<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] JOINT QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 _______________
<TABLE>
<S> <C> <C> <C>
Commission File Number 1-9319 Commission File Number 1-9320
CALIFORNIA JOCKEY CLUB BAY MEADOWS OPERATING COMPANY
- --------------------------------------------------------------- --------------------------------------------------------------
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
Delaware 94-0358820 Delaware 94-2878485
- ---------------------------------------------------------------- -------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer (State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.) incorporation or organization) Identification No.)
94-0358820 94-2878485
- ---------------------------------------------------------------- -------------------------------------------------------------
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
2600 S. Delaware Street, San Mateo, California 94403 2600 S. Delaware Street, San Mateo, California 94402
- ---------------------------------------------------------------- -------------------------------------------------------------
(Address of principal executive offices) (Zip Code) (Address of principal executive offices) (Zip Code)
(415) 573-4514 (415) 574-7223
- ---------------------------------------------------------------- -------------------------------------------------------------
(Registrant's telephone number, including area code) (Registrant's telephone number, including area code)
Not Applicable Not Applicable
- ---------------------------------------------------------------- -------------------------------------------------------------
(Former name, former address and former fiscal year, if changed (Former name, former address and former fiscal year, if
changed since last report) since last report)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
--- ---
The number of shares outstanding of each registrant's classes of common stock,
par value $.01 per share, as of the close of business on May 2, 1997, was as
follows:
<TABLE>
<CAPTION>
Registrant Number of Shares
---------- ----------------
<S> <C>
California Jockey Club 5,763,257
Bay Meadows Operating Company 5,763,257
</TABLE>
-1-
<PAGE> 2
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CALIFORNIA JOCKEY CLUB AND
BAY MEADOWS OPERATING COMPANY AND SUBSIDIARY
SEPARATE AND COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BAY MEADOWS
CALIFORNIA OPERATING
JOCKEY COMPANY AND
CLUB SUBSIDIARY ELIMINATIONS COMBINED
<S> <C> <C> <C> <C>
REVENUES:
Pari-mutuel revenue $ 17,099 $ 17,099
Producer fees 321 321
Admissions, programs, parking and other racing income 1,626 1,626
Concession sales 1,063 1,063
Rental of racing facility $ 1,660 160 $ (1,660) 160
Interest and dividend income 112 49 (24) 137
Other income 2 183 185
---------- ----------- ------------ ---------
Total 1,774 20,501 (1,684) 20,591
---------- ----------- ------------ ---------
COSTS AND EXPENSES:
Purses and incentive awards 7,240 7,240
Commissions paid to guest tracks 1,089 1,089
Direct operating costs 6,608 6,608
Cost of concession sales 329 329
Depreciation and amortization 239 181 420
Racing facility rental 1,666 (1,660) 6
Marketing 465 465
General and administrative expense 155 728 (24) 859
Legal expenses 62 201 263
Merger related costs 299 131 430
---------- ----------- ------------ ---------
Total 755 18,638 (1,684) 17,709
---------- ----------- ------------ ---------
INCOME BEFORE INCOME TAX PROVISION 1,019 1,863 2,882
INCOME TAX PROVISION 748 748
NET INCOME $ 1,019 $ 1,115 $ - $ 2,134
========== =========== ============ =========
NET INCOME PER SHARE $ .18 $ .19 $ .37
========== =========== =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,763,257 5,763,257 5,763,257
========= ========= =========
</TABLE>
See Notes to Financial Statements.
-2-
<PAGE> 3
CALIFORNIA JOCKEY CLUB AND
BAY MEADOWS OPERATING COMPANY AND SUBSIDIARY
SEPARATE AND COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BAY MEADOWS
CALIFORNIA OPERATING
JOCKEY COMPANY AND
CLUB SUBSIDIARY ELIMINATIONS COMBINED
<S> <C> <C> <C> <C>
REVENUES:
Pari-mutuel revenue $ 22,833 $ 22,833
Producer fees 398 398
Admissions, programs, parking and other racing income 1,935 1,935
Concession sales 855 855
Rental of racing facility $ 2,212 140 $(2,212) 140
Interest and dividend income 123 86 (4) 205
Other income 3 445 448
---------- ---------- ------------ -------
Total 2,338 26,692 (2,216) 26,814
---------- ---------- ------------ -------
COSTS AND EXPENSES:
Purses and incentive awards 9,634 9,634
Commissions paid to guest tracks 1,599 1,599
Direct operating costs 8,071 8,071
Cost of concession sales 233 233
Depreciation and amortization 230 166 396
Racing facility rental 2,218 (2,212) 6
Marketing 611 611
General and administrative expense 130 889 (4) 1,015
Legal expenses 47 136 183
---------- ---------- ------------ -------
Total 407 23,557 (2,216) 21,748
---------- ---------- ------------ -------
INCOME BEFORE INCOME TAX PROVISION 1,931 3,135 5,066
INCOME TAX PROVISION 1,258 1,258
---------- ---------- ------------ -------
NET INCOME $ 1,931 $ 1,877 $ - $ 3,808
========== ========== ============ =======
NET INCOME PER SHARE $ .34 $ .33 $ .66
========== ========== =======
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,763,257 5,763,257 5,763,257
========== ========== =======
</TABLE>
See Notes to Financial Statements.
-3-
<PAGE> 4
CALIFORNIA JOCKEY CLUB AND
BAY MEADOWS OPERATING COMPANY AND SUBSIDIARY
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,708 $ 2,027
Securities available for sale (at fair value) 5,609 2,612
Securities held to maturity (at cost) 4,463
Amounts held on deposit for Thoroughbred horse owners 471
Accounts receivable (net of allowance for doubtful accounts of
$77 in 1997 and 1996) 1,269 527
Prepaid expenses 160 525
-------- --------
Total current assets 15,217 10,154
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 1,851 691
Land held for sale 3,604 3,083
Racing plant 24,301 24,177
Tennis facility held for sale 308 308
Equipment and leasehold improvements 11,248 11,032
-------- --------
Total 41,312 39,291
Accumulated depreciation and amortization (22,512) (22,092)
-------- --------
Property, plant and equipment - net 18,800 17,199
-------- --------
OTHER ASSETS (net of accumulated amortization of
$1,374 in 1997 and 1996) 102 96
-------- --------
DEFERRED INCOME TAXES 227 227
-------- --------
TOTAL ASSETS $ 34,346 $ 27,676
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,424 $ 1,328
Accrued liabilities 2,959 1,983
Note payable 2,900 2,900
Accrued purses 884
Due to Thoroughbred horse owners 471
-------- --------
Total current liabilities 10,638 6,211
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value, authorized 10,000,000 shares;
issued and outstanding 5,763,257 shares 116 116
Additional paid in capital 18,385 18,385
Retained earnings 3,884 1,750
Unrealized gain on securities available for sale 1,323 1,214
-------- --------
Total stockholders' equity 23,708 21,465
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 34,346 $ 27,676
======== ========
</TABLE>
-4-
<PAGE> 5
CALIFORNIA JOCKEY CLUB AND
BAY MEADOWS OPERATING COMPANY AND SUBSIDIARY
SEPARATE AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BAY MEADOWS
CALIFORNIA OPERATING
JOCKEY COMPANY AND
CLUB SUBSIDIARY ELIMINATIONS COMBINED
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $19,781 $ 1,684 $ 21,465
Net income 1,019 1,115 2,134
Unrealized gain on securities
available for sale 109 109
------- ------- -------
Balance at March 31, 1997 $20,909 $ 2,799 $23,708
======= ======= =======
</TABLE>
See Notes to Financial Statements.
-5-
<PAGE> 6
CALIFORNIA JOCKEY CLUB AND
BAY MEADOWS OPERATING COMPANY AND SUBSIDIARY
SEPARATE AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BAY MEADOWS
CALIFORNIA OPERATING
JOCKEY COMPANY AND
CLUB SUBSIDIARY ELIMINATIONS COMBINED
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $21,878 $ 1,229 $ 23,107
Net income 1,931 1,877 3,808
Unrealized gain on securities
available for sale 338 338
------- ------- -------
Balance at March 31, 1996 $24,147 $ 3,106 $27,253
======= ======= =======
</TABLE>
See Notes to Financial Statements.
-6-
<PAGE> 7
CALIFORNIA JOCKEY CLUB AND
BAY MEADOWS OPERATING COMPANY AND SUBSIDIARY
COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,134 $ 3,808
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 420 396
Changes in operating assets and liabilities:
Accounts receivable (742) 960
Amounts held on deposit for Thoroughbred horse owners (471) 3,054
Income taxes receivable and payable 520 1,165
Prepaid expenses and other current assets 359 (153)
Accounts payable 2,096 (1,832)
Accrued liabilities 456 340
Accrued purses 884 (465)
Due to Thoroughbred horse owners 471 (3,054)
Uncashed pari-mutuel tickets and vouchers 0 (4,381)
------- -------
Net cash provided by (used in) operating activities 6,127 (162)
======= =======
INVESTING ACTIVITIES:
Purchase of securities held to maturity (2,000) (3,638)
Maturities of securities held to maturity 3,575 3,375
Purchase of property, plant and equipment (2,021) (753)
------- -------
Net cash used in investing activities (446) (1,016)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,681 (1,178)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,027 7,307
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,708 $ 6,129
======= =======
</TABLE>
See Notes to Financial Statements.
-7-
<PAGE> 8
CALIFORNIA JOCKEY CLUB
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,323 $ 1,138
Securities available for sale (at fair value) 5,609 2,612
Securities held to maturity (at cost) 0 4,463
Accounts receivable 8 36
Receivable from Bay Meadows Operating Company 1,458 2,332
Prepaid expenses 0 3
-------- --------
Total current assets 10,398 10,584
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 1,851 691
Land held for sale 3,604 3,083
Racing plant 24,301 24,177
Tennis facility held for sale 308 308
Equipment 460 460
-------- --------
Total 30,524 28,719
Accumulated depreciation (16,168) (15,929)
-------- --------
Property, plant and equipment - net 14,356 12,790
-------- --------
TOTAL ASSETS $ 24,754 $ 23,374
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 150 $ 184
Accrued liabilities 795 509
Note payable 2,900 2,900
-------- --------
Total current liabilities 3,845 3,593
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value, authorized 10,000,000 shares;
issued and outstanding 5,763,257 shares 58 58
Additional paid in capital 17,597 17,597
Retained earnings 1,931 912
Unrealized gain on securities available for sale 1,323 1,214
-------- --------
Total stockholders' equity 20,909 19,781
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,754 $ 23,374
======== ========
</TABLE>
See Notes to Financial Statements.
-8-
<PAGE> 9
CALIFORNIA JOCKEY CLUB
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,019 $ 1,931
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 239 230
Changes in operating assets and liabilities:
Accounts receivable 28 (1)
Receivable from Bay Meadows Operating Company 874 (1,439)
Prepaid expenses and other assets 3 0
Accounts payable (34) 43
Accrued liabilities 286 (27)
------- -------
Net cash provided by operating activities 2,415 737
------- -------
INVESTING ACTIVITIES:
Purchase of securities held to maturity (2,000) (3,638)
Maturities of securities held to maturity 3,575 3,375
Purchase of property, plant and equipment (1,805) (116)
------- -------
Net cash used in investing activities (230) (379)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 2,185 358
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,138 989
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,323 $ 1,347
======= =======
</TABLE>
See Notes to Financial Statements.
-9-
<PAGE> 10
BAY MEADOWS OPERATING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,385 $ 889
Amounts held on deposit for Thoroughbred horse owners 471 0
Accounts receivable (net of allowance for doubtful accounts of $77 in 1997 and 1996) 1,261 491
Prepaid expenses and other current assets 160 522
-------- --------
Total current assets 6,277 1,902
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Equipment and leasehold improvements 10,788 10,572
Accumulated depreciation and amortization (6,344) (6,163)
-------- --------
Property, plant and equipment - net 4,444 4,409
-------- --------
OTHER ASSETS (net of accumulated amortization of $1,374 in 1997 and 1996) 102 96
-------- --------
DEFERRED INCOME TAXES 227 227
-------- --------
TOTAL ASSETS $ 11,050 $ 6,634
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,274 $ 1,144
Accrued liabilities 2,164 1,474
Accrued purses 884 0
Due to Thoroughbred horse owners 471 0
Payable to California Jockey Club 1,458 2,332
-------- --------
Total current liabilities 8,251 4,950
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock .01 par value authorized 10,000,000 shares; issued and outstanding:
5,763,257 shares 58 58
Additional paid in capital 788 788
Retained earnings 1,953 838
-------- --------
Total stockholders' equity 2,799 1,684
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,050 $ 6,634
======== ========
</TABLE>
See Notes to Financial Statements.
-10-
<PAGE> 11
BAY MEADOWS OPERATING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,115 $ 1,877
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 181 166
Changes in operating assets and liabilities:
Accounts receivable (770) 961
Amounts held on deposit for Thoroughbred horse owners (471) 3,054
Income taxes receivable and payable 520 1,165
Prepaid expenses and other assets 356 (153)
Accounts payable 2,130 (1,875)
Accrued liabilities 170 367
Accrued purses 884 (465)
Due to Thoroughbred horse owners 471 (3,054)
Payable to California Jockey Club (874) 1,439
Uncashed pari-mutuel tickets and vouchers 0 (4,381)
------- -------
Net cash provided by (used in) operating activities 3,712 (899)
------- -------
INVESTING ACTIVITIES - Purchase of
property, plant and equipment (216) (637)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,496 (1,536)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 889 6,318
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,385 $ 4,782
======= =======
</TABLE>
See Notes to Financial Statements.
-11-
<PAGE> 12
CALIFORNIA JOCKEY CLUB AND BAY MEADOWS
OPERATING COMPANY AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements include condensed
unaudited financial statements of California Jockey Club ("Cal Jockey")
and Bay Meadows Operating Company ("Bay Meadows") on a combined basis and
for each company individually. All significant affiliate and intercompany
balances and transactions have been eliminated on the combined financial
statements. The accompanying condensed unaudited financial statements
should be read in conjunction with the companies' 1996 Annual Report. Net
income per share is computed as net income divided by weighted average
shares outstanding. Certain prior year amounts have been reclassified to
conform to the 1997 presentation.
In the opinion of management, all adjustments (consisting of only
recurring adjustments) considered necessary for a fair presentation of the
financial condition and results of operations for Cal Jockey and Bay
Meadows individually, have been included in the financial statements. The
results of operations for the three months ended March 31, 1997, are not
indicative of the results that may be expected for the year ending
December 31, 1997, because of the seasonal nature of the operations.
2. NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings
per Share. SFAS 128 requires dual presentation of basic EPS and diluted
EPS on the face of all income statements issued after December 15, 1997
for all entities with complex capital structures. Basis EPS is computed as
net income divided by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
that could occur from common shares issuable through stock options,
restricted stock, warrants and other convertible securities. The Companies
do not anticipate the effect of the adoption of SFAS 128 on earnings per
share to be material.
3. PROPOSED MERGER AGREEMENT
On October 31, 1996, Cal Jockey and Bay Meadows entered into a merger
agreement with Patriot American Hospitality, Inc. ("Patriot"). The
acquisition agreement was approved unanimously by the Boards of Patriot,
Cal Jockey, and Bay Meadows and is subject to approval by the shareholders
of each of Patriot, Cal Jockey and Bay Meadows. The parties, together with
Patriot American Hospitality Partnership, L.P., a limited partnership (the
"Patriot Partnership"), thereafter entered into an Agreement and Plan of
Merger, dated as of February 24, 1997 (the "Merger Agreement"), which by
its terms supersedes the October 31, 1996 Agreement and more fully details
the transactions to be consummated by the parties.
Pursuant to the Merger Agreement, Patriot will merge with and into Cal
Jockey, with Cal Jockey being the surviving company. In connection with
the Merger, Cal Jockey's name will be changed to "Patriot American
Hospitality, Inc." ("New Patriot REIT") and Bay Meadows' name will be
changed to "Patriot American Hospitality Operating Company" ("New Patriot
Operating Company"). The shareholders of Cal Jockey and Bay Meadows will
have the option either to tender each of their paired
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<PAGE> 13
shares for $33.00 in cash or to retain their paired shares, which will
then remain outstanding after the Merger and will represent the same
number of paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock.
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" below includes "forward-looking statements"
within the meaning of Section 21E of the Securities and Exchange act of 1934, as
amended, and is subject to the safe harbor created by that section. Readers are
cautioned not to place undue reliance on these forward-looking statements and to
note that they speak only as of the date hereof. Factors that realistically
could cause actual results to differ materially from those in the
forward-looking statements are set forth below and include the following:
nonconsummation of the Merger Agreement, Agreement of Purchase and Sale dated
May 31, 1995 between Property Resources, Inc. and Cal Jockey, as amended (the
"Franklin Agreement") or Agreement of Purchase and Sale, dated December 1995,
with Iacocca & Associates, Inc., as amended (the "Iacocca Agreement"), failure
to secure the necessary governmental approvals to construct new stalls at the
Racecourse, as well as the risk factors set forth in this Item 2.
THE PATRIOT TRANSACTION
On October 31, 1996, Cal Jockey and Bay Meadows entered into a merger agreement
(the "October 31, 1996 Agreement") with Patriot American Hospitality, Inc.
("Patriot"). The parties, together with Patriot American Hospitality
Partnership, L.P., a limited partnership (the "Patriot Partnership"), thereafter
entered into an Agreement and Plan of Merger, dated as of February 24, 1997 (the
"Merger Agreement"), which by its terms supersedes the October 31, 1996
Agreement and more fully details the transactions to be consummated by the
parties. The Merger Agreement was approved unanimously by the Boards of Patriot,
Cal Jockey and Bay Meadows and is subject to approval by the shareholders of
each of Patriot, Cal Jockey and Bay Meadows.
Pursuant to the Merger Agreement, Patriot will merge with and into Cal Jockey
(the "Merger"), with Cal Jockey being the surviving company. In connection with
the Merger, Cal Jockey's name will be changed to "Patriot American Hospitality,
Inc." ("New Patriot REIT") and Bay Meadows' name will be changed to "Patriot
American Hospitality Operating Company" ("New Patriot Operating Company").
Patriot stockholders will be entitled to receive for each share of common stock,
no par value per share, of Patriot ("Patriot Common Stock") held by them at the
effective time of the Merger, as adjusted as a result of the two-for-one split
of Patriot stock announced in February 1997, 0.519 shares of common stock, par
value $.01 per share, of New Patriot REIT ("New Patriot REIT Common Stock") and
0.519 shares of common stock, par value $.01 per share, of New Patriot Operating
Company ("New Patriot Operating Company Common Stock") (subject to certain REIT
qualification requirements), which shares will be paired and transferable only
as a single unit. In addition, each outstanding Paired Share which is not
tendered pursuant to the joint self tender offer of Cal Jockey and Bay Meadows
(as described below), will remain outstanding after the Merger and will, without
any action on the part of the stockholders of Cal Jockey and Bay Meadows,
represent the same number of paired shares of New Patriot REIT Common Stock and
New Patriot Operating Company Common Stock.
In connection with the Merger, Bay Meadows will form an operating partnership
(the "New Patriot Operating Partnership") into which Bay Meadows will contribute
its assets in exchange for limited partnership units of the New Patriot
Operating Partnership, and Cal Jockey will contribute certain of its assets to
the Patriot Partnership in exchange for limited partnership units of the Patriot
Partnership. Upon completion of the Merger and the transactions contemplated by
the Merger Agreement (the "Related Transactions"), substantially all of the
operations of New Patriot REIT and New Patriot Operating Company will be
conducted through their respective operating partnerships. The Board of
Directors of each of Patriot, Cal Jockey and Bay Meadows has approved the
October 31, 1996 Agreement, the Merger Agreement and the Related
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<PAGE> 14
Transactions, including, without limitation, the Merger, the Subscription (as
hereinafter defined), the issuance of up to approximately 30,500,000 shares of
Cal Jockey Common Stock and 30,500,000 shares of Bay Meadows Common Stock, the
contribution of the assets of Bay Meadows to the New Patriot Operating
Partnership and the contribution of certain of the assets of Cal Jockey to the
Patriot Partnership.
THE SUBSCRIPTION. By operation of the Merger, each issued and outstanding share
of Patriot Common Stock will be converted into the right to receive 0.519
shares of New Patriot REIT Common Stock subject to certain REIT qualification
requirements described below. The Patriot Partnership will, in connection with
the Merger, subscribe (the "Subscription") for shares of Bay Meadows Common
Stock (which in connection with the Merger will become New Patriot Operating
Company Common Stock) (the "Subscribed Shares") in an amount equal to the number
of shares of New Patriot REIT Common Stock that will be issued to Patriot
stockholders in the Merger. Immediately prior to the Merger, the Patriot
Partnership will fund the Subscription and Patriot and the Patriot Partnership
will designate the Patriot stockholders as the recipients of the Subscribed
Shares, in compliance with the Pairing Agreement, on the basis of 0.519
Subscribed Shares for each share of Patriot Common Stock outstanding at the
Effective Time, subject to certain REIT qualification requirements described
below. The result of the Merger and the Subscription will be that Patriot
stockholders will have the right to receive 0.519 shares of New Patriot REIT
Common Stock and 0.519 shares of New Patriot Operating Company Common Stock,
subject to certain REIT qualification requirements described below, for each
share of Patriot Common Stock held by them at the Effective Time, which shares
of New Patriot REIT Common Stock and New Patriot Operating Company Common Stock
will be paired and transferable only as a single unit.
So that New Patriot REIT will continue to qualify and maintain REIT status, the
Amended and Restated Certificates of Incorporation of New Patriot REIT and New
Patriot Operating Company (the "Restated Charters") will provide that no person
or entity may own, or be deemed to own by virtue of certain attribution rules of
the Code, in excess of 9.8% (the "Ownership Limit") of the total outstanding
shares of any class or series of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock or preferred stock of New Patriot REIT or New
Patriot Operating Company. If any holder of Patriot Common Stock would receive
in the Merger and the Subscription a number of paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock which would cause
such holder or any other person or entity to own, or be deemed to own, paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company Common
Stock in excess of the Ownership Limit, then such holder shall acquire no right
or interest in such number of paired shares of New Patriot REIT Common Stock and
New Patriot Operating Company Common Stock that would cause such holder or any
other person or entity to exceed the Ownership Limit, but such holder shall, in
lieu of receiving those paired shares which would cause the Ownership Limit to
be exceeded (the "Excess Paired Shares"), have the right to be paid by New
Patriot REIT an amount in cash for such Excess Paired Shares equal to the
product of the fair market value per Excess Paired Share multiplied by the
number of such Excess Paired Shares.
THE SELF TENDER OFFER. In connection with the Merger, Cal Jockey and Bay Meadows
will commence a joint self tender offer (the "Offer") to purchase for cash at a
combined price of $33.00 per Paired Share up to that percentage of the issued
and outstanding Paired Shares of Cal Jockey Common Stock and Bay Meadows Common
Stock (subject to certain REIT qualification requirements) such that upon
consummation of the Merger the stockholders of Cal Jockey and Bay Meadows prior
to the Merger will own at least 1.0% of the paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock. The obligation of
Cal Jockey and Bay Meadows to accept for payment and pay for their respective
portion of the Paired Shares validly tendered and not withdrawn pursuant to the
Offer will be subject to the satisfaction or waiver of the conditions to the
Merger Agreement and the Merger becoming effective pursuant to the General
Corporation Law of the State of Delaware and the Virginia Stock Corporation Act.
The purpose of the Offer is to permit the holders of Paired Shares of Cal Jockey
Common Stock and Bay Meadows Common Stock to receive cash in the amount of
$33.00 per Paired Share if such holders do not wish to become holders of the
paired shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock after the Merger. On the fifth business day following the date Cal
Jockey and Bay Meadows publicly announce that all
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<PAGE> 15
of the conditions to the Merger Agreement have been satisfied or waived, the
Offer will expire and the acceptance for payment of the validly tendered Paired
Shares will occur. In the event the Merger Agreement is terminated in
accordance with its terms, the Offer will simultaneously terminate. On May 1,
1997, the closing price of the Paired Shares on the AMEX was $41.00.
FINANCING THE OFFER. Patriot will provide Cal Jockey and Bay Meadows with the
funds necessary to satisfy their payment obligations under the Offer by
borrowing the necessary amounts under its financing sources.
CONDITIONS TO THE MERGER AND THE OFFER. Consummation of the Merger and the
Offer is subject to various conditions (which must be satisfied or waived),
including: (i) approval of a proposal to adopt the Merger Agreement and the
Related Transactions, by the holders of two-thirds of the outstanding shares of
Patriot Common Stock, by the holders of a majority of the outstanding shares of
Cal Jockey Common Stock and by the holders of a majority of the outstanding
shares of Bay Meadows Common Stock; (ii) approval of a proposal to amend and
restate the Certificate of Incorporation of Cal Jockey and the Bylaws of Cal
Jockey by the holders of a majority of the outstanding shares of Cal Jockey
Common Stock; and (iii) approval of a proposal to amend and restate the
Certificate of Incorporation of Bay Meadows and the Bylaws of Bay Meadows by
the holders of a majority of the outstanding shares of Bay Meadows Common
Stock. These proposals are currently expected to be voted on at special
meetings to be held by the parties in June 1997. Although each of the
aforementioned proposals will be voted on separately, because each of the
proposals is a condition to closing, if any of the proposals is not adopted,
the parties will not be required to consummate the Offer, the Merger or any of
the Related Transactions. Prior to consummation of the Merger, Cal Jockey will
distribute to its stockholders a dividend in the amount of $0.10 per Paired
Share plus the amount per Paired Share equal to the proceeds generated from the
sale of Cal Jockey's 100,000 shares of Santa Anita Realty Enterprises, Inc.
stock, less the original purchase price for this stock, divided by the number of
Paired Shares outstanding. There can be no assurances that the proposal
conditions or other conditions to consummation of the Merger will be satisfied
or waived.
SALE TO PAINEWEBBER. Patriot and PaineWebber Incorporated ("PaineWebber") have
entered into an agreement that following the close of the Merger, an affiliate
of PaineWebber will purchase substantially all of the land of Cal Jockey,
including the land subject to the Franklin Agreement and Iacocca Agreement, for
a purchase price of $78.05 million. New Patriot REIT would retain ownership of
the improvements located on the land. Simultaneously with the consummation of
such purchase, the PaineWebber affiliate and New Patriot REIT would enter into a
ground lease covering that portion of land on which the Racecourse is situated
for a term of seven years. New Patriot REIT would then sublease the Racecourse
land and related improvements to New Patriot Operating Company.
GENERAL
Bay Meadows Operating Company ("Bay Meadows") has been allocated 104 racing days
for the year ending December 31, 1997 versus 115 racing days for 1996. Of these
racing days, Bay Meadows conducted 44 days of racing in the three months ended
March 31, 1997 versus 63 days in the same period in 1996. Historically, Bay
Meadows and California Jockey Club have derived a major portion of their
revenues from the racing meet.
CALIFORNIA JOCKEY CLUB
Results of Operations: Quarter Ended March 31, 1997
Compared with Quarter Ended March 31, 1996
Total revenues for California Jockey Club ("Cal Jockey") decreased $564,000
(24%) for the three months ended March 31, 1997, compared to the same period in
the prior year. Rental income derived from the leasing of its racing facility is
based on Bay Meadows' racing revenues and decreased $552,000 as a result of 19
less racing days in the first three months of 1997 than in the same period in
1996.
Total costs and expenses for the three months ended March 31, 1997, increased
$348,000 (86%), primarily as a result of merger related costs including legal
expenses, the proxy filing fee and the interest expense on the note payable to
Patriot.
Liquidity and Capital Resources
During the first three months of 1997, Cal Jockey's primary sources of capital
were from proceeds of maturing securities and operating activities. Net cash
provided by operating activities was $2,415,000, consisting primarily of net
income excluding depreciation of $1,019,000, and a decrease in receivables from
Bay Meadows. Receivables from Bay Meadows decreased primarily due to amounts
related to the rental of the racing facility. Net cash used in investing
activities was $230,000, consisting of net proceeds of $1,575,000 on securities
held to maturity, offset by purchases of $1,805,000 in property, plant and
equipment.
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<PAGE> 16
Cash and cash equivalents increased to $3,323,000 at March 31, 1997 from
$1,138,000 at December 31, 1996. This increase was the result of rental payments
received from Bay Meadows. Cal Jockey's financial condition and results of
operations are affected by Bay Meadows' lease payments which are in turn
affected by Bay Meadows' racing operations. During the first quarter of 1997,
there were 19 less racing days than in the first quarter of 1996. In 1997, Bay
Meadows has been allocated 11 less racing days than in 1996. This is expected to
negatively impact revenues and profitability for 1997.
During the first quarter of 1997, Cal Jockey sold certain securities classified
as Held to Maturity in order to meet its obligations. Accordingly, all remaining
securities classified as Held to Maturity were reclassified as Available for
Sale.
Cal Jockey has guaranteed a $2,500,000 bank line of credit for Bay Meadows that
expires on February 1, 1998. As of March 31, 1997, there were no borrowings
outstanding on this line of credit.
Cal Jockey anticipates that funds generated internally and its cash reserves
will be sufficient to meet its liquidity requirements for the foreseeable
future.
BAY MEADOWS OPERATING COMPANY AND SUBSIDIARIES
Results of Operations: Quarter Ended March 31, 1997
Compared with Quarter Ended March 31, 1996
Total revenues decreased $6,191,000 (23%) for the three months ended March 31,
1997, compared with the same period in 1996. This was due to a decrease in
pari-mutuel revenues of $5,734,000. Pari-mutuel revenues decreased primarily due
to 19 fewer racing days in the first three months of 1997 than in the same
period in 1996. Admissions, program, parking and other racing income decreased
$309,000 due to the same factors affecting pari-mutuel revenues. Concession
sales increased $208,000 as a result of Bay Meadows operating Turf Club
concessions previously outsourced to a third party. Interest income decreased
due to lower investment balances.
Total costs and expenses decreased $4,919,000 (21%) for the three months ended
March 31, 1997, compared with the same period in the prior year. This was
primarily due to decreases in expenses associated with lower operating revenues,
including (i) purses and incentive awards ($2,394,000), (ii) commissions paid to
guest locations ($510,000), (iii) direct operating costs ($1,463,000), (iv)
racing facility rental ($552,000) and (v) marketing ($146,000).
Liquidity and Capital Resources
Cash and cash equivalents increased to $4,385,000 at March 31, 1997 from
$889,000 at December 31, 1996. Net cash provided by operating activities was
$3,712,000, consisting primarily of net income excluding depreciation of
$1,115,000, $2,130,000 increase in accounts payable, $884,000 increase in
accrued purses, $471,000 increase in amounts due to Thoroughbred horse owners
offset by a decrease in accounts receivable of $770,000, decrease in amounts due
to Cal Jockey of $874,000 and decrease of $471,000 in amounts held on deposit
for Thoroughbred horse owners. Net cashed used in investing was $216,000 for the
purchase of property, plant and equipment.
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<PAGE> 17
As of March 31, 1997, Bay Meadows' current liabilities exceeded its current
assets by $1,974,000. The current ratio (current assets to current liabilities)
was .76 to 1 at March 31, 1997, compared to .38 to 1 at December 31, 1996.
Bay Meadows is dependent on Cal Jockey's assistance in securing a bank line of
credit for its working capital needs throughout the year. Bay Meadows received a
signed commitment from Cal Jockey to guarantee a $2,500,000 bank line of credit.
Bay Meadows obtained this bank line of credit on March 10, 1997, and it is
available through February 1, 1998. As of March 31, 1997, there were no
borrowings outstanding on this line of credit. Bay Meadows anticipates that it
may be required to borrow or seek an alternative sources of funds to ensure
liquidity after that date if the transaction with Patriot is not consummated.
RISK FACTORS
REAL ESTATE INVESTMENT RISKS
GENERAL RISKS
Cal Jockey's investments will be subject to varying degrees of risk generally
incident to the ownership of real property. The underlying value of Cal Jockey's
real estate investments and Cal Jockey's income and ability to make
distributions to its stockholders will be dependent upon the ability of Cal
Jockey to manage its real property in a manner sufficient to maintain or
increase revenues and to generate sufficient income in excess of operating
expenses. Income from investments may be adversely affected by changes in
national economic conditions, changes in local market conditions due to changes
in general or local economic conditions and neighborhood characteristics,
changes in interest rates, the impact of present or future environmental
legislation and compliance with environmental laws, the ongoing need for capital
improvements, changes in real estate tax rates and other operating expenses,
adverse changes in governmental rules and fiscal policies, adverse changes in
zoning laws, civil unrest, acts of God, including earthquakes and other natural
disasters (which may result in uninsured losses), acts of war and other factors
which are beyond the control of Cal Jockey.
VALUE AND ILLIQUIDITY OF REAL ESTATE
Real estate investments are relatively illiquid. The ability of Cal Jockey to
vary its portfolio in response to changes in economic and other conditions will
therefore be limited. If Cal Jockey must sell an investment, there can be no
assurance that Cal Jockey will be able to dispose of it in the time period it
desires or that the sales price of any investment will recoup or exceed the
amount of Cal Jockey's investment.
PROPERTY TAXES
Cal Jockey's and Bay Meadows' racing facilities are subject to real property
taxes. The real property taxes on the racing facilities in which Cal Jockey
invests may increase or decrease as property tax rates change and as the value
of the properties are assessed or reassessed by taxing authorities. If property
taxes increase as a result of such reappraisals or reassessments, Cal Jockey's
ability to make expected distributions to its stockholders could be adversely
affected.
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<PAGE> 18
POTENTIAL RISKS RELATED TO ENTITLEMENTS FOR FRANKLIN AGREEMENT AND IACOCCA
AGREEMENT
Pursuant to the Franklin Agreement and the Iacocca Agreement, Cal Jockey has
agreed to sell approximately 33 acres of the stable area and the entire
approximately 40 acre training track area for purchase prices of approximately
$21 million and $31 million, respectively. In addition Cal Jockey and the
buyers are responsible for a portion of various off-site improvements. As a
condition to consummation of the land sale transactions contemplated by the
Franklin Agreement and the Iacocca Agreement, Cal Jockey is required to secure
certain planning, land use, and zoning entitlements from the City of San Mateo
in connection with the development of the subject properties (the
"Entitlements"). Cal Jockey also is required to obtain final certification of
an Environmental Impact Report analyzing the environmental effects (such as
impacts on traffic flow, air quality, and growth inducement) of the
contemplated developments (the "EIR"). On April 22, 1997, the City of San
Mateo City Council approved the Entitlements and certified the EIR. Such
approval and certification are subject to possible appeal by citizens and
neighborhood or other groups. If such appeal is commenced, significant delays
in the development process could occur. Any such delay could affect the
obligations of the buyers to consummate the purchase of the stable area and the
training track area. In addition, both the Franklin Agreement and the Iacocca
Agreement require as a condition to the buyers' obligations to consummate the
sale transactions, that Cal Jockey secure a development agreement vesting the
rights of the buyers to develop the property subject to the conditions of
approval. While a draft of such agreement has been submitted to the City of
San Mateo, city officials have not yet indicated whether the City of San Mateo
will agree to execute such a development agreement. A failure of the City of
San Mateo to agree to such a development agreement could give rise to rights of
termination of the Franklin Agreement and the Iacocca Agreement by the
respective buyers.
REIT TAX RISKS
Dependence on Qualification as a REIT Cal Jockey operates in a manner designed
to permit it to qualify as a REIT for federal income tax purposes, but no
assurance can be given that Cal Jockey will be able to continue to operate in a
manner so as to qualify or remain so qualified. Qualification as a REIT involves
the application of highly technical and complex Code provisions for which there
are only limited judicial or administrative interpretations. Qualification as a
REIT also involves the determination of various factual matters and
circumstances not entirely within Cal Jockey's control. In addition, no
assurance can be given that new legislation, new regulations, administrative
interpretations or court decisions will not change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification. Cal Jockey, however, is not aware of any currently pending tax
legislation that would adversely affect the ability of Cal Jockey to continue to
qualify as a REIT.
If Cal Jockey were to fail to qualify as a REIT, Cal Jockey would be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at corporate rates. In addition, unless entitled to relief under
certain statutory provisions, Cal Jockey also would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This treatment would reduce the net earnings of Cal
Jockey available for distribution to stockholders because of the additional tax
liability to Cal Jockey for the year or years involved. In addition,
distributions would no longer be required to be made.
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<PAGE> 19
HORSE RACING INDUSTRY RISKS
REGULATION OF GAMING OPERATIONS
Bay Meadows' pari-mutuel wagering operations are contingent upon the continued
governmental acceptance of such operations as forms of legalized gambling. As a
form of gambling, pari-mutuel wagering is subject to extensive licensing and
regulatory control by the CHRB and other California authorities. These
regulatory authorities have broad powers with respect to the licensing of
gaming operations, and may revoke, suspend, condition or limit the gaming
operations of Bay Meadows. Any such change in regulations may have a material
adverse effect on Bay Meadows' financial condition and results of operations.
STABLE AREA
Bay Meadows' operations are conducted at the Racecourse, a single facility in
San Mateo, California. Cal Jockey has agreed to sell the stable area of the
Racecourse pursuant to the Franklin Agreement. The purchaser of the Stable
Area has indicated its intention to tear down the existing stables. Bay
Meadows has publicly proposed a plan for the construction of 900 on-site stalls
replacing the stalls to be torn down and Patriot has indicated its support for
this plan. The cost for the construction of such stalls together with various
other improvements is estimated to be between approximately $11 million and $13
million. There can be no assurances that Bay Meadows or Cal Jockey will obtain
in a timely fashion the necessary final governmental approvals to construct
such stalls. Patriot has indicated that following consumation of the Merger it
will pay the costs associated with the construction of these stalls.
Further, any prolonged suspension of operations at the facility
due to destruction of or material damage to the facility or for other reasons
could have a material adverse effect on Bay Meadows' financial condition and
results of operations. Bay Meadows intends to maintain property and business
interruptions insurance to protect against such types of disruption, but there
can be no assurance that the proceeds of such insurance would be adequate to
repair or rebuild its facilities in such event or to compensate Bay Meadows for
losses incurred during the period of any such disruption.
DEPENDENCE ON RELATIONSHIP WITH OWNERS AND TRAINERS ASSOCIATIONS
Bay Meadows' Thoroughbred horse racing operations requires it to maintain good
working relationships with the Thoroughbred Owners of California (the "Owners
Association"), the organization recognized by the CHRB as representing owners of
Thoroughbred participating in horse racing meets at the Racecourse, and the
California Horsemen's Benevolent and Protective Association (the "Trainers
Association"), the organization recognized by the CHRB as representing trainers.
If Bay Meadows is unable to continue its present relationships with the Owners
Association or the Trainers Association or finds itself unable to attract a
sufficient number of horses to its live horse race meets, such events could have
a material adverse effect on Bay Meadows' financial condition and results of
operations.
COMPETITION
Thoroughbred horse racing, and gaming generally, are competitive industries. Bay
Meadows competes in regional markets with other horse race courses, off-track
betting, state-run lotteries and Indian reservation gaming. Many of these
competitors have resources that exceed those of Bay Meadows. Bay Meadows also
competes locally with other sporting and entertainment businesses. Approval of
legislation legalizing casinos and other forms of gaming or expansion of gaming
at Indian reservations could increase competition for Bay Meadows in the future
and could have a material adverse effect on Bay Meadows' financial condition and
results of operations. Also, Bay Meadows may face increasing competition from
businesses accepting wagers by telephone and via the Internet.
DECLINES IN ON-TRACK ATTENDANCE
Many race tracks across the nation are experiencing declines in on-track
attendance. There can be no assurance that Bay Meadows will not experience
further declines in on-track attendance, which declines could have a material
adverse effect on its results of operations.
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<PAGE> 20
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Status of the Master Lease
The Master Lease Agreement pursuant to which Bay Meadows leased
the Racecourse Properties from Cal Jockey expired on March 31,
1996. Cal Jockey and Bay Meadows have had discussions regarding
the extension of the Master Lease Agreement. The companies now
have conflicting views concerning the existence of any Master
Lease Agreement extension. Cal Jockey believes that no lease
exists and that Bay Meadows is a tenant at will paying rent at the
rate in the prior Master Lease Agreement. Bay Meadows believes
that the Master Lease Agreement has been extended for an
additional three years with a ten percent increase in rent but
otherwise substantially on the same terms as the previous lease.
Bay Meadows has, however, continued to pay rent at a rental rate
equivalent to that contained in the expired lease agreement
through the first quarter of 1997. No amounts for additional rent,
if any, have been accrued at March 31, 1997. In the event that the
Companies reach a reconciliation on any lease extension,
retroactive changes in the rental amounts, if any, will be
recorded in the period that such reconciliation occurs. No
assurances can be given concerning the possible effects that the
ultimate resolution of this matter will have on the future
operations of the Companies.
Stock Option Plan
Bay Meadows has granted options for 162,000 paired shares to
persons who are or were Bay Meadows Officers and Employees. Bay
Meadows maintains that Cal Jockey has agreed to and is obligated
to provide stock options to Bay Meadows for the purchase of
162,000 shares of Cal Jockey stock to match the options granted by
Bay Meadows. Cal Jockey has acknowledged agreement to provide
options to purchase 107,500 shares of Cal Jockey stock to back up
the option grants by Bay Meadows. The difference relates to
options for paired shares which Bay Meadows granted to certain Bay
Meadows Officers and Employees in 1996. In order to show the
greatest possible dilution, the above disclosures assume that the
options were granted by both Companies. However, there has been no
resolution of this difference and no determination
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<PAGE> 21
has been made as to the possible effects, which could be material,
of the ultimate resolution of this uncertainty on the accompanying
financial statements if is determined that the options for all or
a portion of the difference were not granted in 1996 by Cal
Jockey.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Indemnification Agreement between Bay Meadows
Operating Company and F. Scott Gross dated January
3, 1997.
10.2 Business Loan Agreement between Bay Meadows
Operating Company and Bank of America National
Trust and Savings Association dated as of March 10,
1997.
10.3 Continuing Guaranty of California Jockey Club to
Bank of America National Trust and Savings
Association dated as of February 20, 1997.
27.1 Combined Financial Data Schedule.
27.2 Bay Meadows Operating Company Financial Data
Schedule.
27.3 California Jockey Club Financial Data Schedule.
(b) Reports on Form 8-K
On March 3, 1997, Cal Jockey and Bay Meadows filed a report on
Form 8-K disclosing pursuant to Item 5 that the Companies had
entered an Agreement and Plan of Merger with Patriot American
Hospitality, Inc. and Patriot American Hospitality
Partnership, L.P. on February 24, 1997.
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<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrants have duly caused this report to be signed on their
behalf by the undersigned, thereunto duly authorized.
DATED: May 9, 1997
CALIFORNIA JOCKEY CLUB
/s/ James M. Harris
------------------------------------------
James M. Harris
President, Treasurer and Secretary
(Principal Executive and Financial Officer)
BAY MEADOWS OPERATING COMPANY
/s/ F. Jack Liebau
------------------------------------------
F. Jack Liebau
President and Chief Executive Officer
(Principal Executive Officer)
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<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
This agreement, effective as of January 3, 1997 is between Bay
Meadows Operating Company, a Delaware corporation (the "Company"), and F. Scott
Gross ("Indemnitee").
Whereas, it is essential to the Company to retain and attract
as directors the most capable persons available; and
Whereas, Indemnitee is a director of the Company; and
Whereas, both the Company and Indemnitee recognize the
increased risk of litigation and other claims being asserted against directors
of public companies; and
Whereas, in recognition of Indemnitee's need for substantial
protection against personal liability in order to maintain Indemnitee's
continued service to the Company in an effective manner and to provide
Indemnitee with specific contractual assurance that the protection will be
available to Indemnitee, the Company desires to provide in this Agreement for
the indemnification of and the advance of expenses to Indemnitee to the full
extent (whether partial or complete) permitted by law, as set forth in this
Agreement and, to the extent officers' and directors' liability insurance is
maintained by the Company, to provide for the continued coverage of Indemnitee
under the Company's officers' and directors' liability insurance policies;
Now, therefore, in consideration of the covenants contained in
this Agreement and of Indemnitee's continuing service to the Company, and
intending to be legally bound, the parties agree as follows:
ARTICLE - DEFINITIONS
(a) Change in Control: shall be deemed to have occurred if
(i) any person (defined, for purposes of this Article I, as such term is used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing 10% or more of the total voting power represented by
the Company's then outstanding Voting Securities, or (ii) during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new director whose
election by the Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two thirds (2/3) of the
directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority of the Board of
Directors, or (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger
<PAGE> 2
or consolidation which would result in the Voting Securities of the Company
outstanding immediately prior to such a merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least 90% of the total voting power
represented by the Voting Securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company, an agreement for the sale or disposition by the Company (in one
transaction or a series of transactions) of all or substantially all the
Company's assets, or a plan pursuant to which (in one transaction or a series
of transactions) all or substantially all the Company's assets shall be
transferred to a person not wholly owned by the Company (including but not
limited to a plan pursuant to which all or substantially all of the Company's
assets shall be transferred to a partnership in which the Company has an
interest).
(b) Claim: any threatened, pending or completed action suit,
investigation or proceeding, and any appeal, whether civil, criminal,
administrative or investigative and/or any inquiry or investigation, whether
conducted by the Company or any other party that Indemnitee in good faith
believes might lead to the institution of any such action.
(c) Expenses: include, without limitation, attorneys' fees
and all other costs, expenses, and obligations paid or incurred in connection
with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or participate
in any Claim relating to any Indemnifiable Event.
(d) Indemnifiable Event: any event, occurrence or
circumstance related to the fact that Indemnitee is or was a director or
officer of the Company, was acting as a trustee or agent of the Company at its
request, or by reason of anything done or not done by Indemnitee in any such
capacity.
(e) Reviewing Party: any appropriate person or body
consisting of a member or members of the Company's Board of Directors including
the Special Independent Counsel referred to in Article III (or, to the fullest
extent permitted by law, any other person or body appointed by the Board), who
is not a party to the particular claim for which Indemnitee is seeking
indemnification.
(f) Voting Securities: any securities of the Company which
vote generally in the election of directors.
ARTICLE II -- AGREEMENT TO INDEMNIFY
(a) In the event Indemnitee was, is or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, a Claim by reason of (or arising in part out
of) an Indemnifiable Event, the Company shall indemnify Indemnitee to the
fullest extent permitted by the Delaware General Corporation Law, as soon as
practicable but in any event no later than thirty days after written demand is
presented to the Company, against any and all expenses, judgments, fines and
penalties relating to or arising out of such Claim and amounts paid in
settlement (including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses, judgments, fines,
penalties or amounts paid in settlement) of such Claim. The failure of
Indemnitee to formally notify the Company of an Indemnifiable Event or Claim
within a reasonable amount of time shall not be deemed a waiver of Indemnitee's
rights under
2
<PAGE> 3
this Agreement if the Company has actual knowledge of such Indemnifiable Event
or Claim. Notwithstanding anything in this Agreement to the contrary, prior to
a Change in Control Indemnitee shall not be entitled to indemnification
pursuant to this Agreement in connection with any Claim initiated by Indemnitee
against the Company or any director or officer of the Company unless the
Company has joined in or consented to the initiation of such Claim. If so
requested by Indemnitee, the Company shall advance (within five business days
of such request) any and all Expenses to Indemnitee (an "Expense Advance").
(b) Notwithstanding the foregoing, (i) the obligations of the
Company under Article II(a) shall be subject to the condition that any
Reviewing Party shall not have determined (in a written opinion, in any case in
which the Special Independent Counsel referred to in Article III is involved)
that Indemnitee would not be permitted to be indemnified under applicable law,
and (ii) the obligation of the Company to make an Expense Advance pursuant to
Article II(a) shall be subject to the condition that if, when and to the extent
that any Reviewing Party determines that Indemnitee would not be permitted to
be so indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby undertakes to reimburse the Company in
such a case) for all such amounts paid; provided, however, that if Indemnitee
commences, or has commenced, legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, any determination made by a Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company
for any Expense Advance until a final judicial determination is made (as to
which all rights of appeal have been exhausted or lapsed). If there has not
been a Change in Control, a Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control, a Reviewing Party
shall be Special Independent Counsel referred to in Article III. If there has
been no appointment or no determination by a Reviewing Party or if a Reviewing
Party determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall have the
right to commence litigation in any court in California or Delaware having
subject matter jurisdiction and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the court
or challenging any such determination by the Reviewing Party, including the
legal or factual basis, and the Company consents to service of process and to
appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
(c) Notwithstanding the foregoing and as a condition to
making Expense Advances to Indemnitee for legal fees, the Company shall, in its
sole discretion, select the attorney or attorneys to represent and defend
Indemnitee unless (i) the Company fails to fulfill its obligations make Expense
Advances; (ii) the Company, in its sole discretion, agrees to permit Indemnitee
to select his or her own attorney or attorneys; or (iii) a conflict of interest
arises between the Company and Indemnitee, in which case Indemnitee shall
select his or her own attorney, subject to the Company's reasonable approval.
ARTICLE III - CHANGE IN CONTROL
The Company agrees that if there is a Change in Control of the
Company (other than a Change in Control which has been approved by a majority
of the Company's Board of Directors who were directors immediately prior to
such Change in Control), then with respect to all matters
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thereafter arising concerning the rights of Indemnitee to indemnity payments
and Expense Advances under this Agreement or any other agreement, the Company's
Articles of Incorporation, or the Company's Bylaws in effect relating to Claims
for Indemnifiable Events, the Company shall seek legal advice only from
"Special Independent Counsel" selected by Indemnitee and approved by the
Company (which approval shall not be unreasonably withheld), and who has not
otherwise performed services for the Company or Indemnitee within the last five
years (other than in connection with such matters). Such Special Independent
Counsel, among other things, shall render its written opinion to the Company
and Indemnitee as to whether and to what extent the Indemnitee would be
permitted to be indemnified under applicable law. The Company agrees to pay
the reasonable fees of the Special Independent Counsel referred to above and
may fully indemnify such Special Independent Counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement.
ARTICLE IV - ESTABLISHMENT OF LETTER OF CREDIT
The Company's obligations to make indemnity payments and
Expense Advances to Indemnitee under this Agreement shall be secured by a
letter of credit in the amount of $1,000,000 which shall also secure the
Company's indemnity payment and expense advance obligations to Eugune F.
Barsotti, Jr., Greg S. Gunderson, John C. Harris, F. Jack Liebau, Lee Tucker
and Anthony J. Zidich (along with Indemnitee, the "Current Directors") and
Frank Trigeiro, each of whom, along with Indemnitee, shall be named a
beneficiary of the letter of credit. Such letter of credit shall be
established no later than ten (10) days after the date of this Agreement and
shall remain in place for an initial period of one year or, if less, until any
four of the Current Directors, one of which may but need not be the Indemnitee,
at their sole election, consent to the termination of such letter of credit.
If, after the initial or any subsequent period, such letter of credit is not
renewed for a subsequent period, any four of the Current Directors shall have
the right to draw the full amount thereof to hold as cash collateral securing
the obligations under this Agreement. The letter of credit shall additionally
provide that draws may be made by any four of the Current Directors, one of
which may but need not be the Indemnitee, upon their certification that (a)
Indemnitee is entitled to indemnity or Expenses Advances under this Agreement,
(b) Indemnitee has demanded the amount being drawn from the Company in writing,
and (c) the Company has not paid the full amount within the time required by
this Agreement. Recourse to the letter of credit shall be in addition to, and
not in lieu of, any manner otherwise available for enforcement of this
Agreement and nothing in this Article shall relieve the Company of any of its
obligations under this Agreement.
ARTICLE V - ADDITIONAL EXPENSES
To the fullest extent permitted by law, the Company shall
indemnify Indemnitee against any and all Expenses (including attorneys' fees)
and, if requested by Indemnitee, shall (within five business days of such
request) advance such Expenses to Indemnitee, which are incurred by Indemnitee
in connection with any Claim asserted against or action brought by Indemnitee
for (i) indemnification or advance payment of Expenses by the Company under
this Agreement or any other agreement, the Company's Bylaws or Articles of
Incorporation now or hereafter in effect relating to Claims for Indemnifiable
Events and/or (ii) recovery under any directors' and officers' liability
insurance policies maintained by the Company, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, Expense
advance or insurance recovery, as the case may be.
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ARTICLE VI - PARTIAL INDEMNITY AND CONTRIBUTION
(a) If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of a Claim
but not, however, for all of the total amount, the Company shall nevertheless
indemnify Indemnitee for the portion to which Indemnitee is entitled.
Moreover, notwithstanding any other provision of this Agreement, to the extent
that Indemnitee has been successful on the merits or otherwise in defense of
any or all Claims relating in whole or in part to an Indemnifiable Event or in
defense of any issue or matter, including dismissal without prejudice,
Indemnitee shall be indemnified against all Expenses incurred in connection
with those defenses. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified, the
burden of proof shall be on the Company to establish that Indemnitee is not so
entitled.
(b) In the event that the Company is not obligated to make
indemnity payments and Expense Advances under this Agreement, the Company's
Bylaws or the Delaware General Corporation Law, contribution as between the
Company and Indemnitee toward any judgment or settlement relating to a Claim by
reason of (or arising in part out of) an Indemnification Event shall be based
upon the relative benefits to and faults of each of the parties involved.
ARTICLE VII - NO PRESUMPTIONS
For purposes of this Agreement, to the fullest extent
permitted by law, the termination of any Claim, action, suit or proceeding, by
judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere, or its equivalent, shall not
create a presumption that Indemnitee did not meet any particular standard of
conduct or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law.
ARTICLE VIII - NONEXCLUSIVITY
The rights of the Indemnitee hereunder shall be in addition to
any other rights Indemnitee may have under the Company's Articles of
Incorporation, Bylaws, the Delaware General Corporation Law or otherwise. To
the extent that a change in the Delaware General Corporation Law (whether by
statute or judicial decision) permits greater indemnification by agreement than
would be afforded currently under the Company's Articles of Incorporation or
Bylaws or this Agreement, to the fullest extent permitted by law it is the
intent of the parties to that Indemnitee shall enjoy by this Agreement the
greater benefits so afforded by such change immediately upon the occurrence of
such change without further action by the Company or Indemnitee.
ARTICLE IX - INSURANCE
To the extent the Company maintains an insurance policy or
policies providing directors' and officers' liability insurance, Indemnitee
shall be covered by such policy or policies, in accordance with its or their
terms, to the maximum extent of the coverage available for any director or
officer of the Company. The Company agrees to make demand on such policies or
all of such policies which may be applicable in the event it may also have an
indemnification obligation under this Agreement.
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ARTICLE X - LIMITATIONS PERIOD
No legal action shall be brought and no cause of action shall
be asserted by or in the right of the Company or any affiliate of the Company
against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company or its
affiliate shall be extinguished and deemed released unless asserted by the
timely filing of a legal action within such two year period; provided, however,
that if any shorter period of limitations is otherwise applicable to any such
cause of action such shorter period shall govern.
ARTICLE XI - AMENDMENTS
No supplement, modification or amendment of this Agreement
shall be binding unless executed in writing by both of the parties. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute
a waiver of any other provisions (whether or not similar) nor shall such waiver
constitute a continuing waiver.
ARTICLE XII - SUBROGATION
The Company shall not be liable under this Agreement to make
any payment in connection with any Claim made against Indemnitee to the extent
Indemnitee has otherwise actually received payment (under any insurance policy,
Bylaw or otherwise) of the amounts otherwise indemnifiable.
ARTICLE XIII - BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the parties and their respective successors, assigns,
including any direct or indirect successors by purchase, merger, consolidation
or otherwise to all or substantially all of the business and/or assets of the
Company, spouses, heirs, and personal and legal representatives. The Company
shall require and cause any successor (whether direct or indirect by purchase,
merger, consolidation or otherwise) to all, substantially all or a substantial
part, of the business and/or assets of the Company, by written agreement in
form and substance satisfactory to the Indemnitee, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform if no such succession had taken place.
This Agreement shall continue in effect regardless of whether Indemnitee
continues to serve as an officer or director of the Company or continues to act
as a trustee or agent of the Company at its request.
ARTICLE XIV - SEVERABILITY
The provisions of this Agreement shall be severable in the
event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable in any respect, and
the validity and enforceability of any such provision in every other respect
and of the remaining provisions shall not be in any way impaired, and shall
remain enforceable to the fullest extent permitted by law.
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ARTICLE XV - NOTICES
All notices, requests, demands, and other communications shall
be in writing and shall be deemed to have been duly given if (i) delivered by
hand and receipted for by the party to whom said notice or other communication
shall have been directed, or (ii) mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed:
If to Indemnitee, to:____________________________
_____________________________
_____________________________
If to Company, to: Bay Meadows Operating Company
2600 South Delaware Street
San Mateo, CA 94402
Attn: President
or to such other address as may have been furnished to the Indemnitee by the
Company or to the Company by the Indemnitee, as the case may be.
ARTICLE XVI - GOVERNING LAW
This Agreement shall be governed by and construed and enforced
in accordance with the laws of California applicable to contracts made and to
be performed in such State without giving effect to the principles of conflicts
of laws.
In Witness Whereof, the parties have duly executed and
delivered this Agreement this 3rd day of January, 1997.
BAY MEADOWS OPERATING COMPANY
By:________________________________
Title:_____________________________
INDEMNITEE
/s/ F. Scott Gross
----------------------------------
F. Scott Gross
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EXHIBIT 10.2
[BANK OF AMERICA LOGO] BUSINESS LOAN AGREEMENT
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This Agreement dated as of March 10, 1997, is between Bank of America National
Trust and Savings Association (the "Bank") and Bay Meadows Operating Company
(the "Borrower").
1. LINE OF CREDIT AMOUNT AND TERMS.
1.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Commitment") is Two Million Five Hundred Thousand Dollars ($2,500,000).
(b) This is a revolving line of credit. During the availability period, the
Borrower may repay principal amounts and reborrow them.
(c) Each advance must be for at least Fifty Thousand Dollars ($50,000), or
for the amount of the remaining available line of credit, if less.
(d) The Borrower agrees not to permit the outstanding principal balance of
the line of credit to exceed the Commitment.
1.2 AVAILABILITY PERIOD. The line of credit is available between the date of
this Agreement and February 1, 1998 (the "Expiration Date") unless the Borrower
is in default.
1.3 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as described below,
the interest rate is the Bank's Reference Rate.
(b) The Reference Rate is the rate of interest publicly announced from time
to time by the Bank in San Francisco, California, as its Reference Rate.
The Reference Rate is set by the Bank based on various factors,
including the Bank's costs and desired return, general economic
conditions and other factors, and is used as a reference point for
pricing some loans. The Bank may price loans to its customers at, above,
or below the Reference Rate. Any change in the Reference Rate shall take
effect at the opening of business on the day specified in the public
announcement of a change in the Bank's Reference Rate.
1.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on March 1, 1997, and then monthly
thereafter until payment in full of any principal outstanding under this
line of credit.
(b) The Borrower will repay in full all principal and any unpaid interest or
other charges outstanding under this line of credit no later than the
Expiration Date.
1.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on
the Bank's Reference Rate, the Borrower may elect the optional interest rates
listed below during interest periods agreed to by the Bank and the Borrower.
The optional interest rates shall be subject to the terms and conditions
described later in this Agreement. Any principal amount bearing interest at an
optional rate under this Agreement is referred to as a "Portion." The following
optional interest rates are available:
(a) Fixed Rates.
2. OPTIONAL INTEREST RATES.
2.1 OPTIONAL RATES. Each optional interest rate is a rate per year.
Interest will be paid on the last day of each interest period, and on the first
day of each month during the interest period. At the end of any interest
period, the interest rate will revert to the rate based on the Reference Rate,
unless the Borrower has designated another optional interest rate for the
Portion. No Portion will be converted to a different interest rate during the
applicable interest period. Upon the occurrence of an event of default under
this Agreement, the Bank may terminate the availability of optional interest
rates for interest periods commencing after the default occurs.
2.2 FIXED RATE. The election of Fixed Rates shall be subject to the
following terms and requirements:
(a) The "Fixed Rate" means the fixed interest rate the Bank and the Borrower
agree will apply during the applicable interest period.
(b) The interest period during which the Fixed Rate will be in effect will
be no shorter than 14 days and no longer than 180 days.
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(c) Each Fixed Rate Portion will be for an amount not less than Five Hundred
Thousand Dollars ($500,000.
(d) Each prepayment of a Fixed Rate Portion, whether voluntary, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid, and a prepayment fee as described below.
A "prepayment" is a payment of an amount on a date earlier than the
scheduled payment date for such amount as required by this Agreement.
The prepayment fee shall be equal to the amount (if any) by which:
(i) the additional interest which would have been payable during the
interest period on the amount prepaid had it not been prepaid,
exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the domestic
certificate of deposit market, the eurodollar deposit market, or
other appropriate money market selected by the Bank for a period
starting on the date on which it was prepaid and ending on the
last day of the interest period for such Portion (or the
scheduled payment date for the amount prepaid, if earlier).
3. REIMBURSEMENT COSTS. The Borrower agrees to reimburse the Bank for any
expenses it incurs in the preparation of this Agreement and any agreement or
instrument required by this Agreement. Expenses include, but are not limited
to, reasonable attorneys' fees, including any allocated costs of the Bank's
in-house counsel.
4. PERSONAL PROPERTY SUPPORTING GUARANTY. The obligations of the
guarantor, California Jockey Club ("CJC"), to the Bank will be secured by
personal property the guarantor now owns or will own in the future as listed
below. The collateral is further defined in security agreement(s) executed by
the guarantor.
(a) Bank of America time deposits in an amount not less than Two Million
Five Hundred Thousand Dollars ($2,500,000).
5. DISBURSEMENTS, PAYMENTS AND COSTS.
5.1 TELEPHONE AND TELEFAX AUTHORIZATION.
(a) The Bank may honor telephone or telefax instructions for advances or
repayments or for the designation of optional interest rates given by
any one of the individuals authorized to sign loan agreements on behalf
of the Borrower, or any other individual designated by any one of such
authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn from the
Borrower's account number 14939-02833, or such other of the Borrower's
accounts with the Bank as designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) from all liability, loss, and costs in connection
with any act resulting from telephone or telefax instructions it
reasonably believes are made by any individual authorized by the
Borrower to give such instructions. This indemnity and excuse will
survive this Agreement's termination.
5.2 DIRECT DEBIT. The Borrower agrees that interest and principal payments
and any fees will be deducted automatically on the due date from the Borrower's
account number 14939-02833, or such other of the Borrower's accounts with the
Bank as designated in writing by the Borrower. If there are insufficient funds
in the account on the date the Bank enters any debit authorized by this
Agreement, the debit will be reversed.
5.3 BANKING DAYS. Unless otherwise provided in this Agreement, a banking
day is a day other than a Saturday or a Sunday on which the Bank is open for
business in California. All payments and disbursements which would be due on a
day which is not a banking day will be due on the next banking day. All
payments received on a day which is not a banking day will be applied to the
credit on the next banking day.
5.4 ADDITIONAL COSTS. The Borrower will pay the Bank, on demand, for the
Bank's costs or losses arising from any statute or regulation, or any request
or requirement of a regulatory agency which is applicable to all national banks
or a class of all national banks. The costs and losses will be allocated to the
loan in a manner determined by the Bank, using any reasonable method. The costs
include the following: (a) any reserve or deposit requirements; and (b) any
capital requirements relating to the Bank's assets and commitments for credit.
5.5 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360 day year and
the actual number of days elapsed. This results in more interest or a higher
fee than if a 365-day year is used.
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5.6 DEFAULT RATE. Upon the occurrence and during the continuation of any
default under this Agreement, principal amounts outstanding under this Agreement
will at the option of the Bank bear interest at a rate which is 1.0 percentage
point(s) higher than the rate of interest otherwise provided under this
Agreement. This will not constitute a waiver of any default. Installments of
principal which are not paid when due under this Agreement shall continue to
bear interest until paid. Any interest, fees or costs which are not paid when
due will, at the option of the Bank, bear interest at the Bank's Reference Rate
plus 0.50 percentage point(s). This may result in compounding of interest.
6. CONDITIONS. The Bank must receive any documents and other items it may
reasonably require, including but not limited to the following items, in form
and content acceptable to the Bank, before it is required to extend any credit
to the Borrower under this Agreement.
6.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance
by the Borrower and any guarantors of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.
6.2 SECURITY AGREEMENTS. Signed original security agreements, (together
with collateral in which the Bank requires a possessory security interest) which
the Bank requires.
6.3 EVIDENCE OF PRIORITY. Evidence that security interests and liens in
favor of the Bank are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing.
6.4 GUARANTY. A guaranty signed by CJC in the amount of Two Million Five
Hundred Thousand Dollars ($2,5000,000).
6.5 CONDITION TO EACH ADVANCE. Before each extension of credit, including
the first, written approval of the extension of credit signed by a duly
authorized officer of CJC. The duly authorized officer will be one of the
individuals authorized to sign the guaranty on behalf of CJC or any other
individual designated in writing by any one of such authorized signers.
7. REPRESENTATIONS AND WARRANTIES. When the Borrower signs this Agreement,
and until the Bank is repaid in full, the Borrower makes the following
representations and warranties. Each request for an extension of credit
constitutes a renewed representation:
7.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
7.2 AUTHORIZATION. This Agreement has been duly authorized and is
enforceable without conflict with any laws or any other obligation of the
Borrower.
7.3 GOOD STANDING. In each state in which Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
7.4 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower, which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
7.5 PERMITS, FRANCHISES. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged.
7.6 LOCATION OF BORROWER. The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this Agreement.
8. COVENANTS. The Borrower agrees, so long as credit is available under
this Agreement and until the Bank is repaid in full:
8.1 USE OF PROCEEDS. To use the proceeds of the credit only for general
corporate purposes.
8.2 FINANCIAL INFORMATION. To provide the following financial information
and statements in form and content acceptable to the Bank, and such additional
information as requested by the Bank from time to time:
(a) Within 90 days of the Borrower's fiscal year end, the Borrower's annual
financial statements. These financial statements must be audited (with
an unqualified opinion) by a Certified Public Accountant ("CPA")
acceptable to the Bank. The statements shall be prepared on a combined
basis with CJC.
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<PAGE> 4
(b) Copies of the Borrower's Form 10-K annual report within 90 days of the
Borrower's fiscal year end.
(c) Copies of the Borrower's Form 10-Q quarterly report within 45 days of
the end of each quarterly accounting period.
(d) Copies of the Borrower's Form 8-K reports within 15 days of filing if
any.
(e) Copies of the CJC's Form 10-K annual report within 90 days of CJC's
fiscal year end.
(f) Copies of the CJC's Form 10-Q quarterly report within 45 days of the end
of each quarterly accounting period.
(g) Copies of the CJC's Form 8-K reports within 15 days of filing if any.
8.3 PROFITABILITY. To maintain, on a combined basis with CJC, a positive
net income before taxes and extraordinary items and a positive net income after
taxes and extraordinary items for each quarterly accounting period.
8.4 OTHER DEBTS. Not to have outstanding or incur any direct or contingent
liabilities (other than those to the Bank), or become liable for the liabilities
of others without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Additional debts which do not exceed a total principal amount of One
Million Dollars ($1,000,000) outstanding at any one time.
(e) Debts owed to CJC.
8.5 OTHER LIENS. Not to create, assume, or allow any security interest or
lien (including judicial liens) on property the Borrower now or later owns,
except
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in writing to
the Bank.
(d) Additional purchase money security interests in property acquired after
the date of this Agreement, which secures indebtedness, to the extent permitted
elsewhere in this Agreement.
8.6 CHANGE OF OWNERSHIP. Not to cause, permit, or suffer any change, direct
or indirect, in the Borrower's capital ownership.
8.7 OUT OF DEBT PERIOD. To repay any advances in full, and not to draw any
additional advances on its revolving line of credit, for a period of at least 30
consecutive days in each line-year. "Line-year" means the period between the
date of this Agreement and February 1, 1996, and each subsequent one-year period
(if any).
8.8 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over One Hundred Thousand Dollars ($100,000) against the
Borrower or any guarantor (or any trustor).
(b) any substantial dispute between the Borrower or any guarantor (or any
trustor) and any governmental authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's or any guarantor's (or any
trustor's) business condition (financial or otherwise), operations,
properties or prospects, or ability to repay the credit.
(e) any change in the Borrower's name, legal structure, place of business,
or chief executive office if the Borrower has more than one place of
business.
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8.9 AUDITS. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit, and make copies of books and records at any
reasonable time.
8.10 COMPLIANCE WITH LAWS. To comply with the laws (including any
fictitious name statute), regulations, and orders of any government body with
authority over the Borrower's business.
8.11 PERFECTION OF LIENS. To help the Bank perfect and protect its security
interests and liens, and reimburse it for related costs it incurs to protect
the security interests and liens.
8.12 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written
consent:
(a) engage in any business activities substantially different from the
Borrower's present business;
(b) liquidate or dissolve the Borrower's business;
(c) enter into any consolidation, merger, or other combination, or
become a partner in a partnership, a member of a joint venture, or a member of
a limited liability company;
(d) sell, lease, transfer or otherwise dispose of all or a substantial
part of the Borrower's business or the Borrower's assets;
(e) sell, assign, lease, transfer or otherwise dispose of any assets
for less than fair market value, or enter into any agreement to do so.
(f) enter into any sale and leaseback agreement covering any of its
fixed or capital assets.
(g) acquire or purchase a business or its assets.
9. HAZARDOUS WASTE INDEMNIFICATION. The Borrower will indemnify and hold
harmless the Bank from any loss or liability directly or indirectly arising out
of the use, generation, manufacture, production, storage, release, threatened
release, discharge, disposal or presence of a hazardous substance. This
indemnity will apply whether the hazardous substance is on, under or about the
Borrower's property or operations or property leased to the Borrower. The
indemnity includes but is not limited to attorneys' fees (including the
reasonable estimate of the allocated cost of in-house counsel and staff). The
indemnity extends to the Bank, its parent, subsidiaries and all of their
directors, officers, employees, agents, successors, attorneys and assigns.
"Hazardous substance" means any substance, material or waste that is or becomes
designated or regulated as "toxic," "hazardous," "pollutant," or "contaminant"
or a similar designation or regulation under any federal, state or local law
(whether under common law, statute, regulation or otherwise) or judicial or
administrative interpretation of such, including without limitation petroleum
or natural gas. This indemnity will survive repayment of the Borrower's
obligations to the Bank.
10. DEFAULT. If any of the following events occurs, the Bank may do one or
more of the following: declare the Borrower in default, stop making any
additional credit available to the Borrower, and require the Borrower to repay
its entire debt immediately and without prior notice. If a bankruptcy petition
is filed with respect to the Borrower, the entire debt outstanding under this
Agreement will automatically become due immediately.
10.1 FAILURE TO PAY. The Borrower fails to make a payment under this
Agreement when due.
10.2 NON-COMPLIANCE. The Borrower or any guarantor (or any trustor) fails
to meet the conditions of, or fails to perform any obligation under:
(a) this Agreement;
(b) any other agreement made in connection with this loan; or
(c) any other agreement the Borrower or any guarantor (or any trustor)
has with the Bank or any affiliate of the Bank.
This includes any failure or anticipated failure by the Borrower to comply with
any financial covenants set forth in this Agreement, whether such failure is
evidenced by financial statements delivered to the Bank or is otherwise known
to the Borrower or the Bank.
10.3 LIEN PRIORITY. The Bank fails to have an enforceable first lien
(except for any prior liens to which the Bank has consented in writing) on or
security interest in any property given as security for this loan or any
guaranty of this loan.
-5-
<PAGE> 6
10.4 FALSE INFORMATION. The Borrower or any guarantor (or any trustor) has
given the Bank false or misleading information or representations.
10.5 LAWSUITS. Any lawsuit or lawsuits are filed on behalf of one or more
trade creditors against the Borrower or any guarantor (or any trustor) in an
aggregate amount of Two Hundred Fifty Thousand Dollars ($250,000) or more in
excess of any insurance coverage.
10.5 JUDGMENTS. Any judgments or arbitration awards are entered against the
Borrower or any guarantor (or any trustor), or the Borrower or any guarantor
(or any trustor) enters into any settlement agreements with respect to any
litigation or arbitration, in an aggregate amount of Two Hundred Fifty Thousand
Dollars ($250,000) or more in excess of any insurance coverage.
10.7 GOVERNMENT ACTION. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's or any guarantor's (or any
trustor's) financial condition or ability to repay.
10.8 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the
Borrower's or any guarantor's (or any trustor's) business condition (financial
or otherwise), operations, properties or prospects, or ability to repay the
credit.
10.9 CROSS-DEFAULT. Any default occurs under any agreement in connection
with any credit the Borrower or any guarantor (or any trustor) or any of the
Borrower's related entities or affiliates has obtained from anyone else or
which the Borrower or any guarantor (or any trustor) or any of the Borrower's
related entities or affiliates has guaranteed.
10.10 DEFAULT UNDER RELATED DOCUMENTS. Any guaranty, subordination agreement,
security agreement, deed of trust, or other document required by this Agreement
is violated or no longer in effect.
10.11 CJC'S COVENANTS. CJC fails to comply with any of the following
covenants:
(a) Other debts. Not to have outstanding or incur any direct or contingent
liabilities (other than those to the Bank), or become liable for the
liabilities of others without the Bank's written consent. This does not
prohibit:
(i) Acquiring goods, supplies, or merchandise on normal trade
credit.
(ii) Endorsing negotiable instruments received in the usual course of
business.
(iii) Obtaining surety bonds in the usual course of business.
(iv) Additional debts which do not exceed a total principal amount of
One Million Dollars ($1,000,000) outstanding at any one time.
(v) Debts owed to the Borrower.
(b) Other Liens. Not to create, assume, or allow any security interest or
lien (including judicial liens) on property CJC now or later owns,
except:
(i) Deeds of trust and security agreements in favor of the Bank.
(ii) Liens for taxes not yet due.
(iii) Liens outstanding on the date of this Agreement disclosed in
writing to the Bank.
(iv) Additional purchase money security interests in property
acquired after the date of this Agreement which secures
indebtedness, to the extent permitted elsewhere in this
Agreement.
(c) Change of Ownership. Not to cause, permit, or suffer any change, direct
or indirect, in CJC's capital ownership.
(d) Additional Negative Covenants. Not to, without the Bank's written
consent:
(i) engage in any business activities substantially different from
CJC's present business.
(ii) liquidate or dissolve CJC's business.
(iii) enter into any consolidation, merger, or other combination, or
become a partner in a partnership, a member of a joint venture,
or a member of a limited liability company.
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<PAGE> 7
(iv) sell, lease, transfer or otherwise dispose of all or a
substantial part of CJC's business or CJC's assets.
(v) sell, assign, lease, transfer or otherwise dispose of any assets
for less than fair market value, or enter into any agreement to
do so.
(vi) enter into any sale and leaseback agreement covering any of its
fixed or capital assets.
(vii) acquire or purchase a business or its assets.
11. ENFORCING THIS AGREEMENT; MISCELLANEOUS.
11.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
11.1 CALIFORNIA LAW. This Agreement is governed by California law.
11.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and
the Bank's successors and assignees. The Borrower agrees that it may not assign
this Agreement without the Bank's prior consent.
11.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those
that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or delivered in
connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted
between the Borrower and the Bank, including claims for injury
to persons, property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United
States Arbitration Act. The United States Arbitration Act will apply
even though this Agreement provides that it is governed by California
law.
(c) Arbitration proceedings will be administered by the American Arbitration
Association and will be subject to its commercial rules of arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent of
the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether
any such claim or controversy is barred by the statute of limitations
and, if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the controversy or
claim, at the time of the proposed submission to arbitration, arises
from or relates to an obligation to the Bank secured by real property
located in California. In this case, both the Borrower and the Bank must
consent to submission of the claim or controversy to arbitration. If
both parties do not consent to arbitration, the controversy or claim
will be settled as follows:
(i) The Borrower and the Bank will designate a referee (or a panel
of referees) selected under the auspices of the American
Arbitration Association in the same manner as arbitrators are
selected in Association-sponsored proceedings;
(ii) The designated referee (or the panel of referees) will be
appointed by a court as provided in California Code of Civil
Procedure Section 638 and the following related sections;
- -------------------------------------------------------------------------------
-7-
<PAGE> 8
(iii) The referee (or the presiding referee of the panel) will be an
active attorney or a retired judge; and
(iv) The award that results from the decision of the referee (or the
panel) will be entered as a judgment in the court that appointed
the referee in accordance with the provisions of California Code
of Civil Procedure Sections 544 and 645.
(h) This provision does not limit the right of the Borrower or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain;
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank, including
the suing party, to submit the controversy or claim to arbitration if
the other party contests the lawsuit. However, if the controversy or
claim arises from or relates to an obligation to the Bank which is
secured by real property located in California at the time of the
proposed submission to arbitration, this right is limited according to
the provision above requiring the consent of both the Borrower and the
Bank to seek resolution through arbitration.
(j) If the Bank forecloses against any real property securing this
Agreement, the Bank has the option to exercise the power of sale under
the deed of trust or mortgage, or to proceed by judicial foreclosure.
11.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default. Any consent or waiver under this Agreement must be
in writing.
11.6 ATTORNEYS' FEES. The Borrower shall reimburse the Bank for any
reasonable costs and attorney's fees incurred by the Bank in connection with
the enforcement or preservation of any rights or remedies under this Agreement
and any other documents executed in connection with this Agreement, and
including any amendment, waiver, "workout" or restructuring under this
Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing
party is entitled to recover costs and reasonable attorneys' fees incurred in
connection with the lawsuit or arbitration proceeding, as determined by the
court or arbitrator. In the event that any case is commenced by or against the
Borrower under the Bankruptcy Code (Title 11, United States Code) or any
similar or successor statute, the Bank is entitled to recover costs and
reasonable attorneys' fees incurred by the Bank related to the preservation,
protection, or enforcement of any rights of the Bank in such a case. As used in
this paragraph, "attorneys' fees" includes the allocated costs of the Bank's
in-house counsel.
11.7 ONE AGREEMENT. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank
and the Borrower concerning this credit;
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them. In the event of any
conflict between this Agreement and any other agreements required by this
Agreement, this Agreement will prevail.
11.8 INDEMNIFICATION. The Borrower will indemnify and hold the Bank
harmless from any loss, liability, damages, judgments, and costs of any kind
relating to or arising directly or indirectly out of
(a) this Agreement or any document required hereunder.
(b) any credit extended or committed by the Bank to the Borrower hereunder,
and
(c) any litigation or proceeding related to or arising out of this
Agreement, any such document, or any such credit. This indemnity
includes but is not limited to attorneys' fees (including the allocated
cost of in-house counsel). This indemnity extends to the Bank, its
parent, subsidiaries and all of their directors, officers, employees,
agents, successors, attorneys, and assigns. This
- --------------------------------------------------------------------------------
-8-
<PAGE> 9
indemnity will survive repayment of the Borrower's obligations to the
Bank. All sums due to the Bank hereunder shall be obligations of the
Borrower due and payable immediately without demand.
This Agreement is executed as of the date stated at the top of the first page.
Bank of America National Trust Bay Meadows Operating Company
and Savings Association
By /s/ DEBORAH A. ENLOW By /s/ F. JACK LIEBAU
----------------------------- -----------------------------
Name: Deborah A. Enlow Name: F. Jack Liebau
Title: Vice President Title: President and Chief
Executive Officer
By /s/ ANTHONY J. ZIDICK
------------------------------
Name: Anthony J. Zidick
Title: Treasurer
Address where notices to Address where notices to
Bank are to be sent: Borrower are to be sent:
Palo Alto Commercial
Banking Office 01493
530 Lytton Ave. 2900 Delaware Street
Palo Alto, CA 94301 San Mateo, CA 94402
-9-
<PAGE> 1
EXHIBIT 10.3
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CONTINUING GUARANTY
[BANK OF AMERICA LOGO]
BORROWERS: Bay Meadows Operating Company
GUARANTORS: California Jockey Club
- --------------------------------------------------------------------------------
(1) For valuable consideration, the undersigned ("Guarantors") jointly
and severally unconditionally guarantee and promise to pay to Bank of America
National Trust and Savings Association ("Bank"), or order, on demand, in lawful
money of the United States, any and all indebtedness of Bay Meadows Operating
Company ("Borrowers") to Bank. The word "indebtedness" is used herein in its
most comprehensive sense and includes any and all advances, debts, obligations
and liabilities of Borrowers or any one or more of them to Bank, heretofore,
now, or hereafter made, incurred or created, whether voluntary or involuntary
and however arising, whether direct or acquired by Bank by assignment or
succession, whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether Borrowers may be liable
individually or jointly with others or whether recovery upon such indebtedness
may be or hereafter become barred by any statute of limitations, or whether
such indebtedness may be or hereafter become otherwise unenforceable. Bank and
Guarantors specifically acknowledge and agree that the word "indebtedness"
includes any advance made by Bank to Borrowers under that certain Business Loan
Agreement dated as of February ___, 1997, between Bank and Borrowers, as now in
effect and as hereafter amended, renewed, restated, or superseded (the "Loan
Agreement"), except any such advance that is made by Bank without obtaining
Guarantors' prior written approval of such advance as currently required under
Paragraph 6.5 of the Loan Agreement.
(2) The liability of Guarantors under this Guaranty (exclusive of
liability under any other guaranties executed by Guarantors) shall not exceed
at any one time the total of (a) Two Million Five Hundred Thousand Dollars
($2,500,000), for the principal amount of the indebtedness and (b) all
interest, fees, and other costs and expenses relating to or arising out of the
indebtedness or such part of the indebtedness as shall not exceed the foregoing
limitation. Bank may permit the indebtedness to exceed Guarantors' liability,
and may apply any amounts received from any source, other than from Guarantors,
to the unguaranteed portion of the indebtedness. This is a continuing guaranty
relating to any indebtedness, including that arising under successive
transactions which shall either continue the indebtedness or from time to time
renew it after it has been satisfied. Any payment by Guarantors shall not
reduce their maximum obligation hereunder, unless written notice to that effect
be actually received by Bank at or prior to the time of such payment.
(3) The obligations hereunder are joint and several, and independent of
the obligations of Borrowers, and a separate action or actions may be brought
and prosecuted against Guarantors whether action is brought against Borrowers or
whether Borrowers be joined in any such action or actions; and Guarantors waive
the benefit of any statute of limitations affecting their liability hereunder.
(4) Guarantors authorize Bank, without notice or demand and without
affecting their liability hereunder, from time to time, either before or after
revocation hereof, to (a) renew, compromise, extend, accelerate or otherwise
change the time for payment of, or otherwise change the terms of the
indebtedness or any part thereof, including increase or decrease of the rate of
interest thereon; (b) receive and hold security for the payment of this
Guaranty or any of the indebtedness, and exchange, enforce, waive, release,
fail to perfect, sell, or otherwise dispose of any such security; (c) apply
such security and direct the order or manner of sale thereof as Bank in its
discretion may determine; and (d) release or substitute any one or more of the
endorsers or guarantors.
(5) Guarantors waive any right to require Bank to (a) proceed against
Borrowers; (b) proceed against or exhaust any security held from Borrowers; or
(c) pursue any other remedy in Bank's power whatsoever. Guarantors waive any
defense arising by reason of any disability or other defense of Borrowers, or
the cessation from any cause whatsoever of the liability of Borrowers, or any
claim that Guarantors' obligations exceed or are more burdensome than those of
Borrowers. Until the indebtedness shall have been paid in full, even though the
indebtedness is in excess of Guarantors' liability hereunder. Guarantors waive
any right of subrogation, reimbursement, indemnification, and contribution
(contractual, statutory or otherwise), including without limitation, any claim
or right of subrogation under the Bankruptcy Code (Title 11 of the U.S. Code) or
any successor statute, arising from the existence or performance of this
Guaranty and Guarantors waive any right to enforce any remedy which Bank now has
or may hereafter have against Borrowers, and waive any benefit of, and any right
to participate in, any security now or hereafter held by Bank. Guarantors waive
all presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance of this
Guaranty and of the existence, creation, or incurring of new or additional
indebtedness.
(6) (a) Guarantors understand and acknowledge that if Bank forecloses,
either by judicial foreclosure or by exercise of power of sale, any deed of
trust securing the indebtedness, that foreclosure could impair or destroy any
ability that Guarantors may have to seek reimbursement, contribution, or
indemnification from Borrowers or others based on any right Guarantors
- --------------------------------------------------------------------------------
<PAGE> 2
may have of subrogation, reimbursement, contribution, or indemnification for
any amounts paid by Guarantors under this Guaranty. Guarantors further
understand and acknowledge that in the absence of this paragraph, such
potential impairment or destruction of Guarantors' rights, if any, may entitle
Guarantors to assert a defense to this Guaranty based on Section 580d of the
California Code of Civil Procedure as interpreted in Union Bank v. Gradsky, 265
Cal. App. 2d. 40 (1968). By executing this Guaranty, Guarantors freely,
irrevocably, and unconditionally; (i) waive and relinquish that defense and
agree that Guarantors will be fully liable under this Guaranty even though Bank
may foreclose, either by judicial foreclosure or by exercise of power of sale,
any deed of trust securing the indebtedness; (ii) agree that Guarantors will
not assert that defense in any action or proceeding which Bank may commence to
enforce this Guaranty; (iii) acknowledge and agree that the rights and defenses
waived by Guarantors in this Guaranty include any right or defense that
Guarantors may have or be entitled to assert based upon or arising out of any
one or more of Sections 580a, 580b, 580d, or 726 of the California Code of
Civil Procedure or Section 2848 of the California Civil Code; and (iv)
acknowledge and agree that Bank is relying on this waiver in creating the
indebtedness, and that this waiver is a material part of the consideration
which Bank is receiving for creating the indebtedness.
(b) Guarantors waive any rights and defenses available to
Guarantors by reason of Sections 2787 to 2855, inclusive of the California Civil
Code including, without limitation, (1) any defenses Guarantors may have to
their obligations under this Guaranty by reason of an election of remedies by
Bank and (2) any rights or defenses Guarantors may have by reason of protection
afforded to Borrowers with respect to any of the indebtedness pursuant to the
antideficiency or other laws of California limiting or discharging any of the
indebtedness, including, without limitation, Section 580a, 580b, 580d, or 726 of
the California Code of Civil Procedure.
(c) Guarantors waive all rights and defenses arising out of an
election of remedies by Bank, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed Guarantors' rights of subrogation and reimbursement against
Borrowers by the operation of Section 580d of the California Code of Civil
Procedure or otherwise.
(d) Guarantors waive all rights and defenses, whether based in
law or in equity, arising from or related to the antideficiency, security first,
single action, or any other applicable laws limiting or discharging this
Guaranty or any of the indebtedness, including, without limitation, Section
580a, 580b, 580d, or 726 of the California Code of Civil Procedure. Without
limiting the generality of the foregoing, Guarantors waive all rights to have
the fair market value of any security for a guaranteed obligation, or the size
of any deficiency judgment, determined by a hearing pursuant to Section 580a of
the California Code of Civil Procedure following a foreclosure or other
disposition of such security, and waive all defenses arising from or related to
such rights. Any controversy or claim between or among Guarantors and Bank
regarding the foregoing shall be determined according to Paragraph (16) below
regarding reference and arbitration.
(e) No provision, or waiver in this Guaranty shall be construed
as limiting the generality of any other waiver contained in this Guaranty.
(7) Guarantors acknowledge and agree that they shall have the sole
responsibility for obtaining from Borrowers such information concerning
Borrowers' financial conditions or business operations as Guarantors may
require, and that Bank has no duty at any time to disclose to Guarantors any
information relating to the business operations or financial conditions of
Borrowers.
(8) To secure all of Guarantors obligations hereunder, Guarantors
assign and grant to Bank a security interest in all moneys, securities and
other property of Guarantors now or hereafter in the possession of Bank, and
all deposit accounts of Guarantors maintained with Bank, and all proceeds
thereof. Upon default or breach of any of Guarantors' obligations to Bank, Bank
may apply any deposit account to reduce the indebtedness, and may foreclose any
collateral as provided in the Uniform Commercial Code and in any security
agreements between Bank and Guarantors.
(9) Any obligations of Borrowers to Guarantors, now or hereafter
existing, including but not limited to any obligations to Guarantors as
subrogees of Bank or resulting from Guarantors' performance under this
Guaranty, are hereby subordinated to the indebtedness. Such obligations of
Borrowers to Guarantors if Bank so requests shall be enforced and performance
received by Guarantors as trustees for Bank and the proceeds thereof shall be
paid over to Bank on account of the indebtedness, but without reducing or
affecting in any manner the liability of Guarantors under the provisions of
this Guaranty.
(10) This Guaranty may be revoked at any time by Guarantors in respect
to future transactions, unless there is a continuing consideration as to such
transactions which Guarantors do not renounce. Such revocation shall be
effective upon actual receipt by Bank at the address shown below of written
notice of revocation. Revocation shall not affect any of Guarantors'
obligations or Bank's rights with respect to transactions which precede Bank's
receipt of such notice, regardless of whether or not the indebtedness related
to such transactions, before or after revocation, has been renewed,
compromised, extended, accelerated, or otherwise changed as to any of its
terms, including time for payment or increase or decrease of the rate of
interest thereon, and regardless of any other act or omission of Bank
authorized hereunder. Revocation by any one or more of Guarantors shall not
affect any obligations of any nonrevoking Guarantors. If this Guaranty is
revoked, returned, or canceled, and subsequently any payment or transfer of any
interest in property by Borrowers to Bank is rescinded or must be
<PAGE> 3
returned by Bank to Borrowers, this guaranty shall be reinstated with respect
to any such payment or transfer, regardless of any such prior revocation,
return, or cancellation.
(11) Where any one or more of Borrowers are corporation or
partnerships it is not necessary for Bank to inquire into the powers of
Borrowers or of the officers, directors, partners or agents acting or purporting
to act on their behalf, and any indebtedness made or created in reliance upon
the professed exercise of such powers shall be guaranteed hereunder.
(12) Bank may, without notice to Guarantor and without affecting
guarantors' obligations hereunder, assign the indebtedness and this guaranty,
in whole or in part. Guarantors agree that Bank may disclose to any assignee or
purchaser or any prospective assignee or purchaser, of all of the indebtedness
any and all information in Bank's possession concerning guarantors, this
guaranty, and any security for this Guaranty.
(13) Guarantors agree to pay all reasonable attorneys' fees,
including allocated costs of Bank's in-house counsel, and all other costs and
expenses which may be incurred by Bank in the enforcement of this Guaranty.
(14) Where there is but a single borrower, or where a single
Guarantor executes this guaranty, then all words used herein in the plural shall
be deemed to have been used in the singular where the context and construction
so require; and when there is more than one Borrower named herein, or when this
Guaranty is executed by more than one Guarantor, the words "Borrowers" and
"Guarantors" respectively shall mean all and any one or more of them.
(15) This Guaranty shall be governed by and construed according to
the laws of the State of California, to the jurisdiction of which the parties
hereto submit.
(16) (a) Any controversy or claim between or among the parties,
including but not limited to those arising out of or relating to this Guaranty
or any agreements or instruments relating hereto or delivered in connection
herewith and any claim based on or arising from an alleged tort, shall at the
request of any party be determined by arbitration. The arbitration shall be
conducted in accordance with the United States Arbitration Act (Title 9 U.S.
Code), notwithstanding any choice of law provision in this Guaranty, and under
the Commercial Rules of the American Arbitration Association ("AAA"). The
arbitrator(s) shall give effect to statutes of limitation in determining any
claim. Any controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator(s). Judgment upon the arbitration award may be
entered in any court having jurisdiction. The institution and maintenance of an
action for judicial relief or pursuit of a provisional or ancillary remedy
shall not constitute a waiver of the right of any party, including the
plaintiff, to submit the controversy or claim to arbitration if any other party
contests such action for judicial relief.
(b) Notwithstanding the provisions of subparagraph (a), no
controversy or claim shall be submitted to arbitration without the consent of
all parties if, at the time of the proposed submission, such controversy or
claim arises from or relates to an obligation to Bank which is secured by real
property collateral located in California. If all parties do not consent to
submission of such a controversy or claim to arbitration, the controversy or
claim shall be determined as provided in subparagraph (c).
(c) A controversy or claim which is not submitted to
arbitration as provided and limited in subparagraphs (a) and (b) shall, at the
request of any party, be determined by a reference in accordance with
California Code of Civil Procedure Section 638 et seq. If such an election is
made, the parties shall designate to the court a referee or referees selected
under the auspices of the AAA in the same manner as arbitrators are selected in
AAA-sponsored proceedings. The presiding referee of the panel, or the referee
if there is a single referee, shall be an active attorney or retired judge.
Judgment upon the award rendered by such referee or referees shall be entered
in the court in which such proceeding was commenced in accordance with
California Code of Civil Procedure Sections 644 and 645.
(d) No provision of this paragraph shall limit the right of
any party to this Guaranty to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or security,
or to obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party
to resort to arbitration or reference. At Bank's option, foreclosure under a
deed of trust or mortgage may be accomplished either by exercise of power of
sale under the deed of trust or mortgage or by judicial foreclosure.
<PAGE> 4
Executed this 20 Feb 97
California Jockey Club
/s/ James M. Harris
-----------------------------------------
By: James Harris, President and Treasurer
P.O. Box 1117,
San Mateo, CA 94403
Address for notices to Bank:
BANK OF AMERICA N.T. & S.A.
Palo Alto Commercial Banking Office #01493
630 Lytton Ave.
Palo Alto, CA 94301
<PAGE> 5
================================================================================
[BANK OF AMERICA LOGO] SECURITY AGREEMENT:
SECURED PARTY IN POSSESSION
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(1) In consideration of any financial accommodation given, to be given
or continued to the undersigned (hereinafter called Debtor) by Bank of America,
National Trust and Savings Association, a national banking association
organized under the laws of the United States of America (hereinafter called
Secured Party), and as collateral for the payment of all debts, obligations or
liabilities now or hereafter existing, absolute or contingent (except, unless
Debtor shall otherwise agree in writing, such debts, obligations or liabilities
which are or may hereafter be "consumer credit" subject to the disclosure
requirements of the Federal Truth-in-Lending law and do not arise as a result
of any action taken, sum expended or expense or liability incurred by Secured
Party as provided herein), of Debtor or any one or more of them to Secured
Party (hereinafter called indebtedness). Debtor pursuant to the provisions of
the Uniform Commercial Code of the State of California hereby grants to Secured
Party a security interest in all money and property this day delivered to and
deposited with Secured Party, and all money and property heretofore delivered
or which shall hereafter be delivered to or come into the possession, custody
or control of Secured Party in any manner or for any purpose whatever during
the existence of this Security Agreement, and whether held in a general or
special account or deposit or for safe-keeping or otherwise, together with any
stock rights, rights to subscribe, liquidating dividends, stock dividends,
dividends, dividends paid in stock, new securities or other property to which
Debtor is or may hereafter become entitled to receive on account of such
property, and in the event that Debtor receives any such property, Debtor will
immediately deliver it to Secured Party to be held by Secured Party hereunder
in the same manner as the property originally delivered hereunder. All money
and property so delivered to Secured Party under this paragraph is hereinafter
called collateral. Securities evidenced by book-entry shall be considered
"delivered to" Secured Party for purposes of this Agreement upon execution and
delivery of this Agreement to Secured Party or, as to such securities which are
thereafter acquired by Debtor, upon Debtor's acquisition thereof.
(2) At any time, without notice, and at the expense of Debtor, Secured
Party in its name or in the name of Debtor may, but shall not be obligated to:
(a) collect by legal proceedings or otherwise, endorse, receive and receipt for
all dividends, interest, principal payments and other sums now or hereafter
payable upon or on account of said collateral; (b) make any compromise or
settlement it deems desirable or property with reference to the collateral;
(c) insure, process and preserve the collateral; (d) participate in any
recapitalization, reclassification, reorganization, consolidation, redemption,
stock split, merger or liquidation of any issuer of securities which constitute
collateral, and in connection therewith may deposit or surrender control of the
collateral, accept money or other property in exchange for the collateral, and
take such action as it deems proper in connection therewith, and any other
money or property received in exchange for the collateral shall be applied to
the indebtedness or held by Secured Party thereafter as collateral pursuant to
the provisions hereof; (e) cause collateral to be transferred to its name or to
the name of its nominee; (f) exercise as to the collateral all the rights,
powers and remedies of an owner necessary to exercise its rights under this
paragraph (3), but, except pursuant to paragraph (7) hereof, Secured Party
shall not vote any securities constituting collateral except as instructed by
Debtor.
(3) The Debtor agrees to pay prior to delinquency all taxes, charges,
liens and assessments against the collateral, and upon the failure of Debtor to
do so Secured Party at its option may pay any of them and shall be the sole
judge of the legality or validity thereof and the amount necessary to discharge
the same.
(4) All advances, charges, costs and expenses, including reasonable
attorneys' fees, incurred or paid by Secured Party in exercising any right,
power or remedy conferred by this Security Agreement or in the enforcement
thereof, shall become a part of the indebtedness secured hereunder and shall be
paid to Secured Party by Debtor immediately and without demand, with interest
thereon at seven percent per annum.
(5) At the option of Secured Party and without necessity of demand or
notice, all or any part of the indebtedness of Debtor shall immediately become
due and payable irrespective of any agreed maturity upon the happening of any
of the following events ("Events of Default"): (a) material failure to keep or
perform any of the material terms or provisions of this Security Agreement;
(b) default in the payment of principal or interest or any indebtedness of
Debtor when due; (c) any deterioration or impairment of the collateral or any
part thereof or any decline or depreciation in the value or market price
thereof (whether actual or reasonably anticipated), which causes the collateral
in the judgment of Secured Party to become unsatisfactory as to character or
value; (d) the levy of any attachment, execution or other process against
Debtor, or any of the collateral; (e) the death, insolvency, failure in
business, commission of an act of bankruptcy, general assignment for the benefit
of creditors, filing of any petition in bankruptcy or for relief under the
provisions of the National Bankruptcy Act, of, by, or against Debtor or any
comaker, accommodation maker, surety or guarantor of the indebtedness or any
endorser of any note or other document evidencing the indebtedness. Upon the
happening of any of the foregoing specified events any agreement for further
financial accommodation by Secured Party shall terminate at its option.
-1-
<PAGE> 6
- --------------------------------------------------------------------------------
(6) Upon the happening of any Event of Default, Secured Party may then
exercise as to such collateral all the rights, powers and remedies of an owner,
including the right to vote any securities constituting collateral, and may
elect to sell the collateral in one or more sales after giving a notice in
writing by mail to Debtor of such sale at least five (5) days before the date
fixed for such sale, provided, however, that if the collateral is perishable,
or threatens to decline speedily in value, or is of a type customarily sold on
a recognized market, then such notice may be dispensed with; the proceeds of
such sale shall be applied to: (a) the reasonable expenses of retaking,
holding, preparing for sale, selling and the like, reasonable attorneys' fees
and legal expenses incurred by Secured Party and (b) the indebtedness secured
by the security interest herein created and the surplus if any to the person or
persons entitled thereto; if there be a deficiency. Debtor will promptly pay
the same to Secured Party; the Secured Party may buy at any public sale and if
the collateral is customarily sold in a recognized market, or is the subject of
widely or regularly distributed standard price quotations, Secured Party may
buy at private sale. Any sale may be conducted by an auctioneer or by an
officer, attorney or agent of Secured Party.
(7) Secured Party shall be under no duty or obligation whatsoever, (a)
to make or give any presentment, demands for performances, notices of
nonperformance, protests, notices of protest or notices of dishonor in
connection with any obligations or evidences of indebtedness held by Secured
Party as collateral, or in connection with any obligation or evidences of
indebtedness which constitute in whole or in part the indebtedness secured
hereunder, or (b) to give Debtor notice of, or to exercise any subscription
rights or privileges, any rights or privileges to exchange, convert or redeem
or any other rights or privileges relating to or affecting any collateral held
by Secured Party.
(8) Debtor waives any right to require Secured Party to (a) proceed
against any person, (b) proceed against or exhaust any collateral, or (c) pursue
any other remedy in Secured Party's power, and waives any defense arising by
reason of any disability or other defense of Debtor or any other person, or by
reason of the cessation from any cause whatsoever of the liability of Debtor or
any other person. Until all indebtedness shall have been paid in full Debtor
shall have no right of subrogation and waives any right to enforce any remedy
which Secured Party now has or may hereafter have against Debtor or against any
other person and waives any benefit of any right to participate in any
collateral or security whatsoever now or hereafter held by Secured Party. Debtor
authorizes Secured Party without notice or demand and without affecting Debtor's
liability hereunder or on the indebtedness, from time to time to: (a) renew,
extend, accelerate or otherwise change the time for payment of, or otherwise
change the terms of, the indebtedness or any part thereof, including increase or
decrease of the rate of interest thereon; (b) take and hold security, other than
the collateral herein described for the payment of the indebtedness or any part
thereof, and exchange, enforce, waive and release the collateral herein
described or any part thereof, or any such other security; and (c) release or
substitute Debtor, or any of the endorsers or guarantors of the indebtedness of
any part thereof, or any other parties thereto.
(9) Secured Party may at any time deliver the collateral or any part
thereof to Debtor and the receipt of Debtor shall be a complete and full
acquittance for the collateral so delivered, and Secured Party shall thereafter
be discharged from any liability or responsibility therefor.
(10) Any person who signs this Security Agreement hereby expressly
agrees that recourse may be had against that person's separate property for all
of that person's indebtedness to Secured Party secured by the collateral under
the terms of this Security Agreement.
(11) Upon the transfer of all or any part of the indebtedness Secured
Party may transfer all or any part of the collateral and shall be fully
discharged thereafter from all liability and responsibility with respect to
such collateral so transferred, and the transferee shall be vested with all the
rights and powers of Secured Party hereunder with respect to such collateral so
transferred; but with respect to any collateral not so transferred Secured Party
shall retain all rights and powers hereby given.
(12) This is a continuing Security Agreement and all the rights, powers
and remedies hereunder shall apply to all past, present and future indebtedness
of Debtor to Secured Party, including that arising under successive
transactions which shall either continue the indebtedness, increase or decrease
it, or from time to time create new indebtedness after all or any prior
indebtedness has been satisfied, and notwithstanding the death, incapacity, or
bankruptcy of Debtor, or any other event or proceeding affecting Debtor.
(13) Until all indebtedness shall have been paid in full the power of
sale and all other rights, powers and remedies granted to Secured Party
hereunder shall continue to exist and may be exercised by Secured Party at the
time specified hereunder irrespective of the fact that the indebtedness or any
part thereof may have become barred by any statute of limitations, or that the
personal liability of Debtor may have ceased.
(14) The rights, powers and remedies given to Secured Party by this
Security Agreement shall be in addition to all rights, powers and remedies
given to Secured Party by virtue of any statute or rule of law. Secured Party
may exercise its banker's lien or right of setoff with respect to the
indebtedness in the same manner as if the indebtedness were unsecured. Any
forbearance or failure or delay by Secured Party in exercising any right, power
or remedy hereunder shall not be deemed to be
- --------------------------------------------------------------------------------
-2-
<PAGE> 7
a waiver of such right, power or remedy, and any single or partial exercise of
any right, power or remedy hereunder shall not preclude the further exercise
thereof; and every right, power and remedy of Secured Party shall continue in
full force and effect until such right, power or remedy is specifically waived
by an instrument in writing executed by Secured Party.
(15) Debtor represents and warrants that Debtor resides in, or, if
Debtor is not an individual, has its chief executive office in the state
specified on the signature page hereof. Debtor agrees to give Secured Party at
least thirty (30) days notice before changing its state of residence or chief
executive office.
(16) In all cases where more than one party executes this Security
Agreement all words used herein in the singular shall be deemed to have been
used in the plural where the context and construction so require, and the
obligations and undertakings hereunder are joint and several.
IN WITNESS WHEREOF, Debtor has executed this Security Agreement
this 20th Feb., 1997.
California Jockey Club
X /s/ JAMES M. HARRIS
----------------------------------
By: James M. Harris, President and Treasurer
P.O. Box 1117,
San Mateo, CA 94403
- --------------------------------------------------------------------------------
TAXPAYER INFORMATION (OWNER'S CERTIFICATION)
My U.S. Taxpayer Identification Number (TIN) to be used for tax
reporting purposes is: 94-2879337
(Check if Applicable)
- - Exempt Foreign Persons, Individuals I am neither a citizen nor a
resident of, nor am I doing business in the United States, and I have
not, and do not plan to be present in the United States for 183 or more
days during the calendar year.*
- - Exempt Foreign Persons. Non-Individuals The owner is not a U.S.
corporation, partnership, estate or trust and the lent property is not
effectively connected (related) to any U.S. trade or business the Owner
is currently engaged in or plans to engage in during the year.*
- - I am subject to backup withholding under the provisions of Internal
Revenue Code Section 3406(a)(1)(C) as notified by the Internal Revenue
Service.
*Exempt Foreign Person status is valid for three years. Prior to the third year
you will be required to recertify your status as an Exempt Foreign Person.
Under penalties of perjury, I certify that the taxpayer information provided is
true, correct and complete.
California Jockey Club
X /s/ JAMES M. HARRIS
----------------------------------
James M. Harris, President and Treasurer
(Holder of TIN to be used for tax reporting purposes)
Mailing Address:
P.O. Box 1117, San Mateo, CA 94403
- --------------------------------------------------------------------------------
-3-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> CALIFORNIA JOCKEY CLUB AND BAY MEADOWS OPERATING COMPANY
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<NAME> BAY MEADOWS OPERATING COMPANY
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