class II, and Class III, such classes to be as nearly equal in number as possible. At the annual meeting of stockholders in 1986, directors of Class I shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of Class II shall be elected to hold office for a term expiring at the second succeeding annual meeting, and directors of Class III shall -6- be elected to hold office for a term expiring at the third succeeding annual meeting. Thereafter at each annual meeting of stockholders, directors shall be chosen for a term of three years to succeed those whose terms then expire and shall hold office until the third following annual meeting of stockholders and until the election of their respective successors. Directors need not be stockholders. Section 3.3. Vacancies. Vacancies and newly created directorships --------- resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office for the unexpired term of the vacant directorship, or, in the case of any increase in the number of directors, as designated by the directors then in office, consistent with the provisions of Section 3.2. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any -7- such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office. Section 3.4. Powers. The business of the Corporation shall be ------ managed by its Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-laws directed or required to be exercised or done by the stockholders. Section 3.5. Meetings. The Board of Directors of the Corporation may -------- hold meetings, both regular and special, either within or without the State of Delaware. Section 3.6. First Meeting. The first meeting of each newly elected ------------- Board of Directors shall be held immediately following the annual meeting of stockholders at which such directors are elected and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present; or the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or -8- as shall be specified in a written waiver signed by all of the directors. Section 3.7. Regular Meetings. Regular meetings of the Board may be ---------------- held without notice at such time and at such place as shall from time to time be determined by the Board. Section 3.8. Special Meetings. Special meetings of the Board may be ---------------- called by the Secretary at the request of the Chairman of the Board or President on two business days' notice to each director, either personally or by mail, by telegram or by telephone; special meetings shall be called by the Chairman of the Board or Secretary in like manner and on like notice on the written request of two directors. Section 3.9. Quorum. At all meetings of the Board a majority of the ------ total number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than -9- announcement at the meeting, until a quorum shall be present. Section 3.10. Conference Telephone. Unless otherwise restricted by -------------------- the Certificate of Incorporation or these By-laws, members of the Board of Directors (or any committee designated by the Board) may participate in a meeting of the Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Section 3.11. Unanimous Consent. Unless otherwise restricted by the ----------------- Certificate of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 3.12. Committees. The Board of Directors may, by resolution ---------- passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or -10- disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the power of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Section 3.13. Minutes. Each committee shall keep regular minutes of ------- its meetings and report the same to the Board of Directors when required. Section 3.14. Fees and Compensation. Directors and members of --------------------- committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board. -11- ARTICLE IV Notices Section 4.1. Methods of Notice. Whenever, under the provisions of ----------------- the Laws of the State of Delaware or of the Certificate of Incorporation or of these By-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram or telephone. Section 4.2. Waiver. Whenever any notice is required to be given ------ under the provisions of the statutes or of the Certificate of Incorporation or of these By-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. -12- ARTICLE V Officers Section 5.1. Officers. The Officers of the Corporation shall be a -------- Chairman of the Board, a President, a Secretary and a Treasurer. The Corporation may also have, at the discretion of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.3 and Section 5.5 of this Article. The Board of Directors may also choose, at its discretion, one or more Vice Chairmen of the Board, who shall not constitute officers of the Corporation. One person may hold two or more offices. Section 5.2. Election. The officers of the Corporation, except such -------- officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of this Article, shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 5.3. Subordinate Officers, etc. The Board of Directors may -------------------------- appoint, and may empower the Chairman of the Board to appoint, such other officers as the business of the Corporation may require, each of whom shall hold -13- office for such period, have such authority and perform such duties as are provided in the By-laws or as the Board of Directors may from time to time determine. Section 5.4. Removal and Resignation. Any officer may be removed, ----------------------- either with or without cause, by the Board of Directors, at any regular or special meeting thereof, or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Board of Directors or to the Chairman of the Board, or to the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5.5. Vacancies. A vacancy in any office because of death, --------- resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the By-laws for regular appointments to such office. Section 5.6. Salaries. The salaries and other compensation of all -------- officers of the Corporation shall be fixed by the Board of Directors. -14- Section 5.7. Chairman of the Board. The Chairman of the Board shall --------------------- preside at all meetings of the stockholders and all meetings of the Board of Directors. He shall be an ex-officio member of all standing committees, including the Executive Committee, if any, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-laws. Section 5.7A. Vice Chairman of the Board. In the absence of the -------------------------- Chairman of the Board, the Vice Chairman of the Board designated by the Board of Directors shall preside at meetings of the Board of Directors. Section 5.8. President. The President shall be the Chief Executive --------- Officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the Corporation. He shall be an ex-officio member of all standing committees, including the Executive Committee, if any, shall have the general powers and duties of management usually vested in the office of the chief executive officer of a corporation, and shall have such other powers and perform such other duties as from time to time may be prescribed for him by the Board of Directors or the By- laws. Section 5.9. Vice President. In the absence or disability of the -------------- Chairman of the Board and the President, -15- the Vice Presidents in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the Chairman of the Board and the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Chairman of the Board and the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-laws. Section 5.10. Secretary. The Secretary shall keep or cause to be --------- kept, at the principal office or such other place as the Board of Directors may order, a book of minutes of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the names of the stockholders and their addresses, the number and class of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. -16- The Secretary shall give, or cause to be given, notice of all the meetings of the stockholders and of the Board of Directors required by the By- laws or by law to be given, and he shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the By-laws. Section 5.11. Treasurer. The Treasurer shall keep and maintain, or --------- cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and shares. Any surplus, including earned surplus, paid-in surplus and surplus arising from a reduction of stated capital, shall be classified according to source and shown in a separate account. The books of account shall at all reasonable times be open to inspection by any director. The Treasurer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the Chairman of the Board and directors, whenever they request it, an account of all of his transactions as -17- Treasurer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-laws. ARTICLE VI Stock and Stock Certificates Section 6.1. Right to Certificate. Every holder of stock in the -------------------- Corporation shall be entitled to have a certificate, signed by or in the name of the Corporation, by the Chairman of the Board of Directors or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Section 6.2. Statements Setting Forth Rights. If the Corporation ------------------------------- shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent -18- such class or series of stock, provided that,except as otherwise provided in Section 202 of the Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations and restrictions of such preferences and rights. Section 6.3 Facsimile Signatures. Any of or all the signatures on -------------------- the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 6.4. Lost Certificates. Except as hereinafter in this ----------------- section provided, no new certificate for shares shall be issued in lieu of an old one unless the latter is surrendered and cancelled at the same time. The Board of Directors may, however, in case any certificate for -19- shares is lost, stolen, mutilated or destroyed, authorize the issuance of a new certificate in lieu thereof, upon such terms and conditions, including reasonable indemnification of the Corporation, as the Board shall determine. Section 6.5 Transfers of Stock. ------------------ (a) Subject to paragraphs (b), (c) and (d) of this Section 6.5, upon surrender to any transfer agent of the Corporation of a certificate for shares of the Corporation duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. (b) Beginning at the time that (A) the merger of Santa Anita Consolidated, Inc. ("Santa Anita") into Santa Anita Realty Enterprises, Inc., a Delaware corporation ("Realty"), and (B) the payment by Realty of the dividend in kind of the shares of the Corporation (the "Distribution") shall have both occurred (hereinafter called the "effective time of the restriction"), and continuing thereafter until such time as the limitation on transfer provided for in the Pairing Agreement between Realty and the Corporation shall be terminated in the manner therein provided: -20- (i) The shares of common stock of the Corporation shall not be transferable, and shall not be transferred on the books of the Corporation, unless (1) a simultaneous transfer is made by the same transferor to the same transferee, or (2) such transferor has previously arranged with Realty for the transfer to the transferee, of a like number of shares of common stock of Realty and such shares are paired with one another. (ii) Except for certificates representing shares of common stock of Realty referred to in subparagraph (vi) below, each certificate evidencing ownership of shares of common stock of Realty (including certificates issued by Santa Anita) issued and not cancelled prior to the effective time of the restriction shall be deemed to evidence a like number of shares of common stock of the Corporation. (iii) Except for certificates representing common stock of Realty referred to in subparagraph (vi) below, any registered holder of a certificate evidencing ownership of shares of common stock of Realty (including certificates issued by Santa Anita) issued prior to the effective time of the restriction may, upon request and presentation of said certificate to the Corporation's transfer agent, obtain in substitution therefor a certificate or certificates registered in such holder's name evidencing the same number of -21- common shares of the Corporation and a like number of shares of common stock of Realty. (iv) A conspicuous legend shall be placed on the face of each certificate evidencing ownership of shares of common stock of the Corporation issued after the effective time of the restrictions, referring to the restrictions on transfer set forth in the Corporation's By-laws. (v) For purposes of this paragraph (b) only, the terms "common stock" and "common shares" shall include preferred stock which is convertible into shares of common stock. (vi) Notwithstanding the other provisions of this paragraph (b), any stockholder whose ownership of the common stock of the Corporation at the effective time of the restriction would be deemed, after application of the attribution rules of the Internal Revenue Code of 1954 (the "Code"), to result in Realty owning, directly or indirectly, more than 9.25% of the common stock of the Corporation will not be subject to the restrictions imposed by this paragraph (b) to the extent that such ownership would cause Realty, directly or indirectly, to be deemed to own, after application of the attribution rules of the Code, more than 9.25% of the total number of the outstanding shares of the Corporation, provided that (1) a sufficient amount of the common -22- stock of the Corporation (or the right to receive such common stock) which would otherwise be paired with stock of Realty is sold to third parties so that Realty, directly or indirectly, after application of the attribution rules of the Code, will not own in excess of 9.25% of the common stock of the Corporation, (2) all holders of the unpaired shares enter into an agreement, satisfactory to the Boards of Directors of Realty, the Corporation and Santa Anita, providing that such shares not be transferable by sale or any other means, without arranging for such shares to be paired with an equal number of shares of Realty, unless such sale is made to the Corporation or Realty and (3) such stockholder and any transferee of such stockholder executes a waiver of any claims he or she may have arising out of the close business relationship between the Corporation and Realty and claims arising out of conflicts of interest inherent in such business relationship. The other provisions of this paragraph (b) shall apply to all shares of the Corporation otherwise held by any stockholder unless they are specifically exempted by this subparagraph (vi). (c) If the Board of Directors shall at any time and in good faith be of the opinion that direct or indirect ownership of shares of either common stock or preferred stock, or both, of the Corporation has or may become concentrated to an extent which would cause Realty to fail to qualify or be disqualified as a real estate investment trust -23- by virtue of Section 856(a)(5) and (6) of the Code, or similar provisions of successor statutes, pertaining to the qualification of Realty as a real estate investment trust, the Board of Directors shall have the power (i) by lot or other means deemed equitable by them to call for purchase from any stockholder of the Corporation such number of shares sufficient in the opinion of the Board of Directors to maintain or bring the direct or indirect ownership of shares of stock of the Corporation into conformity with the requirements of said Section 856(a)(5) and (6) pertaining to Realty and (ii) to refuse to register the transfer of shares of stock to any person whose acquisition of such shares would, in the opinion of the Board of Directors, result in Realty being unable to conform to the requirements of said Section 856(a)(5) and (6). The purchase price for the shares of stock purchased pursuant hereto shall be equal to the fair market value of such shares as reflected in the closing price for such shares on the principal stock exchange on which such shares are listed or, if such shares are not listed, then the last bid quotation for shares of stock as of the close of business on the date fixed by the Board of Directors for such purchase or, if no quotation for the shares is available, as determined in good faith by the Board of Directors. From and after the date fixed for purchase by the Board of Directors, the holder of any shares so called for purchase shall cease to be entitled to dividends, voting rights and other benefits with respect to -24- such shares excepting only the right to payment of the purchase price fixed as aforesaid. In order to further assure that ownership of the shares of stock does not become so concentrated, any transfer of shares that would prevent Realty from continuing to be qualified as a real estate investment trust by virtue of the application of Section 856(a)(5) and (6) of the Code shall be void ab initio and the intended transferee of such shares shall be deemed never to - -- ------ have had an interest therein. If the foregoing provision is determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then the transferee of such shares shall be deemed to have acted as agent on behalf of the Corporation in acquiring such shares and to hold such shares on behalf of the Corporation. For purposes of determining whether the Corporation is in compliance with Section 856(a)(5) and (6), Section 542(a)(2) and Section 544 of the Code, or similar provisions of successor statutes, shall be applied. (d) In addition to the requirements of subparagraph (c) above, if the Board of Directors shall at any time and in good faith be of the opinion that direct or indirect ownership of shares of either common stock or preferred stock, or both, of the Corporation has or may become concentrated to an extent which would cause any rent to be paid to Realty to fail to qualify or be disqualified as rent from real property by virtue of Section 856(d)(2)(B) of the Code, -25- or similar provisions of successor statutes, pertaining to the qualification of Realty as a real estate investment trust, the Board of Directors shall have the power (i) by lot or other means deemed equitable by them to call for purchase from any stockholder of the Corporation such number of shares sufficient in the opinion of the Board of Directors to maintain or bring the direct or indirect ownership of shares of stock of the Corporation into conformity with the requirements of Section 856(d)(2)(B) pertaining to Realty and (ii) to refuse to register the transfer of shares of stock to any person whose acquisition of such shares would, in the opinion of the Board of Directors, result in Realty being unable to conform to the requirements of said Section 856(d)(2)(B). The purchase price for the shares of stock purchased pursuant hereto shall be equal to the fair market value of such shares as reflected in the closing price for such shares on the principal stock exchange on which such shares are listed, or if such shares are not listed, then the last bid quotation for shares of stock, as of the close of business on the date fixed by the Board of Directors for such purchase or, if no quotation for the shares is available, as determined in good faith by the Board of Directors. From and after the date fixed for purchase by the Board of Directors, the holders of any shares so called for purchase shall cease to be entitled to dividends, voting rights and other benefits with respect to such shares, excepting only the right to payment of the -26- purchase price fixed as aforesaid. In order to further assure that ownership of the shares of stock does not become so concentrated, any transfer of shares that would prevent Realty from continuing to be qualified as a real estate investment trust by virtue of the application of Section 856(d)(2)(B) of the Code shall be void ab initio and the intended transferee of such shares shall be deemed never -- ------ to have had an interest therein. If the foregoing provision is determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then the transferee of such shares shall be deemed to have acted as agent on behalf of the Corporation in acquiring such shares and to hold such shares on behalf of the Corporation. For purposes of determining whether this Corporation is in compliance with Section 856(d)(2)(B), Section 856(d)(5) of the Code, or similar provisions of successor statutes, shall be applied. (e) The stockholders of the Corporation shall upon demand disclose to the Board of Directors in writing such information with respect to their direct and indirect ownership of the stock of the Corporation as the Board of Directors deems necessary to determine whether Realty satisfies the provisions of Section 856(a)(5) and (6) and 856(d) of the Code and the regulations thereunder as the same shall be from time to time amended, or to comply with the requirements of any other taxing authority. -27- Section 6.6. Form of Consideration. In purchasing such shares from --------------------- any shareholder in accordance with the foregoing provisions, the Corporation may pay consideration in the form of cash or, at the option of the Board of Directors, in the form of subordinated indebtedness of the Corporation. The principal amount of such subordinated indebtedness shall be equal to the purchase price of the shares (less amounts paid in cash, if any) and it shall have such other terms as may be determined by the Board of Directors at the time of issuance. Section 6.7. Record Date. In order that the Corporation may ----------- determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereto, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. -28- Section 6.8. Registered Stockholders. The Corporation shall be ----------------------- entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. Section 6.9. Transfer Agents and Registrars. The Board of Directors ------------------------------ may appoint one or more corporate transfer agents and registrars. Section 6.10. Dividends. Dividends upon the capital stock of the --------- Corporation may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock. Section 6.11. Reserves. Before payment of any dividend, there may be -------- set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose -29- as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE VII Indemnification and Insurance Section 7.1. Right to Indemnification. Each person who was or is a ------------------------ party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action or inaction in an official capacity or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the laws of Delaware, as the same exist or may hereafter be amended, against all costs, charges, expenses, liabilities and losses (including attorneys' fees, judgments, fines, ERISA excise -30- taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in Section 7.2 hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Article shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The Corporation may, by action -31- of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. Section 7.2. Right of Claimant to Bring Suit. If a claim under ------------------------------- Section 7.1 of this Article is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has failed to meet a standard of conduct which makes it permissible under Delaware law for the Corporation to indemnify the claimant for the amount claimed. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he or she has met such standard of conduct, nor an actual determination by the Corporation (including its Board -32- of Directors, independent legal counsel, or its stockholders) that the claimant has not met such standard of conduct, shall be a defense to the action or create a presumption that the claimant has failed to meet such standard of conduct. Section 7.3. Non-Exclusivity of Rights. The right to indemnification ------------------------- and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. Section 7.4. Insurance. The Corporation may maintain insurance, at --------- its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under Delaware law. Section 7.5. Expenses as a Witness. To the extent that any director, --------------------- officer, employee or agent of the Corporation is by reason of such position, or a position -33- with another entity at the request of the Corporation, a witness in any action, suit or proceeding, he or she shall be indemnified against all costs and expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith. Section 7.6. Indemnity Agreements. The Corporation may enter into -------------------- agreements with any director, officer, employee or agent of the Corporation providing for indemnification to the full extent permitted by Delaware law. ARTICLE VIII General Provisions Section 8.1. Annual Reports. Not later than one hundred twenty (120) -------------- days after the close of each fiscal year of the Corporation, the Board of Directors shall mail a report of the business and operation of the Corporation during such fiscal year to the stockholders. The report shall be in such form and have such content as the Board deems proper. This report shall include a balance sheet and a statement of income and surplus and a statement of changes in financial position of the Corporation. Such financial statements shall be accompanied by the report of an independent certified public accountant thereon. -34- Section 8.2. Quarterly Reports. Within 90 days after the close of ----------------- each of the first three quarters of each fiscal year of the Corporation, the Board of Directors shall send interim reports to the stockholders, having such form and content as the Board of Directors deems proper. Section 8.3. Fiscal Year. The fiscal year of the Corporation shall be ----------- fixed by resolution of the Board of Directors. Section 8.4. Seal. The corporate seal shall have inscribed thereon ---- the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 8.5. Checks, Drafts, etc. All checks, drafts or other orders -------------------- for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board of Directors. Section 8.6. Representation of Shares of Other Corporations. The ---------------------------------------------- Chairman of the Board, the President or any Vice President and the Secretary or Assistant Secretary of this Corporation are authorized to vote, represent and -35- exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority herein granted to said officers to vote or represent on behalf of this Corporation any and all shares held by this Corporation in any other corporation or corporations may be exercised either by such officers in person or by any other person authorized so to do by proxy or power of attorney duly executed by said officers. Section 8.7. Employee Stock Purchase Plans. The Corporation may, ----------------------------- upon terms and conditions herein authorized, provide and carry out an employee stock purchase plan or plans providing for the issue and sale, or for the granting of options for the purchase, of its unissued shares, or of issued shares purchased or to be purchased or acquired, to employees of the Corporation or of any subsidiary or to a trustee on their behalf. Such plan may provide for such consideration as may be fixed therein, for the payment of such shares in installments or at one time and for aiding any such employees in paying for such shares by compensation for services or by loans from the Corporation or otherwise. Any such plan before becoming effective must be approved or authorized by the Board of Directors of the Corporation. Such plan may include, among other things, provisions determining or providing for the determination by the -36- Board of Directors, or any committee thereof designated by the Board of Directors, of: (a) eligibility of employees (including officers and directors) to participate therein, (b) the number and class of shares which may be subscribed for or for which options may be granted under the plan, (c) the time and method of payment therefor, (d) the price or prices at which such shares shall be issued or sold, (e) whether or not title to the shares shall be reserved to the Corporation until full payment therefor, (f) the effect of the death of an employee participating in the plan or termination of his employment, including whether there shall be any option or obligation on the part of the Corporation to repurchase the shares thereupon, (g) restrictions, if any, upon the transfer of the shares, and the time limits and termination of the plan, (h) termination, continuation or adjustments of the rights of participating employees upon the happening of specified contingencies, including increase or decrease in the number of issued shares of the class covered by the plan without receipt of consideration by the Corporation or any exchange of shares of such class for stock or securities of another corporation pursuant to a reorganization or merger, consolidation or dissolution of the Corporation, (i) amendment, termination, interpretation and administration of such plan by the Board of Directors or any committee thereof designated by the Board of Directors, and (j) any other matters, not repugnant to law, as may be -37- included in the plan as approved or authorized by the Board of Directors or any such committee. ARTICLE IX Amendments Section 9.1. Power of Stockholders. New By-laws may be adopted or --------------------- these By-laws may be amended or repealed by the stockholders only by the affirmative vote of at least 80% of the voting power of the Corporation, except as otherwise provided by law. Any proposal to amend or repeal, or adopt any provisions inconsistent with, Article Tenth of the Certificate of Incorporation shall require for approval the affirmative vote of at least 80% of the voting power of the Corporation. Section 9.2. Power of Directors. Subject to the right of ------------------ stockholders as provided in Section 9.1 of this Article IX to adopt, amend or repeal By-laws, By-laws may be adopted, amended or repealed by the Board of Directors; provided, however, that Section 6.5 of these By-laws may not be amended or repealed except with the approval of the holders of 80% of the outstanding common stock of the Corporation. -38- EX-4.6 6 EXHIBIT 4.6 EXHIBIT 4.6 ----------- March 25, 1994 Santa Anita Realty Enterprises, Inc. 363 San Miguel Drive Newport Beach, California 92660 Attn: Sherwood Chillingworth Gentlemen: Reference is made to that certain Amended and Restated Credit Agreement, dated as of November 14, 1989, between us (the "Credit Agreement"). Capitalized terms used herein without definition shall have the meanings ascribed to them in the Credit Agreement. Section 7.10 of the Credit Agreement prohibits you from creating, incurring, assuming or suffering to exist any Indebtedness in excess of the lesser of $80,000,000 and six times Net Worth, subject to certain exclusions. Section 7.12 of the Credit Agreement requires you at all times to maintain a Net Worth of not less than $90 million plus 90% of the net proceeds of any issue or sale of your equity securities and other additions to capital, other than pursuant to your dividend reinvestment plan or any stock option plan or other employee benefit plan. Section 7.13 of the Credit Agreement requires you to maintain a ratio of Indebtedness to Net Worth of not greater than 2.25 to 1.00. Section 7.14 of the Credit Agreement requires you to ensure that your Adjusted Net Income for the twelve months period ending on each fiscal quarter exceeds twice your total interest expense. You have advised us that you were not in compliance with the foregoing financial covenants at December 31, 1993 and will not be in compliance at March 31, 1994. As a result of the foregoing noncompliance, you are also in breach of certain covenants set forth in the Revolving Credit Agreement, dated October 29, 1991, between you and Union Bank (the "Union Bank Credit Agreement"), and the Revolving Credit and Term Loan Agreement, dated as of November 21, 1989, as amended, between you and The Bank of California, N.A. (the "Bank of California Credit Agreement"), respectively. You have therefore requested that the Bank waive any Events of Default or Unmatured Events of Default arising under Sections 8.1(c) and 8.1(e) of the Credit Agreement as a result of the foregoing noncompliance and defaults. Subject to the terms and conditions hereof, the undersigned Bank hereby waives through April 30, 1994 the Events of Default and Unmatured Events of Default arising under Sections 8.1(c) and 8.l(e) of the Credit Agreement as a result of your noncompliance with the financial covenants set forth in Sections 7.10, 7.12, 7.13 and 7.14 of the Credit Agreement at December 31, 1993 and March 31, 1994 and the defaults under the Union Bank Credit Agreement and the Bank of California Credit Agreement if and only if the following conditions are timely -------------- satisfied in full: (a) Immediately upon your receipt thereof, the final disbursement of loan proceeds, in an amount not less than $10 million, received by you and/or Anita Associates from the Teachers Insurance and Annuity Association of America pursuant to its Loan Commitment, dated June 11, 1993, will be paid over to Union Bank, Wells Fargo Bank, National Association, and The Bank of California, N.A. (collectively, the "Banks") in the percentages set forth below to permanently reduce your outstanding indebtedness to the Banks under the Credit Agreement, the Union Bank Credit Agreement and the Bank of California Credit Agreement, respectively (collectively, the "Bank Agreements"): Union Bank 44.05% Wells Fargo Bank 18.35% Bank of California 37.60% (b) On or before April 15, 1994, you will deliver to us a legal opinion of O'Melveny & Myers to the effect that the sale by you of your multi- family and industrial properties to Pacific Gulf Properties, Inc. was duly authorized by your Board of Directors. (c) Notwithstanding any provision to the contrary in any of the Bank Agreements, the Commitment (as defined in each of the Bank Agreements) of each of the Banks under the Bank Agreements will be reduced effective as of the date hereof to an amount equal to the outstanding principal balance under the Credit Agreement (including the amount of any outstanding letter of credit), and shall be automatically further reduced by the amount of any payment or prepayment of principal or any reduction in the amount of any outstanding letter of credit on the date of such payment, prepayment or reduction, and the outstanding principal balance, together with all accrued and unpaid interest, under each of the Bank Agreements, will be due and payable in full on November 14, 1994. You understand, 2 however, that the two outstanding letters of credit issued by us will still expire on the expiration dates set forth in such letters of credit. (d) From and after the date hereof, the basic interest rate per annum under the Credit Agreement will be increased to the Applicable LIBO Rate plus 300 basis points or the Prime Rate plus 150 basis points, at your option. The default interest rate shall remain unchanged. (e) No later than April 15, 1994, you will provide the Bank with a repayment plan in writing detailing how you propose to repay your outstanding obligations to the Bank. (f) You hereby covenant and agree to pay to the Banks in the percentages set forth in paragraph (a) above, from and after the date hereof, (i) any and all proceeds from the financing or refinancing or sale, condemnation or other disposition of any of your assets, including, without limitation, partnership interests (net of usual and customary closing costs and amounts necessary to pay preexisting indebtedness secured by any specific asset sold, condemned or otherwise disposed of, if any), and (ii) any and all cash proceeds received by you from the financing or refinancing or sale, condemnation or other disposition of any assets owned by any partnership of which you are a partner or received by you in connection with the formation of any new partnership or joint venture, which cash proceeds will be applied to permanently reduce your outstanding indebtedness to the Banks under the Bank Agreements. (g) If, as and when requested by us from time to time hereafter, you will promptly grant us security interests in and liens on such of your real and personal property (except the real or personal property known as the Santa Anita Racetrack and the Santa Anita Fashion Park located in Arcadia, California (the "Arcadia Properties") and the Towson Town Center Associates property located in Towson, Maryland) as may be specified by us in writing; provided, however, that the undersigned agrees not to lien any of your assets prior to April 30, 1994 unless an Event of Default, other than the Events of Default and Unmatured Events of Default waived hereby, occurs on or before such date; and provided further that if any payment or additional material financial Event of Default occurs at any time after the date hereof, other than the expiration of the waiver period and the Events of Default and the Unmatured Events of Default waived hereby, you will promptly grant us a security interest in and lien on the Arcadia Properties if requested by us. 3 If, however, no Event of Default occurs after the date hereof, but during the course of our negotiations with you with respect to restructuring your outstanding indebtedness to us under the Credit Agreement, we determine that additional collateral is required to secure the restructured obligations, you will negotiate with us in good faith regarding granting us a lien on the Arcadia Properties. (We acknowledge that this is only an agreement to negotiate and that any liens on the Arcadia Properties would be subject to the approval of your Board of Directors.) You therefore agree that you will not sell, assign or otherwise transfer the Arcadia Properties, or any partial interest therein, to any other Person without our prior written consent. You hereby also agree that the provisions of Section 7.11 of the Credit Agreement shall henceforth apply to all of your assets. The failure of any condition hereunder shall be deemed an Event of Default. Any and all security interests and liens granted to us will secure the payment and performance of your obligations under the Credit Agreement and will be granted pursuant to security documentation in form and substance acceptable to us in our sole and absolute discretion, and the costs associated with the preparation of such security documentation and perfection of the liens created thereby shall be paid by you. You also agree that we and our agents and representatives may commence appraising your California and Arizona shopping center properties at your expense immediately following execution hereof. The results of such appraisals will be made available to you following your reimbursement of the cost of such appraisals; and (h) From and after the date hereof, the Bank is authorized to charge your Account No.4643068844 with the Bank in order to cause timely payment to be ---------- made to the Bank of all principal, interest, fees, expenses and charges due under the Credit Agreement if not paid when due. You hereby agree that the Credit Agreement is hereby ratified and confirmed in all respects, that all of the terms and conditions thereof, except as otherwise waived hereby, shall remain in full force and effect and that you have no defenses, offsets or claims whatsoever in respect thereto. You further agree that the waiver to be effected pursuant hereto shall be limited to the specific provisions waived hereunder for the specific period of time provided herein and the specific events and facts surrounding such waiver, and that such waiver shall not be deemed to constitute a consent to, a waiver of or a departure from any other provision of the Credit Agreement or any other agreement, document or instrument executed and delivered in connection therewith, all of which are to remain in full 4 force and effect. We understand, however, that after our review of the repayment plan you are to submit to us on or before April 15, 1994, provided no additional Event of Default or Unmatured Event of Default occurs prior to April 30, 1994, an extension of the waiver period on the same terms and conditions stated herein may be necessary in order to complete the restructuring of your outstanding indebtedness to us under the Credit Agreement and the documentation thereof. You understand, however, that any such extension is subject to approval by all of the Banks at that time. If the foregoing correctly sets forth your understanding of our agreement, please indicate your acceptance below whereupon this letter shall constitute an agreement between us in accordance with its terms. Very truly yours, Wells Fargo Bank, National Association, a national banking association By: /s/ KEVIN GILHOOLY ----------------------------- Its: Vice President ---------------------------- By: ---------------------------- Its: ---------------------------- AGREED TO AND ACCEPTED AS OF MARCH 25, 1994: Santa Anita Realty Enterprises, Inc., a Delaware corporation By: /s/ S.C. CHILLINGWORTH ---------------------- Its: Vice Chairman ------------------- 5 EX-4.7 7 EXHIBIT 4.7 EXHIBIT 4.7 ------------ March 25, 1994 Santa Anita Realty Enterprises, Inc. 363 San Miguel Drive Newport Beach, California 92660 Attn: Sherwood Chillingworth Gentlemen: Reference is made to that certain Revolving Credit and Term Note Agreement, dated as of November 21, 1989, as amended, between us (the "Credit Agreement"). Capitalized terms used herein without definition shall have the meanings ascribed to them in the Credit Agreement. Section 7.10 of the Credit Agreement prohibits you from creating, incurring, assuming or suffering to exist any Indebtedness in excess of the lesser of $80,000,000 or six times Net Income, subject to certain exclusions. Section 7.12 of the Credit Agreement requires you to maintain a Net Worth of not less than $80 million plus 90% of the net proceeds of any issue or sale of your equity securities and other additions to capital, other than pursuant to your dividend reinvestment plan or any stock option plan or other employee benefit plan. Section 7.13 of the Credit Agreement requires you to maintain a ratio of Indebtedness to Net Worth of not greater than 2.25 to 1.00. Section 7.14 of the Credit Agreement requires you to ensure that your Adjusted Net Income for the twelve months period ending on each fiscal quarter exceeds twice your total interest expense. You have advised us that you were not in compliance with the foregoing financial covenants at December 31, 1993 and will not be in compliance at March 31, 1994. As a result of the foregoing noncompliance, you are also in breach of certain covenants set forth in the Amended and Restated Credit Agreement, dated as of November 14, 1989, between you and Wells Fargo Bank (the "Wells Fargo Credit Agreement"), and the Revolving Credit Agreement, dated October 29, 1991, between you and Union Bank (the "Union Bank Credit Agreement"), respectively. You have therefore requested that the Bank waive any Events of Default or Unmatured Events of Default arising under Sections 8.1(c) and 8.1(e) of the Credit Agreement as a result of the foregoing noncompliance and defaults. Subject to the terms and conditions hereof, the undersigned Bank hereby waives through April 30, 1994 the Events of Default and Unmatured Events of Default arising under Sections 8.1(c) and 8.1(e) of the Credit Agreement as a result of your noncompliance with the financial covenants set forth in Sections 7.10, 7.12, 7.13 and 7.14 of the Credit Agreement at December 31, 1993 and March 31, 1994 and the defaults under the Wells Fargo Credit Agreement and the Union Bank Credit Agreement if and only if the following conditions are timely -------------- satisfied in full: (a) Immediately upon your receipt thereof, the final disbursement of loan proceeds, in an amount not less than $10 million, received by you and/or Anita Associates from the Teachers Insurance and Annuity Association of America pursuant to its Loan Commitment, dated June 11, 1993, will be paid over to Union Bank, Wells Fargo Bank, National Association, and The Bank of California, N.A. (collectively, the "Banks") in the percentages set forth below to permanently reduce your outstanding indebtedness to the Banks under the Credit Agreement, the Wells Fargo Credit Agreement and the Union Bank Credit Agreement, respectively (collectively, the "Bank Agreements"): Union Bank 44.05% Wells Fargo Bank 18.35% Bank of California 37.60% (b) On or before April 15, 1994, you will deliver to us a legal opinion of O'Melveny & Myers to the effect that the sale by you of your multi- family and industrial properties to Pacific Gulf Properties, Inc. was duly authorized by your Board of Directors. (c) Notwithstanding any provision to the contrary in any of the Bank Agreements, the Commitment (as defined in each of the Bank Agreements) of each of the Banks under the Bank Agreements will be reduced effective as of the date hereof to an amount equal to the outstanding principal balance under the Credit Agreement (including the amount of any outstanding letter of credit), and shall be automatically further reduced by the amount of any payment or prepayment of principal or any reduction in the amount of any outstanding letter of credit on the date of such payment, prepayment or reduction, and the outstanding principal balance, together with all accrued and unpaid interest, under each of the Bank Agreements, will be due and payable in full on November 14, 1994. You understand, however, that the two outstanding letters of credit issued 2 by Wells Fargo Bank will still expire on the expiration dates set forth in such letters of credit. (d) From and after the date hereof, the basic interest rate per annum under the Credit Agreement will be increased to the Applicable LIBO Rate plus 300 basis points or the Prime Rate plus 150 basis points, at your option. The default interest rate shall remain as set forth in Section 4.5 of the Credit Agreement. (e) No later than April 15, 1994, you will provide the Bank with a repayment plan in writing detailing how you propose to repay your outstanding obligations to the Bank. (f) You hereby covenant and agree to pay to the Banks in the percentages set forth in paragraph (a) above, from and after the date hereof, (i) any and all cash proceeds from the financing or refinancing or sale, condemnation or other disposition of any of your assets, including, without limitation, partnership interests (net of usual and customary closing costs and amounts necessary to pay preexisting indebtedness secured by any specific asset sold, condemned or otherwise disposed of, if any), and (ii) any and all cash proceeds received by you from the financing or refinancing or sale, condemnation or other disposition of any assets owned by any partnership of which you are a partner or received by you in connection with the formation of any new partnership or joint venture, which cash proceeds will be applied to permanently reduce your outstanding indebtedness to the Banks under the Bank Agreements. (g) If, as and when requested by us from time to time hereafter, you will promptly grant us security interests in and liens on such of your real and personal property (except the real or personal property known as the Santa Anita Racetrack and the Santa Anita Fashion Park located in Arcadia, California (the "Arcadia Properties") and the Towson Town Center Associates property located in Towson, Maryland) as may be specified by us in writing; provided, however, that the undersigned agrees not to lien any of your assets prior to April 30, 1994 unless an Event of Default, other than the Events of Default and Unmatured Events of Default waived hereby, occurs on or before such date; and provided further that if any payment or additional material financial Event of Default occurs at any time after the date hereof, other than the expiration of the waiver period and the Events of Default and the Unmatured Events of Default waived hereby, you will promptly grant us a security interest in and lien on the Arcadia Properties if requested by us. 3 If, however, no Event of Default occurs after the date hereof, but during the course of our negotiations with you with respect to restructuring your outstanding indebtedness to us under the Credit Agreement, we determine that additional collateral is required to secure the restructured obligations, you will negotiate with us in good faith regarding granting us a lien on the Arcadia Properties. (We acknowledge that this is only an agreement to negotiate and that any liens on the Arcadia Properties would be subject to the approval of your Board of Directors.) You therefore agree that you will not sell, assign or otherwise transfer the Arcadia Properties, or any partial interest therein, to any other Person without our prior written consent. You hereby also agree that the provisions of Section 7.11 of the Credit Agreement shall henceforth apply to all of your assets. The failure of any condition hereunder shall be deemed an Event of Default. Any and all security interests and liens granted to us will secure the payment and performance of your obligations under the Credit Agreement and will be granted pursuant to security documentation in form and substance acceptable to us in our sole and absolute discretion, and the costs associated with the preparation of such security documentation and perfection of the liens created thereby shall be paid by you. You also agree that we and our agents and representatives may commence appraising your California and Arizona shopping center properties at your expense immediately following execution hereof. The results of such appraisals will be made available to you following your reimbursement of the cost of such appraisals; and (h) From and after the date hereof, the Bank is authorized to charge your Account No.069-042676 with the Bank in order to cause timely payment to ---------- be made to the Bank of all principal, interest, fees, expenses and charges due under the Credit Agreement if not paid when due. You hereby agree that the Credit Agreement is hereby ratified and confirmed in all respects, that all of the terms and conditions thereof, except as otherwise waived hereby, shall remain in full force and effect and that you have no defenses, offsets or claims whatsoever in respect thereto. You further agree that the waiver to be effected pursuant hereto shall be limited to the specific provisions waived hereunder for the specific period of time provided herein and the specific events and facts surrounding such waiver, and that such waiver shall not be deemed to constitute a consent to, a waiver of or a departure from any other provision of the Credit Agreement or any other agreement, document or instrument executed and delivered in connection therewith, all of which are to remain in full 4 force and effect. We understand, however, that after our review of the repayment plan you are to submit to us on or before April 15, 1994, provided no additional Event of Default or Unmatured Event of Default occurs prior to April 30, 1994, an extension of the waiver period on the same terms and conditions stated herein may be necessary in order to complete the restructuring of your outstanding indebtedness to us under the Credit Agreement and the documentation thereof. You understand, however, that any such extension is subject to approval by all of the Banks at that time. If the foregoing correctly sets forth your understanding of our agreement, please indicate your acceptance below whereupon this letter shall constitute an agreement between us in accordance with its terms. Very truly yours, The Bank of California, N. A., a national banking association By: /s/ W.B. BARLEY --------------------------- Its: Vice President -------------------------- By: --------------------------- Its: -------------------------- AGREED TO AND ACCEPTED AS OF MARCH 25, 1994: Santa Anita Realty Enterprises, Inc., a Delaware corporation By: /s/ S. C. CHILLINGWORTH -------------------------------- Its: Vice Chairman ---------------------------- 5 EX-4.8 8 EXHIBIT 4.8 EXHIBIT 4.8 ----------- March 25, 1994 Santa Anita Realty Enterprises, Inc. 363 San Miguel Drive Newport Beach, California 92660 Attn: Sherwood Chillingworth Gentlemen: Reference is made to that certain Revolving Credit Agreement, dated October 29, 1991, between us (the "Credit Agreement"). Capitalized terms used herein without definition shall have the meanings ascribed to them in the Credit Agreement. Section 7.10 of the Credit Agreement prohibits you from creating, incurring, assuming or suffering to exist any unsecured Indebtedness in excess of the lesser of $95,000,000 or eight times Net Income, calculated on an Unconsolidated Basis, subject to certain exclusions. Section 7.12 of the Credit Agreement requires you at all times, on a Consolidated Basis and on an Unconsolidated Basis, to maintain a Net Worth of not less than $80 million plus 90% of the net proceeds of any issue or sale of your equity securities and other additions to capital, other than pursuant to your dividend reinvestment plan or any stock option plan or other employee benefit plan. Section 7.13 of the Credit Agreement requires you at all times to maintain a ratio of Indebtedness to Net Worth of not greater than 2.00 to 1.00, all calculated on an Unconsolidated Basis. Section 7.14 of the Credit Agreement requires you to ensure that your Adjusted Net Income for the twelve months period ending on each fiscal quarter exceeds twice your total interest expense, all calculated on an Unconsolidated Basis. You have advised us that you were not in compliance with the foregoing financial covenants at December 31, 1993 and will not be in compliance at March 31, 1994. As a result of the foregoing noncompliance, you are also in breach of certain covenants set forth in the Amended and Restated Credit Agreement, dated as of November 14, 1989, between you and Wells Fargo Bank (the "Wells Fargo Credit Agreement"), and the Revolving Credit and Term Loan Agreement, dated as of November 21, 1989, as amended, between you and The Bank of California, N.A. (the "Bank of California Credit Agreement"), respectively. You have therefore requested that the Bank waive any Events of Default or Unmatured Events of Default arising under Sections 8.1(c) and 8.1(e) of the Credit Agreement as a result of the foregoing noncompliance and defaults. Subject to the terms and conditions hereof, the undersigned Bank hereby waives through April 30, 1994 the Events of Default and Unmatured Events of Default arising under Sections 8.l(c) and 8.1(e) of the Credit Agreement as a result of your noncompliance with the financial covenants set forth in Sections 7.10, 7.12, 7.13 and 7.14 of the Credit Agreement at December 31, 1993 and March 31, 1994 and the defaults under the Wells Fargo Credit Agreement and the Bank of California Credit Agreement if and only if the following conditions are timely ----------- satisfied in full: (a) Immediately upon your receipt thereof, the final disbursement of loan proceeds, in an amount not less than $10 million, received by you and/or Anita Associates from the Teachers Insurance and Annuity Association of America pursuant to its Loan Commitment, dated June 11, 1993, will be paid over to Union Bank, Wells Fargo Bank, National Association, and The Bank of California, N.A. (collectively, the "Banks") in the percentages set forth below to permanently reduce your outstanding indebtedness to the Banks under the Credit Agreement, the Wells Fargo Credit Agreement and the Bank of California Credit Agreement, respectively (collectively, the "Bank Agreements"): Union Bank 44.05% Wells Fargo Bank 18.35% Bank of California 37.60% (b) On or before April 15, 1994, you will deliver to us a legal opinion of O'Melveny & Myers to the effect that the sale by you of your multi- family and industrial properties to Pacific Gulf Properties, Inc. was duly authorized by your Board of Directors. (c) Notwithstanding any provision to the contrary in any of the Bank Agreements, the Commitment (as defined in each of the Bank Agreements) of each of the Banks under the Bank Agreements will be reduced effective as of the date hereof to an amount equal to the outstanding principal balance under the Credit Agreement (including the amount of any outstanding letter of credit), and shall be automatically further reduced by the amount of any payment or prepayment of principal or any reduction in the amount of any outstanding letter of credit on the date of such payment, prepayment or reduction, and the outstanding principal balance, together with all accrued and unpaid 2 interest, under each of the Bank Agreements, will be due and payable in full on November 14, 1994. You understand, however, that the two outstanding letters of credit issued by Wells Fargo Bank will still expire on the expiration dates set forth in such letters of credit. (d) From and after the date hereof, the basic interest rate per annum under the Credit Agreement will be increased to the Applicable LIBO Rate plus 300 basis points or the Reference Rate plus 150 basis points, at your option. The default interest rate shall remain at the Reference Rate plus 200 basis points. (e) No later than April 15, 1994, you will provide the Bank with a repayment plan in writing detailing how you propose to repay your outstanding obligations to the Bank. (f) You hereby covenant and agree to pay to the Banks in the percentages set forth in paragraph (a) above, from and after the date hereof, (i) any and all cash proceeds from the financing or refinancing or sale, condemnation or other disposition of any of your assets, including, without limitation, partnership interests (net of usual and customary closing costs and amounts necessary to pay preexisting indebtedness secured by any specific asset sold, condemned or otherwise disposed of, if any), and (ii) any and all cash proceeds received by you from the financing or refinancing or sale, condemnation or other disposition of any assets owned by any partnership of which you are a partner or received by you in connection with the formation of any new partnership or joint venture, which cash proceeds will be applied to permanently reduce your outstanding indebtedness to the Banks under the Bank Agreements. (g) If, as and when requested by us from time to time hereafter, you will promptly grant us security interests in and liens on such of your real and personal property (except the real or personal property known as the Santa Anita Racetrack and the Santa Anita Fashion Park located in Arcadia, California (the "Arcadia Properties") and the Towson Town Center Associates property located in Towson, Maryland) as may be specified by us in writing; provided, however, that the undersigned agrees not to lien any of your assets prior to April 30, 1994 unless an Event of Default, other than the Events of Default and Unmatured Events of Default waived hereby, occurs on or before such date; and provided further that if any payment or additional material financial Event of Default occurs at any time after the date hereof, other than the expiration of the waiver period and the Events of Default and the Unmatured Events of Default waived hereby, you will promptly grant us a security 3 interest in and lien on the Arcadia Properties if requested by us. If, however, no Event of Default occurs after the date hereof, but during the course of our negotiations with you with respect to restructuring your outstanding indebtedness to us under the Credit Agreement, we determine that additional collateral is required to secure the restructured obligations, you will negotiate with us in good faith regarding granting us a lien on the Arcadia Properties. (We acknowledge that this is only an agreement to negotiate and that any liens on the Arcadia Properties would be subject to the approval of your Board of Directors.) You therefore agree that you will not sell, assign or otherwise transfer the Arcadia Properties, or any partial interest therein, to any other Person without our prior written consent. You hereby also agree that the provisions of Section 7.11 of the Credit Agreement shall henceforth apply to all of your assets. The failure of any condition hereunder shall be deemed an Event of Default. Any and all security interests and liens granted to us will secure the payment and performance of your obligations under the Credit Agreement and will be granted pursuant to security documentation in form and substance acceptable to us in our sole and absolute discretion, and the costs associated with the preparation of such security documentation and perfection of the liens created thereby shall be paid by you. You also agree that we and our agents and representatives may commence appraising your California and Arizona shopping center properties at your expense immediately following execution hereof. The results of such appraisals will be made available to you following your reimbursement of the cost of such appraisals. (h) From and after the date hereof, the Bank is authorized to charge your Account No.450274597 with the Bank in order to cause timely payment to be --------- made to the Bank of all principal, interest, fees, expenses and charges due under the Credit Agreement if not paid when due. You hereby agree that the Credit Agreement is hereby ratified and confirmed in all respects, that all of the terms and conditions thereof, except as otherwise waived hereby, shall remain in full force and effect and that you have no defenses, offsets or claims whatsoever in respect thereto. You further agree that the waiver to be effected pursuant hereto shall be limited to the specific provisions waived hereunder for the specific period of time provided herein and the specific events and facts surrounding such waiver, and that such waiver shall not be deemed to constitute a consent to, a waiver of or a departure from any 4 other provision of the Credit Agreement or any other agreement, document or instrument executed and delivered in connection therewith, all of which are to remain in full force and effect. We understand, however, that after our review of the repayment plan you are to submit to us on or before April 15, 1994, provided no additional Event of Default or Unmatured Event of Default occurs prior to April 30, 1994, an extension of the waiver period on the same terms and conditions stated herein may be necessary in order to complete the restructuring of your outstanding indebtedness to us under the Credit Agreement and the documentation thereof. You understand, however, that any such extension is subject to approval by all of the Banks at that time. If the foregoing correctly sets forth your understanding of our agreement, please indicate your acceptance below whereupon this letter shall constitute an agreement between us in accordance with its terms. Very truly yours, Union Bank, a California banking corporation By: /s/ TIMOTHY S. CARNEY ------------------------------- Its: Assistant Vice President ------------------------------ By: /s/ EVERETT ORRICK ------------------------------- Its: Vice President ------------------------------- AGREED TO AND ACCEPTED AS OF MARCH 25, 1994: Santa Anita Realty Enterprises, Inc., a Delaware corporation By: /s/ S.C. CHILLINGWORTH --------------------------- Its: Vice Chairman --------------------------- 5 EX-10.6 9 EXHIBIT 10.6 [DEVELOPER] SECOND AMENDMENT TO GROUND LEASE I THIS SECOND AMENDMENT TO GROUND LEASE I ("SECOND AMENDMENT TO GROUND LEASE I") is made and entered into as of December 29, 1993, by and between SANTA ANITA REALTY ENTERPRISES, INC., a Delaware corporation ("LANDLORD"), and ANITA ASSOCIATES, a California limited partnership in which the general partner is Hahn-UPI, a California limited partnership ("TENANT"). W I T N E S S E T H: WHEREAS, Landlord's predecessor-in-interest, Santa Anita Consolidated, Inc., a California corporation, and Tenant entered into (i) that certain Ground Lease I dated as of April 6, 1972, as amended and restated as of January 15, 1974, an Amended Short Form of Lease I of which was recorded on January 25, 1974, in Book M4581, Page 864, as Document No. 472 in the Official Records ("OFFICIAL RECORDS") of Los Angeles County, California (collectively, "ORIGINAL GROUND LEASE I") , and (ii) that certain Amendment to Ground Lease I dated as of January 19, 1978, a Second Amended Short Form of Lease I of which was recorded on January 19, 1978 as Instrument No. 78-71476 in the Official Records (collectively, "FIRST AMENDMENT TO GROUND LEASE I"); and WHEREAS, the Original Ground Lease I as amended by the First Amendment to Ground Lease I are collectively referred to herein as "GROUND LEASE I"; and WHEREAS, Landlord and Tenant desire to amend said Ground Lease I as more particularly hereinafter set forth; NOW, THEREFORE, for and in consideration of the covenants and agreements hereinafter set forth, and the mutual covenants and agreements contained in that certain Ground Lease I hereinabove referred to, Landlord and Tenant do hereby amend said Ground Lease I as follows: 1. The definition of "Leased Premises" on page 1 of the First Amendment to Ground Lease I is hereby deleted and the following definition of "Leased Premises" is substituted therefor: "'Leased Premises' - That certain land situated in the City of Arcadia, County of Los Angeles, State of California, described as Parcels No. 1, 2 and 4 of Parcel Map No. 23862, more particularly described on Exhibit B hereto, and shown as "Developer Tract" on Page B1 of Exhibit B to REA; together with and subject to, respectively, certain easements more particularly set forth on Exhibit D hereto." 2. The definition of "Major Department Store" on page 3 of the Original Ground Lease I, is amended as follows: (i) The reference to "J.W. Robinson" is deleted and substituted in lieu thereof is "The May Department Stores Company", and (ii) added at the end of such definition is "Nordstrom, Inc.". 3. The definition of "Parcel No." on page 2 of the First Amendment to Ground Lease I is hereby deleted and the following definition of Parcel No." is hereby substituted therefor: "'Parcel No.' - Shall mean the applicable parcel shown on Page B2 of Exhibit B to the REA." 4. The definition of "REA" on page 2 of the First Amendment to Ground Lease I is hereby deleted and the following definition of "REA" is hereby substituted therefor: "'REA' - Shall mean that certain Construction, Operation and Reciprocal Easement Agreement dated as of January 25, 1974 and recorded on January 25, 1974 as Document No. 482 in the Official Records of Los Angeles County, California ("Official Records"), as amended by (i) Amendment No. 1 to Construction, Operation and Reciprocal Easement Agreement dated as of January 19, 1978 and recorded on January 19, 1978 as Instrument No. 78- 71491 in the Official Records, (ii) Amendment No. 2 to Construction, Operation and Reciprocal Easement Agreement dated as of August 16, 1989 and recorded on October 26, 1989 as Instrument No. 89-1725066 in the Official Records, and (iii) Amendment No. 3 to 2 Construction, Operation and Reciprocal Easement Agreement dated of even date herewith and to be recorded in the Official Records." 5. The definition of "Shopping Center" on page 2 of the First Amendment to Ground Lease I is hereby deleted and the following definition of "Shopping Center" is hereby substituted therefor: "'Shopping Center' - The improvements constructed, or to be constructed, on that certain real property more particularly described on Exhibit "F" hereto, consisting of retail stores contained within an enclosed air-conditioned two-story mall and containing not less than four (4) Major Department Stores and 1,000,000 square feet of retail commercial space including said department stores." 6. Section 1.02 on pages 2 and 3 of the First Amendment to Ground Lease I is hereby deleted and the following Section 1.02 is hereby substituted therefor: "1.02. On April 6, 1972, Landlord and Tenant entered into a Ground Lease covering Parcels 1 to 3 as shown on Lot Split No. L-74-2 filed in the office of the City Engineer of the City of Arcadia. A Short Form Memorandum of said Lease was recorded on April 10, 1972 as Instrument No. 2974 in Book No. M4038, Page 967, Official Records of Los Angeles County and re-recorded on September 14, 1973 as Instrument No. 824 in Book M4467, Page 69, Official Records. Tenant thereafter commenced construction of the Shopping Center. In order to facilitate the leasing and the construction of improvements on portions of the Shopping Center, Landlord and Tenant have agreed to divide a portion of the Shopping Center property into four parcels and to enter into a separate, but substantially identical, amended lease as to each of the four parcels (the 'Separate Leases'). The four parcels are generally described as the Developer Parcel, the Broadway Parcel, the Penney 3 Parcel, and the Robinson's Parcel. Tenant will sublease a portion of the Developer Parcel to Nordstrom, Inc., which portion of the Developer Parcel is generally described as the Nordstrom Parcel. This amended and restated Lease covers one of the four aforedescribed separate parcels leased under the Separate Leases. The Tenant's obligation under each of the four Separate Leases shall be as stated in said Separate Lease as to the premises leased thereunder. Notwithstanding anything contained in this Lease, wherever in this Lease Tenant is obligated to perform or cause to be performed any act or obligation or to prohibit or cause to be prohibited any act or occurrence on any portion of the Shopping Center not leased to Tenant under this Lease, Tenant's obligation for such performance or prohibition, as the case may be, shall be for the diligent and best efforts and enforcement in good faith of such rights, if any, to perform, prohibit or cause performance or prohibition, as the case may be, as are granted to Tenant in the REA with respect to such other portions of the Shopping Center." 7. The following new Section 2.03A is hereby added to Ground Lease I immediately after Section 2.03 on page 7 of the Original Ground Lease I: "2.03.A. 0ption Period. Landlord hereby grants Tenant three ------------- (3) successive options ('First 'Option', 'Second Option' and 'Third Option', respectively) to extend the term of this Lease on the same terms and conditions as set forth in this Lease, but at the rent set forth in Section 3.03 below for the Option Period (as that term is defined in this Section 2.03.A.). The First Option shall be for an additional term of ten (10) years commencing upon the expiration of the Third Period ('First Extension') and shall be exercised only by written notice ('Option Notice') delivered to Landlord at least six (6) months, 4 but not more than twelve (12) months, prior to the expiration of the Third Period. The Second Option shall be for an additional term of ten (10) years commencing upon the expiration of the First Extension ('Second Extension') and shall be exercised only by Option Notice delivered to Landlord at least six (6) months, but not more than twelve (12) months, before the expiration of the First Extension. The Third Option shall be for an additional term of five (5) years commencing upon the expiration of the Second Extension and shall be exercised only by Option Notice delivered to Landlord at least six (6) months, but not more than twelve (12) months, before the expiration of the Second Extension. The term 'Option', as used herein, shall refer to the First Option, the Second Option and/or the Third Option, as shall be appropriate for the context in which such word appears; and, the term 'Option Period', as used herein, shall refer to the First Extension, the Second Extension and/or the Third Extension, as shall be appropriate for the context in which such word appears. If Tenant does not timely deliver an Option Notice within the time period set forth herein, all then unexercised Options shall lapse and Tenant shall have no further right to extend the term of this Lease. Tenant shall have no further right to extend the term of this Lease beyond the Third Extension. It is an express condition precedent to the exercise of any Option by Tenant that at the time of the exercise of the Option and at all times subsequent to such exercise but prior to, and upon the date of, the commencement of the First Extension, the Second Extension, or the Third Extension, as the case may be, Tenant shall not be in default (beyond the expiration of the applicable cure period provided for in this Lease) under any of the provisions of this Lease." 5 8. Section 3.03 on page 4 of the First Amendment to Ground Lease I is hereby deleted and the following Section 3.03 is hereby substituted therefor: "3.03. Third Period and Option Period. ------------------------------- (i) During the first nineteen (19) years of the Third Period of this Lease (i.e., from October 20, 1974 to October 19, 1993), Tenant agrees to pay to Landlord as rent in lawful money of the United States, the sum of $219,859.31 per year, in equal monthly installments of $18,321.61; (ii) During the twentieth (20th), twenty-first (21st) and twenty- second (22nd) year of the Third Period of this Lease (i.e., from October 20, 1993 until October 19, 1996), Tenant agrees to pay to Landlord as rent in lawful money of the United States, the sum of $269,859.31 per year, in equal monthly installments of $22,488.28; (iii) During the twenty-third (23rd) through thirty-third (33rd) year, inclusive, of the Third Period of this Lease (i.e., from October 20, 1996 until October 19, 2007), Tenant agrees to pay to Landlord as rent in lawful money of the United States, the sum of $537,254.89 per year, in equal monthly installments of $44,771.24; and (iv) The rental payment for the last thirty (30) years of the Third Period (i.e., from October 20, 2007 until October 19, 2037) and all of the Option Period shall be the amounts calculated and established pursuant to Section 3.08 hereof. All rental payments to be made by Tenant hereunder shall be paid in advance on the first day of each month during the Third Period or the Option Period, as the case may be, and shall be made in addition to all other payments required to be made hereunder by Tenant." 9. Article XVII of the First Amendment to Ground Lease I is amended by adding thereto a new Section 17.03 as follows: 6 "17.03. Concurrently with the execution of this Second Amendment to Ground Lease I, Tenant is entering into a Ground Sublease Agreement ('Nordstrom Sublease') with Nordstrom, Inc., a Washington corporation ('Nordstrom'). Tenant is subleasing to Nordstrom a portion of the Leased Premises and Nordstrom is to construct thereon a retail department store. Subject to Landlord approving the Nordstrom Sublease, Landlord agrees that, upon the request of Tenant or Nordstrom, it will enter into a Non Disturbance Agreement with Tenant and Nordstrom in the form of that attached hereto as Exhibit "E-l" attached hereto and by this reference made a part hereof." 10. Exhibit "A" of Ground Lease I (attached as an exhibit to the First Amendment to Ground Lease I) is hereby deleted in its entirety. 11. Exhibit "B" of Ground Lease I (attached as an exhibit to the First Amendment to Ground Lease I) is hereby deleted and Exhibit "B" attached hereto and made a part hereof is hereby substituted therefor. 12. Exhibit "C" of Ground Lease I (attached as an exhibit to the First Amendment to Ground Lease I) is hereby deleted in its entirety. 13. Exhibit "D-l" of Ground Lease I (attached as an exhibit to the First Amendment to Ground Lease I) is hereby deleted and Exhibit "D-1" attached hereto and made a part hereof is hereby substituted therefor. 14. There shall be added to Ground Lease I Exhibit "E-1" and Exhibit "F", each attached hereto and made a part hereof by this reference. 15. Except as herein modified, Ground Lease I shall remain in full force and effect and nothing in this Second Amendment to Ground Lease I shall be deemed to waive or modify the provisions of Ground Lease I. 16. In the event of a conflict or controversy between the terms and provisions of this Second Amendment to Ground Lease I and the terms and provisions of Ground Lease I, the terms and 7 provisions of this Second Amendment to Ground Lease I shall control. 17. The provisions of this Second Amendment to Ground Lease I shall bind and inure to the benefit of parties hereto and their respective heirs, representatives, successors and assigns of the parties hereto. 18. This Second Amendment to Ground Lease I may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. IN WITNESS WHEREOF, this Second Amendment to Ground Lease I is entered into by the parties hereto as of the date first above written. LANDLORD: SANTA ANITA REALTY ENTERPRISES, INC., a Delaware corporation By: /s/ GLENN L. CARPENTER ----------------------------- Its: President ----------------------------- By: /s/ DONALD G. HERRMAN ----------------------------- Its: Vice President ----------------------------- TENANT: ANITA ASSOCIATES, a California limited partnership By: HAHN-UPI, a California limited partnership, its General Partner By: ERNEST W. HAHN, INC., a California corporation dba "The Hahn Company", its General Partner By:/s/ WILLIAM H.W. DOYLE ------------------------------- Its: Senior Vice President ------------------------------- By: /s/ MAYNARD RICE ------------------------------- Its: Vice President ------------------------------- 8 EXHIBIT B LEGAL DESCRIPTION OF LEASED PREMISES PARCELS 1,2 AND 4 OF PARCEL MAP NO. 23862, IN THE CITY OF ARCADIA, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS SHOWN ON THE MAP FILED IN BOOK 261, PAGES 91 THROUGH 95 INCLUSIVE OF PARCEL MAPS IN THE OFFICE OF THE RECORDER OF LOS ANGELES COUNTY. B-1 EXHIBIT D-1 LEGAL DESCRIPTION OF DOMINANT TENEMENT A [LEASED PREMISES] PARCELS 1,2 AND 4 OF PARCEL MAP NO. 23862, IN THE CITY OF ARCADIA, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS SHOWN ON THE MAP FILED IN BOOK 261, PAGES 91 THROUGH 95 INCLUSIVE OF PARCEL MAPS IN THE OFFICE OF THE RECORDER OF LOS ANGELES COUNTY. D-1-1 EXHIBIT "E-1" SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT This Subordination, Non-Disturbance and Attornment Agreement (the "AGREEMENT") is made and entered into as of this _____ day of _________________, 19___, by and between NORDSTROM, INC., a Washington corporation (the "SUBTENANT"), SANTA ANITA REALTY ENTERPRISES, INC., a Delaware corporation (the "OWNER") and ANITA ASSOCIATES, a California limited partnership (the "LANDLORD"). WITNESSETH: ---------- WHEREAS, Landlord and Subtenant entered into that certain sublease (the "SUBLEASE") of even date herewith for the sublease of that certain premises (the PREMISES") located in the City of Arcadia, County of Los Angeles, State of California, as more particularly described in Exhibit "A" attached hereto and incorporated herein by this reference; and WHEREAS, Owner is the fee owner of the Premises and leases the Premises to the Landlord pursuant to that certain Ground Lease I dated as of April 6, 1972, as amended and restated as of January 15, 1974, and as further amended by Amendment to Ground Lease I dated as of January 19, 1978, and Second Amendment to Ground Lease I of even date herewith (collectively the "MASTER LEASE"); and WHEREAS, the parties desire to acknowledge Subtenant's interest in the Premises pursuant to the terms and conditions contained in the Sublease for the full balance of the term and any extension provided for therein (the "TERM") except as it may be terminated under the Sublease; and WHEREAS, Landlord has covenanted and agreed that it, as Landlord, shall not disturb the Subtenant's quiet possession of the Premises by virtue of its Master Lease from the Owner. NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the parties hereto hereby agree as follows: 1. SUBORDINATION, RECOGNITION AND NON-DISTURBANCE. The parties agree ---------------------------------------------- that the Sublease is and shall continue hereafter to be subject and subordinate to the Master Lease and to all modifications, extensions and renewals thereof. In the event of the termination of the Master Lease by re-entry, notice, conditional limitation, surrender, summary proceedings, or other action or proceeding or otherwise, or, in the event the Master Lease shall terminate or expire for any reason, before the expiration of the Term of the Sublease, and if the Sublease shall, immediately prior to such surrender, termination or expiration, be in full force and effect, and the Subtenant is not then in default in any of the terms thereof, then, and in any of said events, (A) Subtenant shall not be made a party in any action or proceeding to remove or evict the Landlord nor shall Subtenant be evicted or removed or its possession or right of possession be disturbed or in any way interfered with, (B) the Sublease shall continue in full force and effect as a direct lease from Owner to Subtenant under the terms and provisions of the Sublease and Owner agrees to recognize Subtenant's leasehold rights contained in the Sublease, notwithstanding any contrary provision in the Master Lease, and (C) Owner agrees to assume and perform all the obligations on the part of Landlord to be performed under the Sublease from and after the date Owner succeeds to the interest of Landlord under the Sublease except that in no event shall the Owner (x) be obligated to perform or cause to be performed any of the covenants, E-1 agreements or other undertakings of the Landlord contained in the Sublease with respect to completion of construction at the Shopping Center and/or the opening of certain improvements thereon wheresoever such covenants, agreements and undertakings appear (including, but not limited to, those contained in Articles VI and VII of the Sublease), (y) be liable to pay all or any portion of the "Subtenant's Reimbursement" (as that term is defined in Article VIII-D of Sublease), and/or (z) be liable to pay all or any portion of the "Direct Construction Costs" (as that term is defined in Article XXVIII of the Sublease) that Subtenant may be entitled to receive if it exercises its right to terminate the Sublease pursuant to such Article XXVIII. In addition, notwithstanding anything to the contrary contained herein, the Owner shall not be (i) liable for any act, omission or accrued liability of any prior landlord (including, without limitation, Landlord), (ii) subject to any offsets or defenses which the Subtenant might have against any prior landlord, (iii) bound by any amendment or modification of the Sublease made without the prior written consent of Owner, or (iv) bound by any rent or other payments which the Subtenant might have paid to any prior landlord more than thirty (30) days in advance. 2. ATTORNMENT. In the event the Master Lease shall terminate or expire ---------- for any reason before the expiration of the Term of the Sublease and the Owner succeeds to the interest of the landlord under the Sublease as provided in paragraph 1 above, the Subtenant shall be bound to the Owner under all of the terms of the Sublease for the remaining balance of the Term thereof, with the same force and effect as if the Owner were the landlord under the Sublease, and the Subtenant hereby attorns to the Owner as its landlord, such attornment to be effective and self-operative, without the execution of any further instrument on the part of any of the parties hereto, immediately upon the Owner succeeding to the interest of the Landlord under the Sublease. 3. CONDEMNATION AWARDS AND INSURANCE PROCEEDS. Notwithstanding ------------------------------------------ anything to the contrary contained the Sublease, all condemnation awards and insurance proceeds paid or payable with respect to the Leased Premises and/or to the Landlord Tract (as defined in the Sublease) shall be applied and paid in the manner set forth in the Master Lease. In the event Subtenant or anyone holding under or through Subtenant shall become entitled to any portion of any condemnation awards and/or insurance proceeds pursuant to the Sublease, such awards and/or proceeds, together with any additional sums to which any such person, its legal representatives, successors or assigns shall become entitled in connection therewith, shall be deducted entirely from the share of Landlord in each and every instance and Owner's share of such awards and/or proceeds (as determined pursuant to the provisions of the Master Lease) shall not in any way or in any instance be affected or decreased thereby. 4. BINDING EFFECT. The rights and obligations hereunder of the -------------- Subtenant and the Owner shall bind and inure to the benefit of their respective successors and assigns. 5. NOTICES. All notices between the parties hereto shall be given in ------- writing and sent byregistered or certified mail, postage prepaid, return receipt requested, addressed as follows: Subtenant: Nordstrom, Inc. 1506 Westlake Seattle, Washington 98101 Attention: Real Estate Notices Owner: Santa Anita Realty Enterprises, Inc. 363 San Miguel Drive, Suite 100 Newport Beach, California 92660 Attention: President E-2 Landlord: Anita Associates c/o Ernest W. Hahn, Inc. 4350 La Jolla Village Drive, Suite 700 San Diego, California 92122-1233 Attention: Legal Department- Santa Anita Fashion Park Any party may change its address for notice given above, or require that additional copies be given by sending written notice of such change or requirement to the other parties in the manner provided for herein. 6. GOVERNING LAW. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of California. 7. AGREEMENT RUNS WITH THE LAND. This Agreement and the covenants ----------------------------- herein contained are intended to run with Premises. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. "Subtenant" NORDSTROM, INC. a Washington corporation By: ------------------------------------- Its: ------------------------------- "Owner" SANTA ANITA REALTY ENTERPRISES, INC., a Delaware corporation By: ------------------------------------- Its: ------------------------------- By: ------------------------------------- Its: ------------------------------- "Landlord" ANITA ASSOCIATES, a California limited partnership By: HAHN-UPI, a California limited partnership, its general partner By: ERNEST W. HAHN, INC,, a California corporation dba "The Hahn Company," as general partner By: --------------------------------- Its: ------------------------- By: --------------------------------- Its: ------------------------- E-3 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) E-4 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(lee), 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) E-5 EXHIBIT A Legal Description of Nordstrom Tract ------------------------------------ PARCEL 2 OF PARCEL MAP NO. 23862, IN THE CITY OF ARCADIA, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS SHOWN ON THE MAP FILED IN BOOK 261, PAGES 91 THROUGH 95 --- -- -- INCLUSIVE OF PARCEL MAPS IN THE OFFICE OF THE RECORDER OF LOS ANGELES COUNTY. E-6 EXHIBIT F LEGAL DESCRIPTION OF SHOPPING CENTER TRACT PARCELS 1 THROUGH 4, INCLUSIVE, OF PARCEL MAP NO. 23862, IN THE CITY OF ARCADIA, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS SHOWN ON THE MAP FILED IN BOOK 261, PAGES 91 THROUGH 95 INCLUSIVE OF PARCEL MAPS IN THE OFFICE OF THE RECORDER - --- -- -- OF LOS ANGELES COUNTY AND PARCELS 2 AND 3 OF PARCEL MAP NO. 6374, IN THE CITY OF ARCADIA, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS SHOWN ON THE MAP FILED IN BOOK 89, PAGES 76 AND 77 OF PARCEL MAPS IN THE OFFICE OF THE RECORDER OF LOS ANGELES COUNTY. EXCEPTING THEREFROM THAT PORTION OF LAND DESCRIBED IN DEEDS TO THE CITY OF ARCADIA RECORDED APRIL 26, 1993 AS INSTRUMENT NOS. 93-768461, 93-768462, 93-768463, 93-768464 AND 93-768465 OF OFFICIAL RECORDS IN THE OFFICE OF THE RECORDER OF LOS ANGELES COUNTY. F-1 EX-10.10 10 EXHIBIT 10.10 EXHIBIT 10.10 ------------- AMENDMENT 1993-1 TO THE SANTA ANITA REALTY ENTERPRISES, INC. 1984 STOCK OPTION PROGRAM (AMENDED AND RESTATED EFFECTIVE AS OF SEPTEMBER 22, 1988) WHEREAS, Santa Anita Realty Enterprises, Inc. (the "Company") desires to amend the above-referenced Plan to extend the expiration date of the Plan. NOW, THEREFORE, the Plan is amended as follows: 1. Effective as of February 11, 1993, Section 3.10 is amended to read as follows: "3.10 Expiration. ---------- Unless previously terminated by the Board of Directors, this Plan shall expire at the close of business on May 3, 1995, and no Option shall be granted under it thereafter, but such expiration shall not affect any Option theretofore granted." IN WITNESS WHEREOF, the Company has caused this Amendment to be executed on its behalf by a duly authorized officer. SANTA ANITA REALTY ENTERPRISES, INC. /s/DONALD G. HERRMAN ------------------------------------ By: Donald G. Herrman Title: Secretary EX-10.23 11 EXHIBIT 10.23 EXHIBIT 10.23 ------------- MANAGEMENT AGREEMENT THIS MANAGEMENT AGREEMENT (the "AGREEMENT") is made and entered into as of February 17, 1994, by and between SANTA ANITA REALTY ENTERPRISES, INC., a Delaware corporation ("OWNER"), and PACIFIC GULF PROPERTIES INC., a Maryland corporation ("MANAGER"). RECITALS A. Owner is the owner of the real properties, together with all improvements now or hereafter constructed thereon, described on EXHIBIT A attached hereto (individually, a "PROPERTY" and, collectively, the "PROPERTIES"). B. Immediately prior to the formation of Manager and the transfer by Owner to Manager of ownership of certain properties, certain of the executive and other staff of Manager were employed by Owner and, in such capacity, were engaged in the management and operation of the Properties. C. Certain personnel in the employ of Owner engaged in the management of the Properties will remain in Owner's employ. D. Certain of the Properties are managed by unrelated joint venture partners of Owner pursuant to the terms of the partnership or joint venture agreements with such parties. E. To assist Owner in the transition of management and operation of the Properties, Manager has agreed to provide certain interim management functions in connection with the Properties on behalf of Owner, including maintaining the books and records of Owner and supervising Owner's Employees in connection with management and operation of the Properties, upon the terms and conditions set forth herein. NOW THEREFORE, Owner and Manager agree as follows: ARTICLE 1 AGENCY Owner hereby appoints Manager as the manager of the Properties, and Manager hereby accepts such appointment, upon the terms set forth herein. This appointment is subject and subordinate to any existing management agreements with any unrelated third party for any of the Properties (an "EXISTING MANAGER"). The parties agree that certain employees of Owner currently engaged in management of the Properties shall remain employees of Owner, and shall remain engaged in their respective capacities, but shall be subject to the supervision and direction of Manager. These employees are identified on EXHIBIT C attached hereto (the "OWNER'S EMPLOYEES"). ARTICLE 2 TERM OF AGREEMENT The term of this Agreement (the "TERM") shall commence on February 18, 1994 (the "COMMENCEMENT DATE") and shall continue for a period of one (1) year thereafter, unless sooner terminated as provided in Article 3 below. ARTICLE 3 TERMINATION 3.1 TERMINATION FOLLOWING SALE OF A PROPERTY. In the event Owner sells, conveys, exchanges or otherwise transfers a Property, Owner may elect to terminate this Agreement as to such Property by written notice to Manager, with such termination to be effective concurrently with such transfer. The termination of this Agreement pursuant to this Section 3.1 with respect to any Property shall not alter the effectiveness of this Agreement with respect to any other Property. 3.2 TERMINATION WITH NOTICE. Owner shall have the right to terminate this Agreement for any reason during the term hereof upon thirty (30) days prior written notice to Manager. 3.3 TERMINATION OF PARTICULAR DUTIES. Owner shall have the right to terminate this Agreement as to any of the particular duties of Manager set forth herein upon ten (10) days prior written notice to Manager. The termination of any particular duties of Manager under this Agreement pursuant to this Section 3.3 shall not alter the effectiveness of this Agreement with respect to any other duties of Manager set forth herein. 3.4 FINAL ACCOUNTING. Upon termination of this Agreement with respect to any Property, Manager shall deliver to Owner: (a) a final accounting, setting forth the balance of income and expenses of such Property as of the date of termination, to be delivered within thirty (30) days after such termination; (b) any balance of funds of Owner or tenants applicable to such Property which are in the possession or control of Manager, to be delivered upon the effective date of such termination; and (c) all records, contracts, leases, receipts for deposits, unpaid bills, keys, paid invoices, tenant correspondence files and other papers or documents which pertain to such Property which are in the possession or control of Manager, to be delivered no later than the date of such termination. Manager may, at its expense, retain copies of any of the foregoing documents (excluding keys) for its records. 3.5 CONTINUED OBLIGATIONS OF OWNER. Upon the termination of this Agreement with respect to any Property for any reason, Owner shall remain obligated to Manager for any unpaid Fees earned by Manager pursuant to Section 10.1 through the date of termination, which Fees shall be paid to Manager within twenty (20) days after the effective date of such termination. ARTICLE 4 BUDGETS, ACCOUNTING AND REPORTING 4.1 BUDGET. A budget for each Property and for all combined operations of Owner for the period commencing on the Commencement Date and ending on December 31, 1994, has been previously prepared by Manager and approved by Owner. With respect to the calendar year beginning on January 1, 1995, Manager shall assist Owner in the preparation of a proposed budget for each Property for the promotion, operation, repair and maintenance of such Property and for all combined operations of Owner for the forthcoming year commencing on January 1 and ending on December 31 (the "APPROVED BUDGET"). Each proposed budget shall include a current year forecast of operating revenues and expenses for each applicable Property and for all combined operations of Owner. Owner may, from time to time, upon written notice to Manager, modify the discretionary components of any Approved Budget. 4.2 OPERATION IN ACCORDANCE WITH BUDGET. Manager shall use its best efforts to assist Owner in the operation of the Properties so that the actual costs of maintaining and operating each Property do not exceed the amounts agreed upon in the Approved Budget. Any material change to an Approved Budget which are within Manager's reasonable control shall be subject to the prior written approval of Owner in its sole discretion. All expenses must be charged to the proper account on an 2 Approved Budget and no expense may be classified or reclassified for the purpose of avoiding an excess in the annual budgeted amount of any accounting category. Manager shall not, without the prior written approval of Owner (a) disburse any amounts attributable to items not reflected in an Approved Budget, except in the case of an emergency situation threatening imminent injury to persons, damage to property or interruption of essential services to tenants, or (b) make any expenditure which will cause either a total Approved Budget to be exceeded or the amounts allocated to the any individual category in such Approved Budget to be exceeded. 4.3 BOOKS OF ACCOUNT. Manager shall establish and maintain adequate and separate books and records for each Property with entries supported by supporting documentation sufficient to allow Owner to ascertain their accuracy. Unless otherwise directed by Owner, such books and records shall be maintained by Manager and made available to Owner at any time upon request of Owner. Manager shall maintain and safeguard such books and records at Manager's office or at such other location as may be approved by Owner. 4.4 FINANCIAL REPORTS. (a) MONTHLY PROPERTY REPORTS. Manager shall prepare and deliver to Owner no later than the thirtieth (30th) day following each calendar month, in customary form, a statement of income and expenses for each Property for the preceding month, prepared on a cash basis and accompanied by supporting summaries of adjusting journal entities, bank reconciliations applicable to the most recent statements prepared by the banks handling the funds of such Property, an analysis of prepaid rent, if any, for such Property and such other financial statements or reports as Owner may reasonably require. Manager shall notify Owner, on a monthly basis, of all rental arrearages that in its judgment are properly written off as uncollectible. (b) MONTHLY CORPORATE REPORTS. Manager shall prepare and deliver to Owner no later than the thirtieth (30th) day following each calendar month, in customary form, a statement of profit and loss and a balance sheet for all Owner's operations for the preceding month, prepared on an accrual basis in accordance with generally accepted accounting principles. (c) ANNUAL REPORTS. Manager shall prepare and deliver to Owner no later than May 1, 1994, in customary form, a statement of profit and loss and a balance sheet for all Owner's operations for the preceding year, prepared on an accrual basis in accordance with generally accepted accounting principles. In addition, no later than April 1, 1994, Manager shall prepare customary work sheets and schedules for use by Owner's independent auditors in the preparation of the annual audited financial statements of Owner. (d) CORPORATE FILINGS. Manager shall assist Owner in the preparation of all filings required under applicable federal and state securities laws in connection with Owner's operations, including Owner's annual 10-K and quarterly 10-Q reports, in such time as to ensure the timely and complete filing of such reports and information. (e) EXTENSION OF TIME. The time for performance by Manager of any duty imposed by this Section 4.4 shall be extended for any period of time attributable to delay in obtaining required information or reports from any of the Existing Managers. 4.5 SUPPORTING DOCUMENTATION. As additional supporting documentation for the financial statements and reports required under Section 4.4, to the extent maintained by Manager at Owner's request, if requested by Owner, Manager shall make available to Owner with respect to each Property, (a) all bank statements and bank deposit slips; (b) detailed cash receipts and disbursement records; (c) detailed trial balance for receivables and payables and billed and unbilled revenue items; (d) paid 3 invoices; (e) appropriate details of accrued expenses and property records; and (f) information necessary for preparation of Owner's tax returns, including a description and statement of amounts expended in connection with repairs, capital improvements, taxes, leases and professional fees. In all events, Manager shall provide to Owner supporting documentation for time charges of Manager's employees engaged in providing services under this Agreement. 4.6 TAX RETURNS OF OWNER. Manager shall assist Owner in the preparation of all federal and state income tax returns required in connection with Owner's operations. ARTICLE 5 OWNER'S RIGHT TO AUDIT 5.1 RIGHT TO AUDIT. Owner, or its designees, may examine all books, records and files maintained by Manager in connection with the Properties, if any. Owner may perform any audit or investigation relating to Manager's activities in connection with the Properties. ARTICLE 6 LEASING AND SALES ACTIVITIES 6.1 MANAGER'S LEASING AND SALES OBLIGATIONS. To the extent such activities are not properly within the purview and responsibility of an Existing Manager for a Property, Manager shall supervise the efforts of Owner's Employees to lease or, as Owner may from time to time direct, sell each of the Properties. Except for the Fee set forth in Section 10.1, Manager shall receive no leasing or sales fee or commission. Manager's obligations in connection with leasing and sales of the Properties, to the extent such activities are not properly within the purview and responsibility of an Existing Manager for a Property, shall include the following: (a) Manager shall assist Owner in the hiring of third party brokers or leasing agents to undertake the rental of all rental space within the Properties which are vacant during the term of this Agreement. (b) Manager shall supervise and assist Owner's Employees in connection with negotiation of renewals of leases with existing tenants in any of the Properties. (c) In leasing any portion of any Property, Manager shall utilize only a standard lease form approved by Owner for such type of property, with no material modifications thereto, and shall submit recommended leases to Owner for execution, accompanied by a summary of all material deviations from the approved standard form of lease for the Property. Manager shall require each prospective tenant to submit financial information sufficient to allow Manager to verify the ability of such prospective tenant to perform its obligations under its lease. (d) Manager shall from time to time, but not less often than once per calendar quarter, submit to Owner, for its approval, recommended rental rates for each Property. Owner shall, at its option, give written notice of its approval of such recommendations or of such other rental rates which Owner desires to establish for any Property or Properties. The failure by Owner to notify Manager, in writing, of its approval or disapproval of such recommended rental rates shall be deemed to be Owner's approval thereof. In no event shall Manager deviate from the rental rates established by Owner for the Properties, unless approved by Owner. (e) Manager shall assist Owner in selling all or any portion of any Property as directed by Owner, including the hiring of third party brokers or sales agents in connection with such proposed sales. Manager shall assist or, if requested by Owner, act as Owner's representative, in 4 negotiating the terms of such sale; provided, however, that the final terms of any such sale, and the form of the purchase agreement, shall be subject to Owner's approval and execution. ARTICLE 7 MANAGEMENT OF PROPERTIES 7.1 DUTIES OF MANAGER; STANDARDS. To the extent such activities are not properly within the purview and responsibility of an Existing Manager for a Property, Manager shall supervise Owner's Employees in the management and maintenance of the Properties in an efficient and professional manner consistent with the standards currently in effect for such Property and in accordance with recognized standards of the property management industry and in compliance with such standards and practices as are prevalent in the geographic area where the applicable Property is located, having due regard for the age and physical condition of such Property. In addition, Manager shall review and advise Owner in respect of management, leasing and operation of each Property managed by an Existing Manager, including review and analysis of reports prepared by such Existing Manager. 7.2 COLLECTION OF INCOME. Manager shall collect and identify, or assist Owner's Employees in the collection and identification of, all rental income and other income due Owner from services provided to tenants or the public, including the use of parking, storage, and vending or any other machines. All funds received by Manager for or on behalf of Owner shall be deposited in a bank designated by Owner in the applicable Revenue Account. 7.3 PROPERTY MAINTENANCE. Manager shall supervise Owner's Employees to ensure the making of all ordinary repairs and alterations of the Properties, subject to and within the limitations of the Approved Budget for the applicable Property. 7.4 CAPITAL IMPROVEMENTS. Manager shall supervise Owner's Employees in connection with all capital improvements to the Properties pursuant to plans and specifications approved by Owner, as are included in the applicable Approved Budget or are otherwise approved by Owner, as well as all remodeling and refurbishing of tenant premises as approved by Owner in connection with the requirements of tenant leases. Manager shall make recommendations, select contractors and follow such bid procedures as are required by Owner in writing from time to time and shall supervise all such work to obtain compliance with contract requirements and applicable law. 7.5 MAINTENANCE. Manager shall supervise Owner's Employees to ensure that all required utility services and other operation, landscaping and maintenance services are provided to the Properties. Manager shall supervise Owner's Employees to ensure the purchase and maintenance at or for each Property of all necessary supplies. Owner shall be credited with any rebates, refunds, allowances and discounts allowed to Manager in connection with the purchase of such supplies and services. 7.6 SERVICE CONTRACTS. All contracts for services or supplies in connection with any of the Properties shall be reviewed and recommended for execution by Manager, and shall include a provision for early termination in the event of a sale or exchange of a Property by Owner. Manager shall advise Owner if any recommended contract which would cause the total Approved Budget or the amounts allocated to major categories to exceed the limits set forth in the Approved Budget. If directed by Owner, Manager shall execute such contracts on behalf of Owner as its attorney-in-fact. 7.7 PAYMENT OF EXPENSES. If requested by Owner, Manager shall pay from the applicable Operating Account all operating expenses of the Properties, and all bills for payments due under mortgages and ground leases with respect to each Property, all real estate, personal property and improvement taxes and assessments due with respect to each Property and insurance premiums for 5 insurance coverage carried by Owner with respect to each Property. Owner shall be responsible for prosecuting the appeal of any property tax assessment for any Property and the payment of all costs incurred in connection therewith; provided, however, that if requested by Owner, Manager shall assist Owner in connection with any such appeal. Notwithstanding the foregoing, Manager's responsibilities under this Section 7.7 shall not extend to matters requiring any expenditure of funds unless such funds are provided by Owner. 7.8 NOTICES. Subject to the other provisions of this Agreement, at Owner's expense, Manager shall use its best efforts to advise Owner of all actions required to comply with all Federal, State and municipal laws, ordinances, regulations and orders related to the leasing, use, operation, repair and maintenance of the Properties, including state or federal fair housing laws, rules and regulations, and the rules, regulations or orders of the applicable local Board of Fire Underwriters or other similar body. Manager shall, if requested by Owner, direct and supervise the prompt cure of any violation of any such law, ordinance, rule, regulation or order, at Owner's expense. Manager shall furnish to Owner, upon receipt by Manager, each notice or order affecting a Property, including any notice from any taxing or other governmental authority and notice of violation of any requirement or order issued by any Board of Fire Underwriters or other similar body against a Property or Owner, any notice of default or otherwise from the holder of any mortgage or deed of trust on, or any notice of renewal, termination or cancellation of any insurance policy for, a Property. Notwithstanding the foregoing, Manager's responsibilities under this Section 7.8 shall not extend to matters requiring the expenditure of funds unless such funds are provided by Owner. 7.9 PERMITS AND LICENSES. Manager shall, at Owner's expense, arrange for the obtaining and renewal of all business licenses affecting the Properties. 7.10 CONSULTANTS. Manager shall, at Owner's expense, engage counsel and cause such legal proceedings to be instituted and prosecuted in an expeditious manner as may be necessary to enforce payment of rent and compliance with leases with respect to, or to dispossess tenants from, any Property. Manager shall use legal counsel approved by Owner to institute such actions and all settlement negotiations. 7.11 FINANCING OF PROPERTIES. Manager hereby agrees, as directed by Owner, to act as Owner's representative in negotiations with financial institutions and other lenders in connection with the acquisition, negotiation and administration of financing for any Property. Manager agrees that, with respect to the Medical Office Building identified on EXHIBIT A, the foregoing activities by Manager shall be at no cost to Owner. Manager further agrees to assist Owner in any negotiation of renewals, extensions or new bank lines of credit for Owner's operations. 7.12 ARCADIA PROPERTY. If requested by Owner, Manager shall assist Owner in the preparation and analysis of a plan of development for the Property (the "Arcadia Property") set forth on EXHIBIT B hereto. ARTICLE 8 BANK ACCOUNTS 8.1 REVENUE ACCOUNT. Manager shall deposit all income and other funds collected by Manager, if any, from the operation of the Properties in a special bank account established by Owner (the "REVENUE ACCOUNT") in the name of Owner or as Owner may designate. Manager shall have no authority to withdraw funds from the Revenue Account. 8.2 OPERATING ACCOUNT. Owner shall establish a bank account with respect to each or all of the Properties, which account (the "OPERATING ACCOUNT") shall be used for the payment of all costs and 6 expenses of Owner in connection with the Properties. Manager shall have the authority to withdraw funds from the Operating Account to fulfill its obligations under this Agreement, but shall otherwise have no right, title or interest in such funds. Following written notification from Manager of projected cash requirements for the respective Property, Owner shall maintain in the Operating Account an amount sufficient to pay all budgeted expenses for each month in a timely manner. Manager shall pay from the Operating Account the operating expenses of the respective Property and any other required payments applicable to such Property, as set forth in this Agreement. 8.4 SECURITY DEPOSIT ACCOUNT. If applicable law requires a segregated account for tenant security deposits, Manager shall advise Owner who shall open with respect to the Properties a separate interest bearing account (the "DEPOSIT ACCOUNT") in Owner's name at a bank selected by Owner. Manager shall deposit all security deposits which it receives on behalf of Owner, if any, in such Deposit Account in accordance with applicable law. Manager shall maintain for Owner detailed records of all security deposits for each Property. 8.5 CHANGE OF BANKS. Owner may change a depository bank or any depository arrangements. ARTICLE 9 INSURANCE 9.1 INSURANCE. Manager shall assist and advise Owner with respect to obtaining all insurance required hereunder. All insurance described under this Article 9 shall be maintained with insurance carriers licensed and approved to do business in the state in which the applicable Property is located, having a general policyholders' rating of not less than an "A" and financial rating of not less than "X" in the most current Best's Insurance Report. In no event shall such insurance be terminated or allowed to lapse prior to termination of this Agreement or such longer period as may be specified herein, unless such terminated or lapsed insurance is immediately replaced by substitute insurance meeting the requirements of this Article 9. Each policy shall be subject to approval by Owner. 9.2 REQUIRED POLICIES. (a) WORKERS' COMPENSATION INSURANCE. Workers' Compensation Insurance, including Employer's Liability, at a minimum limit approved by Owner, for all Owner's Employees. Such insurance shall be in accordance with the requirements of the applicable State Workers' Compensation Insurance Laws in effect from time to time. (b) COMPREHENSIVE GENERAL LIABILITY INSURANCE. Comprehensive General Liability Insurance on an "occurrence" basis, with acceptable deductibles, with a combined single limit for bodily injury and property damage approved by Owner, covering Operations, Independent Contractors, Products and Completed Operations, Contractual Liability, Broad Form Property Damage, Severability of Interest and Cross Liability clauses, Personal Injury for Groups of Offenses A, B, and C with exclusion (c) deleted, and Explosion, Collapse and Underground hazards (X,C,U). The limits of liability of the insurance coverage specified in this Section 9.2(b) may be provided by any combination of primary and excess liability insurance policies. The Comprehensive General Liability Insurance shall, on a primary basis, name Manager as an additional insured for claims. (c) AUTOMOBILE LIABILITY INSURANCE. Owned, hired and non-owned automobile liability insurance covering all use of all automobiles, trucks and other motor vehicles utilized by Owner, with a combined single limit for bodily injury and property damage approved by Owner in each such policy. 7 (d) COMPREHENSIVE CRIME INSURANCE. If requested by Owner, either a policy of comprehensive crime insurance or a fidelity bond in an amount not less than Fifty Thousand Dollars ($50,000) per occurrence for any of Manager's employees and Owner's Employees who may handle funds or property in connection with any of the Properties to provide coverage to protect Owner. (e) ALL RISK INSURANCE. "All Risk" Insurance covering loss or damage to the Properties, with such deductibles as Owner shall determine in its sole discretion. arising out of Owner's negligence. 9.3 COMPLIANCE WITH REPORTING PROCEDURES. Manager shall comply with Owner's accident reporting procedures, which may be modified from time to time upon written notice to Manager; shall notify Owner immediately upon learning of any loss, damage or injury occurring on any Property; and shall not take any action (such as an admission of liability) which might bar Owner from obtaining any protection afforded by any insurance policy of Owner or which might prejudice Owner in defending a claim based on any loss, damage or injury. Manager shall cooperate with Owner in the disposition of claims, including furnishing all available information to Owner and Owner's insurers. 9.4 WAIVER OF SUBROGATION. Owner and Manager hereby waive all rights against each other for damages caused by fire and other perils and risks to the extent covered by policies of insurance required to be maintained hereunder. 9.5 INSURED. Each policy of insurance required hereunder shall include the following definition of the named insured: "Santa Anita Realty Enterprises, Inc., a Delaware corporation, and its officers, directors, agents, servants, employees, divisions, subsidiaries, partners, shareholders and affiliated companies, as named insureds." In addition, each policy of insurance required hereunder shall include as a co-insured party Manager and its officers, directors, agents, servants, employees, divisions, subsidiaries, partners, shareholders and affiliated companies. 9.6 COSTS OF INSURANCE. The cost of all insurance required to be carried by this Agreement shall be borne by Owner and any premiums for such insurance paid by Manager, if any, shall be reimbursed by Owner to Manager promptly upon demand. The premiums for Worker's Compensation Insurance attributable to and covering Manager's officers, directors or personnel shall be borne by Manager. 9.7 CLAIMS PROCEDURES. In the event an incident occurs or any legal action or other claim (a "THIRD PARTY CLAIM") is asserted by a third party against Owner as the result of an alleged injury or loss sustained on the Properties during the term hereof, Manager shall, promptly after receipt of actual knowledge of such Third Party Claim, investigate same and submit a report to Owner in accordance with Owner's accident reporting procedures. All costs of the investigation, settlement and defense of any claim, and any judgments and other costs related to any such claim shall be borne by Owner, to the extent not borne by the insurer. 9.8 INSURANCE AUDIT; REFUNDS. Any insurance dividends earned or returned premiums applicable to the policies required to be carried hereunder at Owner's expense shall be refunded by Manager to Owner immediately upon receipt thereof. ARTICLE 10 COMPENSATION OF MANAGER 10.1 FEES. Manager shall be paid monthly during the term hereof a fee (the "Management Fee") equal to the hourly rate of each of Manager's employees multiplied by the number of hours spent by such employees in connection with the performance of Manager's duties hereunder during said month, except to the extent expressly provided otherwise in this Agreement. The applicable hourly rates are 8 set forth on EXHIBIT D attached hereto. Manager's monthly reports shall identify by Property the time spent by each of Manager's employees in performing its duties under this Agreement. 10.2 PAYMENT. The Fee payable pursuant to Section 10.1 shall be calculated and paid monthly and such amounts shall be shown in Manager's submission of its monthly accounting to Owner. Manager is hereby authorized to debit the Fee directly from the Operating Account. In the event there shall not be sufficient funds in a respective Operating Account to pay the Fee, Owner shall promptly pay to Manager, upon submission of Manager's monthly accounting, any such amounts due to Manager. 10.3 FEE LIMITATION. Notwithstanding any provision to the contrary contained in this Agreement, in the event that the loss incurred by Owner in connection with the sale of certain real properties to Manager pursuant to the terms of that certain Purchase and Sale Agreement dated as of November 15, 1993 (the "Purchase and Sale Agreement"), including the Baldwin Loss, exceeds Eleven Million Dollars ($11,000,000), Manager shall have no right to receive any compensation under the terms of this Agreement until such time as the Management Fees due hereunder equal the amount by which the loss exceeds Eleven Million Dollars (the "EXCESS LOSS"), and the Management Fees shall be payable only to the extent that they exceed the amount of the Excess Loss. If Management Fees are paid pursuant to this Article 10 prior to the time that the Excess Loss is finally determined, Manager shall return any such Management Fees to the extent the Excess Loss as determined exceeds the amount of any unpaid Management Fees. For purposes of this Section 10.3, Baldwin Loss means a loss incurred by Owner in connection with the sale of certain real properties to Manager pursuant to the Purchase and Sale Agreement resulting from the failure of the Baldwin Closing Date (as such term is defined in the Purchase and Sale Agreement) to occur, but only if the conditions to such Baldwin Closing Date have been satisfied, or, if they have not been satisfied, the failure to satisfy any such condition is due to a material breach of a representation, warranty or covenant under the Purchase and Sale Agreement by Manager. ARTICLE 11 PAYMENT OF EXPENSES 11.1 NON-REIMBURSABLE COSTS. The following expenses or costs incurred by or on behalf of Manager in connection with the management and leasing of any Property shall be at the sole cost and expense of Manager and shall not be reimbursed by Owner: (a) cost of electronic data processing hardware and software, including repair and maintenance expenses related thereto, located at Manager's office and used for preparation of reports, information and returns to be prepared by Manager under the terms of this Agreement; and (b) cost of electronic data processing provided by computer service companies for preparation of reports, information and returns to be prepared by Manager under the terms of this Agreement. ARTICLE 12 GENERAL PROVISIONS 12.1 INDEPENDENT CONTRACTOR. It is expressly understood and agreed that Manager will act as an independent contractor in the performance of its duties and responsibilities set forth in this Agreement. No provisions hereunder shall be intended to create a partnership or a joint venture between Owner and Manager with respect to any Property or otherwise, and neither party shall have the power to bind or obligate the other party, except as expressly set forth in this Agreement. 9 12.2 INDEMNIFICATION. Owner hereby agrees to indemnify, defend and hold Manager and its officers, directors, agents, servants, employees, divisions, subsidiaries, partners, shareholders and affiliated companies (collectively, the "INDEMNIFIED PARTIES") harmless from and against all damage, loss, liability, claim or expense incurred by reason of the performance of Manager's obligations and duties under and in accordance with the terms and conditions of this Agreement. Owner further agrees to indemnify, defend and hold the Indemnified Parties harmless from and against all damage, loss, liability, claim or expense arising out of or incurred by the Indemnified Parties as a result of (i) the past, present or future presence of any Hazardous Substance on, under or above the Property, whether by means of a release of Hazardous Substance upon the Property or the migration of Hazardous Substances from adjacent properties, and (ii) any violation of any law, rule or regulation, whether now existing or hereafter established relating to Hazardous Substances or the environment, and relating to the Property or the activities carried out upon the Property. "HAZARDOUS SUBSTANCES" shall mean any chemical, substance, material, object, condition, waste, living organism, or combination thereof which is or may be hazardous to human health or safety or to the environment due to its ignitability, corrosivity, reactivity, explosivity, toxicity, carcinogenicity, radioactivity, mutagenicity, infectiousness, reproductive toxicity, or other harmful or potentially harmful properties or effects, including, without limitation, petroleum and petroleum products, asbestos, radon, polychlorinated biphenyls, and all other chemicals, substances, materials, objects, conditions, wastes, living organisms, or combinations thereof which are now listed, defined or regulated in any manner by any law, rule or regulation protecting health or the environment and based upon, directly or indirectly, such properties or effects. 12.3 NOTICES. All notices, demands and reports provided for in this Agreement shall be in writing and shall be personally served or sent by certified mail, postage prepaid and return receipt requested, to the parties at their respective addresses for notice set forth following their signatures to this Agreement or to such other address as either may provide to the other by written notice. For purposes of this Agreement, notices will be deemed to have been "given" upon personal delivery thereof or three (3) business days after having been deposited in the United States mail, postage prepaid and properly addressed. 12.4 BROKERS. Manager shall cooperate with any leasing or sales broker retained by Owner to permit the broker to exhibit the subject Property during reasonable business hours. At Owner's request, Manager's duties shall also include, but shall not be limited to, using diligent efforts to obtain, at Owner's expense, tenant estoppel certificates from tenants within such Property. 12.5 ATTORNEYS' FEES. In any judicial action between the parties to enforce any of the provisions of this Agreement or any right of any party under this Agreement, regardless of whether such action or proceeding is prosecuted to judgment and in addition to any other remedy, the unsuccessful party shall pay to the prevailing party all costs and expenses, including reasonable attorneys' fees (including fees and charges attributable to legal assistants or other non- attorney personnel performing services under the supervision of an attorney), incurred by the prevailing party. 12.6 ASSIGNMENT. Manager may not voluntarily or involuntarily, directly or indirectly, sell, assign, hypothecate, pledge or otherwise transfer or dispose of all or any portion of its interest in this Agreement to any third party without the prior written consent of Owner, which may be withheld in Owner's sole and absolute discretion. Any such attempted sale, assignment, hypothecation, pledge or other transfer without such consent shall be void. 12.7 AMENDMENTS. All amendments to this Agreement shall be in writing and executed by Owner and Manager. 10 12.8 ENTIRE AGREEMENT. This Agreement and the Exhibits attached hereto and made a part hereof comprise the entire agreement of the parties with respect to the transaction described herein. 12.9 GOVERNING LAW. This Agreement is executed and shall be governed by and construed in accordance with the laws of the State of California. 12.10 THIRD-PARTY DISPUTES. Should any claim, demand, action or other legal proceeding arising out of matters covered by this Agreement be made or instituted by any third party against a party to this Agreement, the other party to this Agreement shall furnish such information and reasonable assistance in defending such proceeding as may be reasonably requested by the party against whom such proceeding is brought. The requesting party shall pay the reasonable and customary expenses incurred by the other party in complying with any such request. 12.11 CONFLICTS. Manager shall at all times disclose to Owner conflicts of interest relating to the performance by Manager of its duties, responsibilities and actions pursuant to this Agreement. Without limiting the generality of the foregoing, Manager shall disclose any affiliation of Manager with any vendor rendering services or supplying materials to any Property. Any contract with such a vendor shall be entered into on an arms-length basis and for fair market value. Manager shall disclose to Owner any conflict-of-interest in connection with Manager's negotiations with prospective tenants or vendors of any Property. 12.12 GIFTS. Manager agrees not to accept any "gift" from vendors employed in connection with any Property, other than gratuities of nominal value received in the ordinary course of business. Manager shall not, on Owner's behalf or in connection with the services being rendered under this Agreement, provide any "gift" to or otherwise entertain any "public official" or any other person required under California law to file a Statement of Economic Interest. The term "public official" means every member, officer, employee or consultant of a state or local agency. The term "gift", as used herein, includes any service or merchandise of any kind, discounts on merchandise or services, meals and other entertainment expenses and all other transfers of cash or any other item of value. Under no circumstances shall Owner be deemed to have waived the provisions of this Section as to a specific gift unless the waiver is in writing and signed by two (2) authorized officers of Owner. 12.13 CONFIDENTIALITY. Manager shall hold confidential any information which Manager receives in connection with the performance of its obligations hereunder and which concerns Owner or its operations or business and shall not disclose all or any portion of such information to any third party, except for such disclosures as are necessary to perform Manager's obligations hereunder or are required by law, any governmental agency or by any proposed lender or mortgagee of any Property. 12.14 SUBORDINATION TO MORTGAGES. Manager acknowledges and agrees that it has no right, title or interest in any Property, and its rights hereunder are expressly subordinate to the right, title and interest of the holder of any mortgage or deed of trust encumbering any such Property, whether the lien of such mortgage or deed of trust attaches to such Property before or after the execution or effectiveness of this Agreement. Manager agrees to acknowledge any assignment by Owner of the Property Income to any lender as security for a loan by such lender to Owner. In the event that any Property is transferred as a result of a foreclosure of any mortgage or deed of trust covering such Property or pursuant to a deed in lieu of foreclosure, Manager may, at its sole option, at any time thereafter, terminate this Agreement by written notice of termination to the then owner of such Property. 12.15 HAZARDOUS SUBSTANCES. (a) To the extent such activities are not properly within the purview and responsibility of an Existing Manager for a Property, Manager shall take all steps necessary or appropriate to supervise 11 Owner's Employees to: (i) ensure that spills or dumping of Hazardous Substances that occur on any Property are reported to agencies and cleaned up in accordance with applicable regulatory requirements; (ii) inform Owner immediately of any spills or dumping of Hazardous Substances that occur on any Property; and (iii) establish and maintain a recordkeeping system for information concerning Hazardous Substances on any Property. (b) In the event Manager discovers the existence of any Hazardous Substances on any Property, Manager shall immediately notify Owner. Manager shall immediately notify Owner of any notice received by Manager from any governmental authority of any actual or threatened violation of any applicable laws, regulations or ordinances governing the use, storage or disposal of any Hazardous Substances and shall assist with Owner in responding to such notice and correcting or contesting any alleged violation. (c) If the presence, use or on-site or off-site disposal or transport of Hazardous Waste on, to, under, from or about such Property results in any spills or releases any injury to any person, or any injury or damage to such Property, or if Manager, Owner, or any governmental entity reasonably suspects that any such spills, injury or damage has occurred or is likely to occur, Manager shall promptly: (i) notify Owner; (ii) if such spill, injury or damage has occurred, assist Owner to obtain all permits and approvals necessary to remove such Hazardous Waste or otherwise remedy any suspected problem; (iii) if such spill, injury or damage has occurred, assist Owner in supervising the removal of such Hazardous Substances and remedy any associated problems by appropriate consultants or contractors, in accordance with applicable legal requirements and good business practices; and (iv) if such spill, injury or damage is likely to occur, assist Owner in taking all measures reasonably necessary to prevent such spill, injury or damage. (d) Manager shall have no authority or control to make decisions on behalf of Owner concerning (i) the use of Hazardous Substances upon the Property, (ii) the disposal of Hazardous Substances generated upon the Property or that become located upon the Property, or (iii) the clean-up and abatement of Hazardous Substances from the Property. All decisions concerning the foregoing activities shall be made by Owner and any assistance that Manager provides to Owner in implementing such decisions shall be solely administrative in nature. 12.16 PROPOSITION 65 COMPLIANCE. Manager shall supervise Owner's Employees to assist Owner in complying with the terms of Section 25249.5 et seq. of the California Health and Safety Code and all rules and regulations promulgated pursuant thereto, as such statute, rules and regulations may hereafter be amended ( "PROPOSITION 65"). Manager shall, promptly upon receipt of knowledge thereof, notify Owner of the existence on the site of any Property of any "hazardous substance" (as defined under Proposition 65), notice of the existence of which has not been given to tenants of such Property. 12 IN WITNESS WHEREOF, Owner and Manager have executed this Management Agreement as of the day and year first above written. MANAGER: PACIFIC GULF PROPERTIES INC., a Maryland corporation By: /s/ GLENN L. CARPENTER ------------------------ Glenn L. Carpenter President Address for Notice: 363 San Miguel Drive Suite 100 Newport Beach, CA 92660-7805 Attn: Glenn L. Carpenter OWNER: SANTA ANITA REALTY ENTERPRISES, INC., a Delaware corporation By: /s/ GLENN L. CARPENTER ---------------------------- Glenn L. Carpenter Its: President Address for Notice: 285 West Huntington Drive Post Office Box 808 Arcadia, CA 91066-0808 Attn: Stephen F. Keller 13 EXHIBIT A DESCRIPTION OF THE PROPERTIES REGIONAL SHOPPING CENTERS: Santa Anita Fashion Park Property (approximately 73 acres) is leased to a Acadia, California partnership (Anita Associates) in which Owner holds a fifty percent (50%) limited partnership interest. A 1,200,000 sq. ft. regional shopping center was developed by and is managed by The Hahn Company, on behalf of Hahn-UPI, the managing partner of the partnership. The landlord's interest in the ground lease is held by Owner. Towson Town Center Property consists of a 950,000 sq. ft. regional Towson, Maryland shopping center developed by a partnership (H-T Associates) with The Hahn Company, in which Owner holds a thirty-two and one-half percent (32.5%) interest. The shopping center is managed by The Hahn Company, as managing partner of the partnership. Joppa Associates Property is a 240,000 sq. ft. retail building adjacent to the Towson Town Center. The Property is owned by a partnership (Joppa Associates) with The Hahn Company in which Owner holds a one-third (33.33%) interest. The property is managed by The Hahn Company, as managing partner of the partnership. SHOPPING CENTERS: Yorba Linda, California Property consists of a 66,000 sq. ft. neighborhood shopping center owned and managed by Owner. Orange, California Property consists of a 21,000 sq. ft. neighborhood shopping center owned and managed by Owner. Encinitas, California Property consists of a 79,000 sq. ft. neighborhood shopping center owned and managed by Owner. Phoenix, Arizona Property consists of a 25,000 sq. ft. Tatum and Thunderbird neighborhood shopping center owned and managed by Owner. Phoenix, Arizona Property consists of a 31,000 sq. ft. 28th and Indian School neighborhood shopping center owned and managed by Owner. Phoenix, Arizona Property consists of a 74,000 sq. ft. 67th and Indian School neighborhood shopping center owned and managed by Owner. OFFICE BUILDINGS: Santa Ana, California Property consists of a 166,000 sq. ft. office Civic Center Plaza building owned by Owner. Towers A-1 Upland, California Property consists of a 37,000 sq. ft. office building owned by Owner. Medical Office Building Property consists of a 72,000 sq. ft. medical office building owned by Owner. INDUSTRIAL PARK: Baldwin Industrial Park Property consists of 623,000 sq. ft. of leasable Baldwin Park, California industrial space owned by Baldwin Industrial Properties, Ltd., a limited partnership in which Owner has a 50% interest. (Which property is currently managed by William T. Grant Corporation, the managing general partner of the limited partnership.) A-2 EXHIBIT B ARCADIA PROPERTY Those portions of Lots 1 and 5 of Tract 949 in the City of Arcadia, County of Los Angeles, State of California as shown on map recorded in Book 17, Page 13 of Maps, in the Office of the County Recorder of said County described as follows: Beginning at the Southeast corner of Parcel Map No. 4625, as shown on map recorded in Book 51, Page 50 of Parcel Maps in the Office of said County Recorder, being a point on the North line of Huntington Drive, 195.00 feet in width; thence along the Easterly and Northeasterly Boundary of said Parcel Map as follows: North 3 degrees 53 minutes 00 seconds East 475.68 feet to the beginning of a tangent curve concave to the East through a central angle of 15 degrees 31 minutes 48 seconds an arc distance of 325.26 feet; thence tangent to said curve North 19 degrees 24 minutes 48 seconds East 534.43 feet to the beginning of a tangent curve concave to the West and having a radius of 350.00 feet; thence Northerly and Northwesterly along said curve through a central angle of 71 degrees 22 minutes 48 seconds an arc distance of 436.03 feet; thence tangent to said curve North 51 degrees 58 minutes 00 seconds West 873.36 feet; thence continuing along said boundary of Parcel Map No. 4626 North 66 degrees 58 minutes 00 seconds West 154.55 feet and North 51 degrees 58 minutes 00 seconds West 437.83 feet to the most Northerly corner of said Parcel Map, being a point on the Southeasterly line of Baldwin Avenue, 100.00 feet in width; thence Northeasterly along said Southeasterly line of Baldwin Avenue, as it now exists, to the intersection with the Westerly prolongation of the Southerly boundary line of Tract No. 15318 as shown on map recorded in Book 427 pages 34 and 35 of said maps, shown thereon as having a bearing of North 88 degrees 57 minutes 33 seconds: East; thence North 88 degrees 57 minutes 33 seconds East along said Southerly boundary line to the angle point in the Southerly line of Lot 38 of said Tract No. 15318; thence continuing along the boundary line of said Tract No. 15318, and the Southerly boundary line of Tract No. 14940 as shown on map recorded in Book 350, Pages 48 to 50 inclusive of said maps North 68 degrees 46 minutes 53" East 2265.62 feet to the most Easterly corner of Lot 81 of said Tract No. 14940, being a point on the Southwesterly line of COLORADO PLACE; thence South 30 degrees 33 minutes 16 seconds East 2171.20 feet along said Southwest line of COLORADO PLACE, 80.00 feet in width, as it now exists, to the beginning of a tangent curve therein, concave to the Northeast and having a radius of 756.78 feet; thence Southeasterly along said curve 554.82 feet to the intersection with the curved Northwesterly line of Huntington Drive, 80.00 feet in width, said curve being concave to the Southeast having a radius of 995.37 feet; thence Southwesterly along said curve 607.48 feet, thence Southwesterly along the Northwesterly line of said Huntington Drive, as it now exists, 2843.30 feet to the beginning of a tangent curve therein concave to the Northwest and having a radius of 925.20 feet; thence Southwesterly and Westerly along said curve 883.99 feet; thence Westerly along the Northerly line of said Huntington Drive, as it now exists to the point of beginning. Excepting therefrom Parcel 1 of Parcel Map No. 15852 as per map filed in Book 179, Pages 93 and 94 of Parcel Maps, records of said County. ALSO EXCEPTING THEREFROM THE FOLLOWING PROPERTY (THE "DELETED PARCEL"): ALL THAT PORTION OF LOT 5 OF TRACT NO. 949, IN THE CITY OF ARCADIA, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 17, PAGE 13 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS FOLLOWS: COMMENCING AT THE SOUTHEASTERLY CORNER OF PARCEL 4 OF PARCEL MAP NO. 6374, AS PER MAP FILED IN BOOK 89 PAGE 77 OF PARCEL MAPS, SAID CORNER ALSO LYING ON THE NORTHERLY RIGHT-OF-WAY LINE OF HUNTINGTON DRIVE, 195.00 FEET IN WIDTH; THENCE NORTHERLY ALONG THE EASTERLY LINE OF SAID PARCEL 4 OF PARCEL MAP 6374, NORTH 03 DEGREES 53 MINUTES 00 SECONDS EAST 150.00 FEET TO THE TRUE POINT OF BEGINNING. B-1 THENCE CONTINUING NORTHERLY ALONG SAID EASTERLY LINE, NORTH 03 DEGREES 53 MINUTES 00 SECONDS EAST 242.38 FEET; THENCE DEPARTING FROM SAID EASTERLY LINE NORTH 41 DEGREES 26 MINUTES 00 SECONDS EAST 40.33 FEET; THENCE NORTH 11 DEGREES 26 MINUTES 00 SECONDS EAST 355.84 FEET; THENCE NORTH 78 DEGREES 34 MINUTES 00 SECONDS WEST 32.04 FEET TO A POINT ON THE EASTERLY LINE OF SAID PARCEL 4 AND THE BEGINNING OF A NON-TANGENT CURVE CONCAVE EASTERLY, HAVING A RADIUS OF 1200.00 FEET, FROM WHICH THE RADIAL LINE AT THE BEGINNING POINT BEARS NORTH 71 DEGREES 21 MINUTES 40 SECONDS WEST; THENCE NORTHERLY ALONG THE EASTERLY BOUNDARY OF PARCELS 3 AND 4 OF SAID PARCEL MAP NO. 6374, THE FOLLOWING COURSES: ALONG THE ARC OF SAID CURVE THROUGH A CENTRAL ANGLE OF 00 DEGREES 46 MINUTES 28 SECONDS, AN ARC DISTANCE OF 16.22 FEET TO A TANGENT LINE, NORTH 19 DEGREES 24 MINUTES 48 SECONDS EAST 534.43 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE SOUTHWESTERLY, HAVING A RADIUS OF 350.00 FEET, NORTHWESTERLY ALONG SAID CURVE, THROUGH A CENTRAL ANGLE OF 71 DEGREES 22 MINUTES 48 SECONDS, AN ARC DISTANCE OF 436.04 FEET TO A TANGENT LINE, AND NORTH 51 DEGREES 58 MINUTES 00 SECONDS WEST 106.76 FEET; THENCE LEAVING SAID EASTERLY LINE OF PARCEL 3 OF PARCEL MAP 6374, SOUTH 78 DEGREES 34 MINUTES 00 SECONDS EAST 104.85 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE SOUTHWESTERLY, HAVING A RADIUS OF 350.00 FEET; THENCE SOUTHEASTERLY ALONG SAID CURVE, THROUGH A CENTRAL ANGLE OF 90 DEGREES 00 MINUTES 00 SECONDS, AN ARC DISTANCE OF 549.78 FEET TO A TANGENT LINE; THENCE SOUTH 11 DEGREES 26 NORTH 00 SECONDS WEST 1186.97 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE NORTHWESTERLY, HAVING A RADIUS OF 25.00 FEET; THENCE SOUTHWESTERLY ALONG SAID CURVE, THROUGH A CENTRAL ANGLE OF 82 DEGREES 26 MINUTES 00 SECONDS, AN ARC DISTANCE OF 35.97 FEET TO A TANGENT LINE; THENCE NORTH 86 DEGREES 08 MINUTES 00 SECONDS WEST 181.99 FEET TO THE TRUE POINT OF BEGINNING. AN AREA CONSISTING OF APPROXIMATELY 7.2 ACRES, MORE OR LESS. UPON RECORDATION OF P.M. 23862, THE DELETED PARCEL WILL BE KNOWN AS: PARCEL 4 OF PARCEL MAP 23862, IN THE CITY OF ARCADIA, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA. Subject to Easements of Record. B-2 EXHIBIT C OWNER'S EMPLOYEES John Goodwin - Property Manager - Shopping Centers Julie Jones - Clerk Administration - Shopping Centers Kyle McDonald - Property Manager - Office Buildings Lina Wu - Property Accountant Stan Pearson - Head Building Engineer - Office Buildings Robert Ritchie - Building Engineer - Office Buildings
C-1 EXHIBIT D MANAGER'S EMPLOYEES AND HOURLY RATES Glenn L. Carpenter........ $175.00 Donald G. Herrman......... 87.00 Robert A. Dewey........... 61.00 Cecelia A. Consiglio...... 42.00 Wynne M. Fox.............. 28.00 Pamela L. Laipple......... 42.00 Jason J. Saito............ 37.00 Deborah D. Scott.......... 23.00 Cindy L. Smith............ 36.00 Mary Ann Spurbeck......... 29.00
D-1 EX-10.24 12 EXHIBIT 10.24 EXHIBIT 10.24 ------------- REGISTRATION RIGHTS AGREEMENT by and between PACIFIC GULF PROPERTIES INC. and SANTA ANITA REALTY ENTERPRISES, INC. ___________________________________________ Dated: As of February 1, 1994 ___________________________________________ TABLE OF CONTENTS
PAGE ARTICLE I CERTAIN DEFINITIONS.......................... 1 1.1 Agreement............................................................. 1 1.2 Business Day.......................................................... 1 1.3 Company............................................................... 1 1.4 Current Per Share Market Price........................................ 1 1.5 Company Offering...................................................... 2 1.6 Eligible Securities................................................... 2 1.7 Information Blackout.................................................. 2 1.8 Investor.............................................................. 2 1.9 Lock-up Period........................................................ 2 1.10 Other Securities...................................................... 2 1.11 Person................................................................ 3 1.12 Purchase and Sale Agreement........................................... 3 1.13 Registration Expenses................................................. 3 1.14 Sales Blackout Period................................................. 3 1.15 SEC................................................................... 3 1.16 Securities Act........................................................ 4 ARTICLE II EFFECTIVENESS OF REGISTRATION RIGHTS................. 4 2.1 Effectiveness of Registration Rights.................................. 4 ARTICLE III REGISTRATION RIGHTS.......................... 4 3.1 Requested Registration and Notice..................................... 4 3.2 Incidental Registration and Notice.................................... 6
i 3.3 Registration Expenses........................................ 7 ARTICLE IV REGISTRATION PROCEDURES........................ 7 4.1 Registration and Qualification............................... 7 4.2 Underwriting................................................. 9 4.3 Blackout Periods............................................. 9 4.4 Qualification for Rule 144 Sales............................. 10 ARTICLE V PREPARATION; REASONABLE INVESTIGATION................. 10 5.1 Preparation; Reasonable Investigation............................ 10 ARTICLE VI INDEMNIFICATION AND CONTRIBUTION................... 11 6.1 Indemnification and Contribution................................. 11 ARTICLE VII TRANSFER OF REGISTRATION RIGHTS.................... 12 7.1 Transfer of Registration Rights.................................. 12 ARTICLE VIII MISCELLANEOUS............................ 12 8.1 Captions..................................................... 12 8.2 Severability................................................. 12 8.3 Governing Law................................................ 12 8.4 Modification and Amendment................................... 12 8.5 Counterparts................................................. 13 8.6 Entire Agreement............................................. 13 8.7 Notices...................................................... 13 SIGNATURES............................................................ 13
ii REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT is made as of the 1st day of February, 1994 by and between PACIFIC GULF PROPERTIES INC., a Maryland corporation ("COMPANY"), and SANTA ANITA REALTY ENTERPRISES, INC., a Delaware corporation ("INVESTOR"). W I T N E S S E T H - - - - - - - - - - WHEREAS, Company is acquiring certain assets of Investor in exchange for unregistered shares of its common stock, par value $.01 per share, and certain other consideration, pursuant to that certain Purchase and Sale Agreement, dated as of November 15, 1993, by and between Company and Investor (the "PURCHASE AND SALE AGREEMENT"); and WHEREAS, Company intends to issue shares of its common stock in an initial public offering; and WHEREAS, pursuant to the Purchase and Sale Agreement, Company has agreed to provide Investor with certain registration rights as set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to and on the terms and conditions herein set forth, the parties hereto agree as follows: ARTICLE I CERTAIN DEFINITIONS. 1.1 "Agreement" means this Registration Rights Agreement, as --------- originally executed and as amended, modified, supplemented or restated from time to time, as the context requires. 1.2 "Business Day" means any day on which the New York Stock Exchange ------------ is open for trading. 1.3 "Company" means Pacific Golf Properties Inc., a Maryland ------- corporation. 1.4 "Current Per Share Market Price" means at any date of ------------------------------ determination (i) the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the principal national securities exchange on which the common stock of Company is listed or admitted to trading or (ii) if the common stock of Company is not listed or admitted to trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System. 1.5 "Company Offering" has the meaning set forth in Section 3.1(e). ---------------- 1.6 "Eligible Securities" means all or any portion of the ------------------- unregistered shares of common stock, par value $.01 per share, of Company acquired by Investor pursuant to the Purchase and Sale Agreement, and any shares of the common stock of Company issued with respect thereto. As to any proposed offer or sale of Eligible Securities, such securities shall cease to be Eligible Securities with respect to such proposed offer or sale when (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act, (ii) such securities are permitted to be distributed pursuant to Rule 144(k) (or any successor provision to such Rule) under the Securities Act or are otherwise freely transferable to the public without registration pursuant to Section 4(1) of the Securities Act to be confirmed in a written opinion of counsel to Company addressed to Investor, or (iii) such securities shall have been otherwise transferred pursuant to an applicable exemption under the Securities Act, new certificates for such securities not bearing a legend restricting further transfer under the Securities Act shall have been delivered by Company and such securities shall be freely transferrable to the public without registration under the Securities Act. 1.7 "Information Blackout" has the meaning set forth in -------------------- Section 4.3(a). 1.8 "Investor" means Santa Anita Realty Enterprises, Inc., a Delaware ------- corporation. 1.9 "Lock-up Period" means the period during which, by agreement with -------------- Alex Brown & Sons, Incorporated, Prudential Securities Incorporated and Crowell Weedon & Co., as representatives of the several underwriters, Investor has agreed not to sell its shares, which period expires on February 9, 1995, unless earlier terminated by such representives. 1.10 "Other Securities" has the meaning set forth in Section 3.2. ---------------- 2 1.11 "Person" means an individual, a partnership (general or limited), ------ corporation, joint venture, business trust, cooperative, association or other form of business organization, whether or not regarded as a legal entity under applicable law, a trust (inter vivos or testamentary), an estate of a deceased, insane or incompetent person, a quasi-governmental entity, a government or any agency, authority, political subdivision or other instrumentality thereof, or any other entity. 1.12 "Purchase and Sale Agreement" has the meaning set forth in the --------------------------- introductory statements to this Agreement. 1.13 "Registration Expenses" means all expenses incident to Company's --------------------- performance of or compliance with the registration requirements set forth in this Agreement including, without limitation, the following: (i) the fees, disbursements and expenses of Company's counsel and accountants in connection with the registration of Eligible Securities; (ii) all expenses in connection with the preparation, printing and filing of the registration statement, any preliminary prospectus or final prospectus, any other offering document and amendments and supplements thereto and the mailing and delivering of copies thereof to the underwriters and dealers; (iii) the cost of printing or duplicating any agreement(s) among underwriters, underwriting agreement(s) and blue sky or legal investment memoranda, any selling agreements and any other documents in connection with the offering, sale or delivery of Eligible Securities; (iv) all expenses in connection with the qualification of Eligible Securities for offering and sale under state securities laws, including the fees and disbursements of counsel for the underwriters in connection with such qualification and in connection with any blue sky and legal investment surveys; (v) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of Eligible Securities; and (vi) fees and expenses incurred in connection with the listing of Eligible Securities on each securities exchange on which securities of the same class are then listed, provided, however, that Registration Expenses with -------- respect to any registration pursuant to this Agreement shall not include underwriting discounts or commissions attributable to Eligible Securities, transfer taxes applicable to Eligible Securities, amounts payable pursuant to Section 6.1(b), or except as specifically described above in clause (iv), any fees or expenses of counsel, if any, to Investor or counsel, if any, to underwriters, or any expenses of any underwriter. 1.14 "Sales Blackout Period" has the meaning set forth in --------------------- Section 4.3(a)(ii). 1.15 "SEC" means the Securities and Exchange Commission. --- 3 1.16 "Securities Act" means the Securities Act of 1933, as amended, -------------- and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the relevant time. ARTICLE II EFFECTIVENESS OF REGISTRATION RIGHTS ------------------------------------ 2.1 Effectiveness of Registration Rights. This Agreement shall ------------------------------------ become effective on the date the Lock-up Period expires or is terminated. The rights granted Investor herein are subject to Article VII of the Purchase and Sale Agreement dated as of November 15, 1993 by and between Company and Investor. ARTICLE III REGISTRATION RIGHTS ------------------- 3.1 Requested Registration and Notice. Upon written notice from --------------------------------- Investor requesting that Company effect the registration under the Securities Act of all or part of the Eligible Securities held by such Investor, which notice shall specify the number of Eligible Securities intended to be disposed of by Investor and the intended method or methods of disposition of such Eligible Securities, Company will use all reasonable efforts to effect (at the earliest possible date) the registration, under the Securities Act, of such Eligible Securities for disposition in accordance with the intended method or methods of disposition stated in such request, provided that: -------- (a) if Company shall have previously effected a registration with respect to Eligible Securities pursuant to this Section 3.1, Company shall not be required to effect any further registration hereto until a period of three hundred sixty (360) days shall have elapsed from the lapsing of effectiveness of the most recent such previous registration; (b) Company shall have the right to include in any registration statement filed pursuant to the request of Investor securities of Company being sold for the account of Company; (c) Company will not be required to effect any registration pursuant to this Section 3.1 if the aggregate proposed public offering price of the Eligible Securities, calculated by multiplying the number of shares of Eligible Securities proposed to be offered in such offering by the Current Per Share Market Price on the date of such notice, intended to be disposed of by Investor thereby is less than (i) $5,000,000, or (ii), if the acquistion by Company of the limited partnership interests owned by Investor in Baldwin 4 Industrial Properties, Ltd., a California limited partnership, pursuant to the Purchase and Sale Agreement does not occur by November 30, 1994 and Investor is disposing of its interest in all Eligible Securities owned beneficially by it, $2,500,000; (d) Company will not be required to effect more than three registrations pursuant to this Section 3.1 (counting for these purposes only registrations which have been declared or ordered effective, and which have not been cancelled pursuant to Section 4.3(b)); (e) if, upon receipt of a registration request pursuant to this Section 3.1, Company is advised in writing (with a copy to Investor) by an investment banking firm selected by Company (and approved by Investor) to act as lead underwriter in connection with a public offering of securities by Company that, in such firm's opinion, a registration at the time and on the terms requested would materially adversely affect such public offering of securities by Company (other than an offering in connection with employee benefit and similar plans) (a "COMPANY OFFERING") that had been contemplated by Company prior to the notice by Investor requesting registration, Company shall not be required to effect a registration pursuant to this Section 3.1 until the earliest of (i) three months after the completion of such Company Offering, (ii) the termination of any "black out" period, if any, required by the underwriters to be applicable to Investor in connection with such Company Offering and agreed to in writing by Investor, (iii) promptly after abandonment of such Company Offering or (iv) four months after the date of such written notice from Investor requesting registration; (f) if, while a registration request is pending pursuant to Section 3.1, Company determines in the good faith judgment of the Board of Directors of Company, with the advice of counsel, that the filing of a registration statement would require the disclosure of non-public material information the disclosure of which would have a material adverse effect on Company or would otherwise adversely affect a material financing, acquisition, disposition, merger or other comparable transaction, Company shall deliver a certificate to such effect signed by its President or any Vice President to Investor and Company shall not be required to effect a registration pursuant to this Section 3.1 until the earlier of (i) the date upon which such material information is disclosed to the public or ceases to be material or (ii) 60 days after Company makes such good faith determination; and (g) No registration of Eligible Securities under this Section 3.1 shall relieve Company of its obligation (if any) 5 to effect registrations of Eligible Securities pursuant to Section 3.2. 3.2 Incidental Registration and Notice. If Company proposes to ---------------------------------- register any shares of common stock or other securities issued by it having terms substantially similar to Eligible Securities ("OTHER SECURITIES") for public sale under the Securities Act (whether proposed to be offered for sale by Company or by any other Person) on a form and in a manner which would permit registration of Eligible Securities for sale to the public under the Securities Act, it will give prompt written notice to Investor of its intention to do so, and upon the written request of Investor delivered to Company within fifteen (15) Business Days after the giving of any such notice (which request shall specify the number of Eligible Securities intended to be disposed of by Investor), Company will use all reasonable efforts to effect, in connection with the registration of the Other Securities, the registration under the Securities Act of all Eligible Securities which Company has been so requested to register by Investor, to the extent required to permit the disposition (in accordance with the intended method or methods thereof as aforesaid) of Eligible Securities so to be registered, provided that: -------- (a) if, at any time after giving such written notice of its intention to register any Other Securities and prior to the effective date of the registration statement filed in connection with such registration, Company shall determine for any reason not to register the Other Securities, Company may, at its election, give written notice of such determination to Investor and thereupon Company shall be relieved of its obligation to register such Eligible Securities in connection with the registration of such Other Securities (but not from its obligation to pay Registration Expenses to the extent incurred in connection therewith as provided in Section 3.3); (b) Company will not be required to effect any registration pursuant to this Section 3.2 if Company shall have been advised in writing (with a copy to Investor) by a nationally recognized independent investment banking firm selected by Company to act as lead underwriter in connection with the public offering of securities by Company that, in such firm's opinion, a registration at that time would materially and adversely affect Company's own scheduled offering; and (c) Company shall not be required to effect any registration of Eligible Securities under this Section 3.2 incidental to the registration of any of its securities in connection with mergers, acquisitions, exchange offers, subscription offers, dividend reinvestment plans or stock options or other employee benefit plans. 6 3.3 Registration Expenses. Company (as between Company and Investor) --------------------- shall be responsible for the payment of all Registration Expenses in connection with any registration pursuant to this Article 3. ARTICLE IV REGISTRATION PROCEDURES. 4.1 Registration and Qualification. If and whenever Company is ------------------------------ required to use all reasonable efforts to effect the registration of any Eligible Securities under the Securities Act as provided in Article 3, Company will as promptly as is practicable: (a) prepare, file and use all reasonable efforts to cause to become effective a registration statement under the Securities Act regarding the Eligible Securities to be offered; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Eligible Securities until the earlier of such time as all of such Eligible Securities have been disposed of in accordance with the intended methods of disposition by Investor set forth in such registration statement or the expiration of nine months after such registration statement becomes effective; (c) furnish to Investor and to any underwriter of such Eligible Securities such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act, such documents incorporated by reference in such registration statement or prospectus, and such other documents as Investor or such underwriter may reasonably request; (d) use all reasonable efforts to register or qualify all Eligible Securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as Investor or any underwriter of such Eligible Securities shall reasonably request, and do any and all other acts and things which may be reasonably requested by Investor or any underwriter to consummate the disposition in such jurisdictions of the Eligible Securities covered by such registration statement, except Company shall not for 7 any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not so qualified, or to subject itself to taxation in any jurisdiction where it is not then subject to taxation, or to consent to general service of process in any jurisdiction where it is not then subject to service of process; (e) use all reasonable efforts to list the Eligible Securities on each national securities exchange on which the common stock of Company is then listed (if such Eligible Securities have not been previously listed), if the listing of such securities is then permitted under the rules of such exchange; (f) (i) in the case of an underwritten offering, furnish to the underwriters, addressed to them, an opinion of counsel for Company, dated the date of the closing under the underwriting agreement, and (ii) use all reasonable efforts to furnish to Investor, a "comfort letter" signed by the independent public accountants who have certified Company's financial statements included in such registration statement, addressed to them, each such document covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities; and (g) at any time when a prospectus relating to a registration pursuant to Article 3 hereof is required to be delivered under the Securities Act, immediately notify Investor of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and at the request of Investor prepare and furnish to Investor as many copies of a supplement to or an amendment of such prospectus as Investor may request so that, as thereafter delivered to the purchasers of such Eligible Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Company may require Investor to furnish Company such information regarding Investor and the distribution of such securities as 8 Company may from time to time reasonably request in writing and as shall be required by law or by the SEC in connection with any registration. 4.2 Underwriting. (a) In the event that any registration pursuant ------------ to Section 3.2 hereof shall involve, in whole or in part, an underwritten offering, Company may require Eligible Securities requested to be registered pursuant to Section 3.2 to be included in such underwriting on the same terms and conditions as shall be applicable to any Other Securities being sold through underwriters under such registration. Notwithstanding the foregoing, Investor may elect, in writing at least one day prior to the effective date of the registration statement filed in connection with such registration, not to register Investor's Eligible Securities in connection with such registration. (b) If requested by the underwriters for any underwritten offering of Eligible Securities pursuant to a registration requested hereunder, Company will enter into and perform its obligations under an underwriting agreement with such underwriters for such offering, such agreement to contain such representations and warranties by Company and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnities and contribution to the effect and to the extent provided in Article 6 hereof and the provision of opinions of counsel and accountants' letters to the effect and to the extent provided in Section 4.1(f). (c) Investor shall be a party to any such underwriting agreement and the representations and warranties by, and the other agreements on the part of, Company to and for the benefit of such underwriters shall also be made to and for the benefit of Investor. Such agreement shall also contain such representations and warranties by Investor and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnities and contribution to the effect and to the extent provided in Article 6. 4.3 Blackout Periods. (a) At any time when a registration statement ---------------- effected pursuant to Section 3.1 relating to Eligible Securities is effective, upon written notice from Company to Investor that Company determines in the good faith judgment of the Board of Directors of Company, with the advice of counsel, that Investor's sale of Eligible Securities pursuant to the registration statement would require disclosure of non- public material information the disclosure of which would have a material adverse effect 9 on Company (an "INFORMATION BLACKOUT"), Investor shall suspend sales of Eligible Securities pursuant to such registration statement until the earlier of: (i) (A) the date upon which such material information is disclosed to the public or ceases to be material or (B) 60 days after Company makes such good faith determination, and (ii) such time as Company notifies Investor that sales pursuant to such registration statement may be resumed (the number of days from such suspension of sales by Investor until the day when such sales may be resumed hereunder is hereinafter called a "SALES BLACKOUT PERIOD"). (b) Any delivery by Company of notice of an Information Blackout during the ninety (90) days immediately following effectiveness of any registration statement effected pursuant to Section 3.1 hereof shall give Investor the right, by written notice to Company within twenty (20) Business Days after the end of such blackout period, to cancel such registration and obtain one additional registration right under Sections 3.1(a) and 3.1(d). (c) If there is an Information Blackout and the Investor does not exercise its cancellation right, if any, pursuant to (b) above, or, if such cancellation right is not available, the time period set forth in Section 4.1(b) shall be extended for a number of days equal to the number of days in the Sales Blackout Period. 4.4 Qualification for Rule 144 Sales. Company will take all actions -------------------------------- reasonably necessary to comply with the filing requirements described in Rule 144(c)(1) so as to enable Investor to sell Eligible Securities without registration under the Securities Act and, upon the written request of Investor, Company will deliver to Investor a written statement as to whether it has complied with such filing requirements. ARTICLE V PREPARATION; REASONABLE INVESTIGATION. ------------------------------------- 5.1 Preparation; Reasonable Investigation. In connection with the ------------------------------------- preparation and filing of each registration statement registering Eligible Securities under the Securities Act, Company will give Investor and the underwriters, if any, and their respective counsel and accountants, drafts of such registration statement for their review and comment prior to filing and such reasonable and customary access to its books and records and such opportunities to discuss the business of Company with its officers and the independent public accountants who have 10 certified its financial statements as shall be necessary, in the opinion of Investor and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. ARTICLE VI INDEMNIFICATION AND CONTRIBUTION. -------------------------------- 6.1 Indemnification and Contribution. (a) In the event of any -------------------------------- registration of Eligible Securities hereunder, Company will enter into customary indemnification arrangements to indemnify and hold harmless Investor, its directors and officers, and each Person who controls any of such Persons, each Person who participates as an underwriter in the offering or sale of such securities, and each Person, if any, who controls such seller or any such underwriter within the meaning of the Securities Act against any losses, claims, damages, liabilities and expenses, joint or several, to which such Person may be subject under the Securities Act or otherwise insofar as such losses, claims, damages, liabilities or expenses (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus included therein, or any amendment or supplement thereto, or any document incorporated by reference therein, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and Company will promptly reimburse each such Person for any legal or any other expenses reasonably incurred by such Person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided that -------- Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expenses arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus or final prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to Company by Investor expressly for use in the registration statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of Investor or any such Person and shall survive the transfer of such securities by Investor. Company also shall agree to make provision for contribution as shall be reasonably requested by Investor or any underwriters in circumstances where such indemnity is held unenforceable. (b) Investor, by virtue of exercising its registration rights hereunder, agrees and undertakes to enter into customary indemnification arrangements to indemnify and hold harmless (in 11 the same manner and to the same extent as set forth in clause (a) of this Article VI) Company, each director of Company, each officer of Company who shall sign such registration statement, each Person who participates as an underwriter in the offering or sale of such securities and each person, if any, who controls Company or any such underwriter within the meaning of the Securities Act, with respect to any statement in or omission from such registration statement, any preliminary prospectus or final prospectus included therein, or any amendment or supplement thereto, but only to the extent that such statement or omission was made in reliance upon and in conformity with written information furnished by Investor to Company expressly for use in the registration statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of Company or any such director, officer or controlling Person and shall survive the transfer of the registered securities by Investor and the expiration of this Agreement. Investor also shall agree to make provision for contribution as shall be reasonably requested by Company or any underwriters in circumstances where such indemnity is held unenforceable. ARTICLE VII TRANSFER OF REGISTRATION RIGHTS. ------------------------------- 7.1 Transfer of Registration Rights. Investor may not transfer the ------------------------------- --- registration rights granted hereunder to any other Person. ARTICLE VIII MISCELLANEOUS ------------- 8.1 Captions. The captions or headings in this Agreement are for -------- convenience and reference only, and in no way define, describe, extend or limit the scope or intent of this Agreement. 8.2 Severability. If any clause, provision or section of this ------------ Agreement shall be invalid or unenforceable, the invalidity or unenforceability of such clause, provision or section shall not affect the enforceability validity of any of the remaining clauses, provisions or sections hereof to the extent permitted by applicable law. 8.3 Governing Law. This Agreement shall be construed and enforced in ------------- accordance with the internal laws of the State of California, without reference to its rules as to conflicts or choice of laws. 8.4 Modification and Amendment. This Agreement may not be changed, -------------------------- modified, discharged or amended, except by an instrument signed by all of the parties hereto. 12 8.5 Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be an original, but all of which together shall constitute one and the same instrument. 8.6 Entire Agreement. This Agreement constitutes the entire ---------------- agreement and understanding among the parties and supersedes any prior understandings and/or written or oral agreements among them respecting the subject matter herein. 8.7 Notices. All notices, requests, demands, consents and other ------- communications required or permitted to be given pursuant to this Agreement shall be in writing and delivered by hand, by overnight courier delivery service or by certified mail, return receipt requested, postage prepaid. Notices to Investor shall be made to the address listed on the stock transfer records of Company. Notices to Company shall be made to the address for Company specified on the signature page hereof, or to such other address as shall be designated by Company in a written notice to Investor complying as to delivery with the terms of this Section 8.7. IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed as of the day and year first above written. PACIFIC GULF PROPERTIES INC. By: /s/ GLENN L. CARPENTER ---------------------------------- Name: Glenn L. Carpenter Title: President Address: 363 San Miguel Drive, Suite 100 Newport Beach, California 92660 Attention: Chief Executive Officer SANTA ANITA REALTY ENTERPRISES, INC. By: /s/ GLENN L. CARPENTER ----------------------------------- Name: Glenn L. Carpenter Title: President Address: 285 W. Huntington Drive Arcadia, California 91006 Attention: Chief Executive Officer 13 EX-10.25 13 EXHIBIT 10.25 EXHIBIT 10.25 ------------- Employment Agreement -------------------- This Employment Agreement (the "Agreement") is entered into by and between Santa Anita Realty Enterprises, Inc. (the "Company") and Sherwood C. Chillingworth (the "Executive"), as of the 16th day of March 1994. I. RECITALS -------- WHEREAS, the Company desires to employ the Executive as its Chief Executive Officer; WHEREAS, the Company desires that the Company's Chief Executive Officer be elected to the Company's Board of Directors and serve as Vice Chairman of the Company's Board of Directors; and WHEREAS, the Company will use its best efforts to see that the Executive is elected to the Company's Board of Directors and is further appointed Vice Chairman of the Company's Board of Directors; and NOW, THEREFORE, the Company and the Executive desire to set forth in this Agreement the terms and conditions of the Executive's employment with the Company. 1 II. EFFECTIVENESS OF AGREEMENT. -------------------------- This Agreement shall be effective upon the approval of the Compensation Committee for the Company. The Company shall notify the Executive promptly in writing following such approval. III. EMPLOYMENT. ---------- The Company hereby employs the Executive and the Executive hereby accepts such employment, upon the terms and conditions hereinafter set forth, from March 16, 1994, to and including June 30, 1996. IV. DUTIES. ------ A. The Executive shall serve during the course of his employment as Chief Executive Officer of the Company, and shall have such other duties and responsibilities as are customarily required of such officer and as the Board of Directors of the Company shall determine from time to time. B. The Executive agrees to devote substantially two thirds of his time, energy and ability to the business of the Company. Nothing herein shall prevent the Executive, upon written approval of the Board of Directors of the Company, from serving as a director or trustee of other corporations or 2 businesses which are not in competition with the business of the Company or in competition with any present or future affiliate of the Company. C. The Company acknowledges and agrees that, in addition to the Executive's duties to the Company, the Executive shall have duties and responsibilities to the Oaktree Racing Association, to which the Company agrees the Executive may devote substantially one third of his time, energy and ability. D. Nothing herein shall prevent the Executive from investing in real estate for his own account or from becoming a partner or a stockholder in any corporation, partnership or other venture not in competition with the business of the Company or in competition with any present or future affiliate of the Company. E. For the term of this Agreement, the Executive shall report to the Board of Directors of the Company or its designee. V. COMPENSATION. ------------ A. Base Salary. The Company shall pay the Executive a base salary at the ----------- rate of $160,000 per year. Such salary shall be earned monthly and shall be payable in periodic 3 installments no less frequently than monthly in accordance with the Company's customary practices. Amounts payable shall be reduced by standard withholding and other authorized deductions. The Company will review the Executive's salary at least annually. The Company may in its discretion increase the Executive's salary but may not reduce it during the period of this Agreement. B. Stock Options. The effectiveness of this Agreement is contingent upon ------------- the Executive's being granted certain stock options by the Compensation Committee for the Company on the date that it approves this Agreement, which options shall have the characteristics described below. Pursuant to the terms of the Company's 1984 Stock Option Program (the "Plan"), effective as of the date hereof, the Compensation Committee shall grant on behalf of the Company to the Executive options to purchase 30,000 shares of the Company's common stock (the "Options"). The Options shall be issued at a price equal to the fair market value of the Company's common stock on the date of the grant of such Options by the Compensation Committee. The Options agreement shall also provide that, if the Executive's employment is terminated by death or Disability, by the Company for other than Cause, or by the Executive for Good Reason, the Options not previously vested shall automatically vest as of the date of termination and the Executive shall have the right, for a period of 90 days following the date of termination, to exercise the Options. 4 The Company shall notify the Executive promptly in writing of the approval of the options by the Compensation Committee for the Company. C. Annual Bonus, Incentive, Savings and Retirement Plans. The Executive ----------------------------------------------------- shall be entitled to participate in all annual bonus, incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company. In determining bonus and incentive awards, the Compensation Committee will consider the Executive's success in accomplishing goals with respect to the Company which have been discussed in hiring the Executive. These goals include, but are not limited to: a. stabilizing the corporate operation; b. staffing; c. executing a move of Company headquarters from Santa Ana to Arcadia, California; d. success in improving the balance sheet and profit and loss statement for the Company; and e. success in planning development projects for properties owned by the Company, in obtaining governmental approvals and in achieving progress in obtaining government approvals relevant to their success. 5 D. Vehicle Allowance. The Executive shall be entitled to be paid a ----------------- vehicle allowance in the amount of $600 per month (subject to any required withholding), payable in accordance with the Company's customary practices. E. Club Membership Dues Allowance. The Executive shall be entitled to be ------------------------------ paid a club membership dues allowance in the amount of $250 per month (subject to any required withholding), payable in accordance with the Company's customary practices. F. Welfare Benefit Plans. The Executive and/or his family, as the case --------------------- may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company. G. Expenses. The Executive shall be entitled to receive prompt -------- reimbursement for all reasonable employment expenses incurred by him in accordance with the policies, practices and procedures as in effect generally with respect to other peer executives of the Company. 6 H. Fringe Benefits. The Executive shall be entitled to fringe benefits --------------- in accordance with the plans, practices, programs and policies as in effect generally with respect to other peer executives of the Company. I. Vacation. The Executive shall be entitled to paid vacation in -------- accordance with the plans, policies, programs and practices as in effect generally with respect to other peer executives of the Company. VI. TERMINATION. ----------- A. Death or Disability. (i) Death. The Executive's employment shall ------------------- ----- terminate automatically upon the Executive's death. (ii) Disability. If the ---------- Company determines in good faith that the Disability of the Executive has occurred (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section XVI of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the day of receipt of such notice by the Executive. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from his duties with the Company on the basis provided in this agreement for a period of 3 months as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or 7 its insurers and acceptable to the Executive or his legal representative (such agreement as to acceptability not to be withheld unreasonably). "Incapacity" as used herein shall be limited only to such Disability which substantially prevents Company from availing itself of the services of the Executive. B. Cause. The Company may terminate the Executive's employment for ----- Cause. For purposes of this Agreement, "Cause" shall mean that the Company, acting in good faith based upon the information then known to the Company, after due inquiry, and upon reasonable grounds, determines that the Executive (i) shall have been convicted of a felony, or a misdemeanor, which misdemeanor materially impairs the Executive's ability to perform his duties, or (ii) has acted or failed to act in connection with his employment in such manner as would constitute gross negligence or willful misconduct. C. Other than Cause or Death or Disability. The Company may terminate --------------------------------------- the Executive's employment at any time, with or without Cause, upon 90 days' written notice. D. Obligations of the Company Upon Termination. ------------------------------------------- 1. Death or Disability. If the Executive's employment is terminated ------------------- by reason of the Executive's Death or Disability, this Agreement shall terminate without further obligations to the Executive or his legal representatives 8 under this Agreement, other than for (a) payment of the sum of (i) the Executive's annual base salary through the date of termination to the extent not theretofore paid, (ii) reasonable employment expenses, vehicle allowances and club membership dues allowances, as provided herein, through the date of termination to the extent not theretofore paid and (iii) any accrued vacation pay to the extent not theretofore paid (the sum of the amounts described in clauses (i), (ii) and (iii) shall be hereinafter referred to as the "Accrued Obligations"), which shall be paid to the Executive or his estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the date of termination and (b) payment to the Executive or his estate or beneficiary, as applicable, any amounts due pursuant to the terms of any applicable welfare or pension benefit plans. 2. Cause. If the Executive's employment is terminated by the ----- Company for Cause, this Agreement shall terminate without further obligations to the Executive other than for the timely payment of Accrued Obligations and any amounts due pursuant to the terms of any applicable welfare or pension benefit plans. If it is subsequently determined that the Company did not have cause for termination under this Section VI-D-2, then the Company's decision to terminate shall be deemed to have been made under Section VI-D-3 and the amounts payable thereunder shall be the only amounts the Executive may 9 receive for his termination, rather than the amounts payable pursuant to this Section VI-D-2. 3. Other than Cause or Death or Disability. If the Company --------------------------------------- terminates the Executive's employment for other than Cause or Death or Disability, this Agreement shall terminate without further obligations to the Executive other than (a) the timely payment of Accrued Obligations, (b) payment of any amounts due pursuant to the terms of any applicable welfare or pension benefit plans and (c) payment to the Executive of a lump sum equal to 112% of his current annual salary rate, less standard withholdings and other authorized deductions (the lump sum equal to 112% of current annual salary shall be referred to herein as the "112% Obligation"). The 112% Obligation shall be reduced to an amount not less than zero by any cash lump sum severance payment received by the Executive pursuant to any severance agreement between the Executive and the Company. 4. Voluntary Termination for Good Reason. If the Executive ------------------------------------- voluntarily terminates his employment with the Company for Good Reason, this Agreement shall terminate in the same manner as if the Company terminated the Executive's employment for other than Cause under Section VI-D-3. For purposes of this Section VI-D-4, "Good Reason" shall mean the occurrence of one of the following events without the Executive's consent: 10 a. Any action by the Company which results in a material diminution in the Executive's position, authority, duties or responsibilities, including for this purpose any material change in the Executive's employment location, and excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; b. Any reduction in the Executive's base compensation not agreed to by the Executive, which reduction shall be deemed to occur if there is (1) a reduction in the Executive's base salary or (2) a material reduction in the Executive's ability to participate in employee benefit plans, receive expense reimbursements, receive other fringe benefits, receive office and support staff, or receive paid vacation, provided that: (1) an isolated, insubstantial, and inadvertent failure not occurring in bad faith and which is promptly remedied after notice by the Executive shall not be deemed a violation of this paragraph; and (2) a reduction in one element of the Executive's total compensation shall not be deemed a violation of this paragraph if a counterbalancing increase in another element of the Executive's total compensation occurs (the determination of whether the increase is counterbalancing shall be determined by the Executive in good faith). 11 E. Exclusive Remedy. By signing the Agreement, the Executive agrees that ---------------- the payments to which the Executive may become entitled under this Agreement are in lieu of any other payments to which the Executive might be entitled and that the Company's discharge of its obligations under this Agreement shall constitute full satisfaction of any and all claims of any nature whatsoever that the Executive might otherwise possess against the Company and its subsidiaries, except (1) such claims as are specifically provided for in the terms of any generally applicable employee benefit or executive compensation plans evidenced by written agreements or (2) any claims for personal injuries (other than claims that are based on or relate to a contention that Company has wrongfully discharged the Executive). VII. ARBITRATION. ----------- Any controversy or claim arising out of or relating to this Agreement, its enforcement or interpretation, or because of an alleged breach, default, or misrepresentation in connection with any of its provisions, shall be submitted to arbitration, to be held in Los Angeles County, California in accordance with California Civil Procedure Code, Title 9, (S)(S) 1280-1298.8. The arbitrator shall be selected jointly by the parties or by Judicial Arbitration & Mediation Services, Inc. ("JAMS"). Each party to the arbitration shall bear its own attorneys' fees and costs relating to such arbitration. 12 VIII. CONFIDENTIAL INFORMATION. ------------------------ The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during his employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or his representatives in violation of this Agreement). After termination of the Executive's employment with the Company, he shall not, without the prior written consent of the Company, or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. IX. SUCCESSORS. ---------- A. This Agreement is personal to the Executive and shall not, without the prior written consent of the Company, be assignable by the Executive. B. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns and any such successor or assignee shall be deemed substituted for the Company under the terms of this Agreement for all 13 purposes. As used herein, "successor" and "assignee" shall include any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires the stock of the Company or to which the Company assigns this Agreement by operation of law or otherwise. X. WAIVER. ------ No waiver of any breach of any term or provision of this Agreement shall be construed to be, nor shall be, a waiver of any other breach of this Agreement. No waiver shall be binding unless in writing and signed by the party waiving the breach. XI. MODIFICATION. ------------ This Agreement may not be amended or modified other than by a written agreement executed by the Executive and the Board of Directors of the Company. XII. SAVINGS CLAUSE. -------------- If any provision of this Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of the Agreement which can be given effect without the invalid provisions or applications and to 14 this end the provisions of this Agreement are declared to be severable. XIII. COMPLETE AGREEMENT. ------------------ This instrument constitutes and contains the entire agreement and understanding concerning the Executive's employment and the other subject matters addressed herein between the parties, and supersedes and replaces all prior negotiations and all agreements proposed or otherwise, whether written or oral, concerning the subject matters hereof. This is an integrated document. XIV. GOVERNING LAW. ------------- This Agreement shall be deemed to have been executed and delivered within the State of California, and the rights and obligations of the parties hereunder shall be construed and enforced in accordance with, and governed by, by the laws of the State of California without regard to principles of conflict of laws. XV. CONSTRUCTION. ------------ Each party has cooperated in the drafting and preparation of this Agreement. Hence, in any construction to be made of this Agreement, the same shall not be construed against any 15 party on the basis that the party was the drafter. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. XVI. COMMUNICATIONS. -------------- All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered or if mailed by registered or certified mail, postage prepaid, addressed to the Executive at 2490 Cumberland Road, San Marino, California 91108 or addressed to the Company at 285 Huntington Drive, Arcadia, California 91007. Either party may change the address at which notice shall be given by written notice given in the above manner. XVII. EXECUTION. --------- This Agreement is being executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Photographic copies of such signed counterparts may be used in lieu of the originals for any purpose. 16 XVIII. LEGAL COUNSEL. ------------- The Executive and the Company recognize that this is a legally binding contract and acknowledge and agree that they 17 have had the opportunity to consult with legal counsel of their choice. In witness whereof, the parties hereto have executed this Agreement as of the date first above written. SANTA ANITA REALTY ENTERPRISES, INC. SHERWOOD C. CHILLINGWORTH /s/ SHERWOOD C. CHILLINGWORTH By /s/ STEPHEN F. KELLER ----------------------------------- --------------------------------- Its Chairman ----------------------------------- 18 EX-23.1 14 EXHIBIT 23.1-1 EXHIBIT 23.1-1 -------------- CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference of our report dated March 1, 1994 accompanying the financial statements and schedules of: (a) Santa Anita Realty Enterprises, Inc.: (b) Santa Anita Operating Company and Subsidiaries; and (c) Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company and Subsidiaries Combined. appearing in the above-listed entities' Annual Report on Form 10-K for the year ended December 31, 1993, in the Prospectus contained in Post-Effective Amendment No. 3 to Joint Registration Statement on Form S-8 (No. 2-95226) and Registration Statement on Form S-8 (No. 33-51843). KENNETH LEVENTHAL & COMPANY Newport Beach,California March 28, 1994 EXHIBIT 23.1-2 -------------- CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Joint Registration Statement on Form S-8 (No. 2-96228), as amended through Post-Effective Amendment No. 3 and Registration Statement on Form S-8 (No. 33-51843) and in the Prospectus, related thereto, of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company of our report dated January 28, 1993, accompanying the 1992 consolidated financial statements of H-T Associates and Subsidiary appearing in 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, 1993. KENNETH LEVENTHAL & COMPANY Newport Beach, California March 28, 1994 EX-23.2 15 EXHIBIT 23.2 EXHIBIT 23.2 ------------ CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Joint Registration Statement on Form S-8 (No. 2-93238), as amended through Post-Effective Amendment No. 3 and Registration Statement on Form S-8 (No. 33-51843) and in the Prospectus related thereto, of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company of our report dated February 3, 1992 accompanying the 1991 consolidated statements of operations, partners' capital and cash flows of H-T Associates and Subsidiary appearing in 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, 1993. DELOITTE & TOUCHE San Diego, California March 25, 1994 EX-23.3 16 EXHIBIT 23.3 EXHIBIT 23.3 ------------ CONSENT OF INDEPENDENT AUDITORS The Board of Directors Santa Anita Realty Enterprise, Inc. and Santa Anita Operating Company: We consent to incorporation by reference in the Joint Registration Statement (No. 2-95228) on Form S-8, as amended through Post-Effective Amendment No. 3 and Registration Statement on Form S-8 (No. 33-51843) and in the Prospectus, related thereto, of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company of our report dated February 11, 1994, related to the consolidated balance sheet of H-T Associates and subsidiary as of December 31, 1993, and the related consolidated statements of operations, partners' capital and cash flows for the year ended, which report appears in the December 31, 1993 Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company. KPMG PEAT MARWICK San Diego, California March 28, 1994 -----END PRIVACY-ENHANCED MESSAGE-----