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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______________ to _____________
Commission File Number 0-9109 Commission File Number 0-9110
SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY
-------------------------------------- -------------------------------------
(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter)
DELAWARE DELAWARE
-------------------------------------- -------------------------------------
(State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization)
95-3520818 95-3419438
-------------------------------------- -------------------------------------
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
301 West Huntington Drive, Suite 405 285 West Huntington Drive
Arcadia, California 91007 Arcadia, California 91007
-------------------------------------- -------------------------------------
(Address of principal executive (Address of principal executive
offices including ZIP code) offices including ZIP code)
(818) 574-5550 (818) 574-7223
-------------------------------------- -------------------------------------
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
Securities registered pursuant to Section 12(b) of the Act:
Santa Anita Realty Enterprises, Inc. Santa Anita Operating Company
Common Stock $.10 par value Common Stock $.10 par value
-------------------------------------- -------------------------------------
(Title of class) (Title of class)
New York Stock Exchange New York Stock Exchange
-------------------------------------- -------------------------------------
(Name of each exchange (Name of each exchange
on which registered) on which registered)
Santa Anita Realty Enterprises, Inc.
Preferred Stock Purchase Rights
--------------------------------------
(Title of class)
New York Stock Exchange
--------------------------------------
(Name of each exchange
on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None None
-------------------------------------- -------------------------------------
(Title of each class) (Title of each class)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
----------- -----------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the paired voting stock of Santa Anita Realty
Enterprises, Inc. and of Santa Anita Operating Company held by nonaffiliates on
March 13, 1995 was $172,812,000.
Indicate the number of shares outstanding of each of the Issuer's classes
of common stock, as of the close of business on March 13, 1995:
Santa Anita Realty Enterprises, Inc. Common Stock 11,256,353
Santa Anita Operating Company Common Stock 11,143,853
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated by reference in Part III of this
Joint Annual Report on Form 10-K:
Joint proxy statement for the annual meetings of shareholders of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating Company to be held
on May 2, 1995.
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<PAGE>
TABLE OF CONTENTS
Page
----
PART I 3
Item 1. Business 3
Introduction 3
Business Strategy 3
Realty 7
Summary Financial Information 7
Real Estate Investments and Policies 8
Santa Anita Racetrack 9
Regional Malls 10
Santa Anita Fashion Park 10
Towson Town Center 11
Neighborhood Shopping Centers 11
Office Buildings 11
Land 11
Pacific Gulf Properties Inc. 11
Management of Properties 12
Competitive and Other Conditions 12
Employees 13
Seasonal Variations in Business 13
Operating Compan 14
Santa Anita Racetrack 14
Wagering Commissions 14
On-Track Wagering 15
Satellite Wagering - Southern California 15
Satellite Wagering - Northern California 15
Satellite Wagering - Out-of-State
(Commingled Pools) 15
Out-of-State Wagering - Separate Pools 16
Competitive and Other Conditions 20
Dependence on Limited Number of Customers 21
Employee and Labor Relations 21
Seasonal Variations in Business 21
Income Tax Matters 22
Item 2. Properties 27
Item 3. Legal Proceedings 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 4a. Executive Officers of Operating Company and Realty 28
PART II 30
Item 5. Market for the Registrants' Common Equity and Related
Shareholder Matters 30
Item 6. Selected Financial Data 31
Item 7. Managements' Discussion and Analysis of Financial
Condition and Results of Operations 35
Item 8. Financial Statements and Supplementary Data 40
Item 9. Disagreements on Accounting and Financial Disclosure 40
PART III 41
PART IV 41
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 41
SIGNATURES 42
INDEX TO FINANCIAL STATEMENTS 44
INDEX TO FINANCIAL STATEMENT SCHEDULES 45
EXHIBIT INDEX 95
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<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
PART I
ITEM 1. BUSINESS
INTRODUCTION
Santa Anita Realty Enterprises, Inc. ("Realty") and Santa Anita
Operating Company ("Operating Company") are two separate companies, the stocks
of which trade as a single unit under a stock-pairing arrangement on the New
York Stock Exchange. Realty and Operating Company were each incorporated in
1979 and are the successors of a corporation originally organized in 1934 to
conduct thoroughbred horse racing in Southern California. As used herein, the
terms "Realty" and "Operating Company" include wholly owned subsidiaries of
Realty and Operating Company unless the context requires otherwise. References
to "The Santa Anita Companies" or "Companies" refer to Realty and Operating
Company, collectively. This document constitutes the annual report on Form 10-K
for both Realty and Operating Company.
BUSINESS STRATEGY
OVERVIEW
In 1994, The Santa Anita Companies completed comprehensive
restructurings of both Realty and Operating Company and embarked on a new,
growth-oriented strategy designed to build long-term value for shareholders by
maximizing the value of the Companies' assets. These assets, as discussed in
greater detail below, include, but are not limited to:
* Santa Anita Racetrack, widely regarded as one of North America's
finest thoroughbred horse racing facilities and operations;
* The televised simulcast signal that carries live racing at Santa
Anita Racetrack to satellite wagering sites in California,
Nevada, New York, 32 other states and seven foreign countries;
* 400 acres of prime real estate, including Santa Anita Racetrack
and Santa Anita Fashion Park regional mall in Arcadia,
California; and
* Strong positive name recognition for Santa Anita throughout
Southern California and within the thoroughbred racing and pari-
mutuel wagering industries nationwide.
The Companies intend to achieve their long-term strategic objectives
by leveraging Santa Anita's excellent location, positive name recognition and
current operations to develop the Companies into a premier gaming and
entertainment concern in Southern California with thoroughbred horse racing at
its core.
THE RESTRUCTURING
Consistent with this strategy, the Companies undertook a major
restructuring in 1994 designed to focus the Companies on core growth areas of
their businesses and to provide the financial flexibility and managerial
strength needed to achieve the business objectives stated above. A summary of
key events related to these restructurings follows.
On June 2, 1994, Realty's Board of Directors approved management's
recommendation to reduce the annual dividend from $1.36 per share to $.80 per
share, a decrease of 41%. This reduction in the dividend has made available
$6.2 million annually for reinvestment into the development of the Companies'
assets in accordance with its long-term growth strategy.
During 1994, Realty completed the sale of its multifamily and
industrial operations to Pacific Gulf Properties Inc. ("Pacific"). As discussed
in greater detail below, this sale enabled Realty to deleverage its
-3-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
balance sheet by paying down its lines of credit by $44.4 million and
transferring certain debt in the amount of $53.7 million related to the
apartment and industrial properties of Pacific. The transaction also provided
Realty's shareholders with an opportunity to participate in the potential growth
of Pacific through Realty's 16.3% ownership position. The transaction was
accomplished without diluting existing shareholders' interest in Santa Anita
Racetrack and Santa Anita Fashion Park.
In December 1994, Realty completed the restructuring of its balance
sheet that began with the Pacific transaction. Specifically, Realty completed
$45.5 million of new financing arrangements with First Interstate Bank, which
consist of a $30.0 million revolving credit facility and $15.5 million of
mortgage notes. Also, Realty and The Hahn Company completed the refinancing of
the mortgage debt on the Santa Anita Fashion Park Mall through a new
$62.4 million loan agreement with Teachers Insurance and Annuity Association.
The additional borrowing under this facility provides permanent financing for
the mall's recently opened 136,000 square foot Nordstrom store and a 40,000
square foot expansion of retail space. These financing agreements enabled the
Companies to retire $30.9 million of higher priced short-term debt obligations
and secure long-term fixed rate financing for Realty's Fashion Park mall
property.
Total debt for the combined Companies at December 31, 1994 was
$112.3 million compared with $187.9 million at December 31, 1993. Excluding the
partnership debt on Santa Anita Fashion Park Mall, Santa Anita's debt at
December 31, 1994 was $50.4 million compared to $162.6 million at December 31,
1993. The reduction in debt is principally the result of the Pacific
transaction completed in 1994.
In addition, Operating Company continued to implement an ongoing cost
reduction program begun in 1992. To date, this program has reduced the
Company's ongoing expenses by approximately $6 million annually.
THE RESTRUCTURING - MANAGEMENT CHANGES
During 1994, the Board of Directors of Realty named Sherwood C.
Chillingworth, 68, Vice Chairman of the Board and Chief Executive Officer,
Christopher T. Stirling, 40, President and Chief Operating Officer and Brian L.
Fleming, 50, Executive Vice President and Chief Financial Officer. Together,
this group brings Santa Anita extensive experience and expertise in real estate
development, management, financing and retailing.
During 1994, the Board of Directors of Operating Company promoted
Richard D. Brumbaugh, 48, to Vice President - Finance and Chief Financial
Officer. In addition, Kathryn J. McMahon, 34, was named General Counsel and
Secretary and Mark T. Stephens, 31, was promoted to Vice President - Marketing
and Customer Relations, reflecting the increased emphasis the Company is putting
on customer service and marketing. Ms. McMahon is also the Company's primary
liaison to the Arcadia community.
THE RESTRUCTURING - BOARD CHANGES
On September 15, 1994, the Companies announced the election of William
D. Schulte to their Boards of Directors. Mr. Schulte, 62, is a former Vice-
Chairman of KPMG Peat Marwick LLP, and is currently the head of the Companies'
audit committees.
Effective March 1, 1995, J. Terrence Lanni was elected to the Boards
of Directors of the Companies. Mr. Lanni, 52, is the former President and Chief
Operating Officer of Caesars World Inc. and a long-time thoroughbred horse
breeder, owner and enthusiast. Mr. Lanni has extensive experience in the horse
racing, entertainment and gaming industries.
Effective March 17, 1995, Thomas J. Barrack, Jr. was elected to the
Boards of the Companies. Mr. Barrack, 47, is the Chief Executive Officer of
both Colony Capital, Inc. and Colony Advisors, Inc., real estate investment
firms owning and managing in excess of $3.5 billion of real estate assets.
The Companies also announced on February 21, 1995 a restructuring of
the Boards of Directors of both Realty and Operating Company. Linda K. Mennis,
John M. Strub and Robert H. Strub resigned their Board positions at either
Operating Company or Realty. Each will serve on the Board of the Los Angeles
Turf Club.
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<PAGE>
ITEM 1. BUSINESS (CONTINUED)
Charles H. Strub II has also resigned from the Board of Realty in order to
devote himself full-time to pursuing personal business interests in Arizona and
Texas. It was also announced that Robert H. Grant and Robert E. Morgan, two
long-time directors of both Operating Company and Realty, have reached the
Companies' mandatory retirement age for board service and will not stand for re-
election when their terms expire this spring.
GROWTH STRATEGY -- SANTA ANITA REALTY ENTERPRISES
As attendance and wagering for Santa Anita's live racing has shifted
to satellite locations, the demand for onsite parking has declined accordingly
and has provided Realty with an exciting opportunity to develop its prime
Arcadia property into a major entertainment and retail center. This shift has
made approximately 100 acres of Realty's 400-acre Arcadia property available for
development into higher return uses with greater long-term benefits for the
Companies' shareholders and the surrounding community.
The Arcadia property, which includes the Santa Anita Racetrack and
Santa Anita Fashion Park regional mall, enjoys ready access to fifteen million
people within a fifty-mile radius. Only fourteen miles from downtown Los
Angeles, the property is located near several major freeways with easy access to
Orange County and rapidly expanding population centers in the San Fernando, San
Gabriel and Pomona valleys.
Realty has been working with the architectural design firm, Jerde
Partnership Inc. to develop a comprehensive plan for the development of this
property. The Jerde Partnership designed Universal Citywalk and San Diego's
Horton Plaza and, Realty believes, is one of the nation's finest firms for
entertainment and retail mixed-use development.
The development envisions a broad range of entertainment and retail
venues, including movie, live performance, large screen format and virtual
reality theaters, high-end specialty retailers and restaurants. In March 1995,
Realty filed applications with the City of Arcadia to commence the entitlement
process for the development of the site.
Realty is currently in negotiations with a number of leading companies
about their potential participation in the development. It is currently the
Companies' expectation to receive necessary governmental approvals and begin
construction on the site in 1996 with operations commencing in 1997.
Consistent with Santa Anita's strategy of enhancing the value of its
Arcadia property, Santa Anita Fashion Park opened its fourth anchor tenant in
August 1994, a 136,000 square foot Nordstrom store. In the fall season
following the opening, sales increases for mall tenants averaged 15%. Fashion
Park's other three anchor tenants are The Broadway (188,000 square feet),
Robinsons-May (156,000 square feet), and J.C. Penney (215,000 square feet). The
Fashion Park mall underwent a major remodeling in 1988 and added a food court in
1993. During the past year, each of the anchor department stores has either
completed or commenced a major remodeling of their stores.
GROWTH STRATEGY - SANTA ANITA OPERATING COMPANY
While a decline in Santa Anita Racetrack's onsite attendance has
provided Realty the opportunity described above, a marked increased in offsite
attendance and wagering has opened a new growth area for Santa Anita's racing
operations.
In spite of heavy rains for much of January and March, Santa Anita's
total average daily wagering was $11.1 million for the first 61 days of its 1995
racing meet, which began on December 26, 1994. This represents an increase of
15.2% in wagering over the comparable 1994 period and reflects the benefits of
full card California simulcasts and significant growth in out-of-state markets.
In the fall of 1993, California law permitted the limited exchange
between Southern and Northern California of televised racing signals on races
with purses exceeding $20,000. In the summer of 1994, a change in California
law permitted the unlimited exchange of racing signals between the Southern
California zone and the Northern California zone. Santa Anita currently sends
televised racing signals to 16 locations in Southern
-5-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
California and 15 locations in Northern California. The California satellite
facilities commingle their wagering with the wagering on-track.
Certain states permit the transmission of pari-mutuel wagers across
state lines. This format permits patrons wagering in those states on races held
at Santa Anita Racetrack to participate in the same pari-mutuel pool payouts
available to Santa Anita's on-track patrons and California satellite patrons.
Santa Anita currently participates in satellite wagering with commingled pools
in Nevada and 23 other states and with separate pools in New York and nine other
states. Santa Anita receives a negotiated percentage of the pari-mutuel
wagering at such sites.
On December 12, 1994, The Santa Anita Companies entered into an
agreement with the New York Off-Track Betting Corporation under which Santa
Anita will provide its full, nine-race card live signal to 261 off-track betting
sites throughout New York State during its 1995 winter racing season. When
added to the recently enacted, full-card simulcast between Northern and Southern
California, the New York OTB signal has made Santa Anita's 1995 winter meet
purse structure the largest in North American thoroughbred racing history.
In addition to being one of the nation's premier racing operations,
Santa Anita has invested over $5 million to build a state-of-the-art
broadcasting center at its Arcadia facility. This center enables Santa Anita to
provide its satellite locations with a signal that has outstanding production
values and picture quality. The center has the capacity to accommodate expanded
demand for the signal.
As part of Operating Company's growth strategy, Santa Anita is
currently exploring opportunities to transmit its live racing signal to other
markets in North America as well as select markets in Latin America. The Latin
American marketplace is characterized by an existing base of knowledgeable and
enthusiastic fans of thoroughbred racing and pari-mutuel wagering. In addition
to its "marquee" value and quality racing signal, Santa Anita benefits from
small and favorable time zone differentials with much of Latin America.
Operating Company is also exploring the future potential of opportunities in
interactive home wagering and additional off-track wagering outlets in
California.
Santa Anita is also committed to growing its onsite track attendance
through new marketing initiatives. The Company will pursue an aggressive
marketing agenda, concentrating on expanding its database marketing programs,
further developing its sales to groups and designing improved programs to
attract younger and more diverse demographic segments.
In addition, Operating Company believes the development of the Arcadia
property will lead to increased traffic flow on the Arcadia property, providing
opportunities for the Companies and other tenants of the proposed Arcadia
development to pursue joint- and cross-marketing initiatives.
On February 9, 1995, The Santa Anita Companies announced the purchase
of an option to acquire a 50% interest in the Bell Jackpot Casino, a fully
licensed card club in the City of Bell, California at such time that legislation
is enacted in California to allow public companies to own and operate card club
facilities, subject to state licensing and other regulatory approvals. There
can be no assurances that such legislation will be enacted in the near future or
at all. The City of Bell is centrally located in Los Angeles County. The Bell
Jackpot Casino opened Friday, February 3, 1995. The Casino is a 42,000 square
foot, fully equipped 45-table facility. The Casino operates 24 hours per day,
365 days a year, and provides full food and beverage services. The Casino would
provide Santa Anita with another venue in California's growing gaming
entertainment industry.
Santa Anita is exploring additional opportunities to enter the card
club casino business in anticipation of expanded gaming in California.
SUMMARY
The corporate actions and strategic direction outlined above have been
undertaken to further the Companies' objective of creating significant long-term
value for shareholders by transforming The Santa Anita Companies into a premier
gaming and entertainment company with thoroughbred horse racing at its core.
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<PAGE>
ITEM 1. BUSINESS (CONTINUED)
REALTY
Realty is incorporated under the laws of the State of Delaware.
Realty's principal executive offices are located at 301 West Huntington Drive,
Suite 405, Arcadia, California 91007.
Realty operates as a real estate investment trust ("REIT") under the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"). As
such, Realty is principally engaged in investing in and holding real property,
including Santa Anita Racetrack, the real estate underlying the Santa Anita
Fashion Park shopping center ("Fashion Park"), a 50 percent interest in the
operation of Fashion Park and a 32.5 percent interest in Towson Town Center
(major regional shopping centers) and a number of neighborhood shopping centers
and office buildings. Until February 18, 1994, Realty also owned 2,654
apartment units and 185,000 square feet of industrial space and until October 1,
1994 an additional 622,000 square feet of industrial space. Realty is a self-
administered equity REIT.
SUMMARY FINANCIAL INFORMATION
The following table sets forth certain unaudited financial information with
respect to Realty:
<TABLE>
<CAPTION>
SUMMARY OF FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
----------------------------------------------------------------------------
1994 1993 1992 1991 1990
------------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 40,263 (a) $ 55,578 $50,291 $45,408 $44,101
Net income 5,545 2,619(b) 10,211 9,699 13,861
Funds from operations (c) 14,831 18,647(d) 19,167 17,273 19,113
Per share:
Net income .49 .23 .91 .86 1.23
Dividends paid 1.08 1.36 1.36 2.08 2.08
Dividends declared .94 1.36 1.36 1.90 2.08
Weighted average shares
outstanding 11,256 11,256 11,256 11,257 11,224
----------
<FN>
(a) The decline in revenues was due primarily to the sale of properties to
Pacific. See Item 1. "Business - Realty - Pacific Gulf Properties."
(b) The decline in net income is due to the loss on the sale of properties to
Pacific which was reflected in net income in 1993. See Item 1. "Business
- Realty - Pacific Gulf Properties."
(c) Calculated in accordance with the definition of funds from operations as
defined by the National Association of Real Estate Investment Trusts
("NAREIT"), except 1993 which excludes $5,734,000 received from the
California Franchise Tax Board related to the settlement of certain state
tax issues. Net income (computed in accordance with generally accepted
accounting principles), excluding gains (losses) from debt restructuring
and sales of property, plus depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated joint ventures were calculated by adding
distributions from unconsolidated joint ventures net of equity in the
earnings (losses) of the venture and excluding distributions associated
with the sale of property by the venture.
(d) Pro forma funds from operations for the year ended December 31, 1993, after
giving effect to the Pacific transaction, were $16,151,000.
</TABLE>
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<PAGE>
ITEM 1. BUSINESS (CONTINUED)
REAL ESTATE INVESTMENTS AND POLICIES
Realty's portfolio of real estate investments is outlined below.
SUMMARY OF REAL ESTATE INVESTMENTS
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
NET BOOK
PERCENT LEASABLE PERCENT VALUE (B) ENCUMBRANCES (C)
LEASED AREA (A) OWNERSHIP (IN THOUSANDS) (IN THOUSANDS)
------- ---------- --------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
RACING FACILITY:
Santa Anita Racetrack 100% 312 acres 100.0% $ 8,304 $ --
REGIONAL MALLS:
California
Fashion Park 95 1,093,000 50.0 52,307 61,925
Land underlying Fashion Park 100 73 acres 100.0 102 3,971
Maryland
Towson Town Center 91 980,000 32.5(d) 169,945 164,641
Joppa Associates (e) -- 240,000 33.3 28,253 16,495
SHOPPING CENTERS:
California
Yorba Linda 90 53,000 100.0 7,606 3,494
Orange 100 21,000 100.0 4,535 1,722
Encinitas 88 80,000 100.0 11,229 4,332
Arizona, Phoenix
Tatum and Thunderbird 100 52,000 100.0 3,584 2,880
28th and Indian School 97 31,000 100.0 2,141 1,677
67th and Indian School 97 75,000 100.0 5,551 1,395
OFFICE BUILDINGS:
California
Civic Center Plaza Towers 78 152,000 100.0 16,546 11,704
Upland 100 36,000 100.0 4,540 --
Medical Office Building 93 75,000 100.0 13,032 8,892
LAND:
California
Temecula N/A 24 acres 50.0 480 480
---------------
<FN>
(a) Square feet except as indicated.
(b) Net book value (total cost of project less accumulated depreciation) at
December 31, 1994. Amounts represent 100% of project net book value.
(c) Amounts represent 100% of project encumbrances.
(d) Realty is entitled to receive a preferred return on its equity investment.
(e) A retail building adjacent to the Towson Town Center project that is
expected to become part of the regional mall.
</TABLE>
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<PAGE>
ITEM 1. BUSINESS (CONTINUED)
SANTA ANITA RACETRACK
Santa Anita Racetrack, which is leased by Realty to the Los Angeles
Turf Club, Incorporated ("LATC"), a subsidiary of Operating Company, is located
on approximately 312 acres, 14 miles northeast of downtown Los Angeles, adjacent
to major transportation routes. LATC conducts one of the largest thoroughbred
horse racing meets in the United States in terms of both average daily
attendance and average daily pari-mutuel wagering.
The Santa Anita Racetrack was opened for thoroughbred horse racing in
1934 by a group of investors led by Dr. Charles H. Strub. The Santa Anita Meet
has been held at Santa Anita Racetrack each year since its founding except for
three years during World War II. Over the years, the racetrack facilities have
been expanded. At present, the physical plant consists of a large grandstand
structure, stalls for approximately 2,000 horses, and a parking area covering
approximately 128 acres which can accommodate approximately 20,000 automobiles.
The grandstand facilities include clubhouse accommodations, a general admission
area, and food and beverage facilities, which range from fast food stands to
restaurants, both at outdoor terrace tables and indoor dining areas. The
grandstand has seating capacity for 25,000 as well as standing room for
additional patrons. The structure also contains Operating Company's executive
and administrative offices. The grounds surrounding the grandstand are
extensively landscaped and contain a European-style paddock and infield
accommodations, including picnic facilities for special groups and the general
public.
During 1994, the lease rental payable to Realty by LATC was 1.5% of
total live on-track wagering at Santa Anita Racetrack, including live on-track
wagering during the meet conducted by the Oak Tree Racing Association ("Oak
Tree"). In addition, Realty received 40% of LATC's revenues from satellite
wagering (not to exceed 1.5% of such wagering) and the simulcasting of races
originating from Santa Anita Racetrack after mandated payments to the State, to
horse owners and to breeders. The lease with LATC which was scheduled to expire
December 31, 1994, was amended and extended for an additional five years,
effective January 1, 1995. The amended lease provides for rent of 1.5% of the
aggregate on-track wagering on live races at Santa Anita Racetrack and 26.5% of
LATC's wagering commissions from satellite wagering on races originating at
Santa Anita Racetrack. In addition, Realty will receive 26.5% of LATC's
wagering commissions from satellite wagering on races originating at certain
other racetracks. Accordingly, the rental income which Realty receives from
Santa Anita Racetrack is directly affected by and dependent upon the racing
activities and the wagering by patrons (see Item 1. "Business -- Operating
Company -- Santa Anita Racetrack").
Based upon the rental formula, for the year ended December 31, 1994
Realty received $13,070,000 in rental income from horse racing (see Item 1.
"Business -- Operating Company"). If the amended lease terms had been in effect
for the year ended December 31, 1994, racetrack rental revenues would have been
$11,123,000.
The following table shows rental earned by Realty under the LATC lease for
the last five years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT FOR RACING DAYS)
---------------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Combined racing days 117 114 121 120 117
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
Santa Anita Meet $ 11,226 $ 9,233 $ 10,955 $ 9,928 $ 10,436
Oak Tree Meet and Charity
Days (a) 1,844 2,401 1,728 1,889 2,069
--------- --------- --------- -------- ---------
Total $ 13,070 $ 11,634 $ 12,683 $ 11,817 $ 12,505
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
<FN>
--------------------------
(a) Oak Tree races five weeks in even-numbered years and six weeks in odd-
numbered years.
</TABLE>
For a further description of the Santa Anita Meet and the Oak Tree
Meet, see Item 1. "Business -- Operating Company -- Santa Anita Racetrack."
-9-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
REGIONAL MALLS
SANTA ANITA FASHION PARK
Santa Anita Fashion Park is a completely enclosed, climate-controlled
regional mall located adjacent to Santa Anita Racetrack with 1,093,000 square
feet of leasable area. Fashion Park is owned and operated by a partnership,
Anita Associates, of which Realty is a 50% limited partner. The general partner
of Anita Associates is Hahn-UPI, which in turn is a limited partnership of which
The Hahn Company, a developer of shopping centers, is the general partner.
In the fall of 1994, an expansion of Fashion Park was completed. In
addition to the existing major tenants, Robinsons-May (156,000 square feet),
J.C. Penney (215,000 square feet) and The Broadway (188,000 square feet), a new
136,000 square foot Nordstrom store was added and an additional 40,000 square
feet of mall stores were added. During 1993, the Robinsons-May store was
expanded by approximately 40,000 square feet and a food court of approximately
13,000 square feet was completed and opened. During the past year, each of the
anchor department stores has either completed or commenced a major remodeling of
their stores.
In January 1994, the partnership refinanced its existing debt by
entering into a secured loan agreement with an insurance company. Funding under
the secured loan was made in two draws of $46,577,000 at 9.0% in January 1994
and $15,778,000 at 9.25% in December 1994. The secured loan is due in January
2003. At December 31, 1994, $61,925,000 was outstanding under the agreement.
There are currently 130 tenants operating mall stores. Leases are
generally seven to ten years with clauses providing for escalation of the basic
rent every three years. Typically, leases with mall tenants are structured to
provide Anita Associates with overage rents upon attainment by the tenant of
certain sales levels, which are specified under the individual leases of the
various stores. Overage rents represent a fixed percentage of the gross sales
of a tenant less its base rent. With the addition of Nordstrom, Fashion Park
has been able to attract higher quality mall tenants at higher annual rental
rates.
Realty has leased the land underlying Fashion Park to Anita Associates
and to three of the major tenants of Fashion Park until 2037, with two
additional ten-year option periods and one additional five-year option period.
The ground rent is $527,000 annually until 1996 when the annual rent will
increase to $794,000 through 2007. During the remaining 30-year term and the
three additional option periods, the annual ground rent may be increased up to
25% based upon the appraised value of the land. Under the provisions of the
ground leases, Anita Associates is responsible for real estate taxes and other
operating expenses. Robinsons-May, J.C. Penney, The Broadway and Nordstrom pay
their own real estate taxes.
The land underlying Fashion Park is security for a loan maturing in
2009 with a balance at December 31, 1994 of $3,971,000. Payments on this
indebtedness, which is without recourse to Realty, are approximately $473,000
annually. The security to the lender also includes an assignment of the ground
rents received by Realty and a collateral assignment of the ground leases.
The following table contains certain information pertaining to the
mall stores in Fashion Park (excluding major tenants):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Number of mall tenants 130 116 107 (a) 134 139
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Average annual rental rates per square
foot including overage rents $ 18.56 $ 16.42 $ 16.98 $ 15.80 $ 14.99
------- ------- ------- ------- -------
------- ------- ------- ------- -------
<FN>
___________________
(a) Decline due primarily to certain leases not being renewed in anticipation
of the expansion completed in 1994.
</TABLE>
-10-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
TOWSON TOWN CENTER
Towson Town Center located in Towson, Maryland, is a 980,000 square
foot regional mall which opened in 1991. Realty is a 50% partner with The Hahn
Company in H-T Associates, a joint venture which owns a 65% interest in a
partnership which owns the Towson Town Center. Realty has invested a total of
$7.5 million in H-T Associates. The major tenants at Towson Town Center are
Nordstrom (224,000 square feet) and Hecht's (193,000 square feet) department
stores.
There are 175 other tenants operating mall stores with original lease
terms varying up to 15 years. The average annual rental rate per square foot
including overage rents was $31.85 per square foot for the operating mall
stores. The mall tenant leases generally provide for escalation of the basic
rent every three years and are structured to provide Towson Town Center with
overage rents upon attainment by the tenant of certain sales levels, which are
specified under the individual leases of the various stores. Overage rents
represent a fixed percentage of the gross sales of a tenant less its base rent.
Realty is a joint and several guarantor of loans used to expand the
Towson Town Center and property adjacent to the Towson Town Center in the amount
of $74,385,000. Annually, the guarantors may request a reduction in the amount
of the guaranty based on the economic performance of the regional mall (see
"Notes to Financial Statements -- Note 4 -- Investments in Unconsolidated Joint
Ventures").
NEIGHBORHOOD SHOPPING CENTERS
Realty owns a portfolio of six neighborhood shopping centers. The
shopping centers typically consist of a major supermarket, retail store or
drugstore as a major tenant and often include a variety or general merchandise
store and smaller service store tenants. The major tenant in two centers owns
its building and the underlying land, while in the four other centers, the land
or improvements are leased to the major tenant. Leases on the properties range
from two to ten years in duration but typically are from three to five years.
They are generally triple net leases (tenant pays all operating costs, insurance
and property taxes) and provide for future rental increases. At December 31,
1994, the average occupancy of the three shopping centers located in California
was 90% and the average occupancy of the three shopping centers located in
Arizona was 98%.
OFFICE BUILDINGS
Realty owns three office buildings located in Arcadia, Santa Ana and
Upland, California. The office buildings in Santa Ana and Upland are for general
office use and the building in Arcadia is a medical office building. Office
leases are typically for a period of five to ten years and are offered on a
full-service gross basis. In addition, tenants are given a tenant improvement
allowance and rental concessions in the form of additional tenant improvement
allowances or free rent. At December 31, 1994, the average occupancy of the
office buildings was 85%.
LAND
Realty is a 50% partner in French Valley Ventures, a partnership which
acquired 24 acres of unimproved land located in Temecula, California. The
partnership is reviewing the possibility of developing an industrial project on
the site. In December 1994, the partnership negotiated a reduction in the
maturing mortgage on this property. Additionally, the carrying cost of the
investment was written down to its estimated market value which equals the
amount of the debt.
PACIFIC GULF PROPERTIES INC.
In June 1993, Realty's Board of Directors approved management's
recommendation to recapitalize certain assets of Realty. Pursuant to this
recapitalization, in November 1993, Realty entered into a Purchase and Sale
Agreement to sell its multifamily and industrial operations to Pacific Gulf
Properties Inc. ("Pacific"), in conjunction with Pacific's proposed public
offering of common stock. The transaction was structured into two parts: (1)
Realty would sell all of its apartments and industrial properties to Pacific
with the exception of Realty's
-11-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
interest in the Baldwin Industrial Park joint venture; and (2) Pacific would
enter into a binding agreement to buy Realty's interest in Baldwin Industrial
Park.
On February 18, 1994, Realty completed the first part of this
transaction by selling to Pacific ten multifamily properties, containing 2,654
apartment units, located in Southern California, the Pacific Northwest, and
Texas and three industrial properties, containing an aggregate of 185,000
leasable square feet of industrial space, located in the State of Washington
(the "Transferred Properties"). Realty's corporate headquarters building and
related assets were also acquired by Pacific. The sale of the Transferred
Properties followed the public offerings of common stock and convertible
subordinated debentures by Pacific.
In consideration of the sale of the Transferred Properties, Realty
received approximately $44.4 million in cash and 150,000 shares of the common
stock of Pacific. In addition, Realty was relieved of approximately $44.3
million of mortgage debt on the Transferred Properties.
In connection with the sale, the executive officers, various managers
and most other employees of Realty resigned and became officers and employees of
Pacific on February 18, 1994.
Effective October 1, 1994, Realty completed the second part of the
transaction, the sale of its interest in Baldwin Industrial Park to Pacific. As
a result, effective October 31, 1994, Pacific delivered to Realty an additional
634,419 shares of Pacific common stock as consideration for the transaction and
corporate headquarters and other net assets and Realty transferred an additional
$9,415,000 of indebtedness to Pacific.
The two parts of the above transaction resulted in a loss of
$10,974,000, which was reflected in the Realty and Combined Realty and Operating
Company statements of operations for the year ended December 31, 1993.
As a result of the February 18, 1994 and October 1, 1994 sales to
Pacific, Realty owns approximately 16.3% of Pacific's outstanding common shares.
The sales accomplished the following objectives: (1) the transaction
deleveraged Realty by paying down its lines of credit by $44.4 million and
transferring $53.7 million of debt related to the apartment and industrial
properties to Pacific; (2) the deleveraging was accomplished without Realty's
existing shareholders' interest in Realty's other assets being diluted; and
(3) so long as Realty continues to hold its ownership position in Pacific,
Realty shareholders have the ability to participate in any growth of Pacific.
MANAGEMENT OF PROPERTIES
Realty manages its neighborhood shopping centers and office buildings
directly.
COMPETITIVE AND OTHER CONDITIONS
The regional shopping malls, neighborhood shopping centers and office
buildings owned by Realty encounter significant competition from similar or
larger regional shopping malls, shopping centers and office buildings developed
and owned by other companies.
Realty's income from its real estate assets is also affected by
general economic conditions. The current recession has adversely affected
vacancy rates in office buildings generally. Continuation of the recession
could adversely impact vacancy rates, the nature of Realty's tenants, the rents
Realty is able to obtain from its tenants and its financial results.
Some of Realty's properties are located in Southern California, which
is an area subject to earthquakes and, therefore, there can be no assurance that
any potential earthquakes will not damage Realty's properties or negatively
impact the financial position or results of Realty.
-12-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
EMPLOYEES
In connection with the sale to Pacific, the executive officers,
various managers and most other employees of Realty resigned and became officers
and employees of Pacific on February 18, 1994. Realty entered into a management
agreement with Pacific which was terminated July 10, 1994. Realty appointed a
new Vice Chairman of the Board and Chief Executive Officer in March 1994, a new
President and Chief Operating Officer in April 1994 and a new Executive Vice
President and Chief Financial Officer in May 1994 (see Item 4a. "Executive
Officers of Realty and Operating Company"). At December 31, 1994, Realty
employed 15 persons on a full-time basis.
SEASONAL VARIATIONS IN BUSINESS
Realty is subject to significant seasonal variation in revenues due
primarily to the seasonality of thoroughbred horse racing. The following table
presents unaudited quarterly results of operations for Realty during 1994 and
1993:
<TABLE>
<CAPTION>
QUARTERS ENDED
1994
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
------------------------------------------
MARCH JUNE SEPT. DEC.
-------- ------- -------- ---------
<S> <C> <C> <C> <C>
Total revenues (a) $ 15,803 $ 9,002 $ 6,544 $ 8,914
Costs and expenses (a) 6,799 4,773 5,114 6,118
Interest expense and other (a) 2,940 1,839 2,326 3,766(b)
Write-down of land held for
development -- -- -- 1,043
-------- ------- -------- ---------
Net income (loss) $ 6,064 $ 2,390 $ (896) $ (2,013)
-------- ------- -------- ---------
-------- ------- -------- ---------
Net income (loss) per common share $ .54 $ .21 $ (.08) $ (.18)
-------- ------- -------- ---------
-------- ------- -------- ---------
<FN>
___________________
(a) The decrease in total revenues, costs and expenses and interest expense
and other reflects the disposition of the multifamily and industrial
operations in 1994.
(b) Includes one-time charge of $1,478,000 of debt repayment costs.
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
1993
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
-----------------------------------------------------
MARCH JUNE SEPT. DEC.
-------- ------- -------- ---------
<S> <C> <C> <C> <C>
Total revenues $ 18,876(a) $ 12,822(a) $10,452 $ 13,428
Costs and expenses 7,123 7,241 7,227 10,440
Interest and other 3,277 3,350 3,100 2,750
Loss on disposition of multifamily and industrial
operations -- -- -- 10,974
------- --------- ------- ---------
Income (loss) before income taxes 8,476 2,231 125 (10,736)
Income tax benefit 1,458 1,065 -- --
------- --------- ------- ---------
Net income (loss) $ 9,934 $ 3,296 $ 125 $ (10,736)
------- --------- ------- ---------
------- --------- ------- ---------
Net income (loss) per common share $ .88 $ .29 $ .01 $ (.95)
------- --------- ------- ---------
------- --------- ------- ---------
<FN>
___________________
(a) Includes nonrecurring credits of $927,000 in the quarter ended March 31,
1993 and $2,284,000 in the quarter ended June 30, 1993 related to a tax
settlement with the California Franchise Tax Board.
</TABLE>
-13-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
OPERATING COMPANY
Santa Anita Operating Company ("Operating Company") is organized under
the laws of the State of Delaware. Operating Company's principal executive
offices are located at Santa Anita Racetrack, 285 West Huntington Drive,
Arcadia, California 91007.
Operating Company is engaged in thoroughbred horse racing. The
thoroughbred horse racing operation is conducted by a wholly owned subsidiary of
Operating Company, Los Angeles Turf Club, Incorporated ("LATC"), which leases
Santa Anita Racetrack from Realty.
SANTA ANITA RACETRACK
LATC conducts an annual 17-week thoroughbred horse racing meet which
commences the day after Christmas and continues through mid-April (the "Santa
Anita meet"). LATC conducts one of the largest thoroughbred racing meets in the
United States in terms of both average daily attendance and average daily
pari-mutuel wagering.
LATC leases the racetrack from Realty for the full year. The lease,
which was scheduled to expire December 31, 1994, was amended and extended for an
additional five years (see Item 1. "Business -- Realty -- Santa Anita
Racetrack"). Under the new lease terms, LATC pays to Realty a fee of 1.5% of
the on-track wagering on live races at Santa Anita Racetrack, which includes the
Oak Tree Racing Association ("Oak Tree") meet. In addition, LATC pays to Realty
26.5% of its wagering commissions from satellite wagering (not to exceed 1.5% of
such wagering). When LATC operates as a satellite for Hollywood Park Racetrack
("Hollywood Park") and Del Mar Racetrack ("Del Mar"), LATC pays 26.5% of its
wagering commissions as additional rent to Realty. LATC has sublet the racetrack
to Oak Tree to conduct Oak Tree's annual thoroughbred horse racing meet (27 days
in 1994), which commences in late September or early October. Oak Tree races
five weeks in even-numbered years and six weeks in odd-numbered years.
Under a sublease which expires in 2000, Oak Tree makes annual rental
payments to LATC equal to 1.5% of the total live on-track pari-mutuel wagering
from its racing meet and 25% of its satellite and simulcast revenues after
mandated payments to the State, to horse owners and to breeders. LATC pays to
Realty 26.5% of all satellite and simulcast revenues received from Oak Tree.
Because the rental received from Oak Tree's on-track pari-mutuel wagering is
identical to the rental paid to Realty, LATC does not reflect these amounts in
its financial statements. In addition, Oak Tree reimburses LATC an amount equal
to 0.8% of its on-track pari-mutuel wagering for certain expenses of operating
Santa Anita Racetrack on behalf of Oak Tree. LATC also receives supplemental
rent representing Oak Tree's adjusted profits above an agreed-upon level and
will rebate rent to Oak Tree if Oak Tree's adjusted profits fall below such
level (see Item 1. "Business -- Operating Company -- Santa Anita Racetrack --
Wagering Commissions").
WAGERING COMMISSIONS
The State has vested administrative authority for racing and wagering
at horse racing meets with the California Horse Racing Board. The California
Horse Racing Board, which consists of seven members appointed by the governor of
the State, is charged with the responsibility of regulating the form of
wagering, the length and conduct of meets and the distribution of the
pari-mutuel wagering within the limits set by the California legislature. The
California Horse Racing Board is also charged with the responsibility of
licensing horse racing associations on an annual basis to conduct horse racing
meets and of licensing directors, officers and persons employed by the
associations to operate such meets.
California law specifies the percentage distribution of pari-mutuel
wagering with the percentage varying based upon the total wagering for the meet,
breed of horse and type of wager. The following table sets forth the allocation
of the total pari-mutuel wagering, on- and off-track, by percentage and dollar
amount during the 1993-94 Santa Anita meet:
-14-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
<TABLE>
<CAPTION>
DISTRIBUTION OF PARI-MUTUEL WAGERING
-------------------------------------
DOLLAR
AMOUNT
PERCENTAGE (IN THOUSANDS)
---------- --------------
<S> <C> <C>
Return to Wagerers 80.89% $624,143
State of California 4.37 33,715
Track Commissions 4.26 32,858
Horse Owners and Breeders 4.36 33,605
Satellite Operator and Location Fees 5.98 46,165
Others .14 1,073
-------- -----------
100.00% $ 771,559
-------- -----------
-------- -----------
</TABLE>
ON-TRACK WAGERING
All wagering on-track is pari-mutuel meaning literally a mutual wager,
or wagering by individuals against each other. The racetrack acts as the broker
for the wagers made by the public and deducts a "take-out" or gross commission
which is fixed by the State and shared with the State, the racetrack operator,
the horse owners and breeders, and the municipality in which the racetrack is
located. The racetrack operator has no interest in which horse wins a given
race.
SATELLITE WAGERING - SOUTHERN CALIFORNIA
LATC and Oak Tree send televised racing signals to other racetracks in
Southern California, non-racing fair sites in Southern California and wagering
facilities on Indian reservation land in Southern California. Southern
California satellite facilities commingle their wagering with the wagering on-
track. LATC's and Oak Tree's share of this type of satellite wagering averages
approximately 4.1%.
During the Hollywood Park and Del Mar meets, LATC and other Southern
California racing associations and fairs operate as satellite facilities. In
addition to retaining about 1.9% of the pari-mutuel wagering at Santa Anita
Racetrack as its commission, LATC receives income from admissions, parking and
food and beverage sales. In 1994, Santa Anita Racetrack operated 145 days as a
satellite for Hollywood Park and Del Mar.
SATELLITE WAGERING - NORTHERN CALIFORNIA
In the fall of 1993, California law permitted the limited exchange
between Southern and Northern California of televised racing signals on races
with purses exceeding $20,000. In the summer of 1994, a change in California
law permitted the unlimited exchange of racing signals between the Southern
California zone and the Northern California zone.
Racetracks operating a live thoroughbred race meet in the southern
zone and in the northern zone receive the out-of-zone racing signal and
rebroadcast the signal within their respective southern or northern zones. Each
zone commingles their wagering on the out-of-zone race with the other zone.
While operating a live race meeting, LATC and Oak Tree receive approximately
4.4% of wagering on-track and at Southern California satellite facilities on
Northern California races. Also, during the live race meeting, LATC and Oak
Tree receive 1.25% of wagering in Northern California on Santa Anita races.
SATELLITE WAGERING - OUT-OF-STATE (COMMINGLED POOLS)
Legislation has been enacted in certain states permitting the
transmission of pari-mutuel wagers across state lines. This format permits
patrons wagering in those states on races held at Santa Anita Racetrack to
participate in the same pari-mutuel pool payouts available to LATC's on-track
patrons and California satellite patrons. LATC currently participates in
satellite wagering with numerous sites in Nevada, and additional locations
-15-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
in Alabama, Arizona, Colorado, Connecticut, Delaware, Florida, Idaho, Iowa,
Kansas, Louisiana, Maryland, Massachusetts, Montana, Nebraska, New Hampshire,
New Jersey, North Dakota, Oregon, Pennsylvania, Rhode Island, Texas, Washington
and West Virginia and receives a negotiated percentage of the pari-mutuel
wagering at such sites.
Out-of-state satellite wagering started in 1991 with total pari-mutuel
wagering of $39,445,000 which increased to $185,376,000 for 1994. LATC's share
of the commissions from out-of-state satellite wagering was $3,139,000 for 1994
or approximately 1.7% of the out-of-state wagering.
OUT-OF-STATE WAGERING - SEPARATE POOLS
LATC and Oak Tree transmit their live racing signals to numerous
locations in the United States, Mexico, the Caribbean and Canada. LATC's share
of the commissions for transmitting its racing signal was $1,370,000 in 1994 and
$1,280,000 in 1993. During the Oak Tree meet, LATC receives a percentage of Oak
Tree's share of simulcasting revenues. LATC is pursuing the opportunity to
transmit its signal to other locations.
-16-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
The following tables summarize key operating statistics for the
1990-1994 Santa Anita meets and the 1990-1994 Oak Tree meets, together with the
attendance and wagering statistics relating to the transmission of the Del Mar
and Hollywood Park signals to Santa Anita Racetrack.
<TABLE>
<CAPTION>
RACING MEETS ENDED IN
----------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
LIVE RACING
<S> <C> <C> <C> <C> <C>
SANTA ANITA MEET:
Number of racing days 90 83 94 88 90
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Attendance
On-track 1,257,909 1,215,208 1,531,538 2,014,618 2,157,583
Southern California
satellite locations (a) 1,523,220 1,332,126 1,576,763 666,611 707,675
---------- ---------- ---------- ---------- ----------
Total 2,781,129 2,547,334 3,108,301 2,681,229 2,865,258
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Average daily 30,901 30,691 33,067 30,469 31,836
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Wagering ($000) (b)
On-track $ 270,452 $ 250,729 $ 323,223 $ 470,471 $ 519,443
Southern California
satellite locations (a) 315,731 267,346 315,851 133,791 144,303
Northern California
satellite locations (c) 37,639 - - - -
Out-of-state locations (d) 185,376 95,411 68,689 39,445 -
---------- ---------- ---------- ---------- ----------
Total $ 809,198 $ 613,486 $ 707,763 $ 643,707 $ 663,746
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Average daily $ 8,991 $ 7,391 $ 7,529 $ 7,315 $ 7,375
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
OAK TREE MEET:
Number of racing days (e) 27 31 27 32 27
-- -- -- -- --
-- -- -- -- --
Attendance
On-track 377,007 499,617 425,774 506,833 590,743
Southern California
satellite locations (a) 378,256 444,932 390,088 454,264 171,177
---------- ---------- ---------- ---------- ----------
Total 755,263 944,549 815,862 961,097 761,920
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Average daily 27,973 30,469 30,217 30,034 28,219
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Wagering ($000) (b)
On-track $ 74,319 $ 99,789 $ 79,162 $ 102,740 $ 133,644
Southern California
satellite locations (a) 86,237 80,024 75,714 88,699 33,555
Northern California
satellite locations (c) 21,715 6,403 - - -
Out-of-state locations (d) 54,845 58,467 20,198 17,445 6,878
---------- ---------- ---------- ---------- ----------
Total $ 237,116 $ 244,683 $ 175,074 $ 208,884 $ 174,077
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Average daily $ 8,782 $ 7,893 $ 6,484 $ 6,528 $ 6,447
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
______________________
<FN>
(a) Southern California satellite wagering expanded to include Hollywood Park
and Los Alamitos effective with the 1991 Oak Tree meet.
(b) Includes wagering on races originating at other racetracks.
(c) Northern California satellite wagering began in October 1993 and expanded
in August 1994.
(d) Out-of-state wagering (common pooling) began in October 1990.
(e) Oak Tree races five weeks in even-numbered years and six weeks in
odd-numbered years.
</TABLE>
-17-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
Total pari-mutuel wagering on the Santa Anita meet increased from $663.7
million in 1990 to $809.2 million in 1994. In 1990, $144.3 million of the total
amount wagered was wagered at satellite locations with $519.4 million wagered
on-track. In 1994, $538.7 million of the total amount wagered was wagered at
satellite locations with $270.4 million wagered on-track.
Total attendance was 2,865,000 in 1990, of which 708,000 was at satellite
locations. By 1994, total attendance had declined to 2,781,000. Although
1,523,000 and 1,332,000 patrons attended Southern California satellite locations
during the Santa Anita meets in 1994 and 1993, respectively, LATC does not share
in the revenues from admissions, parking and food and beverage sales at the
satellite locations.
Management anticipates that the general trend of increases in off-track
wagering will continue and the decrease experienced in on-track attendance and
on-track wagering will also continue albeit at a slower rate.
<TABLE>
<CAPTION>
RACING MEETS ENDED IN
----------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
AS A SATELLITE
<S> <C> <C> <C> <C> <C>
SANTA ANITA AS SATELLITE
FOR DEL MAR RACETRACK:
Number of racing days 43 42 43 43 43
-- -- -- -- --
-- -- -- -- --
Attendance
Total 212,817 223,599 242,947 273,333 271,525
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Average daily 4,949 5,324 5,650 6,357 6,315
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Wagering ($000)
Total $ 52,118 $ 54,928 $ 55,435 $ 66,068 $ 68,807
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Average daily $ 1,212 $ 1,308 $ 1,289 $ 1,536 $ 1,600
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
SANTA ANITA AS SATELLITE
FOR HOLLYWOOD PARK (a):
Number of racing days 102 99 101 32
--- -- --- --
--- -- --- --
Attendance
Total 486,581 505,239 515,510 154,233
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average daily 4,770 5,103 5,104 4,820
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Wagering ($000)
Total $ 117,661 $ 112,623 $ 114,858 $ 36,233
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average daily $ 1,154 $ 1,138 $ 1,137 $ 1,132
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
______________________
<FN>
(a) Began in November 1991.
</TABLE>
-18-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
During the last five years, 58% of the annual revenues of LATC resulted
from pari-mutuel and other wagering commissions. The remaining revenues resulted
from admissions, parking, food and beverage sales, sale of programs and interest
and other income.
The following table sets forth certain unaudited financial information
with respect to LATC:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(IN THOUSANDS)
----------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Wagering commissions:
On-track $ 16,215 $ 15,327 $ 18,031 $ 25,277 $ 29,256
Southern California
satellite locations 12,171 11,106 13,158 5,501 5,577
Northern California
satellite locations 627 - - - -
Out-of-state locations 4,510 3,120 2,737 2,284 1,416
Satellite for Del Mar and
Hollywood Park 3,310 3,363 3,422 2,005 1,376
Sublease income 2,423 2,016 1,223 2,358 1,490
Admission related 25,328 25,844 27,701 29,671 29,030
---------- ---------- ---------- ---------- ----------
Revenues 64,584 60,776 66,272 67,096 68,145
---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Horse racing operating costs 46,921 45,284 50,758 50,214 50,619
Depreciation and amortization 4,251 2,768 2,732 2,634 2,403
General and administrative 3,125 3,973 3,739 3,344 3,612
---------- ---------- ---------- ---------- ----------
Costs and expenses 54,297 52,025 57,229 56,192 56,634
---------- ---------- ---------- ---------- ----------
Income from operations before
rent and income taxes $ 10,287 $ 8,751 $ 9,043 $ 10,904 $ 11,511
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The mix of revenues has changed significantly from 1990 to 1994
primarily as a result of the introduction of satellite wagering on races
originating at Santa Anita Racetrack, operating as a satellite location for Del
Mar and Hollywood Park, changes in average daily pari-mutuel wagering, selective
price increases, the introduction of additional exotic wagering opportunities on
which the retention amount is higher than on conventional wagering and a new
lease with Oak Tree, all of which have largely offset declines in commissions
from on-track wagering.
LATC's total expenses decreased from $56.6 million in 1990 to $54.3
million in 1994. The majority of these expenses are pari-mutuel wagering or
attendance-related, the result of operating as a satellite location for Del Mar
and Hollywood Park and the aggregate effect of a new lease with Oak Tree. In
1991, costs and expenses included $1.1 million in earthquake damage. From 1991
to 1992, total costs and expenses increased primarily due to the fact that LATC
operated as a satellite location for the first time for Hollywood Park's spring
thoroughbred meet and the engagement of outside consultants in the amount of
$660,000 to review the company's operations. From 1992 to 1993, total costs and
expenses decreased primarily due to fewer race days, lower on-track attendance
and wagering and an ongoing cost reduction program begun in 1992. From 1993 to
1994, total costs and expenses increased primarily due to additional race days
and increased wagering. Depreciation expense of $4.3 million in 1994 is higher
than in previous years due to a $1.4 million accelerated depreciation charge on
the Santa Anita turf course, which will be replaced in 1995.
-19-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
Excluded from the results of operations are the net proceeds for five
charity days. As a condition of the issuance of a racing license, California
law requires that a certain number of days be conducted as charity days. The
net proceeds from these charity days are distributed to beneficiaries through a
nonprofit organization approved by the California Horse Racing Board.
California law limits the net proceeds to an amount equal to two-tenths of 1
percent of the total on-track wagering on live races. Net proceeds in excess of
two-tenths of one percent are retained by LATC. LATC is required to conduct
five charity days.
For further information regarding operating results, see Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Santa Anita Operating Company."
COMPETITIVE AND OTHER CONDITIONS
The Southern California area offers a wide range of leisure time
spectator activities, including professional and college teams which participate
in all major sports. LATC and Oak Tree compete with such sporting events for
their share of the leisure time market and with other numerous leisure time
activities available to the community, some of which are broadcast on
television.
As an outdoor activity, horse racing is more susceptible to inclement
weather than some other leisure time activities. This is particularly true of
the Santa Anita meet which is held during the winter. Between 1952 and 1992,
LATC had never lost a race due to inclement weather. During the 1992-1993 meet,
LATC lost two full days and two partial days of racing because of inclement
weather. During the 1994-1995 meet, LATC lost three days of racing in January
1995 because of inclement weather. Management intends to make up the lost
racing days by adding one additional day of racing in April and one additional
race on 17 other racing days.
A local Arcadia ordinance limits live horse racing to daylight hours but
allows the importation of a horse racing broadcast signal one evening per week.
Under a pending amendment to the ordinance, LATC expects to be allowed to import
a horse racing broadcast signal two evenings per week, effective May 1995.
The California Horse Racing Board has annually licensed LATC and Oak
Tree to conduct racing meets at Santa Anita Racetrack. At present, the
California Horse Racing Board has not licensed other thoroughbred racetracks in
Southern California to conduct racing during these meets. Since 1972, however,
night harness racing and night quarterhorse meets have been conducted at other
racetracks in Southern California during portions of these meets. LATC and Oak
Tree could be adversely affected by legislative or California Horse Racing Board
action which would increase the number of competitive racing days, reduce the
number of racing days available to LATC and Oak Tree, or authorize other forms
of wagering.
The California State Lottery Act of 1984, which provides for the
establishment of a state-operated lottery, was implemented in 1985. In the
opinion of management, the State lottery has had an adverse impact and will
continue to have an adverse impact on total attendance and pari-mutuel wagering
at Santa Anita Racetrack (see Item 1 "Business -- Operating Company -- Santa
Anita Racetrack").
In the future, legislation could be enacted to allow casino gaming or
other forms of gaming which are competitive with pari-mutuel wagering at Santa
Anita Park. Under federal law, certain types of gaming are lawful on Indian
lands if conducted in conformance with a Tribal-State compact, which the
applicable state must negotiate with an Indian tribe in good faith. Certain
Indian tribes seeking to establish gaming in California have instituted
litigation against the State of California to compel the State to permit them to
do so. In 1993, one federal district court held that California has a public
policy prohibiting casino gaming and need not negotiate a compact with respect
to casino gaming. In 1994, a federal appellate court generally affirmed the
decision as to casino gaming but remanded the case to federal district court to
determine whether the existing State lottery uses gaming machines in such a
manner as to make gaming machines the proper subject of a compact. In March
1995, a State appellate court ruled that the a provision of the State lottery's
keno game is the legal equivalent of a slot machine. The full ramifications of
these rulings at this time are unclear. However, federal law provides that
states must allow Indian tribes within its borders to conduct gambling
activities that are otherwise legal within the state, subject to the negotiated
compact. If casino gaming or other forms of gaming are permitted in California,
such gaming could have an adverse impact on LATC.
-20-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS
No material part of Operating Company's business is dependent upon a
single customer or a few customers; therefore, the loss of any one customer
would not have a materially adverse effect on the business of Operating Company.
EMPLOYEE AND LABOR RELATIONS
During the year ended December 31, 1994, LATC regularly employed
approximately 1,600 employees. Substantially all are employed on a seasonal
basis in connection with live thoroughbred horse racing or satellite meets at
Santa Anita Racetrack. During the relatively short periods when live or
satellite racing meets at Santa Anita Racetrack are not being conducted, LATC
maintains a staff of approximately 260 employees, most of whom are engaged in
maintaining or improving the physical facilities at Santa Anita Racetrack or are
engaged in preparing for the next live or satellite meet.
All of LATC's employees, except for approximately 70 full-time
management and clerical employees, are covered by collective bargaining
agreements with labor unions. A majority of the current labor agreements
covering racetrack employees will expire in April 1995 after the Santa Anita
meet.
SEASONAL VARIATIONS IN BUSINESS
Operating Company is also subject to significant seasonal variation.
LATC conducts an annual meet commencing the day after Christmas and continuing
through mid-April. This seasonal variation is indicated by the following
unaudited quarterly results of operations for Operating Company during 1994 and
1993:
<TABLE>
<CAPTION>
QUARTERS ENDED
1994
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
------------------------------------------------------
MARCH JUNE SEPT. DEC.
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total revenues $ 34,466 $ 15,294 $ 5,599 $ 9,790
Costs and expenses 34,321 16,126 5,469 12,065
Interest 106 112 120 108
--------- --------- --------- ---------
Net income (loss) $ 39 $ (944) $ 10 $ (2,383)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss per common share $ .00 $ (.08) $ .00 $ (.21)
--------- --------- --------- ---------
--------- --------- --------- ---------
<CAPTION>
QUARTERS ENDED
1993 (RESTATED)
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
------------------------------------------------------
MARCH JUNE SEPT. DEC.
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total revenues $ 33,681 $ 13,025 $ 5,334 $ 9,307
Costs and expenses 33,633 14,362 5,473 9,618
Interest 145 132 119 97
--------- --------- --------- ---------
Net loss $ (97) $ (1,469) $ (258) $ (408)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss per common share $ (.01) $ (.13) $ (.02) $ (.04)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Operating Company's 1993 first and second quarters were restated to reflect
a retroactive reduction in fees due to the State of California, which was
previously reflected in the second quarter of 1993.
-21-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
Operating Company has adopted an accounting practice whereby the
revenues associated with thoroughbred horse racing at Santa Anita Racetrack are
reported as they are earned. Costs and expenses associated with thoroughbred
horse racing revenues are charged against income in those interim periods in
which the thoroughbred horse racing revenues are recognized. Other costs and
expenses are recognized as they actually occur throughout the year.
INCOME TAX MATTERS
In the opinion of management, Realty has operated in a manner which has
qualified it as a REIT under Sections 856 through 860 of the Code. Realty
intends to continue to operate in a manner which will allow it to qualify as a
REIT under the Code. Under these sections, a corporation that is principally
engaged in the business of investing in real estate and that, in any taxable
year, meets certain requirements that qualify it as a REIT generally is not
subject to federal income tax on its taxable income and gains that it
distributes to its shareholders. Income and gains that are not so distributed
will be taxed to a REIT at regular corporate rates. In addition, a REIT is
subject to certain taxes on net income from "foreclosure property" as defined in
the Code, income from the sale of property held primarily for sale to customers
in the ordinary course of business and excessive unqualified income.
REIT REQUIREMENTS
To qualify for tax treatment as a REIT under the Code, Realty at a
minimum must meet the following requirements:
(1) At least 95% of Realty's gross income each taxable year
(excluding gains from the sale of property other than foreclosure
property held primarily for sale to customers in the ordinary course of
its trade or business) must be derived from:
(a) rents from real property;
(b) gain from the sale or disposition of real property that is
not held primarily for sale to customers in the ordinary course of
business;
(c) interest on obligations secured by mortgages on real
property (with certain minor exceptions);
(d) dividends or other distributions from, or gains from the
sale of, shares of qualified REITs that are not held primarily for sale
to customers in the ordinary course of business;
(e) abatements and refunds of real property taxes;
(f) income and gain derived from foreclosure property;
(g) most types of commitment fees related to either real
property or mortgage loans;
(h) gains from sales or dispositions of real estate assets that
are not "prohibited transactions" under the Code;
(i) dividends;
(j) interest on obligations other than those secured by
mortgages on properties; and
(k) gains from sales or dispositions of securities not held
primarily for sale to customers in the ordinary course of business.
-22-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
In addition, at least 75% of Realty's gross income each taxable
year (excluding gains from the sale of property other than foreclosure
property held primarily for sale to customers in the ordinary course of
its trade or business) must be derived from items (a) through (h) above
and from income attributable to stock or debt instruments acquired with
the proceeds from the sale of stock or certain debt obligations ("new
capital") of Realty received during a one-year period beginning on the
day such proceeds were received ("qualified temporary investment
income"). For purposes of these requirements, the term "rents from real
property" is defined in the Code to include charges for services
customarily furnished or rendered in connection with the rental of real
property, whether or not such charges are separately stated, and rent
attributable to incidental personal property that is leased under, or in
connection with, a lease of real property, provided that the rent
attributable to such personal property for the taxable year does not
exceed 15% of the total rent for the taxable year attributable to both
the real and personal property leased under such lease. The term "rents
from real property" is also defined to exclude: (i) any amount received
or accrued with respect to real property, if the determination of such
amount depends in whole or in part on the income or profits derived by
any person from the property (except that any amount so received or
accrued shall not be excluded from "rents from real property" solely by
reason of being determined on the basis of a fixed percentage of
receipts or sales); (ii) any amount received or accrued, directly or
indirectly, from any person or corporation if ownership of a 10% or
greater interest in the stock, assets or net profits of such person or
corporation is attributed to Realty; (iii) any amount received or
accrued from property that Realty manages or operates or for which
Realty furnishes services to the tenants, which would constitute
unrelated trade or business income if received by certain tax-exempt
entities, either itself or through another person who is not an
"independent contractor" (as defined in the Code) from whom Realty does
not derive or receive income; and (iv) any amount received or accrued
from property with respect to which Realty furnishes (whether or not
through an independent contractor) services not customarily rendered to
tenants in properties of a similar class in the geographic market in
which the property is located.
If Realty should fail to satisfy the foregoing income tests but
otherwise satisfies the requirements for taxation as a REIT and if such
failure is held to be due to reasonable cause and not willful neglect
and if certain other requirements are met, then Realty would continue to
qualify as a REIT but would be subject to a 100% tax on the excessive
unqualified income reduced by an approximation of the expenses incurred
in earning that income.
(2) Less than 30% of Realty's gross income during any taxable year
can be derived from the sale or disposition of: (i) stock or securities
held for less than one year; (ii) property held primarily for sale to
customers in the ordinary course of business (other than foreclosure
property); and (iii) real property (including interests in mortgages on
each property) held for less than four years (other than foreclosure
property and gains arising from involuntary conversions).
(3) At the end of each calendar quarter, at least 75% of the value of
Realty's total assets must consist of real estate assets (real property,
interests in real property, interests in mortgages on real property,
shares in qualified real estate investment trusts and stock or debt
instruments attributable to the temporary investment of new capital),
cash and cash items (including receivables) and government securities.
With respect to securities that are not included in the 75% asset class,
Realty may not at the end of any calendar quarter own either (i)
securities representing more than 10% of the outstanding voting
securities of any one issuer or (ii) securities of any one issuer having
a value that is more than 5% of the value of Realty's total assets.
Realty's share of income earned or assets held by a partnership in which
Realty is a partner will be characterized by Realty in the same manner
as they are characterized by the partnership for purposes of the assets
and income requirements described in this paragraph (3) and in
paragraphs (1) and (2) above.
(4) The shares of Realty must be "transferable" and beneficial
ownership of them must be held by 100 or more persons during at least
335 days of each taxable year (or a proportionate part of a short
taxable year). More than 50% of the outstanding stock may not be owned,
directly or indirectly, actually or constructively, by or for five or
fewer "individuals" at any time during the last half of any taxable
year. For the purpose of such determination, shares owned directly or
indirectly by or for a corporation,
-23-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
partnership, estate or trust are considered as being owned
proportionately by its shareholders, partners or beneficiaries; an
individual is considered as owning shares directly or indirectly owned
by or for members of his family; and the holder of an option to acquire
shares is considered as owning such shares. In addition, because of the
lessor-lessee relationship between Realty and LATC, no person may own,
actually or constructively, 10% or more of the outstanding voting power
or total number of shares of stock of the two companies. The bylaws of
Operating Company and Realty preclude any transfer of shares which would
cause the ownership of shares not to be in conformity with the above
requirements. Each year Realty must demand written statements from the
record holders of designated percentages of its shares disclosing the
actual owners of the shares and must maintain, within the Internal
Revenue District in which it is required to file its federal income tax
return, permanent records showing the information it has thus received
as to the actual ownership of such shares and a list of those persons
failing or refusing to comply with such demand.
(5) Realty must distribute to its shareholders dividends in an amount
at least equal to the sum of 95% of its "real estate investment trust
taxable income" before deduction of dividends paid (i.e., taxable income
less any net capital gain and less any net income from foreclosure
property or from property held primarily for sale to customers, and
subject to certain other adjustments provided in the Code); plus (i) 95%
of the excess of the net income from foreclosure property over the tax
imposed on such income by the Code; less (ii) a portion of certain
noncash items of Realty that are required to be included in income, such
as the amounts includable in gross income under Section 467 of the Code
(relating to certain payments for use of property or services). The
distribution requirement is reduced by the amount by which the sum of
such noncash items exceeds 5% of real estate investment trust taxable
income. Such undistributed amount remains subject to tax at the tax rate
then otherwise applicable to corporate taxpayers. During 1994, Realty
has, or will be deemed to have, distributed at least 95% of its real
estate investment trust taxable income as adjusted.
For this purpose, certain dividends paid by Realty after the
close of the taxable year may be considered as having been paid during
the taxable year. However, if Realty does not actually distribute each
year at least the sum of (i) 85% of its real estate investment taxable
income, (ii) 95% of its capital gain net income and (iii) any
undistributed taxable income from prior periods, then the amount by
which such sums exceed the actual distributions during the taxable year
will be subject to a 4% excise tax.
If a determination (by a court or by the Internal Revenue
Service) requires an adjustment to Realty's taxable income that results
in a failure to meet the percentage distribution requirements (e.g., a
determination that increases the amount of Realty's real estate
investment taxable income), Realty may, by following the "deficiency
dividend" procedure of the Code, cure the failure to meet the annual
percentage distribution requirement by distributing a dividend within 90
days after the determination, even though this deficiency dividend is
not distributed to the shareholders in the same taxable year as that in
which income was earned. Realty will, however, be liable for interest
based on the amount of the deficiency dividend.
(6) The directors of Realty must have authority over the management
of Realty, the conduct of its affairs and, with certain limitations, the
management and disposition of Realty's property.
(7) Realty must have the calendar year as its annual accounting
period.
(8) Realty must satisfy certain procedural requirements.
TAXATION OF REALTY AS A REIT
In any year in which Realty qualifies under the requirements summarized
above, it generally will not be taxed on that portion of its ordinary income or
net capital gain that is distributed to shareholders, other than net income from
foreclosure property, excess unqualified income and gains from property held
primarily for sale. Realty will be taxed at applicable corporate rates on any
undistributed taxable income or net capital gain and will not be entitled to
carry back any net operating losses. It also will be taxed at the highest rate
of tax applicable
-24-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
to corporations on any net income from foreclosure property and, subject to the
safe harbor described below, at the rate of 100% on any income derived from the
sale or other disposition of property, other than foreclosure property, held
primarily for sale. In computing its net operating losses and the income subject
to these latter taxes, Realty will not be allowed a deduction for dividends paid
or received.
Although Realty will also be subject to a 100% tax on the gain derived
from the sale of property (other than foreclosure property) held primarily for
sale, a safe harbor is provided such that gains from the sale of real property
are excluded from this 100% tax for a given year if each of the following
conditions is satisfied:
(a) the property has been held by Realty for at least four
years;
(b) total capital expenditures with respect to the property
during the four-year period preceding the date of sale do not exceed
30% of the net selling price of the property;
(c) either (i) Realty does not make more than seven sales of
properties (other than foreclosure property) during the taxable year
or (ii) the aggregate adjusted bases (as determined for purposes of
computing earnings and profits) of property (other than foreclosure
property) sold by Realty during the taxable year do not exceed 10% of
the aggregate adjusted bases (as so determined) of all of the assets
of Realty as of the beginning of the taxable year;
(d) if the property has not been acquired through foreclosure or
lease termination, the property has been held by Realty for the
production of rental income for at least four years; and
(e) if the requirement of paragraph (c)(i) is not satisfied,
substantially all of the marketing and development expenditures with
respect to the sold properties were made through independent
contractors from whom Realty does not derive or receive any income.
TERMINATION OR REVOCATION OF REIT STATUS
If, in any taxable year after it has filed an election with the Internal
Revenue Service to be treated as a REIT, Realty fails to so qualify, Realty's
election will be terminated, and Realty will not be permitted to file a new
election to obtain such tax treatment until the fifth taxable year following the
termination. However, if Realty's failure to qualify was due to reasonable cause
and not due to willful neglect and if certain other requirements are met, Realty
would be permitted to file a new election to be treated as a REIT for the year
following the termination. If Realty voluntarily revokes its election for any
year, it will not be eligible to file a new election until the fifth taxable
year following such revocation.
If Realty fails to qualify for taxation as a REIT in any taxable year
and the above relief provisions do not apply, then Realty would be subject to
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders of Realty with respect
to any year in which Realty failed to qualify would not be deductible by Realty
nor would they be required to be made. In such event, distributions to
shareholders, to the extent out of current or accumulated earnings and profits,
would be taxed as ordinary income and subject to certain limitations of the
Code, and are eligible for the dividends-received deduction for corporations
(see "Taxation of Realty's Shareholders"). Failure to qualify could result in
Realty incurring substantial indebtedness (to the extent borrowings are
feasible) or disposing of substantial investments, in order to pay the resulting
taxes or, in the discretion of Realty, to maintain the level of Realty's
distributions to its shareholders.
-25-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
TAXATION OF REALTY'S SHAREHOLDERS
So long as Realty qualifies for taxation as a REIT, distributions made
to its shareholders out of current or accumulated earnings and profits (or
deemed to be from current or accumulated earnings or profits), other than
capital gain dividends (discussed below), will be dividends taxable as ordinary
income. Distributions to shareholders of a REIT are not eligible for the
dividends-received deduction for a corporation. Dividends to shareholders that
are properly designated by Realty as capital gain dividends generally will be
treated as long-term capital gain (to the extent they do not exceed Realty's
actual net capital gain for the taxable year) regardless of how long a
shareholder has owned his or her shares. However, corporate shareholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. In general, any gain or loss realized upon a taxable disposition of
shares will be treated as long-term capital gain or loss if the shares have been
held for more than twelve months and otherwise as short-term capital gain or
loss. However, if a shareholder receives a long-term capital gain dividend and
such shareholder has held his or her stock for six months or less, any loss
realized on the subsequent sale of the shares will, to the extent of the gain,
be treated as long-term capital loss. Certain constructive ownership rules apply
to determine the holding period.
In the event that Realty distributes cash generated by its activities
which exceeds its net earnings, and provided there are no undistributed current
or accumulated earnings and profits and the distribution does not qualify as a
"deficiency dividend," such distributions will constitute a return of capital to
the extent they do not exceed a shareholder's tax basis for the shareholder's
shares and will be tax free to the shareholder. In such event, the tax basis of
the shares held by each shareholder must be reduced correspondingly by the
amount of such distributions. If such distributions exceed the tax basis of the
shares of a shareholder, the shareholder will recognize capital gain in an
amount equal to such excess, provided the shareholder holds the shares as a
capital asset. Shareholders may not include on their own returns any of
Realty's ordinary or capital losses. Realty will notify each shareholder after
the close of its taxable year as to the portions of the distributions that
constitute ordinary income, return of capital and capital gain. For this
purpose, any dividends declared in October, November or December of a year,
which are payable to shareholders of record on any day of such a month, shall be
treated as if they had been paid and received on December 31 of such year,
provided such dividends are actually paid in January of the following year.
Shareholders are required to include on their own returns any ordinary dividends
in the taxable year in which such dividends are received.
If in any taxable year Realty does not qualify as a REIT, it will be
taxed as a corporation, and distributions to its shareholders will neither be
required to be made nor will they be deductible by Realty in computing its
taxable income, with the result that the assets of Realty and the amounts
available for distribution to shareholders would be reduced to the extent of any
tax payable. Disqualification as a REIT could occur even though Realty had
previously distributed to its shareholders all of its income for such year, or
years, in which it did not qualify as a REIT. In such circumstances,
distributions, to the extent made out of Realty's current or accumulated
earnings and profits, would be taxable to the shareholders as dividends, but,
subject to certain limitations of the Code, would be eligible for the
dividends-received deduction for corporations.
TAX-EXEMPT INVESTORS
The Internal Revenue Service has ruled that amounts distributed by a
REIT to a tax-exempt employee's pension trust do not constitute "unrelated
trade or business income" and should therefore be nontaxable to such trust. This
ruling does not apply to the extent the tax-exempt investor has borrowed to
acquire shares of the REIT's stock. Moreover, the application of this ruling is
subject to additional limitations that are beyond the scope of this disclosure.
-26-
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
STATE AND TERRITORIAL TAXES
The state or territorial income tax treatment of Realty and its
shareholders may not conform to the federal income tax treatment above. As a
result, prospective shareholders should consult their own tax advisors for an
explanation of the effect of state and territorial tax laws on their investment
in Realty.
FOREIGN INVESTORS
The preceding discussion does not address the federal income tax
consequences to foreign investors of an investment in Realty. Foreign investors
should consult their own tax advisors concerning the federal income tax
considerations to them of the ownership of shares in Realty.
BACKUP WITHHOLDING
The Code imposes a modified form of "backup withholding" for payments of
interest and dividends. This withholding applies only if a shareholder, among
other things: (i) fails to furnish Realty with a properly certified taxpayer
identification number; (ii) furnishes Realty with an incorrect taxpayer
identification number; (iii) fails to report properly interest or dividends from
any source or; (iv) under certain circumstances, fails to provide Realty or his
or her securities broker with a certified statement, under penalty of perjury,
that he or she is not subject to backup withholding. The backup withholding rate
is 31% of "reportable payments" which include dividends. Shareholders should
consult their tax advisors as to the procedure for ensuring that Realty
distributions to them will not be subject to backup withholding.
TAXATION OF OPERATING COMPANY
Operating Company pays ordinary corporate income taxes on its taxable
income. Any income, net of taxes, will be available for retention in Operating
Company's business or for distribution to shareholders as dividends. Any
dividends distributed by Operating Company will be subject to tax at ordinary
rates and generally will be eligible for the dividends received deduction for
corporate shareholders to the extent of Operating Company's current or
accumulated earnings and profits. Distributions in excess of current or
accumulated earnings and profits are treated first, as a return of investment
and then, to the extent that such distribution exceeds a shareholder's
investment, as gain from the sale or exchange of such shares. However, there is
no tax provision which requires Operating Company to distribute any of its
after-tax earnings and Operating Company does not expect to pay cash dividends
in the foreseeable future.
FUTURE LEGISLATION
It should be noted that future legislation could be enacted or
regulations promulgated, the nature and likelihood of which cannot be predicted,
that might change in whole or in part, the income tax consequences summarized
herein and reduce or eliminate the advantages which may be derived from the
ownership of paired common stock.
The foregoing is a summary of some of the more significant provisions of
the Code as it relates to REITs and is qualified in its entirety by reference to
the Code and regulations promulgated thereunder.
ITEM 2. PROPERTIES
Information concerning property owned by Realty and Operating Company
may be found under Item 1. "Business."
-27-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Certain claims, suits and complaints arising in the ordinary course of
business have been filed or were pending against Realty and/or Operating Company
and its subsidiaries at December 31, 1994. In the opinion of the managements of
Realty and Operating Company, all such matters are adequately covered by
insurance or, if not so covered, are without merit or are of such kind, or
involve such amounts, as would not have a significant effect on the financial
position or results of operations of Realty and Operating Company if disposed of
unfavorably.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF OPERATING COMPANY AND REALTY
(a) The names, ages and business experience of Operating Company's
executive officers during the past five years are set forth below:
BUSINESS EXPERIENCE DURING
NAME AND AGE THE PAST FIVE YEARS
------------ -------------------
Stephen F. Keller, 56 Chairman of the Boards of Directors of
Operating Company and Realty since 1993;
President and Chief Executive Officer
since 1993; President and Chief Operating
Officer 1991-1993; Attorney, Fulbright &
Jaworski, 1991; Attorney, Lillick &
McHose, 1962-1990; Vice Chairman, Seidler
Amdec Securities, Inc. 1988-1990.
Clifford C. Goodrich, 52 Vice President since 1989; President,
LATC,since 1989; Executive Vice President
and General Manager, LATC, 1989; Vice
President and Assistant General Manager,
LATC, 1980-1988.
Richard D. Brumbaugh, 48 Vice President - Finance and Chief Financial
Officer since March 1994; Vice President -
Finance and Chief Financial Officer, LATC,
since March 1994; Controller, LATC, 1985-
1994; Assistant Controller, LATC, 1972-
1985.
Thomas S. Robbins, 41 Vice President - Racing since 1990; Vice
President - Racing, LATC, since 1990;
Director of Racing, LATC, 1990, Oak Tree
Racing Association, since 1990 and Del Mar
Thoroughbred Club, since 1992.
Kathryn J. McMahon, 34 General Counsel and Secretary since May 1994;
Secretary, LATC, since May 1994; Attorney,
Sheppard, Mullin, Richter & Hampton 1986-
1994.
Michael J. Manning, 47 Vice President and Assistant General Manager,
LATC, since 1993; Assistant General
Manager, LATC, 1990-1993; Vice President
and General Manager, Canterbury Downs,
1987-1990.
Mark T. Stephens, 31 Vice President - Marketing and Customer
Relations, LATC, since December 1994;
Director of Marketing, LATC, 1993-1994;
Director of Marketing, Bay Meadows
Operating Co., 1991-1992; Graduate
student, Stanford University, 1989-1991.
-28-
<PAGE>
Each executive officer of Operating Company is appointed by the Board of
Directors annually and holds office until a successor is duly appointed.
(b) The names, ages and business experience of Realty's executive officers
during the past five years are set forth below:
BUSINESS EXPERIENCE DURING
NAME AND AGE THE PAST FIVE YEARS
------------ -------------------
Sherwood C. Chillingworth, 68 Vice Chairman of the Board and Chief
Executive Officer since March 1994;
Executive Vice President, Oak Tree Racing
Association, since 1993; Vice President
and General Counsel, Oak Tree Racing
Association, 1992; President,
Chillingworth Corporation 1975-1992.
Christopher T. Stirling, 40 President and Chief Operating Officer since
April 1994; Vice President, Homart
Development, 1989-1994; Senior Development
Director, 1985-1989.
Brian L. Fleming, 50 Executive Vice President, Chief Financial
Officer and Secretary since May 1994;
Senior Vice President, Carter Hawley Hale
Stores, Inc., 1987-1994.
Each executive officer of Realty is appointed by the Board of Directors
annually and holds office until a successor is duly appointed.
-29-
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The paired Common Stock of Realty and Operating Company is traded on the
New York Stock Exchange as Santa Anita Realty Enterprises under the symbol SAR.
The following table sets forth the high and low closing prices for the paired
Common Stock on the New York Stock Exchange Composite Tape and the cash
dividends declared by Realty for the periods indicated. Operating Company has
not declared cash dividends.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
HIGH LOW DECLARED
----------- ----------- ---------
<S> <C> <C> <C>
1993
1st Quarter $ 21-3/4 $ 17-3/8 $ .34
2nd Quarter 20-3/8 15-7/8 .34
3rd Quarter 19-1/8 16-5/8 .34
4th Quarter 19-3/8 17 .34
--------
$ 1.36 (a)
--------
--------
1994
1st Quarter $ 20-1/2 $ 17 $ .34
2nd Quarter 19-3/4 17-1/8 .20
3rd Quarter 18 16-5/8 .20
4th Quarter 17 13-3/8 .20
--------
$ .94 (b)
--------
--------
1995
1st Quarter
(through March 13) $ 17-1/2 $ 13-3/8 $ .20
--------
--------
____________________
<FN>
(a) $.56 of the dividends paid per share during 1993 represented a return of
capital.
(b) $.60 of the dividends paid per share during 1994 represented a return of
capital.
</TABLE>
A regular quarterly dividend of $.20 per share is payable on March 24,
1995 to shareholders of record on March 3, 1995. The closing price of the
paired Common Stock on the New York Stock Exchange Composite Tape on March 13,
1995 was $16-3/8 per share. As of March 13, 1995, there were approximately
22,000 holders of the paired Common Stock, including the beneficial owners of
shares held in nominee accounts.
Realty intends to pay regular quarterly dividends based upon a
percentage of management's estimate of funds from operations for the entire year
and, if necessary, to pay special dividends after the close of the year to
effect distribution of at least 95% of its taxable income (other than net
capital gains) (see item 1. "Business -- Income Tax Matters -- REIT
Requirements").
Realty's $30,000,000 revolving credit agreement contains restrictions on
the payment of dividends (see Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Santa Anita Realty Enterprises,
Inc. - Liquidity and Capital Resources").
In order to retain earnings to finance its capital improvement program
and for the growth of its business, Operating Company has not paid cash
dividends since its formation and does not expect to pay cash dividends in the
foreseeable future.
-30-
<PAGE>
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS (CONTINUED)
The statement on the face of this annual report on Form 10-K regarding
the aggregate market value of paired voting stock of Realty and Operating
Company held by nonaffiliates is based on the assumption that all directors and
officers of Realty and Operating Company were, for purposes of this calculation
only (and not for any other purpose), affiliates of Realty or Operating Company.
ITEM 6. SELECTED FINANCIAL DATA
The financial data set forth on the following pages includes the
information for Combined Realty and Operating Company and separate Realty and
Operating Company for the five-year period ended December 31, 1994.
The separate results of operations and separate net income (loss) per
share of Realty and Operating Company cannot usually be added together to total
the combined results of operations and net income per share because of
adjustments and eliminations arising from inter-entity transactions.
The following data should be read in conjunction with the information
set forth elsewhere herein regarding income tax matters (see Item 1. "Business -
- Income Tax Matters").
The statements of operations of Combined Realty and Operating Company
and separate Realty and Operating Company for each of the five years ended
December 31, 1994 have been audited by Kenneth Leventhal & Company, independent
certified public accountants. The selected financial data should be read in
conjunction with the other financial statements and related notes thereto
included elsewhere in this Joint Annual Report.
-31-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
REALTY AND OPERATING COMPANY COMBINED
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
-----------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues $ 94,062 $ 107,535 $ 107,002 $ 103,814 $ 103,928
Costs and expenses 91,748 109,657 99,783 93,861 88,131
----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes 2,314 (2,122) 7,219 9,953 15,797
Benefit (provision) for
income taxes - 2,523 158 (37) (206)
----------- ----------- ----------- ----------- -----------
Net income $ 2,314 $ 401 $ 7,377 $ 9,916 $ 15,591
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income per common
share $ .21 $ .04 $ .66 $ .89 $ 1.41
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Dividends paid by Realty per
common share $ 1.08 $ 1.36 $ 1.36 $ 2.08 $ 2.08
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Dividends declared by Realty
per common share $ .94 $ 1.36 $ 1.36 $ 1.90 $ 2.08
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average shares
outstanding 11,143 11,141 11,141 11,141 11,092
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Total assets $ 210,648 $ 308,266 $ 288,931 $ 263,646 $ 255,987
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Loans payable $ 112,301 $ 187,898 $ 168,505 $ 136,718 $ 113,491
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Shareholders' equity $ 67,443 $ 75,522 $ 90,274 $ 98,051 $ 109,461
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
-32-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
SANTA ANITA REALTY ENTERPRISES, INC.
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
-----------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues
Rental from racetrack (a) $ 13,070 $ 11,634 $ 12,683 $ 11,817 $ 12,505
Rental property 25,186 38,953 35,290 30,882 28,093
Interest and other 2,007 4,991 2,318 2,709 3,503
----------- ----------- ----------- ----------- -----------
Total revenues 40,263 55,578 50,291 45,408 44,101
----------- ----------- ----------- ----------- -----------
Costs and expenses
Rental property operating
expenses 9,714 16,522 13,533 12,039 10,636
Depreciation and
amortization 6,007 8,795 8,156 7,418 6,563
General and administrative 4,230 4,244 4,156 4,292 3,952
Interest and other 10,871 12,477 12,331 11,991 10,497
Losses (earnings) from
unconsolidated joint ventures 2,236 1,993 1,446 83 (1,311)
Minority interest in earnings
(losses) of consolidated joint
ventures 617 477 458 (114) (97)
Write-down of land held for
development 1,043 - - - -
Loss on disposition of
multifamily and
industrial operations - 10,974 - - -
----------- ----------- ----------- ----------- -----------
Total costs and expenses 34,718 55,482 40,080 35,709 30,240
----------- ----------- ----------- ----------- -----------
Income before income taxes 5,545 96 10,211 9,699 13,861
Income tax benefit - 2,523 - - -
----------- ----------- ----------- ----------- -----------
Net income $ 5,545 $ 2,619 $ 10,211 $ 9,699 $ 13,861
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income per common share $ .49 $ .23 $ .91 $ .86 $ 1.23
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Dividends paid per common
share $ 1.08 $ 1.36 $ 1.36 $ 2.08 $ 2.08
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Dividends declared per
common share $ .94 $ 1.36 $ 1.36 $ 1.90 $ 2.08
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average shares
outstanding 11,256 11,256 11,256 11,257 11,224
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Total assets $ 178,133 $ 271,216 $ 254,254 $ 229,736 $ 219,400
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Loans payable $ 109,772 $ 184,644 $ 164,587 $ 136,718 $ 113,491
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Shareholders' equity $ 63,784 $ 68,819 $ 81,509 $ 86,608 $ 98,447
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<FN>
(a) includes LATC, Oak Tree and charity days
</TABLE>
-33-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
SANTA ANITA OPERATING COMPANY
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
-----------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues
Wagering commissions $ 39,256 $ 34,932 $ 38,571 $ 37,425 $ 39,115
Admission related 25,328 25,844 27,701 29,671 29,030
Interest and other 565 571 1,382 1,457 2,439
----------- ----------- ----------- ----------- -----------
Total revenues 65,149 61,347 67,654 68,553 70,584
----------- ----------- ----------- ----------- -----------
Costs and expenses
Horse racing operating
costs 46,921 45,284 50,758 50,214 50,619
Depreciation and
amortization 4,251 2,768 2,732 2,634 2,403
General and administrative 5,583 5,801 6,154 5,302 4,927
Interest 446 493 194 179 119
----------- ----------- ----------- ----------- -----------
Total costs and expenses 57,201 54,346 59,838 58,329 58,068
----------- ----------- ----------- ----------- -----------
Income before rent 7,948 7,001 7,816 10,224 12,516
Rental expense to Realty 11,226 9,233 10,955 9,928 10,436
----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes (3,278) (2,232) (3,139) 296 2,080
Benefit (provision) for income
taxes - - 243 (37) (206)
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (3,278) $ (2,232) $ (2,896) $ 259 $ 1,874
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss)
per common share $ (.29) $ (.20) $ (.26) $ .02 $ .17
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Dividends declared
per common share $ - $ - $ - $ - $ -
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average shares
outstanding 11,143 11,141 11,141 11,141 11,092
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Total assets $ 38,912 $ 42,152 $ 39,458 $ 39,828 $ 42,752
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Loans payable $ 2,529 $ 3,254 $ 3,918 $ - $ -
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Shareholders' equity $ 9,000 $ 12,274 $ 14,506 $ 17,402 $ 17,150
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
-34-
<PAGE>
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND
SUBSIDIARIES
COMBINED RESULTS OF OPERATIONS - 1994 COMPARED WITH 1993
Combined net income for the year ended December 31, 1994 was
$2,314,000, or $.21 per share, compared with combined income of $401,000, or
$.04 per share, for the year ended December 31, 1993. Both 1994 and 1993
contained several nonrecurring charges and credits which make comparison of the
results of operations difficult. Management believes that net income before
nonrecurring charges is a more meaningful measure of the results of operations
of the combined companies.
Income, before nonrecurring items, was $5,522,000, or $.50 per share in
1994, compared with $6,615,000 or $.59 per share in 1993 and reconciles to net
income as follows:
<TABLE>
<CAPTION>
1994 1993
--------------------------- --------------------------
NET PER NET PER
INCOME SHARE INCOME SHARE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income before nonrecurring items $ 5,522,000 $ .50 $ 6,615,000 $ .59
Nonrecurring items:
Write-down of land held for
development (1,043,000) (.09) - -
Debt repayment costs on Fashion
Park financing, net of minority
interest (739,000) (.07) - -
Write-down of turf course (1,426,000) (.13) - -
Franchise tax refund and related
interest income - - 5,734,000 .53
Special deferred compensation
charge - - (974,000) (.09)
Loss on disposition of multifamily
and industrial operations - - (10,974,000) (.99)
------------ ------------ ----------- ------------
Net income as reported $ 2,314,000 $ .21 $ 401,000 $ .04
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
For additional information on the nonrecurring items, see separate
Management's Discussion and Analysis of Realty and Operating Company below.
SANTA ANITA REALTY ENTERPRISES, INC.
Realty is principally engaged in investing and holding real property.
The following narrative discusses Realty's results of operations for
the years ended December 31, 1994, 1993 and 1992, together with liquidity and
capital resources as of December 31, 1994.
RESULTS OF OPERATIONS - 1994 COMPARED WITH 1993
Realty's revenues are derived principally from the rental of real
property. Total revenues for the year ended December 31, 1994 were $40,263,000,
compared with $55,578,000 for the year ended December 31, 1993, a decrease of
27.6%. The lower 1994 revenues were due primarily to Realty selling its
multifamily and industrial operations to Pacific Gulf Properties Inc.
("Pacific"), formerly a wholly owned subsidiary, in 1994 (see Item 1. "Business
- Realty - Pacific Gulf Properties Inc." and "Notes to Financial Statements -
Note 2 - Disposition of Multifamily and Industrial Properties") and to
nonrecurring interest earned on a California Franchise Tax Board refund received
in 1993 and discussed below.
-35-
<PAGE>
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The single most significant source of rental revenue is the lease of
Santa Anita Racetrack. Racetrack rental revenues for 1994 were $13,070,000, an
increase of 12.3% over revenues of $11,634,000 in 1993. The increase in rental
revenues resulted from an increase in average daily wagering and more racing
days in 1994. The lease with LATC for the Santa Anita Racetrack, which was
scheduled to expire on December 31, 1994, was amended and extended for an
additional five years. The new lease provides that Realty will continue to
receive 1.5% of the aggregate on-track wagering on live races at Santa Anita
Racetrack and that the rental rate on LATC's wagering commissions from satellite
wagering on races originating at Santa Anita Racetrack will be reduced from 40%
to 26.5%. In addition, Realty will receive 26.5% of LATC's wagering commissions
from satellite wagering on races originating from certain other racetracks. If
the amended lease terms had been in effect for the year ended December 31, 1994,
racetrack rental revenues would have been $11,123,000.
Rental revenues from other real estate investments for 1994 were
$25,186,000, a decrease of 35.3% from other rental revenues of $38,953,000 in
1993. The decrease in 1994 was due primarily to the 1994 sale by Realty to
Pacific of its multifamily and industrial operations.
Interest and other income was $2,007,000 in 1994 compared with
$4,991,000 in 1993, a decrease of 59.8%. The decrease was primarily
attributable to interest income of $3,211,000 in 1993 related to a tax
settlement with the California Franchise Tax Board. The settlement was for tax
years prior to 1980 related to Realty's predecessor. In addition to interest
earned on the settlement, there was an income tax benefit of $2,523,000 in 1993.
Costs and expenses were $34,718,000, a decrease of 37.4% from costs and
expenses of $55,482,000 in 1993. The decrease was due primarily to the
disposition of the multifamily and industrial operations and was partially
offset by increases in interest expense attributable to continuing operations
and the write-down of land held for development. The increase in continuing
interest expense was due to a steady increase in interest rates throughout 1994,
an increase in borrowing levels in the 1994 and 1993 fourth quarters and debt
repayment costs in 1994.
RESULTS OF OPERATIONS - 1993 COMPARED WITH 1992
Total revenues for the year ended December 31, 1993 were $55,578,000
compared with $50,291,000 reported for the year ended December 31, 1992, a 10.5%
increase. The higher 1993 revenues were primarily due to increases in rental
revenue from real estate properties along with interest earned on the California
Franchise Tax Board refund discussed below.
Rental revenue from real estate properties accounted for $50,587,000 of
the total revenues for the year ended December 31, 1993, a 5.4% increase from
the $47,973,000 recorded for 1992.
Rental revenues from Santa Anita Racetrack for the year ended
December 31, 1993 were $11,634,000, a decrease of 8.3% from the $12,683,000
reported for the year ended December 31, 1992. The decrease in rental income
resulted from a decline in average daily wagering and fewer race days.
Management believes that the decline was attributable to a weak California
economy and the continued negative effect of inter-track wagering on the on-
track attendance and wagering.
Rental revenues from other real estate investments for the year ended
December 31, 1993 were $38,953,000, an increase of 10.4% from those reported in
1992 of $35,290,000. The 1993 increases were due primarily to additional
revenues from a new multifamily property acquisition in 1993 and the full year
inclusion of several multifamily properties acquired in 1992.
Interest and other income increased 115.3% to $4,991,000 for the year
ended December 31, 1993 from $2,318,000 reported for 1992. The increase was
primarily attributable to $3,211,000 of interest income in 1993 on a tax
settlement from the California Franchise Tax Board. The settlement was for tax
years prior to 1980 related to Realty's predecessor. In addition to the
interest earned on the settlement, Realty recorded a $2,523,000 income tax
benefit.
-36-
<PAGE>
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Costs and expenses of $55,482,000 for the year ended December 31, 1993
increased 38.4% from those reported for 1992 of $40,080,000. The increase was
primarily due to a $10,974,000 loss on the disposition of the multifamily and
industrial operations to Pacific and increases in depreciation and rental
property operating expenses associated with the acquisitions of real estate
projects noted above.
Net income for the year ended December 31, 1993 was $2,619,000, a
decrease of 74.4% compared with the $10,211,000 reported in 1992 due to the
factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Realty has funds available from a combination of short- and long-term
sources. Short-term sources included cash of $5,431,000 at December 31, 1994.
In February 1994, in connection with the first part of the sale of
properties to Pacific, Realty received 150,000 shares of the common stock of
Pacific, paid down its lines of credit by $44,425,000 and transferred to Pacific
$44,290,000 of indebtedness associated with the apartment and industrial
properties sold. Effective October 1, 1994, Realty completed the second part of
the sale, received an additional 634,419 shares of the common stock of Pacific
and transferred an additional $9,415,000 of indebtedness to Pacific. At
December 31, 1994, Realty's investment in Pacific common stock totaled 784,419
shares, was carried at $12,825,000 and has a current annual dividend rate of
$1.56 per share.
In November 1994, Realty entered into a $30,000,000 revolving credit
agreement with a commercial bank. Borrowings under the revolving credit
agreement will be due one year from the date of funding but no later than
November 30, 1995 and will bear interest, at Realty's option, at the prime rate,
at LIBOR plus 1%, or at the 30-day, 60-day or 90-day certificate of deposit rate
plus 1%. Realty is currently negotiating a new long-term credit facility which
would provide an amount sufficient to refinance Realty's revolving credit
agreement. In management's opinion, Realty will generate sufficient liquidity
from other sources during the negotiation of the new long-term credit facility
to provide for its operating needs.
Also in November 1994, Realty completed the refinancing of the
$10,000,000 secured loan on its medical office building with the existing
lender. The new $8,900,000 secured loan is due in 2001, bears interest at 9.25%
and provides for a 25-year amortization period.
In December 1994, Realty obtained secured loans on each of its six
neighborhood shopping centers. The secured loans aggregating $15,500,000, have
variable interest rates ranging from 8.25% to 9.0%, a 25-year amortization
period and will be due in ten years. The interest rates are subject to
adjustment every six months based on the six-month certificate of deposit rate
in the secondary market as currently published in THE WALL STREET JOURNAL. The
maximum interest rate adjustment over the life of the loans is 5% and the
increase in the monthly payment at each adjustment date is limited to 3.75%.
During the 1994 second quarter, the Board of Directors established a
revised annual dividend rate of $.80 per share, effective with the quarterly
dividend of $.20 per share paid on July 22, 1994. Previously, the annual
dividend rate was $1.36 per share. The revised annual rate reduced 1994
dividends paid by $3,152,000 and is expected to reduce annual dividends by
$6,304,000. The revolving credit agreement restricts the payment of dividends
to the lesser of $.80 per share or $9,200,000 in any twelve-month period
beginning on or after July 1, 1994. Realty's current dividend policy is in
compliance with this dividend restriction. In conjunction with Realty's new
long-term credit facility, which is currently under negotiation, it is expected
that the dividend restriction will be modified to be the greater of $.80 per
share or the minimum amount required under REIT dividend requirements.
Realty has agreed to provide Operating Company with an unsecured line
of credit of $10,000,000. At December 31, 1994, $2,529,000 was utilized in
connection with a guarantee of a capital lease. Operating Company's ability to
utilize this line of credit is dependent upon Realty's liquidity and capital
resources.
-37-
<PAGE>
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Realty had approximately $13,635,000 of secured real estate loans
receivable at December 31, 1994, with maturities ranging from 1996 to 2002. For
the year ended December 31, 1994, secured real estate loans receivable earned
interest income of $955,000.
IMPACT OF INFLATION
Realty's management believes that, for the foreseeable future, revenues
and income from Santa Anita Racetrack, Fashion Park and its other real estate
should not be adversely affected in a material way by inflationary pressures.
Leases at Fashion Park include clauses enabling Realty to participate in
tenants' future increases and gross revenues. Tenant leases on many other
properties include provisions which tie the lease payments to the Consumer Price
Index or include step-up provisions.
SANTA ANITA OPERATING COMPANY
Operating Company is engaged in thoroughbred horse racing through its
wholly owned subsidiary, Los Angeles Turf Club, Incorporated ("LATC") which
leases the Santa Anita Racetrack ("Santa Anita") from Realty.
The following narrative discusses Operating Company's results of
operations for the years ended December 31, 1994, 1993 and 1992 together with
liquidity and capital resources as of December 31, 1994.
RESULTS OF OPERATIONS - 1994 COMPARED WITH 1993
Operating Company derives its revenues from thoroughbred horse racing
activities. Horse racing revenues were $64,584,000 in 1994, up 6.3% from
$60,776,000 in 1993. In 1994, live thoroughbred horse racing at Santa Anita
Racetrack totaled 90 days compared with 83 days in 1993. Total on-track
attendance at the live racing events in 1994 was up 2.3% from the comparable
year ago period while average daily attendance declined 5.7%. Total wagering
and average daily wagering during the Santa Anita Meet were up 29.5% and 21.6%
in 1994 compared with 1993. On-track wagering increased 4.8%, wagering at
Southern California satellite locations increased 16.4%, wagering at out-of-
state locations increased 86.1% and wagering at Northern California satellite
locations increased substantially in 1994 compared with 1993.
Also, Santa Anita Racetrack operated 102 days in 1994 and 99 days in
1993 as a satellite wagering facility for Hollywood Park and 43 days in 1994 and
42 days in 1993 as a satellite wagering facility for Del Mar. Total attendance
as a satellite wagering facility was down 4.0% while wagering was up 1.3% in
1994 compared with 1993. Average daily attendance and average daily wagering as
a satellite wagering facility were down 6.7% and 1.5%, respectively, in 1994
compared with 1993.
Horse racing revenues and horse racing operating costs were higher in
1994 compared with 1993 due to more race days and higher attendance and wagering
at live racing events. Horse racing revenues in 1994 were $64,584,000, up 6.3%
from $60,776,000 in 1993. Horse racing operating costs in 1994 were
$46,921,000, up 3.6% from $45,284,000 in 1993.
Depreciation expense was $4,251,000 in 1994, up 53.6% from the
$2,768,000 in 1993. The $1,483,000 increase in depreciation expense was due
primarily to the accelerated depreciation charge on the Santa Anita Racetrack
turf course, which will be replaced in April 1995.
General and administrative expenses were $5,583,000 in 1994, a decrease
of 3.8% from the $5,801,000 in 1993 due to the one-time charge of $759,000 in
the prior year for the post retirement benefits payable as a result of the death
of the former Chairman of the Board of Operating Company. Interest expense
decreased to $446,000 in 1994 from $493,000 in 1993. Rental expense to Realty
was $11,226,000 in 1994 compared with $9,233,000 in 1993. The increase in
rental expense of 21.6% reflects the overall increase in racing days and
wagering.
-38-
<PAGE>
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Due to the revenue and expense items previously discussed, Operating
Company reported a net loss of $3,278,000 or $.29 per share in 1994, compared
with a net loss of $2,232,000 or $.20 per share in 1993.
RESULTS OF OPERATIONS - 1993 COMPARED WITH 1992
Horse racing revenues were $60,776,000 in 1993, down 8.3% from
$66,272,000 in 1992. In 1993, live thoroughbred horse racing at Santa Anita
Racetrack totaled 83 days compared with 94 days in 1992. Total and average
daily on-track attendance at the live racing events in 1993 were down 20.4% and
9.8% from 1992. Total wagering at the live racing events was down 10.6% while
average daily wagering increased 1.2% in 1993 compared with 1992. On-track
wagering and inter-track wagering declined 20.2% and 13.6% while interstate
wagering increased 43.8% in 1993 compared with 1992.
In addition to a weak California economy and the continued negative
effect of inter-track wagering on the on-track attendance and wagering,
management believes the declines in average daily attendance and wagering were
the result of inclement weather (in excess of 41 inches of rain, three times
normal) during much of the 1992-1993 race meet, which caused the cancellation of
two full race days and two partial race days in January.
Also, Santa Anita Racetrack operated 42 days in 1993 and 43 days in 1992
as a satellite wagering facility for Del Mar and 99 days in 1993 and 101 days in
1992 as a satellite wagering facility for Hollywood Park. Total attendance and
wagering as a satellite wagering facility were down 3.5% and 2.5% in 1993
compared with 1992. Average daily attendance and wagering were down 1.4% and
0.4% in 1993 compared with 1992.
Horse racing revenues and operating costs declined in 1993 compared with
1992 due to fewer race days, lower attendance and lower wagering at both the
live racing events and as a satellite wagering facility. Horse racing operating
costs in 1993 were $45,284,000, down 10.8% from $50,758,000 in 1992.
General and administrative expenses were $5,801,000 in 1993, down 5.7%
from $6,154,000 in 1992 due to administrative staff reductions in 1993 and to
the costs related to the engagement of outside consultants in the prior year to
review the Operating Company's operations. Partially offsetting the declines in
general and administrative expenses, however, was the one-time charge of
$759,000 in 1993 for the post-retirement benefits payable as a result of the
death of the former Chairman of the Board of Operating Company.
Interest expense increased to $493,000 in 1993 from $194,000 in 1992 due
to a higher level of debt at LATC.
Rental expense to Realty was $9,233,000 in 1993 compared with
$10,955,000 in 1992. The decrease in rental expense of $1,722,000 reflects the
decline in wagering.
Due to the revenue and expense items previously discussed, Operating
Company reported a net loss of $2,232,000 or $.20 per share in 1993 compared
with a net loss of $2,896,000 or $.26 per share in 1992.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1994, Operating Company's sources of liquidity included
cash and short-term investments of $12,843,000 and an unsecured line of credit
with Realty of $10,000,000, of which approximately $2,529,000 was utilized in
connection with a guarantee of a capital lease. Operating Company's ability to
utilize Realty's line of credit is dependent upon Realty's liquidity and capital
resources. (See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Realty - Liquidity and Capital
Resources"). For the year ended December 31, 1994, short-term investments
earned interest income of $437,000.
The cash balances and related interest income from short-term
investments reflect seasonal variations associated with the Santa Anita meet.
During the meet, large cash balances and short-term investments are
-39-
<PAGE>
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
maintained by LATC, including amounts to be disbursed for payment of license
fees payable to the State, purses payable to horse owners and uncashed winning
pari-mutuel tickets payable to the public.
IMPACT OF INFLATION
LATC's expenses are heavily labor-intensive with labor rates being
covered by negotiated contracts with labor unions. Labor contracts with the
pari-mutuel, service and operational employees were successfully renegotiated in
April 1992. These new contracts expire in 1995. Management continues to
address cost containment and labor productivity in all areas.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements for a listing of the financial
statements and supplementary data filed with this report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
-40-
<PAGE>
PART III
Pursuant to General Instruction G(3) to Form 10-K, the information
called for by this part of Form 10-K is incorporated herein by reference to the
registrants' definitive joint proxy statement to be filed, pursuant to
Regulation 14A, with the Securities and Exchange Commission not later than 120
days after the end of the year ended December 31, 1994.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
See Index to Financial Statements
2. Financial Statement Schedules
See Index to Financial Statement Schedules
3. Exhibits
See Exhibit Index
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the last quarter of the fiscal year ended December 31,
1994.
-41-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Realty and Operating Company have duly caused this report
to be signed on their behalf by the undersigned, thereunto duly authorized.
SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY
By: SHERWOOD C. CHILLINGWORTH By: STEPHEN F. KELLER
------------------------------ -------------------------------
Sherwood C. Chillingworth Stephen F. Keller
Vice Chairman of the Board and Chairman of the Board, President
Chief Executive Officer and Chief Executive Officer
(Principal Executive Officer) (Principal Executive Officer)
Date: March 20, 1995 Date: March 20, 1995
By: BRIAN L. FLEMING RICHARD D. BRUMBAUGH
------------------------------ -------------------------------
Brian L. Fleming Richard D. Brumbaugh
Executive Vice President and Vice President-Finance and
Chief Financial Officer Chief Financial Officer
(Principal Financial and Accounting (Principal Financial and
Officer) Accounting Officer)
Date: March 20, 1995 Date: March 20, 1995
-42-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrants and in the capacity and on the date indicated.
STEPHEN F. KELLER Chairman of the Board of Realty; Chairman of
------------------------------ the Board, President and Chief Executive
Stephen F. Keller Officer (Principal Executive Officer) of
Operating Company
WILLIAM C. BAKER Director of Operating Company and Director
------------------------------ of Realty
William C. Baker
------------------------------ Director of Operating Company and Director
Thomas J. Barrack, Jr. of Realty
SHERWOOD C. CHILLINGWORTH Vice Chairman of the Board and Chief
----------------------------- Executive Officer (Principal Executive
Sherwood C. Chillingworth Officer) of Realty
RICHARD S. COHEN Director of Operating Company and Director
----------------------------- of Realty
Richard S. Cohen
ARTHUR LEE CROWE Director of Operating Company and Director
----------------------------- of Realty
Arthur Lee Crowe
CLIFFORD C. GOODRICH Vice President and Director of Operating
----------------------------- Company
Clifford C. Goodrich
ROBERT H. GRANT Director of Operating Company and Director
----------------------------- of Realty
Robert H. Grant
TAYLOR B. GRANT Director of Realty
-----------------------------
Taylor B. Grant
J. TERRENCE LANNI Director of Operating Company and Director
----------------------------- of Realty
J. Terrence Lanni
THOMAS P. MULLANEY Director of Operating Company and Director
----------------------------- of Realty
Thomas P. Mullaney
WILLIAM D. SCHULTE Director of Operating Company and Director
----------------------------- of Realty
William D. Schulte
Date: March 20, 1995
-43-
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
------
INDEPENDENT AUDITORS' REPORT 46
SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING
COMPANY AND SUBSIDIARIES COMBINED
Combined Balance Sheets as of December 31, 1994 and 1993 47
Combined Statements of Operations for the years ended
December 31, 1994, 1993 and 1992 48
Combined Statements of Shareholders' Equity for the years ended
December 31, 1994, 1993 and 1992 49
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 50
SANTA ANITA REALTY ENTERPRISES, INC.
Consolidated Balance Sheets as of December 31,1994 and 1993 51
Consolidated Statements of Operations for the years ended
December 31, 1994, 1993 and 1992 52
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1994, 1993 and 1992 53
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 54
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets as of December 31, 1994 and 1993 55
Consolidated Statements of Operations for the years ended
December 31, 1994, 1993 and 1992 56
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1994, 1993 and 1992 57
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 58
NOTES TO FINANCIAL STATEMENTS 59
H-T ASSOCIATES
Independent Auditors' Reports
1994 and 1993 84
1992 85
Financial Statements and Notes 86
-44
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
The schedules listed below relate to Realty and Operating Company as indicated:
SCHEDULES FOR
-----------------------------
OPERATING
SCHEDULE REALTY COMPANY
-------- ---------- ---------
(REFERENCE IS TO PAGE NUMBER)
II Valuation and Qualifying Accounts
as of December 31, 1994 and 1993 81 Omitted
III Real Estate and Accumulated Depreciation
as of December 31, 1994 82 Omitted
Schedules not listed above have been omitted because either the conditions under
which they are required are absent, not applicable, or the required information
is included in the financial statements and related notes thereto.
-45-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company
We have audited the financial statements and schedules listed on pages 44 and 45
of:
(a) Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company
and Subsidiaries Combined; and
(b) Santa Anita Realty Enterprises, Inc.; and
(c) Santa Anita Operating Company and Subsidiaries.
These financial statements and schedules are the responsibility of the
companies' management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the above-listed entities at
December 31, 1994 and 1993 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles. Further, it is our
opinion that the schedules referred to above, when considered in relation to the
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
February 10, 1995
-46-
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
ASSETS
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Real estate assets
Santa Anita Racetrack, less accumulated depreciation
of $19,431,000 and $18,670,000 $ 8,304,000 $ 7,719,000
Commercial properties, less accumulated depreciation
of $32,247,000 and $41,079,000 116,780,000 216,110,000
Investments in unconsolidated joint ventures 6,299,000 7,860,000
Real estate loans and advances receivable 17,990,000 17,840,000
-------------- --------------
149,373,000 249,529,000
Cash 12,674,000 17,328,000
Short-term investments, at cost (approximates market) 5,600,000 4,693,000
Accounts receivable 4,656,000 7,568,000
Prepaid expenses and other assets 6,054,000 7,019,000
Investment in Pacific Gulf Properties Inc. 12,825,000 -
Property, plant and equipment, at cost, less accumulated
depreciation of $23,093,000 and $21,088,000 19,466,000 22,129,000
-------------- --------------
$ 210,648,000 $ 308,266,000
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Real estate loans payable $ 102,472,000 $ 106,731,000
Bank loans payable 9,829,000 81,167,000
Accounts payable 13,179,000 13,748,000
Other liabilities 12,750,000 25,463,000
Dividends payable 2,251,000 3,788,000
Deferred revenues 2,427,000 2,872,000
Deferred income taxes 3,565,000 3,565,000
-------------- --------------
146,473,000 237,334,000
Minority interest in consolidated joint ventures (3,268,000) (4,590,000)
Shareholders' equity
Preferred stock, $.10 par value; authorized 6,000,000
shares; none issued - -
Common stock, $.10 par value; authorized 19,000,000
shares; issued and outstanding 11,143,853 and
11,140,853 shares 2,227,000 2,227,000
Additional paid-in capital 134,615,000 134,554,000
Retained earnings (deficit) (69,399,000) (61,259,000)
-------------- --------------
67,443,000 75,522,000
-------------- --------------
$ 210,648,000 $ 308,266,000
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
-47-
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Horse racing $ 64,584,000 $ 60,776,000 $ 66,272,000
Rental property 27,030,000 41,354,000 37,018,000
Interest and other 2,448,000 5,405,000 3,712,000
------------- ------------- -------------
94,062,000 107,535,000 107,002,000
------------- ------------- -------------
Costs and expenses
Horse racing operating costs 46,921,000 45,284,000 50,758,000
Rental property operating expenses 9,714,000 16,522,000 13,533,000
Depreciation and amortization 10,087,000 11,392,000 10,753,000
General and administrative 9,813,000 10,045,000 10,310,000
Interest and other 11,317,000 12,970,000 12,525,000
Losses from unconsolidated joint ventures 2,236,000 1,993,000 1,446,000
Minority interest in earnings of consolidated
joint ventures 617,000 477,000 458,000
Write-down of land held for development 1,043,000 - -
Loss on disposition of multifamily and
industrial operations - 10,974,000 -
------------- ------------- -------------
91,748,000 109,657,000 99,783,000
------------- ------------- -------------
Income (loss) before income taxes 2,314,000 (2,122,000) 7,219,000
Income tax benefit - 2,523,000 158,000
------------- ------------- -------------
Net income $ 2,314,000 $ 401,000 $ 7,377,000
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares
outstanding 11,143,146 11,140,853 11,140,913
------------- ------------- -------------
------------- ------------- -------------
Net income per common share $ .21 $ .04 $ .66
--------- --------- ---------
--------- --------- ---------
Dividends declared per common share $ .94 $ 1.36 $ 1.36
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
-48-
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
------------------------ PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Combined balance,
December 31, 1991 11,140,965 $ 2,227,000 $ 134,555,000 $ (38,731,000) $ 98,051,000
Dividends declared
on common stock - - - (15,153,000) (15,153,000)
Dividend reinvestment
plan, net (112) - (1,000) - (1,000)
Net income - - - 7,377,000 7,377,000
---------- ----------- -------------- ------------- -------------
Combined balance,
December 31,1992 11,140,853 2,227,000 134,554,000 (46,507,000) 90,274,000
Dividends declared
on common stock - - - (15,153,000) (15,153,000)
Net income - - - 401,000 401,000
---------- ----------- -------------- ------------- -------------
Combined balance,
December 31, 1993 11,140,853 2,227,000 134,554,000 (61,259,000) 75,522,000
Stock issued in
connection with
stock option plan 3,000 - 61,000 - 61,000
Dividends declared
on common stock - - - (10,454,000) (10,454,000)
Net income - - - 2,314,000 2,314,000
---------- ----------- -------------- ------------- -------------
Combined balance,
December 31, 1994 11,143,853 $ 2,227,000 $ 134,615,000 $ (69,399,000) $ 67,443,000
---------- ----------- -------------- ------------- -------------
---------- ----------- -------------- ------------- -------------
</TABLE>
See accompanying notes.
-49-
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,314,000 $ 401,000 $ 7,377,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 10,087,000 11,392,000 10,753,000
Net gain on sale of real estate - - (646,000)
Loss on disposition of multifamily and
industrial operations - 10,974,000 -
Deferred income taxes - (108,000) (141,000)
Minority interest in earnings of consolidated
joint ventures 617,000 477,000 458,000
Write-down of land held for development 1,043,000 - -
Equity in losses of unconsolidated joint
ventures 2,236,000 1,993,000 1,446,000
Net decrease (increase) in certain other
assets 1,243,000 (1,523,000) 1,866,000
Net (decrease) increase in certain other
liabilities (156,000) 7,007,000 310,000
------------ ------------ ------------
Net cash provided by operating activities 17,384,000 30,613,000 21,423,000
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from disposition of multifamily and
industrial operations 43,114,000 - -
Proceeds from sales of real estate - - 5,425,000
Payments received on loans and advances
receivable 371,000 4,076,000 1,152,000
Origination of loans and advances receivable (357,000) (1,305,000) (9,345,000)
Additions and improvements to real estate assets (15,074,000) (33,424,000) (35,588,000)
Additions to property, plant and equipment (1,553,000) (1,450,000) (6,030,000)
Investments in unconsolidated joint ventures (1,348,000) (1,100,000) (664,000)
Capital distributions from unconsolidated joint
ventures 688,000 1,405,000 664,000
------------ ------------ ------------
Net cash provided by (used in) investing activities 25,841,000 (31,798,000) (44,386,000)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from real estate loans payable 86,755,000 - 11,191,000
Proceeds from bank loans payable 7,300,000 20,981,000 26,832,000
Repayment of real estate loans payable (36,932,000) (924,000) (6,154,000)
Repayment of bank loans payable (78,638,000) (664,000) (82,000)
Net (decrease) increase in certain other liabilities (11,721,000) 9,635,000 728,000
Dividends paid (11,993,000) (15,153,000) (15,153,000)
Distributions to minority interest in consolidated
joint ventures, net (1,804,000) (2,316,000) (81,000)
Proceeds from stock issued in connection with
exercise of stock options and dividend
reinvestment plan 61,000 - (1,000)
------------ ------------ ------------
Net cash (used in) provided by financing activities (46,972,000) 11,559,000 17,280,000
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (3,747,000) 10,374,000 (5,683,000)
Cash and cash equivalents at beginning of year 22,021,000 11,647,000 17,330,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 18,274,000 $ 22,021,000 $ 11,647,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
-50-
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
ASSETS
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Real estate assets
Santa Anita Racetrack, less accumulated depreciation
of $19,431,000 and $18,670,000 $ 8,304,000 $ 7,719,000
Commercial properties, less accumulated depreciation
of $33,842,000 and $42,503,000 121,653,000 221,154,000
Investments in unconsolidated joint ventures 6,299,000 7,860,000
Real estate loans and advances receivable 17,990,000 17,840,000
------------- -------------
154,246,000 254,573,000
Cash 5,431,000 7,633,000
Accounts receivable 2,274,000 4,386,000
Prepaid expenses and other assets 3,357,000 4,624,000
Investment in Pacific Gulf Properties Inc. 12,825,000 -
------------- -------------
$ 178,133,000 $ 271,216,000
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Real estate loans payable $ 102,472,000 $ 106,731,000
Bank loans payable 7,300,000 77,913,000
Accounts payable 2,379,000 3,678,000
Other liabilities 2,159,000 15,346,000
Dividends payable 2,251,000 3,788,000
Due to (from) Operating Company 1,056,000 (469,000)
------------- -------------
117,617,000 206,987,000
Minority interest in consolidated joint ventures (3,268,000) (4,590,000)
Shareholders' equity
Preferred stock, $.10 par value; authorized 6,000,000
shares; none issued - -
Common stock, $.10 par value; authorized 19,000,000
shares; issued and outstanding 11,256,353 shares 1,125,000 1,125,000
Additional paid-in capital 117,084,000 117,084,000
Retained earnings (deficit) (54,425,000) (49,390,000)
------------- -------------
63,784,000 68,819,000
------------- -------------
$ 178,133,000 $ 271,216,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
-51-
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Rent from Racetrack $ 13,070,000 $ 11,634,000 $ 12,683,000
Shopping centers 15,969,000 14,396,000 15,418,000
Office buildings 4,301,000 4,521,000 4,290,000
Apartments and industrial 4,916,000 20,036,000 15,582,000
Interest and other 2,007,000 4,991,000 2,318,000
------------ ------------ ------------
40,263,000 55,578,000 50,291,000
------------ ------------ ------------
Costs and expenses
Shopping centers 6,267,000 5,652,000 5,228,000
Office buildings 1,862,000 1,804,000 2,025,000
Apartments and industrial 1,585,000 9,066,000 6,280,000
Depreciation and amortization 6,007,000 8,795,000 8,156,000
General and administrative 4,230,000 4,244,000 4,156,000
Interest and other 10,871,000 12,477,000 12,331,000
Losses from unconsolidated joint ventures 2,236,000 1,993,000 1,446,000
Minority interest in earnings of consolidated
joint ventures 617,000 477,000 458,000
Write-down of land held for development 1,043,000 - -
Loss on disposition of multifamily and
industrial operations - 10,974,000 -
------------ ------------ ------------
34,718,000 55,482,000 40,080,000
------------ ------------ ------------
Income before income taxes 5,545,000 96,000 10,211,000
Income tax benefit - 2,523,000 -
------------ ------------ ------------
Net income $ 5,545,000 $ 2,619,000 $ 10,211,000
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of common shares
outstanding 11,256,353 11,256,353 11,256,353
------------ ------------ ------------
------------ ------------ ------------
Net income per common share $ .49 $ .23 $ .91
---------- ---------- ----------
---------- ---------- ----------
Dividends declared per common share $ .94 $ 1.36 $ 1.36
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
-52-
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
------------------------ PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1991 11,256,465 $ 1,125,000 $ 117,085,000 $ (31,602,000) $ 86,608,000
Dividend reinvestment
plan, net (112) - (1,000) - (1,000)
Dividends declared
on common stock - - - (15,309,000) (15,309,000)
Net income - - - 10,211,000 10,211,000
---------- ----------- ------------- ------------- -----------
Balance,
December 31, 1992 11,256,353 1,125,000 117,084,000 (36,700,000) 81,509,000
Dividends declared
on common stock - - - (15,309,000) (15,309,000)
Net income - - - 2,619,000 2,619,000
---------- ----------- ------------- ------------- -----------
Balance,
December 31, 1993 11,256,353 1,125,000 117,084,000 (49,390,000) 68,819,000
Dividends declared
on common stock - - - (10,580,000) (10,580,000)
Net income - - - 5,545,000 5,545,000
---------- ----------- ------------- ------------- -----------
Balance,
December 31, 1994 11,256,353 $ 1,125,000 $ 117,084,000 $ (54,425,000) $ 63,784,000
---------- ----------- ------------- ------------- -----------
---------- ----------- ------------- ------------- -----------
</TABLE>
See accompanying notes.
-53
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,545,000 $ 2,619,000 $ 10,211,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,007,000 8,795,000 8,156,000
Net gain on sale of real estate - - (646,000)
Loss on disposition of multifamily and
industrial operations - 10,974,000 -
Minority interest in earnings of consolidated
joint ventures 617,000 477,000 458,000
Write-down of land held for development 1,043,000 - -
Equity in losses of unconsolidated joint
ventures 2,236,000 1,993,000 1,446,000
Net decrease (increase) in certain other
assets 445,000 (1,455,000) 18,000
Net (decrease) increase in certain other
liabilities (582,000) 2,268,000 602,000
------------ ------------ -------------
Net cash provided by operating activities 15,311,000 25,671,000 20,245,000
------------ ------------ -------------
Cash flows from investing activities:
Proceeds from disposition of multifamily and
industrial operations 43,114,000 - -
Proceeds from sales of real estate - - 5,425,000
Payments received on loans and advances
receivable 371,000 4,076,000 1,152,000
Origination of loans and advances receivable (357,000) (1,305,000) (9,345,000)
Additions and improvements to real estate assets (15,074,000) (33,424,000) (35,588,000)
Investments in unconsolidated joint ventures (1,348,000) (1,100,000) (664,000)
Capital distributions from unconsolidated joint
ventures 688,000 1,405,000 664,000
------------ ------------ -------------
Net cash provided by (used in) investing activities 27,394,000 (30,348,000) (38,356,000)
------------ ------------ -------------
Cash flows from financing activities:
Proceeds from real estate loans payable 86,755,000 - 11,191,000
Proceeds from bank loans payable 7,300,000 20,981,000 22,832,000
Repayment of real estate loans payable (36,932,000) (924,000) (6,154,000)
Repayment of bank loans payable (77,913,000) - -
Increase (decrease) in due to Operating Company 1,525,000 (1,428,000) 1,000,000
Net (decrease) increase in certain other liabilities (11,721,000) 9,635,000 728,000
Dividends paid (12,117,000) (15,309,000) (15,309,000)
Distributions to minority interest in consolidated
joint ventures, net (1,804,000) (2,316,000) (81,000)
Proceeds from stock issued in connection with
exercise of stock options and dividend
reinvestment plan - - (1,000)
------------ ------------ -------------
Net cash (used in) provided by financing activities (44,907,000) 10,639,000 14,206,000
------------ ------------ -------------
Net (decrease) increase in cash and cash equivalents (2,202,000) 5,962,000 (3,905,000)
Cash and cash equivalents at beginning of year 7,633,000 1,671,000 5,576,000
------------ ------------ -------------
Cash and cash equivalents at end of year $ 5,431,000 $ 7,633,000 $ 1,671,000
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
See accompanying notes.
-54
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
ASSETS
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Current assets
Cash $ 7,243,000 $ 9,695,000
Short-term investments, at cost (approximates market) 5,600,000 4,693,000
Accounts receivable 2,382,000 3,182,000
Due from (to) Realty 1,056,000 (469,000)
Prepaid expenses and other assets 1,043,000 1,041,000
------------- -------------
Total current assets 17,324,000 18,142,000
------------- -------------
Investment in common stock of Realty 2,122,000 2,179,000
Property, plant and equipment, at cost
Machinery and other equipment 21,503,000 21,943,000
Leasehold improvements 21,056,000 20,976,000
------------- -------------
42,559,000 42,919,000
Less accumulated depreciation (23,093,000) (21,088,000)
------------- -------------
19,466,000 21,831,000
------------- -------------
$ 38,912,000 $ 42,152,000
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 10,800,000 $ 10,070,000
Other liabilities 10,591,000 10,117,000
Bank loans payable 794,000 726,000
------------- -------------
Total current liabilities 22,185,000 20,913,000
------------- -------------
Bank loans payable 1,735,000 2,528,000
Deferred revenues 2,427,000 2,872,000
Deferred income taxes 3,565,000 3,565,000
------------- -------------
29,912,000 29,878,000
------------- -------------
Shareholders' equity
Preferred stock, $.10 par value; authorized 6,000,000
shares; none issued - -
Common stock, $.10 par value; authorized 19,000,000
shares; issued and outstanding 11,143,853
and 11,140,853 shares 1,114,000 1,114,000
Additional paid-in capital 20,596,000 20,592,000
Retained earnings (deficit) (12,710,000) (9,432,000)
------------- -------------
9,000,000 12,274,000
------------- -------------
$ 38,912,000 $ 42,152,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
-55-
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Wagering commissions $ 39,256,000 $ 34,932,000 $ 38,571,000
Admission related 25,328,000 25,844,000 27,701,000
Interest and other 565,000 571,000 1,382,000
------------- ------------- -------------
65,149,000 61,347,000 67,654,000
------------- ------------- -------------
Costs and expenses
Horse racing operating costs 46,921,000 45,284,000 50,758,000
Depreciation and amortization 4,251,000 2,768,000 2,732,000
General and administrative 5,583,000 5,801,000 6,154,000
Interest 446,000 493,000 194,000
------------- ------------- -------------
57,201,000 54,346,000 59,838,000
------------- ------------- -------------
Income before rent and income taxes 7,948,000 7,001,000 7,816,000
Rental expense to Realty 11,226,000 9,233,000 10,955,000
------------- ------------- -------------
Loss before income taxes (3,278,000) (2,232,000) (3,139,000)
Income tax benefit - - 243,000
------------- ------------- -------------
Net loss $ (3,278,000) $ (2,232,000) $ (2,896,000)
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares
outstanding 11,143,146 11,140,853 11,140,913
------------- ------------- -------------
------------- ------------- -------------
Net loss per common share $ (.29) $ (.20) $ (.26)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
-56-
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
------------------------ PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1991 11,140,965 $ 1,114,000 $ 20,592,000 $ (4,304,000) $ 17,402,000
Dividend reinvestment
plan, net (112) - - - -
Net loss - - - (2,896,000) (2,896,000)
---------- ----------- ------------- ------------ ------------
Balance,
December 31, 1992 11,140,853 1,114,000 20,592,000 (7,200,000) 14,506,000
Net loss - - - (2,232,000) (2,232,000)
---------- ----------- ------------- ------------ ------------
Balance,
December 31, 1993 11,140,853 1,114,000 20,592,000 (9,432,000) 12,274,000
Stock issued in
connection with
stock option plan 3,000 - 4,000 - 4,000
Net loss - - - (3,278,000) (3,278,000)
---------- ----------- ------------- ------------ ------------
Balance,
December 31, 1994 11,143,853 $ 1,114,000 $ 20,596,000 $(12,710,000) $ 9,000,000
---------- ----------- ------------- ------------ ------------
---------- ----------- ------------- ------------ ------------
</TABLE>
See accompanying notes.
-57-
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,278,000) $ (2,232,000) $ (2,896,000)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 4,251,000 2,768,000 2,732,000
Deferred income taxes - (108,000) (141,000)
Net decrease (increase) in certain other
assets 798,000 (69,000) 931,000
Net increase in certain other liabilities 426,000 4,739,000 708,000
------------- ------------- -------------
Net cash provided by operating activities 2,197,000 5,098,000 1,334,000
------------- ------------- -------------
Cash flows from investing activities:
Additions to property, plant and equipment (1,553,000) (1,450,000) (6,030,000)
Decrease in investment in common stock of Realty 57,000 - -
------------- ------------- -------------
Net cash used in investing activities (1,496,000) (1,450,000) (6,030,000)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from bank loans payable - - 4,000,000
Repayment of bank loans payable (725,000) (664,000) (82,000)
(Increase) decrease in due from Realty (1,525,000) 1,428,000 (1,000,000)
Proceeds from stock issued in connection
with exercise of stock options 4,000 - -
------------- ------------- -------------
Net cash (used in) provided by financing activities (2,246,000) 764,000 2,918,000
------------- ------------- -------------
Net (decrease) increase in cash and cash
equivalents (1,545,000) 4,412,000 (1,778,000)
Cash and cash equivalents at beginning of year 14,388,000 9,976,000 11,754,000
------------- ------------- -------------
Cash and cash equivalents at end of year $ 12,843,000 $ 14,388,000 $ 9,976,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
-58-
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Santa Anita Realty Enterprises, Inc. ("Realty") and Santa Anita
Operating Company and Subsidiaries ("Operating Company") are two separate
companies, the stocks of which trade as a single unit under a stock-pairing
arrangement on the New York Stock Exchange. Realty and Operating Company were
each incorporated in 1979 and are the successors of a corporation originally
organized in 1934 to conduct thoroughbred horse racing in Southern California.
Currently, Realty is principally engaged in holding and investing in
retail and commercial property located primarily in Southern California,
Phoenix, Arizona and Towson, Maryland. During 1994, Realty disposed of its
multifamily and industrial properties. Realty operates as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986 and,
accordingly, pays no income taxes on earnings distributed to shareholders.
Operating Company is engaged in thoroughbred horse racing. The
thoroughbred horse racing operation is conducted by a subsidiary of Operating
Company, Los Angeles Turf Club, Incorporated ("LATC"), which leases the Santa
Anita Racetrack from Realty.
Separate and combined financial statements have been presented for
Realty and Operating Company. Realty and Combined Realty and Operating Company
use an unclassified balance sheet presentation.
The separate results of operations and the separate net income per
share of Realty and Operating Company cannot usually be added together to total
the combined results of operations and net income per share because of
adjustments and eliminations arising from inter-entity transactions. All
significant intercompany and inter-entity balances and transactions have been
eliminated in consolidation and combination.
REAL ESTATE ASSETS
Investment properties are carried at cost and consist of land,
buildings and related improvements. Depreciation is provided on a straight-line
basis over the estimated useful lives of the properties, ranging primarily from
15 to 40 years.
INVESTMENTS IN JOINT VENTURES
All joint ventures in which Realty exercises significant control and
has a 50% or greater ownership interest are consolidated. The ownership
interests of outside partners in Realty's consolidated joint ventures are
reflected as minority interest (excess of liabilities over assets) on the
balance sheets for Realty and Combined Realty and Operating Company.
Investments in unconsolidated joint ventures are accounted for using
the equity method of accounting.
-59-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Highly liquid short-term investments, with remaining maturities of
three months or less at the date of acquisition, are considered cash
equivalents.
PROPERTY, PLANT AND EQUIPMENT
Depreciation of property, plant and equipment and the capital lease
obligation is provided primarily on the straight-line method generally over the
following estimated useful lives:
Building and improvements 25 to 45 years
Machinery and other equipment 5 to 15 years
Leasehold improvements 5 to 32 years
Expenditures which materially increase property lives are capitalized.
The cost of maintenance and repairs is charged to expense as incurred. When
depreciable property is retired or disposed of, the related cost and accumulated
depreciation is removed from the accounts and any gain or loss is reflected in
current operations.
INCOME TAXES
Realty and Operating Company adopted SFAS No. 109, "Accounting for
Income Taxes," effective January 1, 1993. The new standard of accounting
replaces SFAS No. 96, which the company adopted in 1988. The cumulative effect
of adopting Statement 109 was immaterial for the year ended December 31, 1993.
DEFERRED REVENUES
Operating Company's deferred revenues consist of prepaid admission
tickets and parking, which are recognized as income ratably over the period of
the related race meet. Also, deferred revenue includes prepaid rent from Oak
Tree which is recognized over the remaining term of the lease.
SHAREHOLDERS' EQUITY
The outstanding shares of Realty common stock and Operating Company
common stock are only transferable and tradable in combination as a paired unit
consisting of one share of Realty common stock and one share of Operating
Company common stock.
OPERATING COMPANY'S REVENUES AND COSTS
Operating Company has adopted an accounting policy whereby the revenues
associated with thoroughbred horse racing at Santa Anita Racetrack are reported
as they are earned. Costs and expenses associated with thoroughbred horse
racing revenues are charged against income in those periods in which the
thoroughbred horse racing revenues are recognized. Other costs and expenses are
recognized as they actually occur throughout the year. The rental fee paid by
Operating Company to Realty is recognized by both Realty and Operating Company
as it is earned.
-60-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RENTAL PROPERTY REVENUES
Rental property revenues are recorded on a straight-line basis over the
related lease term. As a result, deferred rent is created when rental income is
recognized during free rent periods of a lease or when the lease provides for
rent escalations during the lease term. Deferred rent is included in prepaid
expenses and other assets, evaluated for collectibility and amortized over the
remaining term of the lease.
HORSE RACING REVENUES AND DIRECT OPERATING COSTS
Operating Company's horse racing revenues and direct operating costs
are shown net of state and local taxes, stakes, purses and awards.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject Realty and Operating
Company to concentrations of credit risk are primarily cash investments and
receivables. Realty and Operating Company place their cash investments in
investment grade short-term instruments and limit the amount of credit exposure
to any one commercial issuer. Concentrations of credit risk with respect to
accounts receivable are limited due to the number of retail, commercial and
residential tenants, and Santa Anita catering patrons. Real estate receivables
are secured by first trust deeds on commercial real estate located in Southern
California and Phoenix, Arizona. Advances to unconsolidated joint ventures are
unsecured and due from partnerships in which Realty is a 50% or less general
partner.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Realty is an issuer of financial instruments with off-balance sheet
risk in the normal course of business which exposes Realty to credit risks.
These financial instruments include commitments to extend credit, financial
guarantees and letters of credit.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management has estimated the fair value of its financial instruments
using available market information and appropriate valuation methodologies.
Considerable judgment is required in interpreting market data to develop
estimates of fair value. Accordingly, the estimated values for Realty and
Operating Company as of December 31, 1994 and 1993 are not necessarily
indicative of the amounts that could be realized in current market exchanges.
For those financial instruments for which it is practicable to estimate
value, management has determined that the carrying amounts of Realty's and
Operating Company's financial instruments approximate their fair value as of
December 31, 1994 and 1993.
DIVIDEND REINVESTMENT PLAN
In November 1992, Realty and Operating Company terminated their
dividend reinvestment and stock purchase plan (the "Plan"), which had enabled
shareholders to reinvest dividends and purchase shares of Realty and Operating
Company stock.
-61-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMMON STOCK AND NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed based upon the weighted
average number of common shares outstanding during each period for each company.
Stock options have not been included in the computation since they have no
material dilutive effect.
Operating Company holds shares of Realty's common stock which are
unpaired pursuant to a stock option plan approved by the shareholders. The
shares held totaled 112,500 as of December 31, 1994 and 115,500 as of
December 31, 1993 and 1992. These shares affect the calculation of Realty's net
income per common share but are eliminated in the combined calculation of net
income per common share.
RECLASSIFICATIONS
Certain prior year amounts have been restated to conform to current
year presentation.
NOTE 2 - INVESTMENT IN PACIFIC GULF PROPERTIES INC.
In November 1993, Realty entered into a Purchase and Sale Agreement to
sell its multifamily and industrial operations to Pacific Gulf Properties Inc.
("Pacific"), in conjunction with Pacific's proposed public offering of common
stock and debentures.
On February 18, 1994, Realty completed the first part of this
transaction by selling to Pacific ten multifamily properties, containing 2,654
apartment units, located in Southern California, the Pacific Northwest and Texas
and three industrial properties, containing an aggregate of 185,000 leasable
square feet of industrial space, located in the State of Washington (the
"Transferred Properties"). Realty's corporate headquarters building and related
assets were also acquired by Pacific.
In consideration of the sale of the Transferred Properties, Realty
received $44,425,000 in cash and 150,000 shares of the common stock of Pacific.
In addition, Realty was relieved of $44,290,000 of mortgage debt on the
Transferred Properties.
Effective October 1, 1994, Realty completed the second part of the
transaction, the sale of its interest in Baldwin Industrial Park to Pacific.
Effective October 31, 1994, Pacific delivered to Realty an additional 634,419
shares of Pacific common stock as consideration for the second part of the
transaction and the corporate headquarters and other net assets. As a result of
the sale, Baldwin Industrial Park ceased to be a consolidated joint venture
which resulted in a decrease in cash of $1,311,000 and a reduction in mortgage
debt of $9,415,000.
The above transactions resulted in a loss of $10,974,000, which was
reflected in the Realty and Combined Realty and Operating Company statements of
operations for the year ended December 31, 1993. If the transactions had
occurred as of January 1, 1994, Realty and Combined Realty and Operating Company
revenues would have decreased by $4,477,000, expenses would have decreased by
$4,929,000 and net income would have increased by $452,000, for the year ended
December 31, 1994.
As of December 31, 1994, Realty owned 16.3% of the Pacific's common stock and
accounted for its investment by the equity method of accounting. The closing
price of Pacific's common stock, on the American Stock Exchange, on the last
trading day in 1994 was $15.00 per share.
Financial information relating to Pacific, which is a separate public company,
is available from the Securities and Exchange Commission (Commission file number
1-12546).
-62-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - INVESTMENTS IN CONSOLIDATED JOINT VENTURES
Realty's real estate properties include investments in the following
consolidated real estate joint ventures at December 31, 1994:
OWNERSHIP
NAME PERCENTAGE PROJECT
------------------- ----------------- ------------------
Anita Associates 50% Regional mall
French Valley Partners 50% Industrial land
The financial condition and operations of the above joint ventures are
consolidated with the financial statements of Realty and Combined Realty and
Operating Company.
Combined condensed financial information for the consolidated joint
ventures as of December 31, 1994, 1993 and 1992 and for the years then ended is
as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ --------------
<S> <C> <C> <C>
Real estate assets $58,574,000 $74,570,000 $115,778,000
----------- ----------- ------------
----------- ----------- ------------
Liabilities
Secured real estate loans $62,405,000 $47,447,000 $ 84,421,000
Other 2,659,000 24,085,000 5,320,000
----------- ----------- ------------
$65,064,000 $71,532,000 $ 89,741,000
----------- ----------- ------------
----------- ----------- ------------
Partners' equity (deficit)
Realty $(3,222,000) $ 7,628,000 $ 28,788,000
Others (3,268,000) (4,590,000) (2,751,000)
----------- ----------- ------------
$(6,490,000) $ 3,038,000 $ 26,037,000
----------- ----------- ------------
----------- ----------- ------------
Revenues $14,974,000 $21,922,000 $ 23,912,000
----------- ----------- ------------
----------- ----------- ------------
Net income (loss)
Realty $ (379,000) $ 2,113,000 $ 2,727,000
Others 617,000 477,000 458,000
----------- ----------- ------------
$ 238,000 $ 2,590,000 $ 3,185,000
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
Consolidated joint venture net income (loss) for the year ended
December 31, 1994, includes the following one-time unusual items:
- In January 1994, refinancing of the Anita Associates mortgage
note payable on the Fashion Park mall was completed, resulting in
debt repayment costs of $1,478,000 which have been reflected in
"Interest and other" in the Realty and Combined Realty and
Operating Company statements of operations.
- In December 1994, a decrease in a maturing note payable secured
by land held for development by French Valley Partners was
negotiated and the carrying cost of the related land was written
down to its estimated market value. The resulting net charge of
$1,043,000 has been reflected in "Write-down of land held for
development" in the Realty and Combined Realty and Operating
Company statements of operations.
-63-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
Realty's investments in unconsolidated joint ventures include
investments in the following commercial real estate ventures at December 31,
1994:
OWNERSHIP
NAME PERCENTAGE PROJECT
------------------- ----------------- ------------------
Joppa Associates 33 1/3% Retail
H-T Associates 50% Regional mall
These partnerships comprise the properties associated with the
operations of Towson Town Center in Towson, Maryland.
Unaudited combined condensed financial statement information for the
unconsolidated joint ventures as of December 31, 1994, 1993 and 1992 and for the
years then ended is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------------- ------------- -------------
<S> <C> <C> <C>
Real estate assets $ 207,775,000 $ 212,979,000 $ 216,137,000
------------- ------------- -------------
------------- ------------- -------------
Liabilities
Advances from Realty $ 4,355,000 $ 4,016,000 $ 3,750,000
Secured real estate
loans 164,641,000 164,641,000 159,473,000
Other 26,410,000 27,827,000 31,943,000
------------- ------------- -------------
$ 195,406,000 $ 196,484,000 $ 195,166,000
------------- ------------- -------------
------------- ------------- -------------
Partners' equity
Realty $ 6,299,000 $ 7,860,000 $ 9,206,000
Others 6,070,000 8,635,000 11,765,000
------------- ------------- -------------
$ 12,369,000 $ 16,495,000 $ 20,971,000
------------- ------------- -------------
------------- ------------- -------------
Revenues $ 21,414,000 $ 19,991,000 $ 15,666,000
------------- ------------- -------------
------------- ------------- -------------
Net loss
Realty $ (2,236,000) $ (1,993,000) $ (1,446,000)
Others (4,639,000) (1,263,000) (418,000)
------------- ------------- -------------
$ (6,875,000) $ (3,256,000) $ (1,864,000)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
-64-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)
Realty is a joint and several guarantor of loans issued to expand the
Towson Town Center located in Towson, Maryland (owned 65% by H-T Associates) and
property (owned 100% by Joppa Associates) adjacent to Towson Town Center in the
amount of $74,382,000. The maximum loan balance to which the guarantees relate
is $188,000,000. Realty's two partners in the ventures have also each executed
repayment guarantees, although one of the partners has a limited repayment
guaranty. Annually, the guarantors may request a reduction in the amount of the
guaranty based on the economic performance of the regional mall.
NOTE 5 - REAL ESTATE LOANS AND ADVANCES RECEIVABLE
Realty's real estate loans and advances receivable as of December 31,
1994 and 1993 consist of the following:
<TABLE>
<CAPTION>
1994 1993
---------- ------------
<S> <C> <C>
6.5% to 8.5% loans receivable secured
by trust deeds on commercial real estate
due through 2002 $13,635,000 $13,824,000
Unsecured advances to unconsolidated
joint venture, bearing interest at prime
plus 2%, interest and principal due on
demand 4,355,000 4,016,000
----------- ----------
$17,990,000 $17,840,000
----------- -----------
----------- -----------
</TABLE>
Contractual principal repayments on real estate loans receivable as of
December 31, 1994 are due as follows:
<TABLE>
<CAPTION>
<S> <C>
1995 $ 261,000
1996 1,756,000
1997 6,574,000
1998 212,000
1999 231,000
Thereafter 4,601,000
-----------
$13,635,000
-----------
-----------
</TABLE>
The weighted average prime rate was 7.1% during 1994 and the prime rate was
8.5% at December 31, 1994.
-65-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - LOANS PAYABLE
Realty's real estate loans payable as of December 31, 1994 and 1993
consist of the following:
<TABLE>
<CAPTION>
1994 1993
------------- --------------
<S> <C> <C>
Realty
9.25% note, secured by real estate assets,
due in installments through 2001 $ 8,892,000 $ -
9.75% note, secured by real estate assets,
interest only, due in 1994 - 10,000,000
8.5% note, secured by land with assignment
of ground lease and rent as collateral,
due in installments through 2009 3,971,000 4,100,000
10.375% notes, secured by real estate assets,
due in installments through 2008 - 870,000
9.75% note, secured by real estate assets,
interest only, due in 2001 480,000 -
10% note, secured by real estate assets,
interest only, due in 1994 - 857,000
9.375% note, secured by real estate assets,
interest only, due in 1998 11,704,000 11,822,000
8.25%-9% variable rate notes, secured by real
estate, due in installments through 2005 15,500,000 -
----------- ------------
40,547,000 27,649,000
----------- ------------
Anita Associates
9%-9.25% notes, secured by real estate assets,
due in installments through 2003 61,925,000 -
8.5% notes, secured by real estate assets,
due in installments through 2011 - 15,269,000
10% note, secured by real estate assets,
due in installments through 1998 - 10,044,000
----------- ------------
61,925,000 25,313,000
----------- ------------
102,472,000 52,962,000
----------- ------------
Loans subject to the Pacific transaction
9.5% note, secured by real estate assets,
interest only, due in 1999 - 8,625,000
10.5% notes, secured by real estate assets,
due in installments through 1996 - 4,751,000
9.5% note, secured by real estate assets,
interest only through 1995, installments
through 2000 - 7,000,000
9.25% note, secured by real estate assets,
interest only, due in 1996 - 12,900,000
8.25% note, secured by real estate assets,
interest only, due in 1997 - 8,042,000
8%-10% note, secured by real estate assets,
due in installments through 1998 - 2,997,000
11.1% note, secured by real estate assets,
interest only, due in 1996 - 889,000
11.2% note, secured by real estate assets,
due in installments through 1995 - 8,565,000
------------ ------------
- 53,769,000
------------ ------------
$102,472,000 $106,731,000
------------ ------------
------------ ------------
</TABLE>
-66-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - LOANS PAYABLE (CONTINUED)
In December 1994, Realty obtained secured loans on each of its six
neighborhood shopping centers. The secured loans aggregating $15,500,000, have
variable interest rates ranging from 8.25% to 9%, a 25-year amortization period
and will be due in ten years. The interest rates are subject to adjustment
every six months based on the six-month certificate of deposit rate in the
secondary market as currently published in the Wall Street Journal. The maximum
interest rate adjustment over the life of the loans is 5% and the increase in
the monthly payment at each adjustment date is limited to 3.75%.
Principal payments due on real estate loans payable as of December 31,
1994 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1995 $ 1,329,000
1996 1,469,000
1997 1,606,000
1998 12,851,000
1999 1,729,000
Thereafter 83,488,000
------------
$102,472,000
------------
------------
</TABLE>
Realty's bank loans payable as of December 31, 1994 and 1993 consist of
the following:
<TABLE>
<CAPTION>
1994 1993
----------------- ------------------
<S> <C> <C>
Realty
Borrowings under revolving credit
agreement $7,300,000 $ -
Unsecured notes, subject to line of
credit agreements, interest only,
due on various dates through 1996 - 33,488,000
Bank loans payable subject to the Pacific
transaction
Unsecured notes, subject to line of
credit agreements, interest only,
due on various dates through 1996 - 44,425,000
---------- --------------
$7,300,000 $ 77,913,000
---------- --------------
---------- --------------
</TABLE>
In November 1994, Realty entered into a $30,000,000 revolving credit
agreement with a commercial bank. Borrowings under the revolving credit
agreement are due one year from the date of funding but no later than November
30, 1995 and bear interest, at Realty's option, at the prime rate, at LIBOR
(London Interbank Offered Rate) plus 1%, or at the 30-day, 60-day or 90-day
certificate of deposit rate plus 1%. Borrowings at December 31, 1994 were at a
rate of 7.25% which was based on the 30-day certificate of deposit rate plus 1%.
Borrowings under the revolving credit agreement and other available cash were
used to repay the outstanding balances of the unsecured notes which were subject
to the line of credit agreements.
Under the terms of the former line of credit agreements, Realty
borrowed funds, at Realty's option, based upon prime rates, LIBOR-based rates or
certificate of deposit rates. At December 31, 1993, all funds were borrowed at
prime or at LIBOR. LIBOR rates ranged from 2.80% to 3.84% and the prime rate
was 6% at December 31, 1993.
The revolving credit agreement contains a restriction on the payment of
dividends and certain other financial ratio and maintenance restrictions.
Dividends are limited to the lesser of $.80 per share or $9,200,000 in any
twelve-month period beginning on or after July 1, 1994. Realty's current
dividend policy is in compliance with this dividend restriction. Additionally,
at December 31, 1994, Realty is in compliance with the other financial ratio and
maintenance restrictions.
-67-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - LOANS PAYABLE (CONTINUED)
Operating Company entered into a sale-leaseback transaction related to
the financing of certain television, video monitoring and production equipment
under a five-year lease expiring in December 1997. This financing arrangement is
accounted for as a capital lease. Accordingly, the equipment and related lease
obligation are reflected as machinery and other equipment and bank loans payable
in the Operating Company and Combined Realty and Operating Company balance
sheets. Realty has guaranteed the capital lease obligation of $2,529,000.
Assets relating to the capital lease are as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Machinery and equipment $ 4,000,000 $ 4,000,000
Accumulated amortization (1,154,000) (641,000)
----------- -----------
$ 2,846,000 $ 3,359,000
----------- -----------
----------- -----------
</TABLE>
Total future minimum lease payments under the capital lease and the
present value of the minimum lease payments as of December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
For the year ending December 31,
1995 $ 989,000
1996 989,000
1997 907,000
----------
2,885,000
Less amount representing interest (356,000)
----------
Present value of minimum lease payments $2,529,000
----------
----------
Current portion $ 794,000
Long-term portion 1,735,000
----------
$2,529,000
----------
----------
</TABLE>
Interest costs for the years ended December 31, 1994, 1993 and 1992 are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------------------------------
OPERATING
REALTY COMPANY COMBINED
----------- ----------- ------------
<S> <C> <C> <C>
Total incurred $13,143,000 $ 446,000 $13,589,000
Capitalized (2,272,000) - (2,272,000)
----------- ----------- -----------
Total interest expense $10,871,000 $ 446,000 $11,317,000
----------- ----------- -----------
----------- ----------- -----------
Total interest paid $11,967,000 $ 446,000 $12,413,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
-68-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - LOANS PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1993
------------------------------------------------
OPERATING
REALTY COMPANY COMBINED
------------ ------------- -------------
<S> <C> <C> <C>
Total incurred $13,959,000 $ 493,000 $ 14,452,000
Capitalized (1,482,000) - (1,482,000)
----------- ------------ ------------
Total interest expense $12,477,000 $ 493,000 $ 12,970,000
----------- ------------ ------------
----------- ------------ ------------
Total interest paid $12,463,000 $ 493,000 $ 12,956,000
----------- ------------ ------------
----------- ------------ ------------
<CAPTION>
DECEMBER 31, 1992
-----------------------------------------------
OPERATING
REALTY COMPANY COMBINED
------------ ------------- -------------
<S> <C> <C> <C>
Total incurred $13,000,000 $ 194,000 $ 13,194,000
Capitalized (669,000) - (669,000)
----------- ------------ ------------
Total interest expense $12,331,000 $ 194,000 $ 12,525,000
----------- ------------ ------------
----------- ------------ ------------
Total interest paid $12,670,000 $ 194,000 $ 12,864,000
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
NOTE 7 - OTHER LIABILITIES
Other liabilities as of December 31, 1994 and 1993 consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------------------
OPERATING
REALTY COMPANY COMBINED
------------ ------------- -------------
<S> <C> <C> <C>
Accrued salaries $ 100,000 $ 878,000 $ 978,000
Deferred compensation 1,045,000 3,705,000 4,750,000
Accrued interest 208,000 - 208,000
State license fees - 1,695,000 1,695,000
Other 530,000 4,313,000 4,843,000
Advances payable 276,000 - 276,000
----------- ------------ ------------
$ 2,159,000 $ 10,591,000 $ 12,750,000
----------- ------------ ------------
----------- ------------ ------------
<CAPTION>
DECEMBER 31, 1993
-----------------------------------------------
OPERATING
REALTY COMPANY COMBINED
------------ ------------- -------------
<S> <C> <C> <C>
Accrued salaries $ - $ 765,000 $ 765,000
Deferred compensation 1,075,000 3,682,000 4,757,000
Accrued interest 554,000 - 554,000
State license fees - 1,500,000 1,500,000
Other 678,000 4,170,000 4,848,000
Advances payable 11,997,000 - 11,997,000
Accrued liabilities
subject to the Pacific
transaction 1,042,000 - 1,042,000
---------- ------------ ------------
$15,346,000 $ 10,117,000 $ 25,463,000
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
-69-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - OTHER LIABILITIES (CONTINUED)
Advances payable represent amounts due to Realty's other partner in
Anita Associates. The advances payable at December 31, 1993 were substantially
repaid in 1994 from the proceeds of the refinancing of Anita Associates' debt.
The advances bear interest at 10% and are unsecured.
NOTE 8 - INCOME TAXES
As a REIT, Realty is taxed only on undistributed REIT income. During
each of the years ended December 31, 1994, 1993 and 1992, Realty distributed at
least 95% of its REIT taxable earnings to its shareholders. For the years ended
December 31, 1994, 1993 and 1992, 55.4%, 41.2% and 41.2%, of the dividends
distributed to shareholders represented a return of capital. Pursuant to
Internal Revenue Code Section 857(b)(3)(C) and the Regulations thereunder, for
the year ended December 31, 1994, Realty hereby elects to designate 44.6% of the
dividends distributed as capital gains dividends. None of the dividends
distributed to shareholders during the years ended December 31, 1993 and 1992
represented capital gains dividends.
In prior years, Realty had filed claims with the California Franchise
Tax Board for refunds with respect to the 1970 through 1979 tax years; LATC was
assessed California franchise tax and interest for the years 1980 through 1982;
and, Operating Company was assessed additional franchise tax for the years 1983
through 1985. In 1993, a refund of interest and taxes in the amount of
$6,082,000 was received from the California Franchise Tax Board in the
settlement of the above claims. Realty recognized $3,211,000 of interest income,
net of expenses of $120,000 and an income tax benefit of $2,523,000. Operating
Company recorded additional deferred taxes payable of $228,000.
The composition of Operating Company's income tax provision (benefit)
and income taxes paid for the years ended December 31, 1994, 1993 and 1992 are
as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- --------- ----------
<S> <C> <C> <C>
Current state provision (benefit) $ - $ 108,000 $(102,000)
Deferred provision (benefit) - (108,000) (141,000)
---------- --------- ---------
$ - $ - $(243,000)
---------- --------- ---------
---------- --------- ---------
Income taxes paid $ 25,000 $ 313,000 $ 5,000
---------- --------- ---------
---------- --------- ---------
</TABLE>
-70-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - INCOME TAXES (CONTINUED)
Deferred income taxes arise from temporary differences in the
recognition of certain items of revenues and expenses for financial statement
and tax reporting purposes. The sources of temporary differences and their
related tax effect for the years ended December 31, 1994, 1993 and 1992 are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Accelerated depreciation and amortization
methods utilized for tax reporting purposes $ (16,000) $ 109,000 $ (92,000)
Reinstatement of deferred taxes due to tax net operating
loss carryovers 100,000 1,733,000 173,000
State income tax provision (benefit) deductible when paid
for federal income tax purposes (52,000) (485,000) (191,000)
Deductions previously deducted for book purposes,
deductible for tax purposes currently (66,000) - -
Income previously included for tax purposes, includable
for book purposes currently - - 34,000
Income resulting from settlement of state unitary tax issues - (1,426,000) -
Decrease in valuation allowance for deferred tax assets 24,000 - -
Other, net 10,000 (39,000) (65,000)
------------ ------------ ------------
$ - $ (108,000) $ (141,000)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
A reconciliation of Operating Company's total income tax provision for
the years ended December 31, 1994, 1993 and 1992 to the statutory federal
corporate income tax rate of 34% is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Computed "expected" tax provision $ (1,316,000) $ (759,000) $ (1,067,000)
State income taxes, net of federal income taxes - 34,000 (271,000)
Nondeductible political contributions 59,000 28,000 49,000
Decrease (increase) in cash surrender value of life
insurance 34,000 (269,000) (28,000)
Establishment of book net operating loss carryforwards 1,236,000 982,000 1,169,000
Other, net (13,000) (16,000) (95,000)
------------ ------------ ------------
$ - $ - $ (243,000)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
-71-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - INCOME TAXES (CONTINUED)
The deferred tax assets and liabilities as of December 31, 1994 and
1993 consist of the following:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Deferred tax assets
Compensation deductible for tax purposes when paid $ 1,487,000 $ 1,478,000
Pension contribution deductible for tax purposes when paid 170,000 246,000
Contribution carryover 78,000 67,000
Other - Arizona tax 24,000 24,000
Utilization of state net operating loss carryovers 185,000 85,000
Valuation allowance (23,000) (47,000)
----------- -----------
Total deferred assets 1,921,000 1,853,000
----------- -----------
Deferred tax liabilities
Difference between tax and book depreciation (1,604,000) (1,588,000)
Income previously included for book purposes, not
includable for tax purposes (137,000) (137,000)
State income tax deductible when paid for federal
tax purposes (3,745,000) (3,693,000)
----------- -----------
Total deferred tax liabilities (5,486,000) (5,418,000)
----------- -----------
Net liability for deferred income taxes $(3,565,000) $(3,565,000)
----------- -----------
----------- -----------
</TABLE>
The Franchise Tax Board has audited the 1986 through 1988 tax years of
Operating Company. Operating Company has protested the proposed assessments.
These assessments have been accrued by Operating Company. In February 1994, the
Franchise Tax Board initiated an audit of Operating Company's 1989 through 1991
tax years. At December 31, 1994, the agent has completed his review and has not
proposed any adjustments for the 1989 through 1991 tax years. However, these
years remain open pending resolution of the proposed assessments for the 1986
through 1988 tax years.
At December 31, 1994, Operating Company's net operating loss
carryforward, for federal income tax purposes, was $11,949,000 of which
$5,531,000 expires in 2002, $3,001,000 in 2007 and $3,417,000 in 2009.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Realty's wholly owned and consolidated real estate investments consist
of Santa Anita Racetrack, Fashion Park (a regional mall), various neighborhood
shopping centers, and office buildings. The racetrack is leased to LATC; the
land underlying Fashion Park has been ground leased for 65 years; each of the
various neighborhood shopping centers has been leased to non-anchor tenants with
terms ranging from three to five years; and, the office buildings have been
leased with terms generally ranging from two to ten years.
-72-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINGENCIES)
The minimum future lease payments to be received from Realty's wholly
owned and consolidated real estate investments (excluding rentals relating to
Santa Anita Racetrack which are paid by LATC to Realty) for the five years ended
December 31, are as follows:
<TABLE>
<S> <C>
1995 $ 12,875,000
1996 12,507,000
1997 11,200,000
1998 9,916,000
1999 8,804,000
</TABLE>
Substantially all of the retail leases provide for additional
contingent rentals based upon the gross income of the tenants in excess of
stipulated minimums. Realty's share of these contingent rentals totaled $192,000
in 1994, $258,000 in 1993 and $337,000 in 1992.
Realty leases the Santa Anita Racetrack to Operating Company's
subsidiary, LATC. The lease, which was scheduled to expire December 31, 1994,
was amended and extended for an additional five years. The lease amounts have
been eliminated in the Combined Realty and Operating Company statement of
operations.
Realty has entered into several general and limited partnerships to own
and operate real estate. As of December 31, 1994, Realty has committed to invest
an additional $208,000 in these partnerships.
Realty and Operating Company have entered into severance agreements
with certain officers. Under certain circumstances, the severance agreements
provide for a lump sum payment if there is a "change in control" of the
entities. No provision under these severance agreements has been accrued or
funded.
Certain other claims, suits and complaints arising in the ordinary
course of business have been filed or are pending against Realty and Operating
Company. In the opinion of management, all such matters are adequately covered
by insurance or, if not covered, are without merit or are of such kind or
involve such amounts as would not have a significant effect on the financial
position or results of operations if disposed of unfavorably.
On February 9, 1995, Realty purchased a 5-year option to acquire a 50%
interest in the Bell Jackpot Casino, a fully licensed card club in the City of
Bell, California. Exercise of the option by Realty is conditioned on the
passage of legislation in California to allow public companies to own and
operate card club facilities and state licensing and other regulatory approvals.
On exercise, Realty would be required to pay an exercise payment.
NOTE 10 - STOCK OPTION PROGRAM AND EMPLOYEE DEFINED BENEFIT PLANS
STOCK OPTION PROGRAM
Realty has reserved 400,000 shares of common stock for sale under its
Stock Option Plan and Operating Company has reserved 622,820 shares for sale
under its Stock Option Program. Each company has also reserved 400,000 shares
for issuance under the other company's plan. The shares are to be issued either
as Incentive Stock Options or Non-Qualified Stock Options.
The Options, which are contingent upon continuous employment, are
exercisable at any time once vested, for up to three years after the date of
retirement or death and for up to 90 days after resignation. For both Realty and
Operating Company, Incentive Stock Options and Non-Qualified Stock Options
expire in 1995 through 2004.
-73-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - STOCK OPTION PROGRAM AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED)
Information with respect to shares under option as of December 31,
1994, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
REALTY OPERATING COMPANY
---------------------------------------- ------------------------------------
AVAILABLE AVAILABLE
SHARES FOR SHARES FOR
OUTSTANDING AT SUBJECT TO FUTURE SUBJECT TO FUTURE
DECEMBER 31, OPTION PRICE GRANT OPTION PRICE GRANT
---------------- --------- -------------- -------- ------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1992 114,506 $17.63 - $29.00 274,000 315,500 $17.63 - $29.00 -
Granted - 111,000 $17.38
Exercised - -
Cancelled - (16,000) $17.63 - $29.00
------- -------
1993 114,506 $17.63 - $29.00 274,000 410,500 $17.38 - $29.00 127,820
Granted 122,500 $17.13 - $20.25 126,000 $17.13
Exercised - (3,000)
Cancelled (75,000) $17.63 - $29.00 (125,000) $17.38 - $29.00
------- -------
1994 162,006 $17.13 - $29.00 226,500 408,500 $17.13 - $29.00 126,820
------- -------
------- -------
</TABLE>
At the time of exercise of Realty options, employees also have to buy
directly from Operating Company shares of Operating Company stock at its fair
market value per share to pair with Realty shares.
In addition, Operating Company is required to purchase Realty shares to
pair with the Operating Company shares being purchased by its employees.
Operating Company has purchased 112,500 shares of Realty stock for this purpose.
RETIREMENT INCOME PLAN
Realty and Operating Company have a defined benefit retirement plan for
the year-round employees who are at least 21 years of age with one or more years
of service and who are not covered by collective bargaining agreements. Plan
assets consist of a group annuity contract with a life insurance company. Plan
benefits are based primarily on years of service and qualifying compensation
during the final years of employment. Funding requirements comply with federal
requirements that are imposed by law.
The net periodic pension cost for Realty and Operating Company for 1994
was $85,000 and $390,000; for 1993 was $104,000 and $367,000; and for 1992 was
$109,000 and $339,000. The provisions include amortization of past service cost
over 30 years. The present value of accumulated plan benefits (calculated using
a rate of return of 8.5%) at December 31, 1994 was $6,032,000 and the plan's net
assets available for benefits were $6,032,000.
Combined net periodic pension cost for the years ended December 31,
1994, 1993 and 1992 for the retirement income plan included the following
components:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Service cost $ 278,000 $ 288,000 $ 286,000
Interest cost on projected benefit obligation 569,000 569,000 550,000
Actual return on plan assets (390,000) (391,000) (446,000)
Net amortization and deferral 18,000 5,000 58,000
---------- ---------- ----------
Net periodic pension cost $ 475,000 $ 471,000 $ 448,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
-74-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - STOCK OPTION PROGRAM AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status of Realty's and
Operating Company's retirement income plan and amounts recognized in the balance
sheets at December 31, 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
------------ -----------
(Restated)
<S> <C> <C>
Actuarial present value of accumulated benefit obligations at
December 31:
Vested $ 5,906,000 $ 6,816,000
Nonvested 126,000 152,000
------------ -----------
6,032,000 6,968,000
Additional amounts related to projected compensation levels 1,018,000 1,284,000
------------ -----------
Total actuarial project benefit obligations for service rendered 7,050,000 8,252,000
Plan assets at fair value at December 31 6,032,000 5,797,000
------------ -----------
Projected benefit obligations in excess of plan assets (1,018,000) (2,455,000)
Unrecognized net actuarial loss from difference in actuarial
experience from that assumed 300,000 1,389,000
Unrecognized prior service cost 215,000 233,000
Initial unrecognized transition obligation recognized over 15 years 424,000 485,000
------------ -----------
Accrued pension cost $ (79,000) $ (348,000)
------------ -----------
------------ -----------
</TABLE>
Assumptions used in determining the funded status of the retirement
income plan are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(Restated)
<S> <C> <C> <C>
Weighted average discount rate 8.5% 7.5% 7.5%
Weighted average rate of increase in compensation
levels 5.0% 5.0% 6.0%
Expected long-term rate of return 8.5% 8.5% 8.5%
</TABLE>
In 1994, the measurement date and related assumptions for the funded
status of Realty's and Operating Company's retirement income plan were as of the
end of the year. In prior years, the measurement date and related assumptions
were as of the beginning of the year. Prior year disclosures have been restated
to reflect these changes.
-75-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - STOCK OPTION PROGRAM AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED)
DEFERRED COMPENSATION PLAN
Realty and Operating Company have defined benefit deferred compensation
agreements which provide selected management employees with a fixed benefit at
retirement. Plan benefits are based primarily on years of service and qualifying
compensation during the final years of employment.
The net periodic pension cost for 1994 for Realty and Operating Company
was $121,000 and $594,000; for 1993 was $263,000 and $860,000; and for 1992 was
$93,000 and $243,000. It is the policy of Realty and Operating Company to fund
only amounts sufficient to cover current deferred compensation benefits payable
to retirees. The present value of accumulated plan benefits (calculated using a
rate of 8.5%) at December 31, 1994, was $5,208,000 and Realty's and Operating
Company's combined accrued liability was $4,750,000. At December 31, 1994,
there were no plan net assets available for benefits.
Net periodic pension cost for the years ended December 31, 1994, 1993
and 1992 for the deferred compensation plan included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ----------- -----------
<S> <C> <C> <C>
Service costs $ 146,000 $ 152,000 $ 199,000
Interest cost on projected benefit obligation 436,000 404,000 409,000
Nonrecurring charge resulting from the death of
an officer - 961,000 -
Actual return on plan assets - (394,000) (354,000)
Amortization of unrecognized net obligation
and experience losses 133,000 - 82,000
---------- ----------- ----------
Net periodic pension cost $ 715,000 $ 1,123,000 $ 336,000
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
-76-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - STOCK OPTION PROGRAM AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status of Realty's and
Operating Company's deferred compensation plan and amounts recognized in the
balance sheets at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
(Restated)
<S> <C> <C>
Actuarial present value of accumulated benefit obligations at
December 31:
Vested $ 4,947,000 $ 5,907,000
Nonvested 261,000 262,000
----------- -----------
5,208,000 6,169,000
Additional amounts related to projected compensation levels 301,000 589,000
----------- -----------
Total actuarial projected benefit obligations for service rendered 5,509,000 6,758,000
Plan assets at fair value at December 31 - -
----------- -----------
Projected benefit obligations in excess of plan assets (5,509,000) (6,758,000)
Unrecognized net obligation and experience losses 759,000 2,001,000
Unrecognized prior service cost - -
----------- -----------
Accrued pension cost $(4,750,000) $(4,757,000)
----------- -----------
----------- -----------
</TABLE>
Assumptions used in determining the funded status of the deferred
compensation plan are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(Restated)
<S> <C> <C> <C>
Weighted average discount rate 8.5% 7.5% 10.0%
Weighted average rate of increase in compensation
levels 5.0% 5.0% 6.0%
Expected long-term rate of return - 10.0% 10.0%
</TABLE>
In 1994, the measurement date and related assumptions for the funded
status of Realty's and Operating Company's deferred compensation plan were as of
the end of the year. In prior years, the measurement date and related
assumptions were as of the beginning of the year. Prior year disclosures have
been restated to reflect these changes.
-77-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - SHAREHOLDER RIGHTS PLAN
Under a shareholder rights plan, one right was distributed in August
1989 for each outstanding share of common stock. Each right entitles the holder
to purchase from Realty, initially, one one-hundredth of a share of junior
participating preferred stock at a price of $100 per share, subject to
adjustment. The rights are attached to all outstanding common shares, and no
separate rights certificates will be distributed. The rights are not
exercisable or transferable apart from the common stock until the earlier of ten
business days following a public announcement that a person or group has
acquired beneficial ownership of 10% or more of Realty's general voting power or
ten business days following the commencement of, or announcement of the
intention to commence, a tender or exchange offer that would result in a person
or group beneficially owning 10% or more of Realty's general voting power.
Upon the occurrence of certain other events related to changes in the
ownership of Realty's outstanding common stock or business combinations
involving a holder of more than 10% of Realty's general voting power, each
holder of a right would be entitled to purchase shares of Realty's common stock,
or an acquiring corporation's common stock, having a market value of two times
the exercise price of the right.
During such time as the stock-pairing arrangement between Realty and
Operating Company shall remain in effect, Operating Company will issue, on a
share-for-share basis, Operating Company common shares, or, as the case may be,
Operating Company junior participating preferred shares to each person receiving
Realty common shares or preferred shares upon exercise or in exchange for one or
more rights.
Realty is entitled to redeem the rights in whole, but not in part, at a
price of $.001 per right prior to the earlier of the expiration of the rights in
August 1999 or the close of business ten days after the announcement that a 10%
position has been acquired.
NOTE 12 - RELATED PARTY TRANSACTIONS
LATC leases the Santa Anita Racetrack from Realty. Rent is based upon
1.5% of the aggregate live on-track wagering and 40% of LATC's revenues received
from simulcast and satellite wagering on races originating at Santa Anita
Racetrack. For the years ended December 31, 1994, 1993 and 1992, LATC paid
Realty (including charity days) $13,070,000, $11,634,000 and $12,683,000 in
rent, of which $11,226,000, $9,233,000 and $10,955,000 were attributable to the
Santa Anita meets (exclusive of charity days), with the remainder being
attributable to the Oak Tree meets and charity days. The lease arrangement
between LATC and Realty requires LATC to assume costs attributable to taxes,
maintenance and insurance.
The lease between LATC and Realty which was scheduled to expire
December 31, 1994, was amended and extended for an additional five years. The
amended lease provides for rent of 1.5% of the aggregate on-track wagering on
live races at Santa Anita Racetrack and 26.5% of LATC's wagering commissions
from satellite wagering on races originating at Santa Anita Racetrack. In
addition, Realty will receive 26.5% of LATC's wagering commissions from
satellite wagering on races originating at certain other racetracks. If the
amended lease terms had been in effect for the year ended December 31, 1994,
LATC would have paid Realty (including charity days) $11,123,000 in rent.
At times Realty and Operating Company have notes receivable outstanding
from certain officers and/or directors resulting from their exercise of stock
options. Such notes receivable as of December 31, 1994 and 1993, for Realty
were none and $81,000 and for Operating Company were $75,000 and $393,000.
-78-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION
REALTY
The disposition of the multifamily and industrial operations involved
the transfer of the following noncash items:
<TABLE>
<S> <C>
Real estate assets $ 107,031,000
Other assets 898,000
Real estate loans payable 53,705,000
Other liabilities 547,000
</TABLE>
OPERATING COMPANY
Operating Company's consolidated statements of cash flows involved the
following noncash items:
<TABLE>
<S> <C>
Noncash addition to property, plant
and equipment $ 333,000
</TABLE>
NOTE 14 - COMBINED QUARTERLY FINANCIAL INFORMATION - UNAUDITED
Condensed unaudited quarterly results of operations for Combined Realty
and Operating Company are as follows:
<TABLE>
<CAPTION>
NET INCOME
NET INCOME (LOSS) PER
QUARTER ENDED REVENUES (LOSS) COMMON SHARE
------------------- ------------- ------------- ------------
<S> <C> <C> <C>
1994
December 31 $ 18,018,000 $ (4,376,000) $ (.39)
September 30 12,121,000 (866,000) (.08)
June 30 21,196,000 1,449,000 .13
March 31 42,727,000 6,107,000 .55
1993 (Restated)
December 31 $ 22,243,000 $ (11,140,000) $ (1.00)
September 30 15,757,000 (170,000) (.02)
June 30 23,930,000 1,870,000 .17
March 31 45,605,000 9,841,000 .88
1992
December 31 $ 21,270,000 $ (60,000) $ (.01)
September 30 15,003,000 (2,502,000) (.22)
June 30 24,966,000 866,000 .08
March 31 45,763,000 9,073,000 .81
</TABLE>
Operating Company has adopted an accounting practice whereby the revenues
associated with thoroughbred horse racing at Santa Anita Racetrack are reported
as they are earned. Costs and expenses associated with thoroughbred horse
racing revenues are charged against income in those interim periods in which the
thoroughbred horse racing revenues are recognized. Other costs and expenses are
recognized as they actually occur throughout the year.
-79-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - COMBINED QUARTERLY FINANCIAL INFORMATION - UNAUDITED (CONTINUED)
The total of the amounts shown above as quarterly net income per common
share may differ from the amount shown on the combined statements of operations
because the annual computation is made separately and is based upon the average
number of shares outstanding for the year.
Combined Realty and Operating Company are subject to significant
seasonal variations in revenues and net income (loss) due primarily to the
seasonality of thoroughbred horse racing.
Operating Company's 1993 first and second quarters were restated to
reflect a retroactive reduction in fees due to the State of California, which
was previously reflected in the second quarter of 1993.
-80-
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
ADDITIONS
------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTIONS OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
------------------------------------ ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1994
Deducted from commercial
properties:
Allowance for loss on
disposition of
multifamily and
industrial
operations $ 10,974,000 $ - $ - $ 10,974,000 $ -
------------- ------------- ----------- -------------- ---------------
------------- ------------- ----------- -------------- ---------------
1993
Deducted from commercial
properties:
Allowance for loss on
disposition of
multifamily and
industrial
operations $ - $ 10,974,000 $ - $ - $ 10,974,000
------------- ------------- ----------- -------------- ---------------
------------- ------------- ----------- -------------- ---------------
</TABLE>
-81-
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994
<TABLE>
<CAPTION>
COSTS CAPITALIZED
INITIAL COSTS TO COMPANY SUBSEQUENT TO ACQUISITION
---------------------------- ----------------------------
BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS
---------------------------- ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
RACING FACILITY
Santa Anita Racetrack (a) $ - $ 549,000 $ 15,150,000 $ 3,448,000 $ 8,588,000
REGIONAL MALLS
California
Fashion Park (a)(c) 61,925,000 17,688,000 2,704,000 45,391,000
Land underlying
Fashion Park 3,971,000 102,000
SHOPPING CENTERS
California
Yorba Linda 3,494,000 2,038,000 6,162,000 1,734,000
Orange 1,722,000 1,800,000 3,275,000 268,000
Encinitas 4,332,000 2,842,000 8,954,000 901,000
Phoenix, Arizona
Tatum &
Thunderbird 2,880,000 728,000 1,672,000 233,000 1,829,000
28th and Indian
School 1,677,000 807,000 1,793,000 230,000
67th and Indian
School 1,395,000 1,751,000 3,396,000 1,640,000
OFFICE BUILDINGS
California
Santa Ana 11,704,000 6,670,000 16,130,000 200,000 980,000
Upland - 1,560,000 3,440,000 193,000 1,173,000
Arcadia 8,892,000 9,122,000 7,609,000
LAND
California
Temecula 480,000 1,208,000 (728,000)
------------ ------------ ------------ ------------ ------------
$102,472,000 $ 20,055,000 $ 86,782,000 $ 6,050,000 $ 70,343,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED LIFE ON WHICH
AT CLOSE OF PERIOD DEPRECIATION IN
-------------------------------------------- LATEST INCOME
BUILDINGS AND ACCUMULATED DATE OF DATE STATEMENT IS
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
---------------------------- ------------ ------------- ------------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
RACING FACILITY
Santa Anita Racetrack (a) $ 3,997,000 $ 23,738,000 $ 27,735,000 $ 19,431,000 1934 1934 5-35 Years (b)
REGIONAL MALLS
California
Fashion Park (a)(c) 2,704,000 63,079,000 65,783,000 13,476,000 1974 1974 40 Years
Land underlying
Fashion Park 102,000 102,000 1934
SHOPPING CENTERS
California
Yorba Linda 2,038,000 7,896,000 9,934,000 2,328,000 1985 1985 3-40 Years
Orange 1,800,000 3,543,000 5,343,000 808,000 1986 1985 3-40 Years
Encinitas 2,842,000 9,855,000 12,697,000 1,468,000 1985 1985 3-40 Years
Phoenix, Arizona
Tatum &
Thunderbird 961,000 3,501,000 4,462,000 878,000 1981 1983 3-40 Years
28th and Indian
School 807,000 2,023,000 2,830,000 689,000 1979 1983 3-40 Years (b)
67th and Indian
School 1,751,000 5,036,000 6,787,000 1,236,000 1968 1986 3-40 Years
OFFICE BUILDINGS
California
Santa Ana 6,870,000 17,110,000 23,980,000 7,434,000 1980 1984 5-40 Years
Upland 1,753,000 4,613,000 6,366,000 1,826,000 1982 1984 5-35 Years
Arcadia 16,731,000 16,731,000 3,699,000 1986 1987 5-45 Years
LAND
California
Temecula 480,000 480,000 1989
------------ ------------ ------------ ------------
$ 26,105,000 $157,125,000 $183,230,000(d) $ 53,273,000(e)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of this schedule.
-82-
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994 (CONTINUED)
--------------------
Notes
(a) Initial costs December 31, 1979 book value
(b) Component depreciation used
(c) All dollar figures represent 100% of amounts attributable to the property
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
(d) Balance at beginning of period $ 290,046,000 $ 274,064,000 $ 242,812,000
Additions - capital expenditures 15,074,000 33,424,000 35,588,000
Disposals (1,645,000) (6,468,000) (4,336,000)
Allowance for loss on disposition of
multifamily and industrial operations - (10,974,000) -
Disposition of multifamily and industrial
operations (120,245,000) - -
------------- ------------- -------------
Balance at end of period $ 183,230,000 $ 290,046,000 $ 274,064,000
------------- ------------- -------------
------------- ------------- -------------
(e) Balance at beginning of period $ 61,173,000 $ 59,038,000 $ 50,811,000
Additions - depreciation expense, net
of amortization expense 5,779,000 8,795,000 8,156,000
Disposals (130,000) (6,660,000) 71,000
Disposition of multifamily and industrial
operations (13,549,000) - -
------------- ------------- -------------
Balance at end of period $ 53,273,000 $ 61,173,000 $ 59,038,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
-83-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
H-T Associates:
We have audited the accompanying consolidated balance sheets of H-T Associates
(a Maryland general partnership) and subsidiary (a Maryland general partnership)
as of December 31, 1994 and 1993, and the related consolidated statements of
operations, partners' capital and cash flows for each of the years in the two-
year period ended December 31, 1994. These consolidated financial statements
are the responsibility of H-T Associates' management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1994 and 1993 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of H-T
Associates and subsidiary as of December 31, 1994 and 1993, and the results of
their operations and their cash flows in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
San Diego, California
February 8, 1995
-84-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
H-T Associates
San Diego, California
We have audited the accompanying consolidated statements of operations,
partners' capital and cash flows of H-T Associates (a Maryland general
partnership) and subsidiary (a Maryland general partnership) for the year ended
December 31, 1992. These consolidated financial statements are the
responsibility of H-T Associates' management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1992 consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of H-T Associates and subsidiary for the year ended December 31, 1992, in
conformity with generally accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
January 28, 1993
-85-
<PAGE>
H-T ASSOCIATES
(A MARYLAND GENERAL PARTNERSHIP)
AND SUBSIDIARY
(A MARYLAND GENERAL PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
ASSETS 1994 1993
------ ------------- -------------
<S> <C> <C>
SHOPPING CENTER PROPERTY (Note B):
Land $ 11,726,213 $ 11,726,213
Buildings and improvements 177,767,286 177,052,996
Deferred charges 2,525,485 2,415,529
------------ ------------
192,018,984 191,194,738
Less accumulated depreciation and
amortization (22,074,284) (15,639,380)
------------ ------------
169,944,700 175,555,358
CASH AND CASH EQUIVALENTS (Note F) 2,841,563 2,871,962
ACCOUNTS RECEIVABLE, less allowance for
doubtful accounts of $559,939 (1994)
and $1,000,277 (1993) 1,442,306 773,051
NOTES RECEIVABLE 194,463 390,561
CONSTRUCTION COSTS RECEIVABLE FROM TENANTS 64,714 90,606
DEFERRED RENT RECEIVABLE 3,056,173 2,542,881
PREPAID EXPENSES AND OTHER ASSETS 1,247,838 1,397,663
------------- -------------
$ 178,791,757 $ 183,622,082
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
NOTES PAYABLE (Note B) $ 164,641,000 $ 164,641,000
ADVANCES FROM PARTNERS (Note D)
Ernest W. Hahn, Inc. 4,366,127 4,021,196
Santa Anita Realty Enterprises, Inc. 4,355,621 4,016,083
ACCOUNTS PAYABLE TO:
Ernest W. Hahn, Inc. 91,694 119,847
Tenants 141,907 82,679
Others 877,489 970,791
------------- -------------
174,473,838 173,851,596
COMMITMENTS (Note C)
MINORITY INTEREST 4,266,956 5,932,847
PARTNERS' CAPITAL (Note E) 50,963 3,837,639
------------- -------------
$ 178,791,757 $ 183,622,082
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements.
-86-
<PAGE>
H-T ASSOCIATES
(A MARYLAND GENERAL PARTNERSHIP)
AND SUBSIDIARY
(A MARYLAND GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Minimum rent (Note C) $ 14,639,567 $ 14,198,970 $ 10,561,845
Overage rent (Note C) 377,726 366,600 213,501
Recoveries from tenants (Note C) 5,642,854 4,845,865 4,688,655
Other income 730,436 579,235 456,634
----------- ------------ ------------
21,390,583 19,990,670 15,920,635
----------- ------------ ------------
EXPENSES:
Operating expenses 4,258,388 3,691,166 3,586,645
Property taxes 1,223,371 1,212,191 1,112,832
Office and management 872,370 795,641 674,366
Promotion 153,908 134,078 178,196
Professional services 154,321 79,410 154,154
Other expenses 211,565 652,589 386,396
----------- ------------ ------------
6,873,923 6,565,075 6,092,589
----------- ------------ ------------
INCOME FROM OPERATIONS 14,516,660 13,425,595 9,828,046
----------- ------------ ------------
NON-OPERATING REVENUE:
Interest income 127,290 233,305 185,833
----------- ------------ ------------
NON-OPERATING EXPENSES:
Interest expense (Notes B and D) 12,864,667 11,923,884 8,487,995
Depreciation and amortization 6,455,406 6,350,407 4,107,219
Net write-down of assets 26,444 39,186 -
----------- ------------ ------------
19,346,517 18,313,477 12,595,214
----------- ------------ ------------
LOSS BEFORE MINORITY INTEREST (4,702,567) (4,654,577) (2,581,335)
MINORITY INTEREST 1,403,391 1,382,474 700,534
----------- ------------ ------------
NET LOSS $ (3,299,176) $(3,272,105) $ (1,880,801)
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See notes to consolidated financial statements.
-87-
<PAGE>
H-T ASSOCIATES
(A MARYLAND GENERAL PARTNERSHIP)
AND SUBSIDIARY
(A MARYLAND GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
Santa Anita
Realty
Ernest W. Enterprises,
Hahn, Inc. Inc. Total
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE, January 1, 1992 $ 6,259,460 $ 6,259,460 $ 12,518,920
Net loss (940,401) (940,400) (1,880,801)
Cash distributions (Note E) (664,188) (664,188) (1,328,376)
----------- ----------- -----------
BALANCE, December 31, 1992 4,654,871 4,654,872 9,309,743
Net loss (1,636,052) (1,636,053) (3,272,105)
Cash distributions (Note E) (1,100,000) (1,099,999) (2,199,999)
----------- ----------- -----------
BALANCE, December 31, 1993 1,918,819 1,918,820 3,837,639
Net loss (1,649,588) (1,649,588) (3,299,176)
Cash distributions (Note E) (243,750) (243,750) (487,500)
----------- ----------- -----------
BALANCE, December 31, 1994 $25,481 $25,482 $50,963
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
-88-
<PAGE>
H-T ASSOCIATES
(A MARYLAND GENERAL PARTNERSHIP)
AND SUBSIDIARY
(A MARYLAND GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1994 1993 1992 -----------
------------ ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(3,299,176) $(3,272,105) $ (1,880,801)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 6,455,406 6,350,407 4,107,219
Provision for doubtful accounts
receivable 44,832 531,345 291,976
Net write-down of assets 26,444 39,186 -
Interest accrued on partner
advances 684,469 540,553 558,918
Minority interest (1,403,391) (1,382,472) (700,534)
Changes in assets and
liabilities:
Accounts receivable (714,087) (376,955) 443,023
Notes receivable 196,098 177,267 (401,520)
Deferred rent receivable (513,292) (1,186,021) (804,426)
Prepaid expenses and other
assets 149,825 1,079,850 (1,594,283)
Accounts payable to:
Ernest W. Hahn, Inc. (28,153) (28,810) (421,392)
Tenants 59,228 (26,981) 84,020
Others (93,302) (38,533) (386,854)
----------- ----------- -----------
Net cash provided by (used in)
operating activities 1,564,901 2,406,731 (704,654)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to shopping center
property (871,192) (1,573,048) (9,271,754)
Decrease in construction costs
receivable from tenants 25,892 51,126 688,235
Decrease in accrued construction
costs - (20,000) (741,522)
----------- ----------- -----------
Net cash used in investing
activities (845,300) (1,541,922) (9,325,041)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - 5,168,000 16,889,993
Advances from partners - - 253,160
Repayment of partner advances - - (1,876,657)
Distributions to minority interest (262,500) (4,706,354) (3,626,011)
Distributions to partners (487,500) (2,199,999) (1,328,376)
----------- ----------- -----------
Net cash provided by (used in)
financing activities (750,000) (1,738,353) 10,312,109
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (30,399) (873,544) 282,414
CASH AND CASH EQUIVALENTS, beginning
of year 2,871,962 3,745,506 3,463,092
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end
of year $ 2,841,563 $ 2,871,962 $ 3,745,506
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
-89-
<PAGE>
H-T ASSOCIATES
(A MARYLAND GENERAL PARTNERSHIP)
AND SUBSIDIARY
(A MARYLAND GENERAL PARTNERSHIP)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1994 1993 1992
----------- ------------ -----------
<S> <C> <C> <C>
Interest paid (net of amounts
capitalized) $ 12,244,079 $ 10,443,161 $ 10,474,729
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES
During 1994 and 1993, the following non-cash activity occurred:
<TABLE>
<CAPTION>
Reduction
in
Accumulated
Reduction Depreciation
in and
Property Amortization
------------------- ---------------------
1994 1993 1994 1993
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Write-down of assets:
Buildings and improvements $ 18,296 $ 36,452 $ 18,296 $ 4,556
Deferred charges 28,650 8,100 2,206 810
-------- -------- -------- -------
Total $ 46,946 $ 44,552 $ 20,502 $ 5,366
-------- -------- -------- -------
-------- -------- -------- -------
</TABLE>
See notes to consolidated financial statements.
-90-
<PAGE>
H-T ASSOCIATES
(A MARYLAND GENERAL PARTNERSHIP)
AND SUBSIDIARY
(A MARYLAND GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
A. ORGANIZATION AND ACCOUNTING POLICIES:
H-T Associates (the "Partnership") is a Maryland general partnership formed
on July 28, 1987. Its primary asset is a 65% ownership in Towson Town
Center Associates ("TTCA"), formed to develop and operate a regional
shopping center near Baltimore, Maryland. The general partners of the
Partnership are Ernest W. Hahn, Inc. and Santa Anita Realty Enterprises,
Inc. The partnership is to continue until December 31, 2087, unless
terminated earlier. Profits and losses are shared as follows:
Ernest W. Hahn, Inc. ("Hahn") 50%
Santa Anita Realty Enterprises, Inc.
("Santa Anita") 50%
The consolidated financial statements of the Partnership include the
accounts of the Partnership and TTCA. TTCA is a Maryland general
partnership comprised of the Partnership and DeChiaro Associates
("DeChiaro") as 65% and 35% general partners, respectively. All significant
intercompany balances and transactions have been eliminated.
Certain reclassifications of prior year amounts have been made in order to
conform with the current year presentation.
The Partnership's accounting policies are as follows:
1. Shopping center property is recorded at cost and includes direct
construction costs, interest, construction loan fees, property taxes
and related costs capitalized during the construction period, as these
amounts are expected to be recovered from operations.
2. The costs of shopping center buildings and improvements, less a 5%
salvage value, are depreciated using the straight-line method over the
estimated useful life of 40 years.
3. Direct costs of obtaining leases and permanent financing are deferred
and are being amortized over the lease and loan periods, respectively.
4. Maintenance and repairs are charged to operations as incurred.
5. Expenditures for betterments are capitalized and depreciated over the
remaining depreciable life of the property.
6. Costs incurred in connection with early termination of a tenant lease
are amortized over the life of the lease with the replacement tenant.
To the extent payments received from an incoming tenant do not
represent future rentals or cost recoveries for tenant improvements,
they are recorded as income when received.
7. Taxable income or loss of the Partnership is reported by, and is the
responsibility of, the respective partners. Accordingly, the
Partnership makes no provision for income taxes.
-91-
<PAGE>
H-T ASSOCIATES
(A MARYLAND GENERAL PARTNERSHIP)
AND SUBSIDIARY
(A MARYLAND GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED):
8. The Partnership recognizes scheduled rent increases on a straight-line
basis. Accordingly, a deferred receivable for rents which are to be
received in subsequent years is reflected in the accompanying
consolidated balance sheets.
9. The differential to be paid or received under interest rate swap
agreements is accrued as interest rates change, and is recognized over
the life of the agreements (Note B).
10. The Partnership considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
B. NOTES PAYABLE:
In 1990, TTCA entered into a building loan agreement with a commercial
bank, secured by an indemnity deed of trust encumbering the property. TTCA
can borrow up to $170,000,000. The agreement, as amended, requires
principal payments of $1,741,000 in 1998, and $162,900,000 in 1999. The
agreement provides that TTCA can: (1) obtain funds at the then current
prime rate of the commercial bank; (2) obtain funds based on the then
current London Interbank Offered Rate ("LIBOR") plus a spread (as defined);
or, (3) obtain funds through the issuance of commercial paper at rates
based upon the interest rates offered in the commercial paper market plus
letter of credit fees. For the years ended December 31, 1994 and 1993, all
funds were obtained under the commercial paper option for a total
outstanding balance of $164,641,000. Interest is payable monthly. The
variable interest rate in effect on the outstanding balance as of December
31, 1994 and 1993 was 5.2% and 3.2%, respectively.
In connection with the loan, Hahn and Santa Anita each executed a repayment
guaranty of $66,135,000 and DeChiaro executed a limited repayment guaranty
of $4,513,000. The repayment guaranties contain covenants which, among
other matters, require the guarantors to maintain certain minimum levels of
net worth.
TTCA has also entered into interest rate swap agreements to reduce the
impact of changes in interest rates on its loan. As of December 31, 1994
and 1993, TTCA had two interest rate swap agreements outstanding with a
commercial bank which have a total notional principal amount of
$82,000,000. The agreements provide for TTCA to pay fixed rates of
interest of 9.3% and 8.8% on swaps of $45,000,000 and $37,000,000,
respectively, and to receive floating interest based on 30 day commercial
paper rates. The effective variable rate of interest on the swap agreements
as of December 31, 1994 is 5.2%. The interest rate swap agreements mature
at the time the building loan matures. TTCA is exposed to credit loss in
the event of nonperformance by the commercial bank with the interest rate
swap agreements.
The net effective interest rate on amounts outstanding under the building
loan agreement at December 31, 1994, 1993 and 1992, after giving effect to
the interest rate swaps, was 7.4%, 6.9% and 6.4%, respectively.
The differential between the amounts paid and received under the interest
rate contract is included as either an addition to, or a reduction in,
interest incurred. Total interest incurred was $12,180,199, $11,383,329 and
$11,420,746, for the years ended December 31, 1994, 1993 and 1992,
respectively, of which $3,491,669 was capitalized during 1992.
-92-
<PAGE>
H-T ASSOCIATES
(A MARYLAND GENERAL PARTNERSHIP)
AND SUBSIDIARY
(A MARYLAND GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. COMMITMENTS:
PARTNERSHIP AS LESSOR:
TTCA leases space to tenants in the shopping center for which it charges
minimum rents and receives reimbursement for real estate taxes and certain
other operating expenses. The terms of the leases range from five to thirty
years and generally provide for additional overage rents during any year
that tenants' gross sales exceed stated amounts.
Future minimum rental revenues to be received under leases in force at
December 31, 1994 are as follows:
Year ending
December 31 Amount
----------- -------------
1995 $ 14,475,061
1996 14,647,297
1997 14,503,520
1998 14,472,359
1999 14,255,419
Thereafter 52,917,622
-------------
$ 125,271,278
-------------
-------------
PROPERTY UNDER DEVELOPMENT:
During 1991, TTCA completed a major expansion and renovation of the
previously existing shopping center. Pursuant to the Development Manager's
Agreement between TTCA and Hahn, Hahn received $5,080,619 as compensation
for managing the development of the project through 1993.
D. ADVANCES FROM PARTNERS:
Hahn and Santa Anita have both made advances to the Partnership to finance
certain construction funding requirements and other cash flow needs. These
advances bear interest at 1% above the prime rate and they are required to
be repaid prior to any distributions to the partners, other than
distributions of Net Cash Flow from Operations (Note E). Interest incurred
on the advances totaled $684,469, $540,553 and $558,918 for the years ended
December 31, 1994, 1993 and 1992, respectively. The prime rate was 8.5%,
6.0% and 6.0% at December 31, 1994, 1993 and 1992, respectively.
E. PARTNERSHIP DISTRIBUTIONS:
Distributions of Net Cash Flow from Operations of the Partnership (as
defined by the Amended and Restated Partnership Agreement) are subject to
certain priorities. The period from inception of the Partnership through
October 16, 1992 (the Grand Opening Date of the shopping center) is
referred to as the Initial Term. During the Initial Term, both partners
were entitled to a cumulative, compounded return (at the Prime Rate, as
defined) on their capital contributions. A $500,000 distribution was made
during the Initial Term. The "Primary Term" follows the Initial Term, and
ends when cash flow for a consecutive 12 month period exceeds the sum of
$1,192,000 plus any unpaid cumulative returns. During
-93-
<PAGE>
H-T ASSOCIATES
(A MARYLAND GENERAL PARTNERSHIP)
AND SUBSIDIARY
(A MARYLAND GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. PARTNERSHIP DISTRIBUTIONS (CONTINUED):
the "Primary Term", Santa Anita receives a cumulative return of $447,000
for the first year, $521,500 for the second year, and $596,000 for each
year thereafter. Hahn receives non-cumulative returns of the same amounts.
Following the Primary Term, distributions of Net Cash Flow from Operations
are made to the partners in accordance with their percentage interests.
F. RELATED PARTY TRANSACTIONS:
Hahn and its wholly-owned subsidiary, Hahn Property Management Corporation
("HPMC"), provide property management, leasing and various legal services
to TTCA. A summary of costs and fees incurred by Hahn and HPMC by TTCA
during 1994, 1993 and 1992 is presented below:
<TABLE>
<CAPTION>
Years ended December 31
---------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Payroll and related benefits $ 1,585,083 $ 1,444,592 $ 1,608,788
Management fee 598,697 545,964 410,277
Professional services 9,056 33,071 15,644
Leasing commissions 484,074 399,345 532,818
Legal 71,745 111,043 87,456
Development fee (Note C) - 38,827 359,777
</TABLE>
RELATED PROPERTY:
Certain property adjacent to TTCA's regional shopping center is owned by
Joppa Associates ("Joppa"). The partners of TTCA are also the partners of
Joppa. TTCA has benefited from Joppa's ownership of the adjacent property.
The partners consider the two properties one project.
CASH EQUIVALENTS:
At December 31, 1994, TTCA had $2,000,000 invested in thirty day bank
credit-enhanced commercial paper issued by an entity in which Hahn owns an
interest.
G. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
In the opinion of management, the carrying amounts of the Partnership's
financial instruments approximate fair value except:
INTEREST RATE SWAPS (NOTE B):
The fair value of interest rate swaps (used for hedging purposes) is the
estimated amount that TTCA would pay to terminate the swap agreements at
the reporting date, taking into account current interest rates and the
current credit worthiness of the swap counterparties. The fair value of the
interest rate swaps is a net payable of approximately $2,800,000.
-94-
<PAGE>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER PAGE NO.
------- ----------
3.1 Certificate of Incorporation of Santa Anita Realty Enterprises,
Inc., as amended through October 1993 (incorporated by reference
to Exhibit 3.1 to the Joint Annual Report on Form 10-K of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating Company
for the year ended December 31, 1993).
3.2 Certificate of Incorporation of Santa Anita Operating Company,
as amended through October 1993 (incorporated by reference to
Exhibit 3.2 to the Joint Annual Report on Form 10-K of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating Company
for the year ended December 31, 1993).
3.3 Bylaws of Santa Anita Realty Enterprises, Inc., as amended through
February 1994 (incorporated by reference to Exhibit 3.3 to the
Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises,
Inc. and Santa Anita Operating Company for the year ended December
31, 1993).
3.4 Bylaws of Santa Anita Operating Company, as amended through
February 1994 (incorporated by reference to Exhibit 3.4 to the
Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises,
Inc. and Santa Anita Operating Company for the year ended December
31, 1993).
4.1 Pairing Agreement by and between Santa Anita Realty Enterprises,
Inc. and Santa Anita Operating Company, dated as of December 20,
1979 (incorporated by reference to Exhibit 5 to Registration
Statement on Form 8-A of Santa Anita Operating Company filed
February 5, 1980).
4.2 Rights Agreement, dated June 15, 1989, among Santa Anita Realty
Enterprises, Inc., Santa Anita Operating Company, and Union Bank,
as Rights Agent (incorporated by reference to Exhibit 2.1 to
Registration Statement on Form 8-A of Santa Anita Realty
Enterprises, Inc. filed June 19, 1989).
4.3 Credit Agreement dated as of November 9, 1994 between First
Interstate Bank of California and Santa Anita Realty Enterprises,
Inc. (incorporated by reference to Exhibit 10.4 of the Joint
Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises,
Inc. and Santa Anita Operating Company for the quarter ended
September 30, 1994). Each other outstanding long-term indebtedness
of Santa Anita Realty Enterprises, Inc. and each outstanding
long-term indebtedness of Santa Anita Operating Company and its
subsidiaries does not exceed 10% of the total assets of Santa Anita
Really Enterprises, Inc. or Santa Anita Operating Company and its
subsidiaries on a consolidated basis, as the case may be. Each
such company agrees to furnish copies of such instruments to the
Securities and Exchange Commission upon request.
10.1 Anita Associates Articles of Limited Partnership dated as of April 6,
1972 (incorporated by reference to Exhibit 6(c) to Registration
Statement No. 2-65894).
10.2 First Amendment to Articles of Limited Partnership of Anita
Associates, dated December 26, 1979 (incorporated by reference to
Exhibit 10.13 to Registration Statement No. 2-72866)
-95-
<PAGE>
EXHIBIT INDEX (CONTINUED)
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER PAGE NO.
------- ----------
10.3 Form of Compensation Agreement of certain officers of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating Company
(incorporated by reference to Exhibit 10.3 to Registration
Statement No. 33-27011).
10.4 Form of Salary Reduction and Deferral Agreement of certain
officers of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company (incorporated by reference to Exhibit 10.4 to
Registration Statement No. 33-27011).
10.5 Ground lease between Santa Anita Realty Enterprises, Inc. and
Anita Associates, dated as of April 6, 1972 (incorporated by
reference to Exhibit 10.5 to Joint Annual Report on Form 10-K of
Santa Anita Realty Enterprises, Inc. and Santa Anita Operating
Company for the year ended December 31, 1992).
10.6 Second Amendment to ground lease between Santa Anita Realty
Enterprises, Inc. and Anita Associates dated as of December 29,
1993 (incorporated by reference to Exhibit 10.6 to the Joint
Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc.
and Santa Anita Operating Company for the year ended December
31, 1993).
10.7 Amended and Restated Lease, dated as of November 9, 1994, by
and between Santa Anita Realty Enterprises, Inc. and Los Angeles
Turf Club, Incorporated (incorporated by reference to Exhibit 10.3
to the Joint Quarterly Report on Form 10-Q of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for the quarter
ended September 30, 1994).
10.8 Santa Anita Realty Enterprises, Inc. 1984 Stock Option Plan (as
amended and restated September 22, 1988) (incorporated by
reference to Exhibit 4.2 to Registration Statement No. 2-95228).
10.9 Amendment 1993-1 to Santa Anita Realty Enterprises, Inc. 1984 Stock
Option Program (incorporated by reference to Exhibit 10.11 to
the Joint Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for the year
ended December 31, 1993).
10.10 Santa Anita Operating Company 1984 Stock Option Program (as amended
and restated September 22, 1988) (incorporated by reference to
Exhibit 4.3 to Registration Statement No. 2-95228).
10.11 Amendment 1993-1 to Santa Anita Operating Company 1984 Stock
Option Program (incorporated by reference to Exhibit 4.3 to
Registration Statement on Form S-8 No. 33-51843).
10.12 Limited Partnership Agreement, dated as of March 16, 1988, among
Southern California Off Track Wagering Incorporated and the limited
partners listed therein (incorporated by reference to Exhibit
10.17 to Registration Statement No. 33-27011).
10.13 Amended and Restated Partnership Agreement of H-T Associates, dated
as of July 28, 1987, between Ernest W. Hahn, Inc. and Santa Anita
Realty Enterprises, Inc. (incorporated by reference to Exhibit
10.18 to Registration Statement No. 33-27011).
-96-
<PAGE>
EXHIBIT INDEX (CONTINUED)
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER PAGE NO.
------- ----------
10.14 Amended and Restated Agreement of Joppa Associates, dated as
of April 14, 1988, between Ernest W. Hahn, Inc., Santa Anita
Realty Enterprises, Inc. and DeChiaro Associates, a Maryland
general partnership (incorporated by reference to Exhibit 10.19
to Registration Statement No. 33-27011).
10.15 Amendment dated November 1, 1989, to Partnership Agreement of H-T
Associates (incorporated by reference to Exhibit 10.21 of the Joint
Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc.
and Santa Anita Operating Company for the year ended December 31,
1989).
10.16 Partnership Agreement of French Valley Ventures dated November
1989, between Santa Anita Realty Enterprises, Inc. and William
J. Rousey, Jr. (incorporated by reference to Exhibit 10.23 to
the Joint Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating company for the year
ended December 31, 1989).
10.17 Indenture of Lease by and between Los Angeles Turf Club, Incorporated
and Oak Tree Racing Association, dated as of January 1, 1990
(incorporated by reference to Exhibit 10.21 to the Joint Annual
Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the year ended December 31, 1990).
10.18 Form of Severance Agreement of Certain Officers of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating Company
(incorporated by reference to Exhibit 10.22 to the Joint Annual
Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the year ended December 31, 1992).
10.19 Schedule of omitted documents and differences in material details
regarding Severance Agreements of Certain Officers of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating Company
(incorporated by reference to Exhibit 10.1 of the Joint Quarterly
Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the quarter ended September 30,
1994).
10.20 Purchase and Sale Agreement, dated as of November 15, 1993, between
Santa Anita Realty Enterprises, Inc., and Pacific Gulf Properties
Inc. (incorporated by reference to Exhibit 1 to the Current Report
on Form 8-K of Santa Anita Realty Enterprises, Inc., dated February
18, 1994).
10.21 Registration Rights Agreement, dated as of February 1, 1994, between
Santa Anita Realty Enterprises, Inc. and Pacific Gulf Properties
Inc. (incorporated by reference to Exhibit 10.24 to the Joint
Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc.
and Santa Anita Operating Company for the year ended December 31,
1993).
10.22 Closing Agreement dated as of October 1, 1994, by and between Santa
Anita Realty Enterprises, Inc. and Pacific Gulf Properties Inc.
(incorporated by reference to Exhibit 10.2 of the Joint Quarterly
Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the quarter ended September 30,
1994).
-97-
<PAGE>
EXHIBIT INDEX (CONTINUED)
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER PAGE NO.
------- ----------
10.23 Employment Agreement between Santa Anita Realty Enterprises,
Inc. and Sherwood C. Chillingworth dated as of March 16, 1994
(incorporated by reference to Exhibit 10.25 to the Joint Annual
Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the year ended December 31, 1993).
10.24 Employment Agreement between Santa Anita Operating Company, Los
Angeles Turf Club, Incorporated and Clifford C. Goodrich dated
as of January 1, 1994 (incorporated by reference to Exhibit 10.1
of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for the quarter
ended June 30, 1994).
10.25 Employment Agreement between Santa Anita Operating Company and
Stephen F. Keller dated as of January 1, 1994 (incorporated by
reference to Exhibit 10.2 of the Joint Quarterly Report on Form
10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the quarter ended June 30, 1994).
10.26 Employment Agreement between Santa Anita Realty Enterprises,
Inc. and Christopher T. Stirling dated as of March 25, 1994
(incorporated by reference to Exhibit 10.3 of the Joint Quarterly
Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the quarter ended June 30, 1994).
10.27 Employment Agreement between Santa Anita Realty Enterprises,
Inc. and Brian L. Fleming dated as of May 9, 1994 (incorporated
by reference to Exhibit 10.4 of the Joint Quarterly Report on
Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the quarter ended June 30, 1994).
10.28 Santa Anita Realty Enterprises, Inc. 1995 Share Award Plan.
10.29 Santa Anita Operating Company 1995 Share Award Plan.
10.30 Exchange Agreement between Santa Anita Operating Company
and Stephen F. Keller, dated as of December 15, 1994 (without
appendix), as amended by Amendment I to the Exchange Agreement,
dated as of December 15, 1994 among Santa Anita Operating Company,
Stephen F. Keller and the Keller Family Trust (with apendix)
10.31 Exchange Agreement between Santa Anita Operating Company and
Clifford C. Goodrich, dated as of December 15, 1994 (with appendix)
22 Subsidiaries of Santa Anita Operating Company (incorporated
by reference to Exhibit 22 to the Joint Annual Report on
Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the year ended December 31, 1992).
23.1 Consent of Kenneth Leventhal & Company (to be incorporated by
reference into the Prospectus contained in Registration Statement
No. 2-95228 and the Prospectus contained in Registration Statement
No. 33-51843).
23.2 Consent of Kenneth Leventhal & Company (to be incorporated by
reference into the Prospectus contained in Registration Statement
No. 2-95228 and the Prospectus contained in Registration Statement
No. 33-51843).
23.3 Consent of KPMG Peat Marwick LLP (to be incorporated by reference
into the Prospectus contained in Registration Statement No.
2-95228 and the Prospectus contained in Registration Statement
No. 33-51843).
27(a) Financial Data Schedule for Santa Anita Realty Enterprises, Inc.
27(b) Financial Data Schedule for Santa Anita Operating Company.
-98-
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
1995 SHARE AWARD PLAN
<PAGE>
TABLE OF CONTENTS
Page
I. THE PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Administration and Authorization; Power and Procedure. . . . . . . 1
1.3 Participation. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Shares Available for Awards. . . . . . . . . . . . . . . . . . . . 3
1.5 Grant of Awards. . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.6 Award Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.7 Limitations on Exercise and Vesting of Awards. . . . . . . . . . . 5
1.8 Acceptance of Notes to Finance Exercise of Options or
Acquisitions of Operating Company Stock. . . . . . . . . . . . . . 6
1.9 No Transferability . . . . . . . . . . . . . . . . . . . . . . . . 7
II. EMPLOYEE OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Option Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 Limitations on Grant and Terms of Incentive Stock Options. . . . . 9
2.4 Limits on 10% Holders. . . . . . . . . . . . . . . . . . . . . . . 10
2.5 Option Repricing; Cancellation and Regrant; Waiver of
Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6 Dividend Equivalents . . . . . . . . . . . . . . . . . . . . . . . 10
2.7 Issuance of Operating Company Stock. . . . . . . . . . . . . . . . 11
III. STOCK APPRECIATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . 11
3.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Exercise of Stock Appreciation Rights. . . . . . . . . . . . . . . 11
3.3 Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
IV. RESTRICTED STOCK AWARDS . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Return to the Corporation. . . . . . . . . . . . . . . . . . . . . 13
V. PERFORMANCE SHARE AWARDS AND STOCK BONUSES. . . . . . . . . . . . . . . 13
5.1 Grants of Performance Share Awards . . . . . . . . . . . . . . . . 13
5.2 Grants of Stock Bonuses. . . . . . . . . . . . . . . . . . . . . . 14
5.3 Deferred Payments. . . . . . . . . . . . . . . . . . . . . . . . . 14
(i)
<PAGE>
VI. OTHER PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.1 Rights of Eligible Employees, Participants and Beneficiaries . . . 15
6.2 Adjustments; Acceleration. . . . . . . . . . . . . . . . . . . . . 15
6.3 Effect of Termination of Employment. . . . . . . . . . . . . . . . 18
6.4 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . 18
6.5 Tax Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.6 Plan Amendment, Termination and Suspension . . . . . . . . . . . . 19
6.7 Effect of Pairing Agreement on Awards. . . . . . . . . . . . . . . 20
6.8 Privileges of Stock Ownership. . . . . . . . . . . . . . . . . . . 21
6.9 Effective Date of the Plan . . . . . . . . . . . . . . . . . . . . 21
6.10 Term of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.11 Governing Law; Construction; Severability. . . . . . . . . . . . . 21
6.12 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.13 Effect of Change of Subsidiary Status. . . . . . . . . . . . . . . 22
6.14 Non-Exclusivity of Plan. . . . . . . . . . . . . . . . . . . . . . 23
VII. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(ii)
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
1995 SHARE AWARD PLAN
I. THE PLAN.
1.1 PURPOSE.
The purpose of this Plan is to promote the success of the Company by
providing an additional means through the grant of Awards to attract, motivate,
retain and reward key employees, including officers, whether or not directors,
of the Company with awards and incentives for high levels of individual
performance and improved financial performance of the Company. "Corporation"
means Santa Anita Realty Enterprises, Inc. and "Company" means the Corporation
and its Subsidiaries, collectively. These terms and other capitalized terms are
defined in Article VII.
1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE.
(a) COMMITTEE. This Plan shall be administered by, and all Awards to
Eligible Employees shall be authorized by, the Committee. Action of the
Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or by written consent of its members.
(b) PLAN AWARDS; INTERPRETATION; POWERS OF COMMITTEE. Subject to the
express provisions of this Plan, the Committee shall have the authority:
(i) to determine from among those persons eligible the particular
Eligible Employees who will receive any Awards;
(ii) to grant Awards to Eligible Employees, determine the price at
which securities will be offered or awarded and the amount of securities to
be offered or awarded to any of such persons, and determine the other
specific terms and conditions of such Awards consistent with the express
limits of this Plan, and establish the installments (if any) in which such
Awards shall become exercisable or shall vest, or determine that no delayed
exercisability or vesting is required, and establish the events of
termination or reversion (if any) of such Awards;
(iii) to approve the forms of Award Agreements (which need not be
identical either as to type of Award or among Participants);
1
<PAGE>
(iv) to construe and interpret this Plan and any agreements defining
the rights and obligations of the Company and Participants under this Plan,
further define the terms used in this Plan, and prescribe, amend and
rescind rules and regulations relating to the administration of this Plan;
(v) to cancel, modify, or waive the Corporation's rights with respect
to, or modify, discontinue, suspend, or terminate any or all outstanding
Awards held by Participants, subject to any required consent under Section
6.6;
(vi) to accelerate or extend the exercisability or vesting extend the
term of any or all such outstanding Awards within the maximum ten-year term
of Awards under Section 1.6; and
(vii) to make all other determinations and take such other action
as contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.
(c) BINDING DETERMINATIONS. Any action taken by, or inaction of, the
Corporation, any Subsidiary, the Board or the Committee relating or pursuant to
this Plan shall be within the absolute discretion of that entity or body and
shall be conclusive and binding upon all persons. No member of the Board or
Committee, or officer of the Corporation or any Subsidiary, shall be liable for
any such action or inaction of the entity or body, of another person or, except
in circumstances involving bad faith, of himself or herself. Subject only to
compliance with the express provisions hereof, the Board and Committee may act
in their absolute discretion in matters within their authority related to this
Plan.
(d) RELIANCE ON EXPERTS. In making any determination or in taking
or not taking any action under this Plan, the Committee or the Board, as the
case may be, may obtain and may rely upon the advice of experts, including
professional advisors to the Corporation. No director, officer or agent of the
Company shall be liable for any such action or determination taken or made or
omitted in good faith.
(e) DELEGATION. The Committee may delegate ministerial, non-
discretionary functions to individuals who are officers or employees of the
Company.
2
<PAGE>
1.3 PARTICIPATION.
Awards may be granted by the Committee only to those persons that the
Committee determines to be Eligible Employees. An Eligible Employee who has
been granted an Award may, if otherwise eligible, be granted additional Awards
if the Committee shall so determine. Non-Employee Directors shall not be
eligible to receive any Awards.
1.4 SHARES AVAILABLE FOR AWARDS.
Subject to the provisions of Section 6.2, the capital stock that may
be delivered under this Plan shall be shares of the Corporation's authorized but
unissued Common Stock, any shares of its Common Stock held as treasury shares
and shares of Operating Company Stock. The shares may be delivered for any
lawful consideration.
(a) NUMBER OF SHARES. Subject to subsection (c) below, the maximum
number of shares of Common Stock and Operating Company Stock that may be
delivered pursuant to Awards granted to Eligible Employees under this Plan shall
not exceed 230,000 shares of Common Stock and 230,000 shares of Operating
Company Stock, respectively, in each case subject to adjustments contemplated by
Section 6.2. The maximum number of Options and Stock Appreciation Rights
(whether payable in Paired Shares, cash or any combination thereof) that may be
granted to an Eligible Employee during any one-year period shall not exceed
150,000, subject to adjustment as contemplated in Section 6.2.
(b) CALCULATION OF AVAILABLE SHARES. Common Stock subject to
outstanding Awards of derivative securities (as defined in Rule 16a-1(c) under
the Exchange Act) shall be reserved for issuance; except as provided in Section
2.7, a like number of shares of Operating Company Stock shall be purchased from
Operating Company or arrangements shall be made with Operating Company for
issuance by Operating Company of the same number of shares of Operating Company
Stock as the number of shares of Common Stock to be issued in connection with an
Award; PROVIDED that nothing herein, except as provided in Section 2.7, shall be
construed to prevent the Corporation from purchasing Paired Shares in the open
market for use in connection with Awards. If a Stock Appreciation Right or
similar right is exercised or a Performance Share Award based on the increased
market value of a specified number of Paired Shares is paid, the number of
Paired Shares to which such exercise or payment relates under the applicable
Award shall be charged against the maximum amount of shares of Common Stock and
Operating Company Stock that may be delivered pursuant to Awards under this Plan
and, if applicable, such Award. If the Corporation withholds Paired Shares (or
Common Stock)
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pursuant to Section 6.5, the number of shares that would have been deliverable
with respect to an Award but that are withheld pursuant to the provisions of
Section 6.5 may in effect not be issued, but the aggregate number of shares
issuable with respect to the applicable Award and under the Plan shall be
reduced by the number of shares withheld and such shares shall not be available
for additional Awards under this Plan. To the extent a Performance Share Award
constitutes an equity security (as this phrase is defined in Rule 16a-1 under
the Exchange Act) issued by the Corporation and is paid in shares of Paired
Shares, the number of Paired Shares (if any) subject to such Performance Share
Award shall be charged (but in the case of tandem or substituted Awards, without
duplication) against the maximum number of shares of Common Stock and Operating
Company Stock that may be delivered pursuant to Awards under this Plan.
(c) CASH ONLY AWARD LIMIT. Awards payable solely in cash under the
Plan and Awards payable either in cash or shares that are actually paid in cash
shall constitute and be referred to as "CASH ONLY AWARDS". The number of Cash
Only Awards shall be determined by reference to the number of Paired Shares by
which the Award is measured. The maximum number of Cash Only Awards that may be
paid shall not, together with the aggregate number of shares of Common Stock
that may be delivered under subsection (a), exceed 230,000, subject to
adjustments under Section 6.2. Awards payable either in cash or shares shall
not be counted against the Cash Only Award limit if charged against the share
limit in subsection (a). Notwithstanding the foregoing, if an Award paid or
payable solely in cash satisfies the requirements for the exclusion from the
definition of a derivative security in Rule 16a-1(c) that does not require that
the award be made under a Rule 16b-3 plan, the Award shall not be counted
against any of the limits of this Section.
(d) REISSUE OF AWARDS. Subject to any restrictions under Rule 16b-3,
any unexercised, unconverted, unvested or undistributed portion of any expired,
cancelled, terminated or forfeited Award, or any alternative form of
consideration under an Award that is not paid in connection with the settlement
of an Award or any portion of an Award, shall again be available for Award under
subsection (a) or (c) above, as applicable, whether or not the Participant has
received benefits of ownership (such as dividends or dividend equivalents or
voting rights) during the period in which the Participant's ownership was
restricted or otherwise not vested. Shares that are issued pursuant to Awards
and subsequently reacquired by the Corporation pursuant to the terms and
conditions of the Awards also shall be available for reissuance under the Plan.
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(e) INTERPRETIVE ISSUES. Additional rules for determining the number
of shares or Cash Only Awards authorized under the Plan may be adopted by the
Committee, as it deems necessary or appropriate; provided that such rules are
consistent with Rule 16b.
1.5 GRANT OF AWARDS.
Subject to the express provisions of this Plan, the Committee shall
determine the number of Paired Shares or shares of Common Stock subject to each
Award, and the price (if any) to be paid for the Paired Shares, Common Stock or
the Award and, in the case of Performance Share Awards, in addition to matters
addressed in Section 1.2(b), the specific objectives, goals and performance
criteria (such as an increase in revenues, market value, earnings or book value
over a base period, the years of service before vesting, the relevant job
classification or level of responsibility or other factors) that further define
the terms of the Performance Share Award. Each Award shall be evidenced by an
Award Agreement signed by the Corporation and, if required by the Committee, by
the Participant.
1.6 AWARD PERIOD.
Each Award and all executory rights or obligations under the related
Award Agreement shall expire on such date (if any) as shall be determined by the
Committee, but, in the case of Options to acquire Common Stock or other rights
to acquire Paired Shares, not later than ten (10) years after the Award Date.
1.7 LIMITATIONS ON EXERCISE AND VESTING OF AWARDS.
(a) PROVISIONS FOR EXERCISE. Except as may otherwise be provided in
an Award Agreement, no Award shall be exercisable or shall vest until at least
six months after the initial Award Date, and once exercisable an Award shall
remain exercisable until the expiration or earlier termination of the Award,
unless the Committee otherwise provides.
(b) PROCEDURE. Any exercisable Award shall be deemed to be exercised
when the Secretary of the Corporation receives written notice of such exercise
from the Participant, together with any required payment made in accordance with
Section 2.2(b).
(c) FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests
shall be disregarded, but may be accumulated. The Committee, however, may
determine that cash, other securities or other property will be paid or
transferred in lieu of any fractional share interests. No fewer than 10 Paired
Shares (or shares of Common Stock) may be
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purchased on exercise of any Award at one time unless the number purchased is
the total number at the time available for purchase under the Award.
1.8 ACCEPTANCE OF NOTES TO FINANCE EXERCISE OF OPTIONS OR ACQUISITIONS OF
OPERATING COMPANY STOCK.
The Corporation may, with the Committee's approval, accept one or more
notes from any Participant in connection with the exercise or receipt of any
outstanding Award; provided that any such note shall be subject to the following
terms and conditions:
(a) The principal of the note shall not exceed the amount required to
be paid to the Corporation upon the exercise or receipt of one or more
Awards under the Plan and the note shall be delivered directly to the
Corporation in consideration of such exercise or receipt.
(b) The note shall be repaid over a period of time not to exceed five
years, with annual installments of at least 10% of principal the first four
years and a balloon payment of the remaining principal amount at the end of
the fifth year; PROVIDED that the Corporation may demand any payment, in
addition to such installments, as may be required for the note to remain in
compliance with any applicable federal or state regulation.
(c) The note shall provide for full recourse to the Participant and
shall bear interest at a rate determined by the Committee but not less than
the applicable imputed interest rate specified by the Code.
(d) Except as otherwise provided by the Committee, if the employment
of the Participant terminates, the unpaid principal balance of the note
shall become due and payable on the 10th business day after such
termination; PROVIDED, however, that if a sale of any Paired Shares (or
Common Stock) acquired by the Participant in connection with an Award to
which the note relates would cause such Participant to incur liability
under Section 16(b) of the Exchange Act, the unpaid balance shall become
due and payable on the 10th business day after the first day on which a
sale of such shares could have been made without incurring such liability
assuming for these purposes that there are no other transactions by the
Participant subsequent to such termination.
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(e) If required by the Committee or by applicable law, the note shall
be secured by a pledge of any shares or rights financed thereby in
compliance with applicable law.
(f) The terms, repayment provisions, and collateral release
provisions of the note and the pledge securing the note shall conform with
applicable rules and regulations of the Federal Reserve Board as then in
effect.
(g) In addition, the Corporation in the discretion of the Committee
may loan funds and award bonuses to an Option holder in aggregate amounts
equal, in after-tax dollars, to the purchase price of the Operating Company
Stock required to be acquired under this Plan (see Section 2.7 below) upon
the exercise of an Option, less the aggregate par value of such stock.
Such a loan shall be for a term, at a rate of interest and pursuant to such
other terms and conditions as the Committee, under applicable law, may
establish and such loan need not comply with the foregoing provisions of
Section 1.8.
1.9 NO TRANSFERABILITY.
(a) Awards may be exercised only by, and amounts payable or Paired
Shares (or Common Stock) issuable pursuant to an Award shall be paid only to (or
registered only in the name of), the Participant or, if the Participant has
died, the Participant's Beneficiary or, if the Participant has suffered a Total
Disability, the Participant's Personal Representative, if any, or if there is
none, the Participant, or (to the extent permitted by applicable law and Rule
16b-3) to a third party pursuant to such conditions and procedures as the
Committee may establish. Other than by will or the laws of descent and
distribution or pursuant to a QDRO or other exception to transfer restrictions
under Rule 16b-3 (except to the extent not permitted in the case of an Incentive
Stock Option), no right or benefit under this Plan or any Award, including,
without limitation, any Option or shares of Restricted Stock that has not
vested, shall be transferrable by the Participant or shall be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge (other than to the Corporation) and any such attempted
action shall be void. The Corporation shall disregard any attempt at transfer,
assignment or other alienation prohibited by the preceding sentences and shall
pay or deliver such cash or Paired Shares (or Common Stock) in accordance with
the provisions of this Plan. The designation of a Beneficiary
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hereunder shall not constitute a transfer for these purposes.
(b) Nothing in this plan authorizes, or shall be construed to
authorize, a transfer or exchange by a Participant, Beneficiary, Personal
Representative or any third party of any shares of Common Stock or Operating
Company Stock in contravention of the provisions of the Pairing Agreement.
(c) The restrictions on exercise and transfer above shall not be
deemed to prohibit the authorization by the Committee of "cashless exercise"
procedures with unaffiliated third parties who provide financing for the purpose
of (or who otherwise facilitate) the exercise of Awards consistent with
applicable legal restrictions and Rule 16b-3, nor, to the extent permitted by
the Committee, transfers for estate and financial planning purposes,
notwithstanding that the inclusion of such features may render the particular
Awards ineligible for the benefits of Rule 16b-3, nor, in the case of
Participants who are not Section 16 Persons, transfers to such other persons or
in such other circumstances as the Committee may in the Award Agreement or other
writing expressly permit.
II. EMPLOYEE OPTIONS.
2.1 GRANTS.
One or more Options may be granted under this Article to any Eligible
Employee, subject to the provisions of Section 1.4. Each Option granted may be
either an Option intended to be an Incentive Stock Option, or an Option not so
intended, and such intent shall be indicated in the applicable Award Agreement.
No options may be granted with respect to Operating Company Stock.
2.2 OPTION PRICE.
(a) PRICING LIMITS. Subject to Section 2.4, the purchase price per
share of the Common Stock covered by each Option shall be determined by the
Committee at the time the Option is granted, but shall not be less than 100% of
the Fair Market Value of the Common Stock, on the date of grant.
(b) PAYMENT PROVISIONS. The purchase price of any shares purchased
on exercise of an Option granted under this Article shall be paid in full at the
time of each purchase in one or a combination of the following methods: (i) in
cash or by electronic funds transfer; (ii) by check payable to the order of the
Corporation; (iii) if authorized
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by the Committee or specified in the applicable Award Agreement, in cash in an
amount equal to the par value of the shares being purchased, and, in the form of
a promissory note (consistent with the requirements of Section 1.8) of the
Participant in an amount equal to the difference between said cash amount and
the purchase price of such shares; (iv) by notice and third party payment in
such manner as may be authorized by the Committee; (v) by the delivery of shares
of Common Stock already owned by the Participant, PROVIDED, HOWEVER, that the
Committee may in its absolute discretion limit the Participant's ability to
exercise an Award by delivering such shares of Common Stock; or (vi) if
authorized by the Committee or specified in the applicable Award Agreement, by
reduction in the number of shares of Common Stock otherwise deliverable upon
exercise by that number of shares of Common Stock which have a then Fair Market
Value equal to such purchase price. Previously owned shares of Common Stock
used to satisfy the exercise price of an Option under clause (v) shall be valued
at their Fair Market Value on the date of exercise.
2.3 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS.
(a) $100,000 LIMIT. To the extent that the aggregate "fair market
value" of Common Stock subject to any Option with respect to which Incentive
Stock Options first become exercisable by a Participant in any calendar year
exceeds $100,000, taking into account both Common Stock subject to Incentive
Stock Options under this Plan and stock subject to incentive stock options under
all other plans of the Company, such options shall be treated as Nonqualified
Stock Options. For this purpose, the "fair market value" of the Common Stock
subject to Options shall be determined as of the date the Options were awarded.
In reducing the number of Options treated as Incentive Stock Options to meet the
$100,000 limit, the most recently granted Options shall be reduced first. To
the extent a reduction of simultaneously granted Options is necessary to meet
the $100,000 limit, the Committee may, in the manner and to the extent permitted
by law, designate which shares of Common Stock are to be treated as shares
acquired pursuant to the exercise of an Incentive Stock Option.
(b) OPTION PERIOD. Subject to Section 2.4, each Option and all
rights thereunder shall expire no later than ten years after the Award Date.
(c) OTHER CODE LIMITS. There shall be imposed in any Award Agreement
relating to Incentive Stock Options such terms and conditions as from time to
time are required in order that the Option be an "incentive stock option" as
that term is defined in Section 422 of the Code.
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2.4 LIMITS ON 10% HOLDERS.
No Incentive Stock Option may be granted to any person who, at the
time the Option is granted, owns (or is deemed to own under Section 424(d) of
the Code) shares of outstanding Common Stock possessing more than 10% of the
total combined voting power of all classes of stock of the Corporation, unless
the exercise price of such Option with respect to the Common Stock covered by
the Option is at least 110% of the Fair Market Value of the Common Stock subject
to the Option and such Option by its terms is not exercisable after the
expiration of five years from the date such Option is granted.
2.5 OPTION REPRICING; CANCELLATION AND REGRANT; WAIVER OF RESTRICTIONS.
Subject to Section 1.4 and Section 6.6 and the specific limitations on
Awards contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Employee,
any adjustment in the exercise or purchase price, the number of shares subject
to, the restrictions upon or the term of, an Award granted under this Article by
cancellation of an outstanding Award and a subsequent regranting of an Award, by
amendment, by substitution of an outstanding Award, by waiver or by other
legally valid means. Such amendment or other action may result among other
changes in an exercise or purchase price which is higher or lower than the
exercise or purchase price of the original or prior Award, provide for a greater
or lesser number of shares subject to the Award, or provide for a longer or
shorter vesting or exercise period.
2.6 DIVIDEND EQUIVALENTS.
The Committee may, at the time of granting an Option, grant Dividend
Equivalents attributable to shares of Common Stock subject to the Option.
Dividend Equivalents shall be paid in cash only to the extent the Option is
unexercised as of the dividend record date, as specified in the Award Agreement,
as follows: the Dividend Equivalent per share of Common Stock shall be
multiplied by the number of shares of Common Stock subject to Option and an
amount equal to the product so derived shall be paid in cash to the Participant
on the dividend payment date. The Committee may in the Award specify that
Dividend Equivalents shall be paid only for a specified time period or only as
to that portion of the Option that has vested.
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2.7 ISSUANCE OF OPERATING COMPANY STOCK.
No Options granted pursuant to this Plan shall be exercisable unless
the Option holder submits evidence satisfactory to the Corporation that, at the
then Fair Market Value of an unpaired share of Operating Company Stock as
determined pursuant to the Pairing Agreement, a number of shares of the
Operating Company Stock equal to the number of shares of Common Stock to be
received upon exercise of all or a portion of the Option will, and are able to,
be purchased by the Option holder, such that upon exercise the Option holder
will receive an equal number of shares of Common Stock and Operating Company
Stock.
III. STOCK APPRECIATION RIGHTS.
3.1 GRANTS.
In its discretion, the Committee may grant to any Eligible Employee
Stock Appreciation Rights either concurrently with the grant of another Award or
in respect of an outstanding Award, in whole or in part, or independently of any
other Award. Any Stock Appreciation Right granted in connection with an
Incentive Stock Option shall contain such terms as may be required to comply
with the provisions of Section 422 of the Code and the regulations promulgated
thereunder.
3.2 EXERCISE OF STOCK APPRECIATION RIGHTS.
(a) EXERCISABILITY. Unless the Award Agreement or the Committee
otherwise provides, a Stock Appreciation Right related to another Award shall be
exercisable at such time or times, and to the extent, that the related Award
shall be exercisable.
(b) EFFECT ON AVAILABLE SHARES. In the event that a Stock
Appreciation Right is exercised, the number of Paired Shares subject to the
Award shall be charged against the number of Paired Shares subject to the Stock
Appreciation Right and Common Stock subject to the related Option of the
Participant shall be reduced by such number of Paired Shares.
(c) STAND-ALONE SARS. A Stock Appreciation Right granted
independently of any other Award shall be exercisable pursuant to the terms of
the Award Agreement but, unless the Committee determines otherwise, in no event
earlier than six months after the Award Date, except in the case of death or
Total Disability.
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3.3 PAYMENT.
(a) AMOUNT. Unless the Committee otherwise provides, upon exercise
of a Stock Appreciation Right and surrender of an exercisable portion of any
related Award, the Participant shall be entitled to receive payment of an amount
determined by multiplying
(i) the difference obtained by subtracting the exercise price
per Paired Share under the related Award (if applicable) or the initial
share value specified in the Award from the Fair Market Value of a Paired
Share on the date of exercise of the Stock Appreciation Right, by
(ii) the number of Paired Shares with respect to which the Stock
Appreciation Right shall have been exercised.
(b) FORM OF PAYMENT. The Committee, in its sole discretion, shall
determine the form in which payment shall be made of the amount determined under
paragraph (a) above, either solely in cash, solely in Paired Shares (valued at
Fair Market Value on the date of exercise of the Stock Appreciation Right), or
partly in such Paired Shares and partly in cash, provided that the Committee
shall have determined that such exercise and payment are consistent with
applicable law. If the Committee permits the Participant to elect to receive
cash or Paired Shares (or a combination thereof) on such exercise, any such
election shall be subject to such conditions as the Committee may impose and, in
the case of any Section 16 Person, any election to receive cash shall be subject
to any applicable limitations under Rule 16b-3.
IV. RESTRICTED STOCK AWARDS.
4.1 GRANTS.
The Committee may, in its discretion, grant one or more Restricted
Stock Awards to any Eligible Employee. Each Restricted Stock Award Agreement
shall specify the number of Paired Shares to be issued, the date of such
issuance, the consideration for such Paired Shares (but not less than the
minimum lawful consideration) to be paid by the Participant and the restrictions
imposed on such Paired Shares and the conditions of release or lapse of such
restrictions. Such restrictions shall not lapse earlier than six months after
the Award Date, except to the extent the Committee may otherwise provide. Stock
certificates evidencing shares of Restricted Stock pending the lapse of the
restrictions ("restricted shares") shall bear a legend making appropriate
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reference to the restrictions imposed hereunder and shall be held by the
Corporation or by a third party designated by the Committee until the
restrictions on such shares shall have lapsed and the shares shall have vested
in accordance with the provisions of the Award and Section 1.7. Upon issuance
of the Restricted Stock Award, the Participant may be required to provide such
further assurance and documents as the Committee may require to enforce the
restrictions.
4.2 RESTRICTIONS.
(a) PRE-VESTING RESTRAINTS. Except as provided in Section 1.9 and
4.1, restricted shares comprising any Restricted Stock Award may not be sold,
assigned, transferred, pledged or otherwise disposed of or encumbered, either
voluntarily or involuntarily, until such shares have vested.
(b) DIVIDEND AND VOTING RIGHTS. Unless otherwise provided in the
applicable Award Agreement, a Participant receiving a Restricted Stock Award
shall be entitled to cash dividend and voting rights for all shares issued even
though they are not vested, provided that such rights shall terminate
immediately as to any restricted shares which cease to be eligible for vesting.
(c) CASH PAYMENTS. If the Participant shall have paid or received
cash (including any dividends) in connection with the Restricted Stock Award,
the Award Agreement shall specify whether and to what extent such cash shall be
returned (with or without an earnings factor) as to any restricted shares which
cease to be eligible for vesting.
4.3 RETURN TO THE CORPORATION.
Unless the Committee otherwise expressly provides, shares of
Restricted Stock that are subject to restrictions at the time of termination of
employment or are subject to other conditions to vest that have not been
satisfied by the time specified in the applicable Award Agreement shall not vest
and shall be returned to the Corporation in such manner and on such terms as the
Committee shall therein provide.
V. PERFORMANCE SHARE AWARDS AND STOCK BONUSES.
5.1 GRANTS OF PERFORMANCE SHARE AWARDS.
The Committee may, in its discretion, grant one or more Performance
Share Awards to any Eligible Employee based upon such factors, which in the case
of any Award to a Section 16 Person shall include but not be limited to the
contributions, responsibilities and other compensation of
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the person, as the Committee shall deem relevant in light of the specific type
and terms of the award. An Award Agreement shall specify the maximum number of
Paired Shares (if any) subject to the Performance Share Award, the consideration
(but not less than the minimum lawful consideration) to be paid for any such
shares as may be issuable to the Participant, the duration of the Award and the
conditions upon which delivery of any Paired Shares or cash to the Participant
shall be based. The amount of cash or Paired Shares or other property that may
be deliverable pursuant to such Award shall be based upon the degree of
attainment over a specified period (a "performance cycle") as may be established
by the Committee of such measure(s) of the performance of the Company (or any
part thereof) or the Participant as may be established by the Committee. The
Committee may provide for full or partial credit, prior to completion of such
performance cycle or the attainment of the performance achievement specified in
the Award, in the event of the Participant's death, Retirement, or Total
Disability, a Change in Control Event or in such other circumstances as the
Committee, consistent with Section 6.11(c)(2), if applicable, may determine.
5.2 GRANTS OF STOCK BONUSES.
The Committee may grant a Stock Bonus to any Eligible Employee to
reward exceptional or special services, contributions or achievements in the
manner and on such terms and conditions (including any restrictions on such
shares) as determined from time to time by the Committee. The number of shares
so awarded shall be determined by the Committee. The Stock Bonus may be granted
independently or in lieu of a cash bonus.
5.3 DEFERRED PAYMENTS.
The Committee may authorize for the benefit of any Eligible Employee
the deferral of any payment of cash or Paired Shares that may become due or of
cash otherwise payable under this Plan, and provide for accreted benefits
thereon based upon such deferment, at the election or at the request of such
Participant, subject to the other terms of this Plan. Such deferral shall be
subject to such further conditions, restrictions or requirements as the
Committee may impose, subject to any then vested rights of Participants.
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VI. OTHER PROVISIONS.
6.1 RIGHTS OF ELIGIBLE EMPLOYEES, PARTICIPANTS AND BENEFICIARIES.
(a) EMPLOYMENT STATUS. Status as an Eligible Employee shall not be
construed as a commitment that any Award will be made under this Plan to an
Eligible Employee or to Eligible Employees generally.
(b) NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or in
any other documents related to this Plan or to any Award) shall confer upon any
Eligible Employee or Participant any right to continue in the employ or other
service of the Company or constitute any contract or agreement of employment or
other service, nor shall interfere in any way with the right of the Company to
change such person's compensation or other benefits or to terminate the
employment of such person, with or without cause, but nothing contained in this
Plan or any document related hereto shall adversely affect any independent
contractual right of such person without his or her consent thereto.
(c) PLAN NOT FUNDED. Awards payable under this Plan shall be payable
in Paired Shares or Common Stock, as applicable, or from the general assets of
the Corporation, and no special or separate reserve, fund or deposit shall be
made to assure payment of such Awards. No Participant, Beneficiary or other
person shall have any right, title or interest in any fund or in any specific
asset (including shares of Common Stock or shares of Operating Company Stock,
except as expressly otherwise provided) of the Company by reason of any Award
hereunder. Neither the provisions of this Plan (or of any related documents),
nor the creation or adoption of this Plan, nor any action taken pursuant to the
provisions of this Plan shall create, or be construed to create, a trust of any
kind or a fiduciary relationship between the Company and any Participant,
Beneficiary or other person. To the extent that a Participant, Beneficiary or
other person acquires a right to receive payment pursuant to any Award
hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.
6.2 ADJUSTMENTS; ACCELERATION.
(a) ADJUSTMENTS. If the outstanding shares of Common Stock or the
outstanding shares of Operating Company Stock are changed into or exchanged for
cash, other property or a different number or kind of shares or securities of
the Corporation or of Operating Company, as the case may be, or if additional
shares or new or different securities are distributed with respect to the
outstanding shares of Common Stock or the outstanding shares of Operating
Company Stock,
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through a reorganization or merger in which the Corporation or Operating
Company, as the case may be, is the surviving entity, or through a combination,
consolidation, recapitalization, reclassification, stock split, stock dividend,
reverse stock split, stock consolidation, dividend or distribution of cash or
property to the shareholders of the Corporation or of Operating Company, or if
there shall occur any other extraordinary corporate transaction or event in
respect of the Common Stock or the Operating Company Stock or a sale of
substantially all the assets of the Corporation or of Operating Company as an
entirety which in the judgment of the Committee materially affects the Common
Stock or the Operating Company Stock, then the Committee shall, in such manner
and to such extent (if any) as it deems appropriate and equitable (1)
proportionately adjust any or all of (A) the number and kind of shares of Common
Stock, Operating Company Stock or other consideration that is subject to or may
be delivered under this Plan and pursuant to outstanding Awards, (B) the
consideration payable with respect to Awards granted prior to any such change
and the price, if any, paid in connection with Restricted Stock Awards or (C)
the performance standards appropriate to any outstanding awards; or (2) in the
case of an extraordinary dividend or other distribution, merger, reorganization,
consolidation, combination, sale of assets, split up, exchange, or spin off,
make provision for a cash payment or for the substitution or exchange of any or
all outstanding Awards or the cash, securities or property deliverable to the
holder of any or all outstanding Awards based upon the distribution or
consideration payable to holders of Common Stock or to holders of Operating
Company Stock upon or in respect of such event; PROVIDED, HOWEVER, in each case,
that with respect to Awards of Incentive Stock Options, no such adjustment shall
be made which would cause the Plan to violate Section 422 or 424(a) of the Code
or any successor provisions thereto. Corresponding adjustments shall be made
with respect to any Stock Appreciation Rights based upon the adjustments made to
the Options to which they are related. In any of such events, the Committee may
take such action sufficiently prior to such event if necessary to permit the
Participant to realize the benefits intended to be conveyed with respect to the
underlying shares in the same manner as is available to shareholders generally.
(b) ACCELERATION OF AWARDS UPON CHANGE IN CONTROL. As to any or all
Participants, upon the occurrence of a Change in Control Event (i) each Option
and Stock Appreciation Right shall become immediately exercisable, (ii)
Restricted Stock shall immediately vest free of restrictions, and (iii) each
Performance Share Award shall become payable to the Participant; PROVIDED,
HOWEVER, that in no event shall any Award be accelerated as to any Section 16
Person to a date less than six months after the Award
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Date of such Award. Notwithstanding the foregoing, except in the case of an
Award of an Option, prior to a Change in Control Event, the Committee may
determine that, upon its occurrence, there shall be no acceleration of benefits
under Awards or determine that only certain or limited benefits under Awards
shall be accelerated and the extent to which they shall be accelerated, and/or
establish a different time in respect of such event for such acceleration. In
addition, the Committee may override the limitations on acceleration in this
Section 6.2(b) by express provision in the Award Agreement and may accord any
Participant a right to refuse any acceleration, whether pursuant to the Award
Agreement or otherwise, in such circumstances as the Committee may approve. Any
acceleration of Awards shall comply with applicable regulatory requirements,
including without limitation Section 422 of the Code.
Notwithstanding any other provision of this Plan, this Section 6.2(b)
shall be effective through September 30, 1997 and may not be amended or
terminated during such period except as required by law or to make changes that
do not diminish the benefits or rights provided by this Section 6.2(b). The
Board may, in its sole discretion and for any reason, provide written notice of
termination or amendment (effective as of the then applicable expiration date,
but not with respect to a Change in Control Event occurring on or before such
expiration date) no later than six months before the expiration date of this
Section 6.2(b). If such amendment or termination is not made, this Section
6.2(b) shall be automatically extended for an additional period of 60 months
past the expiration date. This Section 6.2(b) shall continue to be
automatically extended for an additional 60 months at the end of such 60-month
period and each succeeding 60-month period unless notice is given in the manner
described in this Section 6.2(b).
(c) POSSIBLE EARLY TERMINATION OF ACCELERATED AWARDS. If any Option
or other right to acquire Common Stock or Paired Shares under this Plan has not
been exercised prior to (i) a dissolution of the Corporation, (ii) a
reorganization event described in Section 6.2(a) that the Corporation does not
survive, or (iii) the consummation of a reorganization event described in
Section 6.2(a) that results in a Change in Control Event approved by the Board
and no provision has been made for the survival, substitution, exchange or other
settlement of such Option or right, such Option or right shall thereupon
terminate.
(d) GOLDEN PARACHUTE LIMITATIONS. In no event shall an Award be
accelerated under this Plan to an extent or in a manner which would not be fully
deductible by the Company for federal income tax purposes because of Section
280G of the Code, nor shall any payment hereunder be
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accelerated if any portion of such accelerated payment would not be deductible
by the Company because of Section 280G of the Code. If a holder would be
entitled to benefits or payments hereunder and under any other plan or program
which would constitute "parachute payments" as defined in Section 280G of the
Code, then the holder may by written notice to the Company designate the order
in which such parachute payments shall be reduced or modified so that the
Company is not denied federal income tax deductions for any "parachute payments"
because of Section 280G of the Code.
6.3 EFFECT OF TERMINATION OF EMPLOYMENT.
The Committee shall establish in respect of each Award granted to an
Eligible Employee the effect of a termination of employment on the rights and
benefits thereunder and in so doing may make distinctions based upon the cause
of termination, E.G., Retirement, early retirement, termination for cause,
disability or death. Notwithstanding any terms to the contrary in an Award
Agreement or this Plan, the Committee may decide in its complete discretion at
the time of termination (or within a reasonable time thereafter) to extend the
exercise period of an Award (although not beyond the period described in Section
2.3(b)) and the number of shares covered by the Award with respect to which the
Award is exercisable or vested.
6.4 COMPLIANCE WITH LAWS.
This Plan, the granting and vesting of Awards under this Plan and the
offer, issuance and delivery of Paired Shares (or Common Stock) and/or the
payment of money under this Plan or under Awards granted hereunder are subject
to compliance with all applicable federal and state laws, rules and regulations
(including, but not limited to, state and federal securities laws and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Corporation, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Corporation, provide such assurances and
representations to the Corporation as the Corporation may deem necessary or
desirable to assure compliance with all applicable legal requirements.
6.5 TAX WITHHOLDING.
(a) CASH OR SHARES. Upon any exercise, vesting, or payment of any
Award, the Company shall have the right at its option to (i) require the
Participant (or Personal Representative or Beneficiary, as the case may be) to
pay or
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provide for payment of the amount of any taxes which the Company may be required
to withhold with respect to such transaction or (ii) deduct from any amount
payable in cash the amount of any taxes which the Company may be required to
withhold with respect to such cash amount. In any case where a tax is required
to be withheld in connection with the delivery of Paired Shares (or Common
Stock) under this Plan, the Committee may grant (either at the time of the Award
or thereafter) to the Participant the right to elect, or the Committee may
require (either at the time of the Award or thereafter), pursuant to such rules
and subject to such conditions as the Committee may establish, to have the
Corporation reduce the number of Paired Shares or shares of Common Stock, as
applicable, to be delivered by (or otherwise reacquire) the appropriate number
of shares valued at their then Fair Market Value, to satisfy such withholding
obligation.
(b) TAX LOANS. The Committee may, in its discretion, authorize a
loan to an Eligible Employee in the amount of any taxes which the Company may be
required to withhold with respect to Paired Shares or Common Stock received (or
disposed of, as the case may be) pursuant to a transaction described in
subsection (a) above. Such a loan shall be for a term, at a rate of interest
and pursuant to such other terms and conditions as the Committee, under
applicable law may establish and such loan need not comply with the provisions
of Section 1.8.
6.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION.
(a) BOARD AUTHORIZATION. The Board may, at any time, terminate or,
from time to time, amend, modify or suspend this Plan, in whole or in part. No
Awards may be granted during any suspension of this Plan or after termination of
this Plan, but the Committee shall retain jurisdiction as to Awards then
outstanding in accordance with the terms of this Plan.
(b) SHAREHOLDER APPROVAL. If any amendment would (i) materially
increase the benefits accruing to Participants under this Plan, (ii) materially
increase the aggregate number of securities that may be issued under this Plan,
or (iii) materially modify the requirements as to eligibility for participation
in this Plan, then to the extent then required by Rule 16b-3 to secure benefits
thereunder or to avoid liability under Section 16 of the Exchange Act (and Rules
thereunder) or required under Section 425 of the Code or any other applicable
law, or deemed necessary or advisable by the Board, such amendment shall be
subject to shareholder approval.
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(c) AMENDMENTS TO AWARDS. Without limiting any other express
authority of the Committee under but subject to the express limits of this Plan,
the Committee by agreement or resolution may waive conditions of or limitations
on Awards that the Committee in the prior exercise of its discretion has
imposed, without the consent of the Participant, and may make other changes to
the terms and conditions of Awards that do not affect in any manner materially
adverse to the Participant, his or her rights and benefits under an Award.
(d) LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No amendment,
suspension or termination of the Plan or change of or affecting any outstanding
Award shall, without written consent of the Participant, affect in any manner
materially adverse to the Participant any rights or benefits of the Participant
or obligations of the Corporation under any Award granted under this Plan prior
to the effective date of such change. Changes contemplated by Section 6.2 shall
not be deemed to constitute changes or amendments for purposes of this Section
6.6.
6.7 EFFECT OF PAIRING AGREEMENT ON AWARDS.
(a) PAIRING AGREEMENT. This Plan shall be subject to the terms and
conditions of the Pairing Agreement.
(b) PAIRED SHARES. All Awards (other than Options) shall be subject
to the following:
(i) the grant of any Award for Common Stock pursuant to this
Plan shall also be for an equal number of shares of Operating Company
Stock; upon the payment of a Restricted Stock Award, a Stock
Appreciation Right, a Performance Share Award payable in Common Stock
or a Stock Bonus, the Participant shall obtain a number of shares of
Operating Company Stock equal to the number of shares of Common Stock
to be issued upon payment;
(ii) the grant of any Award for Operating Company Stock pursuant
to this Plan shall also be for an equal number of shares of Common
Stock; upon the payment of a Restricted Stock Award, a Stock
Appreciation Right, a Performance Share Award payable in Operating
Company Stock or a Stock Bonus, the Participant shall obtain a number
of shares of Common Stock equal to the number of shares of Operating
Company Stock to be issued upon payment.
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(c) STOCK CERTIFICATES. Upon payment of an Award (other than an
Option), the person receiving Paired Shares shall be entitled to one stock
certificate evidencing the Paired Shares acquired. Upon exercise of an
Option and compliance with the provisions of Section 2.7, the person
receiving Common Stock shall be entitled to one stock certificate
evidencing the Paired Shares so acquired; provided that any person who
tenders Paired Shares to the Corporation in payment of a portion or all of
the purchase price of the stock purchased upon exercise of an Option, shall
be entitled to receive two certificates, one representing a number of
Paired Shares equal to the number of Paired Shares exchanged for the stock
acquired upon exercise and compliance with the provisions of Section 2, and
another representing the additional Paired Shares, if any, acquired upon
exercise of the Option and compliance with the provisions of Section 2.7.
6.8 PRIVILEGES OF STOCK OWNERSHIP.
Except as otherwise expressly authorized by the Committee or this
Plan, a Participant shall not be entitled to any privilege of stock ownership as
to any Paired Shares or Common Stock not actually delivered to and held of
record by him or her. No adjustment will be made for dividends or other rights
as a shareholder for which a record date is prior to such date of delivery.
6.9 EFFECTIVE DATE OF THE PLAN.
This Plan shall be effective as of December 15, 1994, the date of
Board approval, subject to shareholder approval within 12 months thereafter.
6.10 TERM OF THE PLAN.
No Award shall be granted more than ten years after the effective date
of this Plan (the "termination date"). Unless otherwise expressly provided in
this Plan or in an applicable Award Agreement, any Award theretofore granted may
extend beyond such date, and all authority of the Committee with respect to
Awards hereunder shall continue during any suspension of this Plan and in
respect of outstanding Awards on such termination date.
6.11 GOVERNING LAW; CONSTRUCTION; SEVERABILITY.
(a) CHOICE OF LAW. This Plan, the Awards, all documents evidencing
Awards and all other related documents shall be governed by, and construed in
accordance with the laws of the State of California applicable to contracts made
and performed within such State, except as such laws may be
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supplanted by the laws of the United States of America, which laws shall then
govern its effect and its construction to the extent they supplant California
law.
(b) SEVERABILITY. If any provision shall be held by a court of
competent jurisdiction to be invalid and unenforceable, the remaining provisions
of this Plan shall continue in effect.
(c) PLAN CONSTRUCTION. (1) It is the intent of the Corporation that
this Plan and Awards hereunder satisfy and be interpreted in a manner that in
the case of Participants who are or may be subject to Section 16 of the Exchange
Act satisfies the applicable requirements of Rule 16b-3 so that such persons
will be entitled to the benefits of Rule 16b-3 or other exemptive rules under
Section 16 of the Exchange Act and will not be subjected to avoidable liability
thereunder. If any provision of this Plan or of any Award or any prior action
by the Committee would otherwise frustrate or conflict with the intent expressed
above, that provision to the extent possible shall be interpreted and deemed
amended so as to avoid such conflict, but to the extent of any remaining
irreconcilable conflict with such intent as to such persons in the
circumstances, such provision shall be deemed void.
(2) It is the further intent of the Company that Options or Stock
Appreciation Rights with an exercise or base price not less than Fair Market
Value on the date of grant, that are granted to or held by a Section 16 Person,
shall qualify as performance-based compensation under Section 162(m) of the
Code, and this Plan shall be interpreted consistent with such intent.
6.12 CAPTIONS.
Captions and headings are given to the sections and subsections of
this Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
6.13 EFFECT OF CHANGE OF SUBSIDIARY STATUS.
For purposes of this Plan and any Award hereunder, if an entity ceases
to be a Subsidiary, a termination of employment shall be deemed to have occurred
with respect to each employee of such Subsidiary who does not continue as an
employee of another entity within the Company.
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6.14 NON-EXCLUSIVITY OF PLAN.
Nothing in this Plan shall limit or be deemed to limit the authority
of the Board or the Committee to grant awards or authorize any other
compensation, with or without reference to the Common Stock and/or Operating
Company Stock, under any other plan or authority.
VII. DEFINITIONS.
7.1 DEFINITIONS.
(a) "AWARD" shall mean an award of any Option, Stock Appreciation
Right, Restricted Stock Award, Performance Share Award, Stock Bonus, Dividend
Equivalent or other right or security that would constitute a "derivative
security" under Rule 16a-1(c) of the Exchange Act, or any combination thereof,
whether alternative or cumulative, authorized by and granted under this Plan.
(b) "AWARD AGREEMENT" shall mean any writing setting forth the terms
of an Award that has been authorized by the Committee.
(c) "AWARD DATE" shall mean the date upon which the Committee took
the action granting an Award or such later date as the Committee designates as
the Award Date at the time of the Award.
(d) "AWARD PERIOD" shall mean the period beginning on an Award Date
and ending on the expiration date of such Award.
(e) "BENEFICIARY" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the benefits
specified in the Award Agreement and under this Plan in the event of a
Participant's death, and shall mean the Participant's executor or administrator
if no other Beneficiary is identified and able to act under the circumstances.
(f) "BOARD" shall mean the Board of Directors of the Corporation.
(g) "CHANGE IN CONTROL EVENT" shall mean:
(1) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (A) the then
outstanding shares of Common Stock
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(the "Outstanding Common Stock") or (B) the combined voting power of the
then outstanding voting securities of the Corporation entitled to vote
generally in the election of directors (the "Outstanding Voting
Securities"); provided, however, that the following acquisitions shall not
constitute a Change in Control Event: (A) any acquisition directly from the
Corporation (except that an acquisition by virtue of the exercise of a
conversion privilege shall not be considered within this clause (A) unless
the converted security was itself acquired directly from the Corporation),
(B) any acquisition by the Corporation, (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Corporation
or any corporation controlled by the Corporation or (D) any acquisition by
any corporation pursuant to a reorganization, merger or consolidated, if,
following such reorganization, merger or consolidation, the conditions
described in clauses (A) and (B) of paragraph (3) below are satisfied;
(2) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual who becomes a
director subsequent to the date hereof whose election, or nomination for
election by the Corporation's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent
Board; but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(3) Approval by the shareholders of the Corporation of a
reorganization, merger or consolidation (a "transaction"), unless,
following such transaction in each case, (A) more than 80% of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such transaction and the combined voting power
of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Common Stock and Outstanding Voting Securities immediately prior to such
transaction and
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(B) no Person (excluding the Corporation, any employee benefit plan (or
related trust) of the Corporation or such corporation resulting from such
transaction and any Person beneficially owning, immediately prior to such
transaction, directly or indirectly, 20% or more of the Outstanding Common
Stock or Outstanding Voting Securities, as the case may be) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
transaction or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors; or
(4) Approval by the shareholders of the Corporation of (A) a
complete liquidation or dissolution of the Corporation or (B) the sale or
other disposition of all or substantially all of the assets of the
Corporation, unless such assets are sold to a corporation and following
such sale or other disposition, the conditions described in clauses (A) and
(B) of paragraph (3) above are satisfied.
(h) "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(i) "COMMISSION" shall mean the Securities and Exchange Commission.
(j) "COMMITTEE" shall mean the Compensation Committee of the Board,
which Committee shall be comprised only of two or more directors or such greater
number of directors as may be required under applicable law, each of whom,
during such time as one or more Participants may be subject to Section 16 of the
Exchange Act, shall be a Disinterested and Outside director.
(k) "COMMON STOCK" shall mean the common stock of the Corporation,
$.10 par value per share, and such other securities or property as may become
the subject of Awards, or become subject to Awards, pursuant to an adjustment
made under Section 6.2 of this Plan.
(l) "COMPANY" shall mean, collectively, the Corporation and its
Subsidiaries.
(m) "CORPORATION" shall mean Santa Anita Realty Enterprises, Inc., a
Delaware corporation, and its successors.
(n) "DISINTERESTED AND OUTSIDE" shall mean "disinterested" within the
meaning of any applicable
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regulatory requirements, including Rule 16b-3, and "outside" within the meaning
of Section 162(m) of the Code.
(o) "DIVIDEND EQUIVALENT" shall mean an amount equal to the amount of
cash dividends or other cash distributions paid (or such portion of such
dividend or other distribution as may be designated by the Committee) with
respect to each share of Common Stock after the date of an Award of a Dividend
Equivalent.
(p) "ELIGIBLE EMPLOYEE" shall mean an officer (whether or not a
director) or any other employee of the Company, or any Other Eligible Person, as
determined by the Committee in its discretion.
(q) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
(r) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(s) "FAIR MARKET VALUE" shall mean, with respect to Common Stock or
Operating Company Stock, the fair market value of an unpaired share of Common
Stock or Operating Company Stock, as the case may be, as determined in good
faith by the Committee. The Fair Market Value of a Paired Share shall mean the
closing price of a Paired Share on the Composite Tape, as published in the
Western Edition of The Wall Street Journal, of the principal national securities
exchange on which the Paired Shares are so listed or admitted to trade, on such
date, or, if there is no trading of the Paired Shares on such date, then the
closing price of the Paired Shares as quoted on such Composite Tape on the next
preceding date on which there was trading in such shares; provided, however, if
the Paired Shares are not listed or admitted to trade on a national securities
exchange, the Committee may designate such other exchange, market or source of
data as it deems appropriate for determining such value for Plan purposes.
(t) "INCENTIVE STOCK OPTION" shall mean an Option which is designated
as an incentive stock option within the meaning of Section 422 of the Code and
which contains such provisions as are necessary to comply with that section.
(u) "NONQUALIFIED STOCK OPTION" shall mean an Option that is
designated as a Nonqualified Stock Option and shall include any Option intended
as an Incentive Stock Option that fails to meet the applicable legal
requirements thereof. Any Option granted hereunder that is not designated as an
incentive stock option shall be deemed to be designated a nonqualified stock
option under this Plan and not an incentive stock option under the Code.
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(v) "NON-EMPLOYEE DIRECTOR" shall mean a member of the Board who is
not an officer or employee of the Company.
(w) "OPERATING COMPANY" means Santa Anita Operating Company, a
Delaware corporation.
(x) "OPERATING COMPANY STOCK" means the common stock of Operating
Company, $.10 par value per share, and such other securities or property as may
become subject of Awards or become subject to Awards, pursuant to an adjustment
made under Section 6.2 of this Plan.
(y) "OPTION" shall mean an option to purchase shares of Common Stock
under this Plan. The Committee shall designate any Option granted to an
Eligible Employee as a Nonqualified Stock Option or an Incentive Stock Option.
(z) "OTHER ELIGIBLE PERSON" shall mean any individual consultant,
advisor or (to the extent provided in the next sentence) agent who renders or
has rendered BONA FIDE services (other than services in connection with the
offering or sale of securities of the Company in a capital raising transaction)
to the Company, and who is selected to participate in this Plan by the
Committee; PROVIDED that if the Corporation's officers and directors are or
become subject to Section 16 of the Exchange Act, a Non-Employee Director shall
not thereafter be selected as an Other Eligible Person. A non-employee agent
providing BONA FIDE services to the Company (other than as an eligible advisor
or consultant) may also be selected as an Other Eligible Person if such agent's
participation in this Plan would not adversely affect (x) the Corporation's
eligibility to use Form S-8 to register under the Securities Act of 1933, as
amended, the offering of shares issuable under this Plan by the Company or (y)
the Corporation's compliance with any other applicable laws.
(aa) "PAIRED SHARE" means a share of Common Stock and a share of
Operating Company Stock.
(bb) "PAIRING AGREEMENT" means the Pairing Agreement between the
Corporation and Operating Company, dated as of December 31, 1979, as it may be
amended from time to time.
(cc) "PARTICIPANT" shall mean an Eligible Employee who has been
granted an Award under this Plan.
(dd) "PERFORMANCE SHARE AWARD" shall mean an Award made pursuant to
the provisions, and subject to the terms and conditions, of Article V of the
Plan.
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(ee) "PERSONAL REPRESENTATIVE" shall mean the person or persons who,
upon the Total Disability or incompetence of a Participant, shall have acquired
on behalf of the Participant, by legal proceeding or otherwise, the power to
exercise the rights or receive benefits under this Plan and who shall have
become the legal representative of the Participant.
(ff) "PLAN" shall mean this 1995 Share Award Plan.
(gg) "QDRO" shall mean a qualified domestic relations order as defined
in Section 414(p) of the Code or Title I, Section 206(d)(3) of ERISA (to the
same extent as if this Plan were subject thereto), or the applicable rules
thereunder.
(hh) "RESTRICTED STOCK" shall mean Paired Shares awarded to a
Participant subject to payment of such consideration, if any, and such
conditions on vesting and such transfer and other restrictions as are
established in or pursuant to this Plan, for so long as such shares remain
unvested under the terms of the applicable Award Agreement.
(ii) "RETIREMENT" shall mean retirement from active service as an
employee or officer of the Company on or after attaining age 65.
(jj) "RULE 16B-3" shall mean Rule 16b-3 as promulgated by the
Commission pursuant to the Exchange Act.
(kk) "SECTION 16 PERSON" shall mean a person subject to Section 16(a)
of the Exchange Act.
(ll) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended from time to time.
(mm) "STOCK APPRECIATION RIGHT" shall mean a right to receive a number
of Paired Shares or an amount of cash, or a combination of shares and cash, the
aggregate amount or value of which is determined by reference to a change in the
Fair Market Value of the Paired Shares that is authorized under this Plan.
(nn) "SUBSIDIARY" shall mean any corporation or other entity a
majority of whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Corporation.
(oo) "TOTAL DISABILITY" shall mean a "permanent and total disability"
within the meaning of Section 22(e)(3) of the Code and such other disabilities,
infirmities,
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afflictions or conditions as the Committee by rule may include.
EXECUTED this 15th day of December, 1995.
SANTA ANITA REALTY ENTERPRISES, INC.
By: /s/ Brian L. Fleming
--------------------------------------------
Executive Vice President, Chief
Its: Financial Officer and Secretary
--------------------------------------------
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SANTA ANITA OPERATING COMPANY
1995 SHARE AWARD PLAN
<PAGE>
TABLE OF CONTENTS
Page
----
I. THE PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Administration and Authorization; Power and Procedure. . . . . . . 1
1.3 Participation. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Shares Available for Awards. . . . . . . . . . . . . . . . . . . . 3
1.5 Grant of Awards. . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.6 Award Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.7 Limitations on Exercise and Vesting of Awards. . . . . . . . . . . 5
1.8 Acceptance of Notes to Finance Exercise. . . . . . . . . . . . . . 6
1.9 No Transferability . . . . . . . . . . . . . . . . . . . . . . . . 7
II. EMPLOYEE OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Option Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 Limitations on Grant and Terms of Incentive Stock Options. . . . . 9
2.4 Limits on 10% Holders. . . . . . . . . . . . . . . . . . . . . . . 9
2.5 Option Repricing; Cancellation and Regrant; Waiver of
Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6 Dividend Equivalents . . . . . . . . . . . . . . . . . . . . . . . 10
III. STOCK APPRECIATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . 10
3.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Exercise of Stock Appreciation Rights. . . . . . . . . . . . . . . 11
3.3 Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
IV. RESTRICTED STOCK AWARDS . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Return to the Corporation. . . . . . . . . . . . . . . . . . . . . 13
V. PERFORMANCE SHARE AWARDS AND STOCK BONUSES. . . . . . . . . . . . . . . 13
5.1 Grants of Performance Share Awards . . . . . . . . . . . . . . . . 13
5.2 Grants of Stock Bonuses. . . . . . . . . . . . . . . . . . . . . . 13
5.3 Deferred Payments. . . . . . . . . . . . . . . . . . . . . . . . . 14
(i)
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VI. OTHER PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.1 Rights of Eligible Employees, Participants and Beneficiaries . . . 14
6.2 Adjustments; Acceleration. . . . . . . . . . . . . . . . . . . . . 15
6.3 Effect of Termination of Employment. . . . . . . . . . . . . . . . 17
6.4 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . 17
6.5 Tax Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.6 Plan Amendment, Termination and Suspension . . . . . . . . . . . . 18
6.7 Effect of Pairing Agreement on Awards. . . . . . . . . . . . . . . 19
6.8 Privileges of Stock Ownership. . . . . . . . . . . . . . . . . . . 20
6.9 Effective Date of the Plan . . . . . . . . . . . . . . . . . . . . 20
6.10 Term of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.11 Governing Law; Construction; Severability. . . . . . . . . . . . . 21
6.12 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.13 Effect of Change of Subsidiary Status. . . . . . . . . . . . . . . 22
6.14 Non-Exclusivity of Plan. . . . . . . . . . . . . . . . . . . . . . 22
VII. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(ii)
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SANTA ANITA OPERATING COMPANY
1995 SHARE AWARD PLAN
I. THE PLAN.
1.1 PURPOSE.
The purpose of this Plan is to promote the success of the Company by
providing an additional means through the grant of Awards to attract, motivate,
retain and reward key employees, including officers, whether or not directors,
of the Company with awards and incentives for high levels of individual
performance and improved financial performance of the Company. "Corporation"
means Santa Anita Operating Company and "Company" means the Corporation and its
Subsidiaries, collectively. These terms and other capitalized terms are defined
in Article VII.
1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE.
(a) COMMITTEE. This Plan shall be administered by, and all Awards to
Eligible Employees shall be authorized by, the Committee. Action of the
Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or by written consent of its members.
(b) PLAN AWARDS; INTERPRETATION; POWERS OF COMMITTEE. Subject to the
express provisions of this Plan, the Committee shall have the authority:
(i) to determine from among those persons eligible the particular
Eligible Employees who will receive any Awards;
(ii) to grant Awards to Eligible Employees, determine the price at
which securities will be offered or awarded and the amount of securities to
be offered or awarded to any of such persons, and determine the other
specific terms and conditions of such Awards consistent with the express
limits of this Plan, and establish the installments (if any) in which such
Awards shall become exercisable or shall vest, or determine that no delayed
exercisability or vesting is required, and establish the events of
termination or reversion (if any) of such Awards;
(iii) to approve the forms of Award Agreements (which need not be
identical either as to type of Award or among Participants);
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(iv) to construe and interpret this Plan and any agreements defining
the rights and obligations of the Company and Participants under this Plan,
further define the terms used in this Plan, and prescribe, amend and
rescind rules and regulations relating to the administration of this Plan;
(v) to cancel, modify, or waive the Corporation's rights with respect
to, or modify, discontinue, suspend, or terminate any or all outstanding
Awards held by Participants, subject to any required consent under Section
6.6;
(vi) to accelerate or extend the exercisability or vesting extend the
term of any or all such outstanding Awards within the maximum ten-year term
of Awards under Section 1.6; and
(vii) to make all other determinations and take such other action
as contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.
(c) BINDING DETERMINATIONS. Any action taken by, or inaction of, the
Corporation, any Subsidiary, the Board or the Committee relating or pursuant to
this Plan shall be within the absolute discretion of that entity or body and
shall be conclusive and binding upon all persons. No member of the Board or
Committee, or officer of the Corporation or any Subsidiary, shall be liable for
any such action or inaction of the entity or body, of another person or, except
in circumstances involving bad faith, of himself or herself. Subject only to
compliance with the express provisions hereof, the Board and Committee may act
in their absolute discretion in matters within their authority related to this
Plan.
(d) RELIANCE ON EXPERTS. In making any determination or in taking
or not taking any action under this Plan, the Committee or the Board, as the
case may be, may obtain and may rely upon the advice of experts, including
professional advisors to the Corporation. No director, officer or agent of the
Company shall be liable for any such action or determination taken or made or
omitted in good faith.
(e) DELEGATION. The Committee may delegate ministerial, non-
discretionary functions to individuals who are officers or employees of the
Company.
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1.3 PARTICIPATION.
Awards may be granted by the Committee only to those persons that the
Committee determines to be Eligible Employees. An Eligible Employee who has
been granted an Award may, if otherwise eligible, be granted additional Awards
if the Committee shall so determine. Non-Employee Directors shall not be
eligible to receive any Awards.
1.4 SHARES AVAILABLE FOR AWARDS.
Subject to the provisions of Section 6.2, the capital stock that may
be delivered under this Plan shall be shares of the Corporation's authorized but
unissued Common Stock, any shares of its Common Stock held as treasury shares
and shares of Realty Stock. The shares may be delivered for any lawful
consideration.
(a) NUMBER OF SHARES. The maximum number of shares of Common Stock
and Realty Stock that may be delivered pursuant to Awards granted to Eligible
Employees under this Plan shall not exceed 780,000 Paired Shares, subject to
subsection (c) below and the adjustments contemplated by Section 6.2. The
maximum number of Options and Stock Appreciation Rights (whether payable in
Paired Shares, cash or any combination thereof) that may be granted to an
Eligible Employee during any one-year period shall not exceed 150,000, subject
to adjustment as contemplated in Section 6.2.
(b) RESERVATION OF SHARES. Common Stock subject to outstanding
Awards of derivative securities (as defined in Rule 16a-1(c) under the Exchange
Act) shall be reserved for issuance; a like number of shares of Realty Stock
shall be purchased from Realty or arrangements shall be made with Realty for
simultaneous issuance by Realty of the same number of shares of Realty Stock as
the number of shares of Common Stock to be issued in connection with an Award;
PROVIDED that nothing herein shall be construed to prevent the Corporation from
purchasing Paired Shares in the open market for use in connection with Awards.
If a Stock Appreciation Right or similar right is exercised or a Performance
Share Award based on the increased market value of a specified number of Paired
Shares is paid, the number of Paired Shares to which such exercise or payment
relates under the applicable Award shall be charged against the maximum amount
of Paired Shares that may be delivered pursuant to Awards under this Plan and,
if applicable, such Award. If the Corporation withholds Paired Shares pursuant
to Section 6.5, the number of shares that would have been deliverable with
respect to an Award but that are withheld pursuant to the provisions of Section
6.5 may in effect not be issued, but the aggregate number of shares issuable
with
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respect to the applicable Award and under the Plan shall be reduced by the
number of shares withheld and such shares shall not be available for additional
Awards under this Plan. To the extent a Performance Share Award constitutes an
equity security (as this phrase is defined in Rule 16a-1 under the Exchange Act)
issued by the Corporation and is paid in shares of Paired Shares, the number of
Paired Shares (if any) subject to such Performance Share Award shall be charged
(but in the case of tandem or substituted Awards, without duplication) against
the maximum number of Paired Shares that may be delivered pursuant to Awards
under this Plan.
(c) CASH ONLY AWARD LIMIT. Awards payable solely in cash under the
Plan and Awards payable either in cash or shares that are actually paid in cash
shall constitute and be referred to as "CASH ONLY AWARDS". The number of Cash
Only Awards shall be determined by reference to the number of Paired Shares by
which the Award is measured. The maximum number of Cash Only Awards that may be
paid shall not, together with the aggregate number of Paired Shares that may be
delivered under subsection (a), exceed 780,000, subject to adjustments under
Section 6.2. Awards payable either in cash or shares shall not be counted
against the Cash Only Award limit if charged against the share limit in
subsection (a). Notwithstanding the foregoing, if an Award paid or payable
solely in cash satisfies the requirements for the exclusion from the definition
of a derivative security in Rule 16a-1(c) that does not require that the award
be made under a Rule 16b-3 plan, the Award shall not be counted against any of
the limits of this Section.
(d) REISSUE OF AWARDS. Subject to any restrictions under Rule 16b-3,
any unexercised, unconverted, unvested or undistributed portion of any expired,
cancelled, terminated or forfeited Award, or any alternative form of
consideration under an Award that is not paid in connection with the settlement
of an Award or any portion of an Award, shall again be available for Award under
subsection (a) or (c) above, as applicable, whether or not the Participant has
received benefits of ownership (such as dividends or dividend equivalents or
voting rights) during the period in which the Participant's ownership was
restricted or otherwise not vested. Shares that are issued pursuant to Awards
and subsequently reacquired by the Corporation pursuant to the terms and
conditions of the Awards also shall be available for reissuance under the Plan.
(e) INTERPRETIVE ISSUES. Additional rules for determining the number
of shares or Cash Only Awards authorized under the Plan may be adopted by the
Committee, as it deems necessary or appropriate; provided that such rules are
consistent with Rule 16b.
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1.5 GRANT OF AWARDS.
Subject to the express provisions of this Plan, the Committee shall
determine the number of Paired Shares subject to each Award, and the price (if
any) to be paid for the Paired Shares or the Award and, in the case of
Performance Share Awards, in addition to matters addressed in Section 1.2(b),
the specific objectives, goals and performance criteria (such as an increase in
revenues, market value, earnings or book value over a base period, the years of
service before vesting, the relevant job classification or level of
responsibility or other factors) that further define the terms of the
Performance Share Award. Each Award shall be evidenced by an Award Agreement
signed by the Corporation and, if required by the Committee, by the Participant.
1.6 AWARD PERIOD.
Each Award and all executory rights or obligations under the related
Award Agreement shall expire on such date (if any) as shall be determined by the
Committee, but, in the case of Options or other rights to acquire Paired Shares,
not later than ten (10) years after the Award Date.
1.7 LIMITATIONS ON EXERCISE AND VESTING OF AWARDS.
(a) PROVISIONS FOR EXERCISE. Except as may otherwise be provided in
an Award Agreement, no Award shall be exercisable or shall vest until at least
six months after the initial Award Date, and once exercisable an Award shall
remain exercisable until the expiration or earlier termination of the Award,
unless the Committee otherwise provides.
(b) PROCEDURE. Any exercisable Award shall be deemed to be exercised
when the Secretary of the Corporation receives written notice of such exercise
from the Participant, together with any required payment made in accordance with
Section 2.2(b).
(c) FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests
shall be disregarded, but may be accumulated. The Committee, however, may
determine that cash, other securities or other property will be paid or
transferred in lieu of any fractional share interests. No fewer than 10 Paired
Shares may be purchased on exercise of any Award at one time unless the number
purchased is the total number at the time available for purchase under the
Award.
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1.8 ACCEPTANCE OF NOTES TO FINANCE EXERCISE.
The Corporation may, with the Committee's approval, accept one or more
notes from any Participant in connection with the exercise or receipt of any
outstanding Award; PROVIDED that any such note shall be subject to the following
terms and conditions:
(a) The principal of the note shall not exceed the amount required to
be paid to the Corporation upon the exercise or receipt of one or more
Awards under the Plan and the note shall be delivered directly to the
Corporation in consideration of such exercise or receipt.
(b) The note shall be repaid over a period of time not to exceed five
years, with annual installments of at least 10% of principal the first four
years and a balloon payment of the remaining principal amount at the end of
the fifth year; PROVIDED that the Corporation may demand any payment, in
addition to such installments, as may be required for the note to remain in
compliance with any applicable federal or state regulation.
(c) The note shall provide for full recourse to the Participant and
shall bear interest at a rate determined by the Committee but not less than
the applicable imputed interest rate specified by the Code.
(d) Except as otherwise provided by the Committee, if the employment
of the Participant terminates, the unpaid principal balance of the note
shall become due and payable on the 10th business day after such
termination; PROVIDED, HOWEVER, that if a sale of any Paired Shares
acquired by the Participant in connection with an Award to which the note
relates would cause such Participant to incur liability under Section 16(b)
of the Exchange Act, the unpaid balance shall become due and payable on the
10th business day after the first day on which a sale of such shares could
have been made without incurring such liability assuming for these purposes
that there are no other transactions by the Participant subsequent to such
termination.
(e) If required by the Committee or by applicable law, the note shall
be secured by a pledge of any shares or rights financed thereby in
compliance with applicable law.
(f) The terms, repayment provisions, and collateral release
provisions of the note and the
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pledge securing the note shall conform with applicable rules and
regulations of the Federal Reserve Board as then in effect.
1.9 NO TRANSFERABILITY.
(a) Awards may be exercised only by, and amounts payable or Paired
Shares issuable pursuant to an Award shall be paid only to (or registered only
in the name of), the Participant or, if the Participant has died, the
Participant's Beneficiary or, if the Participant has suffered a Total
Disability, the Participant's Personal Representative, if any, or if there is
none, the Participant, or (to the extent permitted by applicable law and Rule
16b-3) to a third party pursuant to such conditions and procedures as the
Committee may establish. Other than by will or the laws of descent and
distribution or pursuant to a QDRO or other exception to transfer restrictions
under Rule 16b-3 (except to the extent not permitted in the case of an Incentive
Stock Option), no right or benefit under this Plan or any Award, including,
without limitation, any Option or shares of Restricted Stock that has not
vested, shall be transferrable by the Participant or shall be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge (other than to the Corporation) and any such attempted
action shall be void. The Corporation shall disregard any attempt at transfer,
assignment or other alienation prohibited by the preceding sentences and shall
pay or deliver such cash or Paired Shares in accordance with the provisions of
this Plan. The designation of a Beneficiary hereunder shall not constitute a
transfer for these purposes.
(b) Nothing in this plan authorizes, or shall be construed to
authorize, a transfer or exchange by a Participant, Beneficiary, Personal
Representative or any third party of any shares of Common Stock or Realty Stock
in contravention of the provisions of the Pairing Agreement.
(c) The restrictions on exercise and transfer above shall not be
deemed to prohibit the authorization by the Committee of "cashless exercise"
procedures with unaffiliated third parties who provide financing for the purpose
of (or who otherwise facilitate) the exercise of Awards consistent with
applicable legal restrictions and Rule 16b-3, nor, to the extent permitted by
the Committee, transfers for estate and financial planning purposes,
notwithstanding that the inclusion of such features may render the particular
Awards ineligible for the benefits of Rule 16b-3, nor, in the case of
Participants who are not Section 16 Persons, transfers to such other persons or
in such other circumstances as the Committee may in the Award Agreement or other
writing expressly permit.
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II. EMPLOYEE OPTIONS.
2.1 GRANTS.
One or more Options may be granted under this Article to any Eligible
Employee, subject to the provisions of Section 1.4. Each Option granted may be
either an Option intended to be an Incentive Stock Option (as to the Common
Stock covered by the Option, but not the Realty Stock), or an Option not so
intended, and such intent shall be indicated in the applicable Award Agreement.
2.2 OPTION PRICE.
(a) PRICING LIMITS. Subject to Section 2.4, (i) the purchase price
per share of the Common Stock covered by each Option and (ii) the purchase price
per share of the Realty Stock covered by each Option shall be determined by the
Committee at the time the Option is granted, but shall not be less than 100% of
the Fair Market Value of the Common Stock or Realty Stock, as the case may be,
on the date of grant.
(b) PAYMENT PROVISIONS. The purchase price of any shares purchased
on exercise of an Option granted under this Article shall be paid in full at the
time of each purchase in one or a combination of the following methods: (i) in
cash or by electronic funds transfer; (ii) by check payable to the order of the
Corporation; (iii) if authorized by the Committee or specified in the applicable
Award Agreement, in cash in an amount equal to the par value of the shares being
purchased, and, in the form of a promissory note (consistent with the
requirements of Section 1.8) of the Participant in an amount equal to the
difference between said cash amount and the purchase price of such shares; (iv)
by notice and third party payment in such manner as may be authorized by the
Committee; (v) by the delivery of Paired Shares already owned by the
Participant, PROVIDED, HOWEVER, that the Committee may in its absolute
discretion limit the Participant's ability to exercise an Award by delivering
such Paired Shares; or (vi) if authorized by the Committee or specified in the
applicable Award Agreement, by reduction in the number of Paired Shares
otherwise deliverable upon exercise by that number of Paired Shares which have a
then Fair Market Value equal to such purchase price. Previously owned Paired
Shares used to satisfy the exercise price of an Option under clause (v) shall be
valued at their Fair Market Value on the date of exercise.
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2.3 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS.
(a) $100,000 LIMIT. To the extent that the aggregate "fair market
value" of Common Stock subject to any Option with respect to which Incentive
Stock Options first become exercisable by a Participant in any calendar year
exceeds $100,000, taking into account both Common Stock subject to Incentive
Stock Options under this Plan and stock subject to incentive stock options under
all other plans of the Company, such options shall be treated as Nonqualified
Stock Options. For this purpose, the "fair market value" of the Common Stock
subject to Options shall be determined as of the date the Options were awarded.
In reducing the number of Options treated as Incentive Stock Options to meet the
$100,000 limit, the most recently granted Options shall be reduced first. To
the extent a reduction of simultaneously granted Options is necessary to meet
the $100,000 limit, the Committee may, in the manner and to the extent permitted
by law, designate which shares of Common Stock are to be treated as shares
acquired pursuant to the exercise of an Incentive Stock Option.
(b) OPTION PERIOD. Subject to Section 2.4, each Option and all
rights thereunder shall expire no later than ten years after the Award Date.
(c) OTHER CODE LIMITS. There shall be imposed in any Award Agreement
relating to Incentive Stock Options such terms and conditions as from time to
time are required in order that the Option be an "incentive stock option" as
that term is defined in Section 422 of the Code.
(d) REALTY STOCK. To the extent an Option is for the purchase of
Realty Stock, such Option shall be treated as a Nonqualified Stock Option.
2.4 LIMITS ON 10% HOLDERS.
No Incentive Stock Option may be granted to any person who, at the
time the Option is granted, owns (or is deemed to own under Section 424(d) of
the Code) shares of outstanding Common Stock possessing more than 10% of the
total combined voting power of all classes of stock of the Corporation, unless
the exercise price of such Option with respect to the Common Stock covered by
the Option is at least 110% of the Fair Market Value of the Common Stock subject
to the Option and such Option by its terms is not exercisable after the
expiration of five years from the date such Option is granted.
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2.5 OPTION REPRICING; CANCELLATION AND REGRANT; WAIVER OF RESTRICTIONS.
Subject to Section 1.4 and Section 6.6 and the specific limitations on
Awards contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Employee,
any adjustment in the exercise or purchase price, the number of shares subject
to, the restrictions upon or the term of, an Award granted under this Article by
cancellation of an outstanding Award and a subsequent regranting of an Award, by
amendment, by substitution of an outstanding Award, by waiver or by other
legally valid means. Such amendment or other action may result among other
changes in an exercise or purchase price which is higher or lower than the
exercise or purchase price of the original or prior Award, provide for a greater
or lesser number of shares subject to the Award, or provide for a longer or
shorter vesting or exercise period.
2.6 DIVIDEND EQUIVALENTS.
The Committee may, at the time of granting an Option, grant Dividend
Equivalents attributable to Paired Shares subject to the Option. Dividend
Equivalents shall be paid in cash only to the extent the Option is unexercised
as of the dividend record date, as specified in the Award Agreement, as follows:
the Dividend Equivalent per Paired Share shall be multiplied by the number of
Paired Shares subject to Option and an amount equal to the product so derived
shall be paid in cash to the Participant on the dividend payment date. The
Committee may in the Award specify that Dividend Equivalents shall be paid only
for a specified time period or only as to that portion of the Option that has
vested.
III. STOCK APPRECIATION RIGHTS.
3.1 GRANTS.
In its discretion, the Committee may grant to any Eligible Employee
Stock Appreciation Rights either concurrently with the grant of another Award or
in respect of an outstanding Award, in whole or in part, or independently of any
other Award. Any Stock Appreciation Right granted in connection with an
Incentive Stock Option shall contain such terms as may be required to comply
with the provisions of Section 422 of the Code and the regulations promulgated
thereunder.
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3.2 EXERCISE OF STOCK APPRECIATION RIGHTS.
(a) EXERCISABILITY. Unless the Award Agreement or the Committee
otherwise provides, a Stock Appreciation Right related to another Award shall be
exercisable at such time or times, and to the extent, that the related Award
shall be exercisable.
(b) EFFECT ON AVAILABLE SHARES. In the event that a Stock
Appreciation Right is exercised, the number of Paired Shares subject to the
Award shall be charged against the number of Paired Shares subject to the Stock
Appreciation Right and the related Option of the Participant.
(c) STAND-ALONE SARS. A Stock Appreciation Right granted
independently of any other Award shall be exercisable pursuant to the terms of
the Award Agreement but, unless the Committee determines otherwise, in no event
earlier than six months after the Award Date, except in the case of death or
Total Disability.
3.3 PAYMENT.
(a) AMOUNT. Unless the Committee otherwise provides, upon exercise
of a Stock Appreciation Right and surrender of an exercisable portion of any
related Award, the Participant shall be entitled to receive payment of an amount
determined by multiplying
(i) the difference obtained by subtracting the exercise price
per Paired Share under the related Award (if applicable) or the initial
share value specified in the Award from the Fair Market Value of a Paired
Share on the date of exercise of the Stock Appreciation Right, by
(ii) the number of Paired Shares with respect to which the Stock
Appreciation Right shall have been exercised.
(b) FORM OF PAYMENT. The Committee, in its sole discretion, shall
determine the form in which payment shall be made of the amount determined under
paragraph (a) above, either solely in cash, solely in Paired Shares (valued at
Fair Market Value on the date of exercise of the Stock Appreciation Right), or
partly in such Paired Shares and partly in cash, PROVIDED that the Committee
shall have determined that such exercise and payment are consistent with
applicable law. If the Committee permits the Participant to elect to receive
cash or Paired Shares (or a combination thereof) on such exercise, any such
election shall be subject to such conditions as the Committee may
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impose and, in the case of any Section 16 Person, any election to receive cash
shall be subject to any applicable limitations under Rule 16b-3.
IV. RESTRICTED STOCK AWARDS.
4.1 GRANTS.
The Committee may, in its discretion, grant one or more Restricted
Stock Awards to any Eligible Employee. Each Restricted Stock Award Agreement
shall specify the number of Paired Shares to be issued, the date of such
issuance, the consideration for such Paired Shares (but not less than the
minimum lawful consideration) to be paid by the Participant and the restrictions
imposed on such Paired Shares and the conditions of release or lapse of such
restrictions. Such restrictions shall not lapse earlier than six months after
the Award Date, except to the extent the Committee may otherwise provide. Stock
certificates evidencing shares of Restricted Stock pending the lapse of the
restrictions ("restricted shares") shall bear a legend making appropriate
reference to the restrictions imposed hereunder and shall be held by the
Corporation or by a third party designated by the Committee until the
restrictions on such shares shall have lapsed and the shares shall have vested
in accordance with the provisions of the Award and Section 1.7. Upon issuance
of the Restricted Stock Award, the Participant may be required to provide such
further assurance and documents as the Committee may require to enforce the
restrictions.
4.2 RESTRICTIONS.
(a) PRE-VESTING RESTRAINTS. Except as provided in Section 1.9 and
4.1, restricted shares comprising any Restricted Stock Award may not be sold,
assigned, transferred, pledged or otherwise disposed of or encumbered, either
voluntarily or involuntarily, until such shares have vested.
(b) DIVIDEND AND VOTING RIGHTS. Unless otherwise provided in the
applicable Award Agreement, a Participant receiving a Restricted Stock Award
shall be entitled to cash dividend and voting rights for all shares issued even
though they are not vested, PROVIDED that such rights shall terminate
immediately as to any restricted shares which cease to be eligible for vesting.
(c) CASH PAYMENTS. If the Participant shall have paid or received
cash (including any dividends) in connection with the Restricted Stock Award,
the Award Agreement shall specify whether and to what extent such cash shall be
returned (with or without an earnings factor) as to
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any restricted shares which cease to be eligible for vesting.
4.3 RETURN TO THE CORPORATION.
Unless the Committee otherwise expressly provides, shares of
Restricted Stock that are subject to restrictions at the time of termination of
employment or are subject to other conditions to vest that have not been
satisfied by the time specified in the applicable Award Agreement shall not vest
and shall be returned to the Corporation in such manner and on such terms as the
Committee shall therein provide.
V. PERFORMANCE SHARE AWARDS AND STOCK BONUSES.
5.1 GRANTS OF PERFORMANCE SHARE AWARDS.
The Committee may, in its discretion, grant one or more Performance
Share Awards to any Eligible Employee based upon such factors, which in the case
of any Award to a Section 16 Person shall include but not be limited to the
contributions, responsibilities and other compensation of the person, as the
Committee shall deem relevant in light of the specific type and terms of the
award. An Award Agreement shall specify the maximum number of Paired Shares (if
any) subject to the Performance Share Award, the consideration (but not less
than the minimum lawful consideration) to be paid for any such shares as may be
issuable to the Participant, the duration of the Award and the conditions upon
which delivery of any Paired Shares or cash to the Participant shall be based.
The amount of cash or Paired Shares or other property that may be deliverable
pursuant to such Award shall be based upon the degree of attainment over a
specified period (a "performance cycle") as may be established by the Committee
of such measure(s) of the performance of the Company (or any part thereof) or
the Participant as may be established by the Committee. The Committee may
provide for full or partial credit, prior to completion of such performance
cycle or the attainment of the performance achievement specified in the Award,
in the event of the Participant's death, Retirement, or Total Disability, a
Change in Control Event or in such other circumstances as the Committee,
consistent with Section 6.11(c)(2), if applicable, may determine.
5.2 GRANTS OF STOCK BONUSES.
The Committee may grant a Stock Bonus to any Eligible Employee to
reward exceptional or special services, contributions or achievements in the
manner and on such terms and conditions (including any restrictions on such
shares) as determined from time to time by the Committee.
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The number of shares so awarded shall be determined by the Committee. The Stock
Bonus may be granted independently or in lieu of a cash bonus.
5.3 DEFERRED PAYMENTS.
The Committee may authorize for the benefit of any Eligible Employee
the deferral of any payment of cash or Paired Shares that may become due or of
cash otherwise payable under this Plan, and provide for accreted benefits
thereon based upon such deferment, at the election or at the request of such
Participant, subject to the other terms of this Plan. Such deferral shall be
subject to such further conditions, restrictions or requirements as the
Committee may impose, subject to any then vested rights of Participants.
VI. OTHER PROVISIONS.
6.1 RIGHTS OF ELIGIBLE EMPLOYEES, PARTICIPANTS AND BENEFICIARIES.
(a) EMPLOYMENT STATUS. Status as an Eligible Employee shall not be
construed as a commitment that any Award will be made under this Plan to an
Eligible Employee or to Eligible Employees generally.
(b) NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or in
any other documents related to this Plan or to any Award) shall confer upon any
Eligible Employee or Participant any right to continue in the employ or other
service of the Company or constitute any contract or agreement of employment or
other service, nor shall interfere in any way with the right of the Company to
change such person's compensation or other benefits or to terminate the
employment of such person, with or without cause, but nothing contained in this
Plan or any document related hereto shall adversely affect any independent
contractual right of such person without his or her consent thereto.
(c) PLAN NOT FUNDED. Awards payable under this Plan shall be payable
in Paired Shares or from the general assets of the Corporation, and no special
or separate reserve, fund or deposit shall be made to assure payment of such
Awards. No Participant, Beneficiary or other person shall have any right, title
or interest in any fund or in any specific asset (including shares of Common
Stock or shares of Realty Stock, except as expressly otherwise provided) of the
Company by reason of any Award hereunder. Neither the provisions of this Plan
(or of any related documents), nor the creation or adoption of this Plan, nor
any action taken pursuant to the provisions of this Plan
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shall create, or be construed to create, a trust of any kind or a fiduciary
relationship between the Company and any Participant, Beneficiary or other
person. To the extent that a Participant, Beneficiary or other person acquires
a right to receive payment pursuant to any Award hereunder, such right shall be
no greater than the right of any unsecured general creditor of the Company.
6.2 ADJUSTMENTS; ACCELERATION.
(a) ADJUSTMENTS. If the outstanding shares of Common Stock or the
outstanding shares of Realty Stock are changed into or exchanged for cash, other
property or a different number or kind of shares or securities of the
Corporation or of Realty, as the case may be, or if additional shares or new or
different securities are distributed with respect to the outstanding shares of
Common Stock or the outstanding shares of Realty Stock, through a reorganization
or merger in which the Corporation or Realty, as the case may be, is the
surviving entity, or through a combination, consolidation, recapitalization,
reclassification, stock split, stock dividend, reverse stock split, stock
consolidation, dividend or distribution of cash or property to the shareholders
of the Corporation or of Realty, or if there shall occur any other extraordinary
corporate transaction or event in respect of the Common Stock or the Realty
Stock or a sale of substantially all the assets of the Corporation or of Realty
as an entirety which in the judgment of the Committee materially affects the
Common Stock or the Realty Stock, then the Committee shall, in such manner and
to such extent (if any) as it deems appropriate and equitable (1)
proportionately adjust any or all of (A) the number and kind of shares of Common
Stock, Realty Stock or other consideration that is subject to or may be
delivered under this Plan and pursuant to outstanding Awards, (B) the
consideration payable with respect to Awards granted prior to any such change
and the price, if any, paid in connection with Restricted Stock Awards or (C)
the performance standards appropriate to any outstanding awards; or (2) in the
case of an extraordinary dividend or other distribution, merger, reorganization,
consolidation, combination, sale of assets, split up, exchange, or spin off,
make provision for a cash payment or for the substitution or exchange of any or
all outstanding Awards or the cash, securities or property deliverable to the
holder of any or all outstanding Awards based upon the distribution or
consideration payable to holders of Common Stock or to holders of Realty Stock
upon or in respect of such event; PROVIDED, HOWEVER, in each case, that with
respect to Awards of Incentive Stock Options, no such adjustment shall be made
which would cause the Plan to violate Section 422 or 424(a) of the Code or any
successor provisions thereto. Corresponding adjustments shall be made with
respect to any
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Stock Appreciation Rights based upon the adjustments made to the Options to
which they are related. In any of such events, the Committee may take such
action sufficiently prior to such event if necessary to permit the Participant
to realize the benefits intended to be conveyed with respect to the underlying
shares in the same manner as is available to shareholders generally.
(b) ACCELERATION OF AWARDS UPON CHANGE IN CONTROL. As to any or all
Participants, upon the occurrence of a Change in Control Event (i) each Option
and Stock Appreciation Right shall become immediately exercisable, (ii)
Restricted Stock shall immediately vest free of restrictions, and (iii) each
Performance Share Award shall become payable to the Participant; PROVIDED,
HOWEVER, that in no event shall any Award be accelerated as to any Section 16
Person to a date less than six months after the Award Date of such Award.
Notwithstanding the foregoing, except in the case of an Award of an Option,
prior to a Change in Control Event, the Committee may determine that, upon its
occurrence, there shall be no acceleration of benefits under Awards or determine
that only certain or limited benefits under Awards shall be accelerated and the
extent to which they shall be accelerated, and/or establish a different time in
respect of such event for such acceleration. In addition, the Committee may
override the limitations on acceleration in this Section 6.2(b) by express
provision in the Award Agreement and may accord any Participant a right to
refuse any acceleration, whether pursuant to the Award Agreement or otherwise,
in such circumstances as the Committee may approve. Any acceleration of Awards
shall comply with applicable regulatory requirements, including without
limitation Section 422 of the Code.
Notwithstanding any other provision of this Plan, this Section 6.2(b)
shall be effective through September 30, 1997 and may not be amended or
terminated during such period except as required by law or to make changes that
do not diminish the benefits or rights provided by this Section 6.2(b). The
Board may, in its sole discretion and for any reason, provide written notice of
termination or amendment (effective as of the then applicable expiration date,
but not with respect to a Change in Control Event occurring on or before such
expiration date) no later than six months before the expiration date of this
Section 6.2(b). If such amendment or termination is not made, this Section
6.2(b) shall be automatically extended for an additional period of 60 months
past the expiration date. This Section 6.2(b) shall continue to be
automatically extended for an additional 60 months at the end of such 60-month
period and each succeeding 60-month period unless notice is given in the manner
described in this Section 6.2(b).
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(c) POSSIBLE EARLY TERMINATION OF ACCELERATED AWARDS. If any Option
or other right to acquire Paired Shares under this Plan has not been exercised
prior to (i) a dissolution of the Corporation, (ii) a reorganization event
described in Section 6.2(a) that the Corporation does not survive, or (iii) the
consummation of a reorganization event described in Section 6.2(a) that results
in a Change in Control Event approved by the Board and no provision has been
made for the survival, substitution, exchange or other settlement of such Option
or right, such Option or right shall thereupon terminate.
(d) GOLDEN PARACHUTE LIMITATIONS. In no event shall an Award be
accelerated under this Plan to an extent or in a manner which would not be fully
deductible by the Company for federal income tax purposes because of Section
280G of the Code, nor shall any payment hereunder be accelerated if any portion
of such accelerated payment would not be deductible by the Company because of
Section 280G of the Code. If a holder would be entitled to benefits or payments
hereunder and under any other plan or program which would constitute "parachute
payments" as defined in Section 280G of the Code, then the holder may by written
notice to the Company designate the order in which such parachute payments shall
be reduced or modified so that the Company is not denied federal income tax
deductions for any "parachute payments" because of Section 280G of the Code.
6.3 EFFECT OF TERMINATION OF EMPLOYMENT.
The Committee shall establish in respect of each Award granted to an
Eligible Employee the effect of a termination of employment on the rights and
benefits thereunder and in so doing may make distinctions based upon the cause
of termination, E.G., Retirement, early retirement, termination for cause,
disability or death. Notwithstanding any terms to the contrary in an Award
Agreement or this Plan, the Committee may decide in its complete discretion at
the time of termination (or within a reasonable time thereafter) to extend the
exercise period of an Award (although not beyond the period described in Section
2.3(b)) and the number of shares covered by the Award with respect to which the
Award is exercisable or vested.
6.4 COMPLIANCE WITH LAWS.
This Plan, the granting and vesting of Awards under this Plan and the
offer, issuance and delivery of Paired Shares and/or the payment of money under
this Plan or under Awards granted hereunder are subject to compliance with all
applicable federal and state laws, rules and regulations (including, but not
limited to, state and
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federal securities laws and federal margin requirements) and to such approvals
by any listing, regulatory or governmental authority as may, in the opinion of
counsel for the Corporation, be necessary or advisable in connection therewith.
Any securities delivered under this Plan shall be subject to such restrictions,
and the person acquiring such securities shall, if requested by the Corporation,
provide such assurances and representations to the Corporation as the
Corporation may deem necessary or desirable to assure compliance with all
applicable legal requirements.
6.5 TAX WITHHOLDING.
(a) CASH OR SHARES. Upon any exercise, vesting, or payment of any
Award, the Company shall have the right at its option to (i) require the
Participant (or Personal Representative or Beneficiary, as the case may be) to
pay or provide for payment of the amount of any taxes which the Company may be
required to withhold with respect to such transaction or (ii) deduct from any
amount payable in cash the amount of any taxes which the Company may be required
to withhold with respect to such cash amount. In any case where a tax is
required to be withheld in connection with the delivery of Paired Shares under
this Plan, the Committee may grant (either at the time of the Award or
thereafter) to the Participant the right to elect, or the Committee may require
(either at the time of the Award or thereafter), pursuant to such rules and
subject to such conditions as the Committee may establish, to have the
Corporation reduce the number of shares to be delivered by (or otherwise
reacquire) the appropriate number of shares valued at their then Fair Market
Value, to satisfy such withholding obligation.
(b) TAX LOANS. The Committee may, in its discretion, authorize a
loan to an Eligible Employee in the amount of any taxes which the Company may be
required to withhold with respect to Paired Shares received (or disposed of, as
the case may be) pursuant to a transaction described in subsection (a) above.
Such a loan shall be for a term, at a rate of interest and pursuant to such
other terms and conditions as the Committee, under applicable law may establish
and such loan need not comply with the provisions of Section 1.8.
6.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION.
(a) BOARD AUTHORIZATION. The Board may, at any time, terminate or,
from time to time, amend, modify or suspend this Plan, in whole or in part. No
Awards may be granted during any suspension of this Plan or after termination of
this Plan, but the Committee shall retain
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jurisdiction as to Awards then outstanding in accordance with the terms of this
Plan.
(b) SHAREHOLDER APPROVAL. If any amendment would (i) materially
increase the benefits accruing to Participants under this Plan, (ii) materially
increase the aggregate number of securities that may be issued under this Plan,
or (iii) materially modify the requirements as to eligibility for participation
in this Plan, then to the extent then required by Rule 16b-3 to secure benefits
thereunder or to avoid liability under Section 16 of the Exchange Act (and Rules
thereunder) or required under Section 425 of the Code or any other applicable
law, or deemed necessary or advisable by the Board, such amendment shall be
subject to shareholder approval.
(c) AMENDMENTS TO AWARDS. Without limiting any other express
authority of the Committee under but subject to the express limits of this Plan,
the Committee by agreement or resolution may waive conditions of or limitations
on Awards that the Committee in the prior exercise of its discretion has
imposed, without the consent of the Participant, and may make other changes to
the terms and conditions of Awards that do not affect in any manner materially
adverse to the Participant, his or her rights and benefits under an Award.
(d) LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No amendment,
suspension or termination of the Plan or change of or affecting any outstanding
Award shall, without written consent of the Participant, affect in any manner
materially adverse to the Participant any rights or benefits of the Participant
or obligations of the Corporation under any Award granted under this Plan prior
to the effective date of such change. Changes contemplated by Section 6.2 shall
not be deemed to constitute changes or amendments for purposes of this Section
6.6.
6.7 EFFECT OF PAIRING AGREEMENT ON AWARDS.
(a) PAIRING AGREEMENT. This Plan shall be subject to the terms and
conditions of the Pairing Agreement.
(b) PAIRED SHARES. All Awards shall be subject to the following:
(i) the grant of any Award for Common Stock pursuant to this
Plan shall also be for an equal number of shares of Realty Stock; upon
the exercise of any Options to purchase Common Stock, or the payment
of a Restricted Stock Award, a Stock Appreciation Right, a Performance
Share
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Award payable in Common Stock or a Stock Bonus, the Participant shall
obtain a number of shares of Realty Stock equal to the number of
shares of Common Stock to be issued upon exercise or payment;
(ii) the grant of any Award for Realty Stock pursuant to this
Plan shall also be for an equal number of shares of Common Stock; upon
the exercise of any Options to purchase Realty Stock, or the payment
of a Restricted Stock Award, a Stock Appreciation Right, a Performance
Share Award payable in Realty Stock or a Stock Bonus, the Participant
shall obtain a number of shares of Common Stock equal to the number of
shares of Realty Stock to be issued upon exercise or payment.
(c) STOCK CERTIFICATES. Upon exercise of an Option or payment of an
Award, the person receiving Paired Shares shall be entitled to one stock
certificate evidencing the Paired Shares acquired; PROVIDED that any person
who tenders Paired Shares to the Corporation in payment of a portion or all
of the purchase price of the stock purchased upon exercise of an Option
shall be entitled to receive two certificates, one representing a number of
Paired Shares equal to the number of Paired Shares exchanged for the stock
acquired upon exercise, and another representing the additional Paired
Shares, if any, acquired upon exercise of the Option.
6.8 PRIVILEGES OF STOCK OWNERSHIP.
Except as otherwise expressly authorized by the Committee or this
Plan, a Participant shall not be entitled to any privilege of stock ownership as
to any Paired Shares not actually delivered to and held of record by him or her.
No adjustment will be made for dividends or other rights as a shareholder for
which a record date is prior to such date of delivery.
6.9 EFFECTIVE DATE OF THE PLAN.
This Plan shall be effective as of December 15, 1994, the date of
Board approval, subject to shareholder approval within 12 months thereafter.
6.10 TERM OF THE PLAN.
No Award shall be granted more than ten years after the effective date
of this Plan (the "termination date"). Unless otherwise expressly provided in
this Plan or
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in an applicable Award Agreement, any Award theretofore granted may extend
beyond such date, and all authority of the Committee with respect to Awards
hereunder shall continue during any suspension of this Plan and in respect of
outstanding Awards on such termination date.
6.11 GOVERNING LAW; CONSTRUCTION; SEVERABILITY.
(a) CHOICE OF LAW. This Plan, the Awards, all documents evidencing
Awards and all other related documents shall be governed by, and construed in
accordance with the laws of the State of California applicable to contracts made
and performed within such State, except as such laws may be supplanted by the
laws of the United States of America, which laws shall then govern its effect
and its construction to the extent they supplant California law.
(b) SEVERABILITY. If any provision shall be held by a court of
competent jurisdiction to be invalid and unenforceable, the remaining provisions
of this Plan shall continue in effect.
(c) PLAN CONSTRUCTION. (1) It is the intent of the Corporation that
this Plan and Awards hereunder satisfy and be interpreted in a manner that in
the case of Participants who are or may be subject to Section 16 of the Exchange
Act satisfies the applicable requirements of Rule 16b-3 so that such persons
will be entitled to the benefits of Rule 16b-3 or other exemptive rules under
Section 16 of the Exchange Act and will not be subjected to avoidable liability
thereunder. If any provision of this Plan or of any Award or any prior action
by the Committee would otherwise frustrate or conflict with the intent expressed
above, that provision to the extent possible shall be interpreted and deemed
amended so as to avoid such conflict, but to the extent of any remaining
irreconcilable conflict with such intent as to such persons in the
circumstances, such provision shall be deemed void.
(2) It is the further intent of the Company that Options or Stock
Appreciation Rights with an exercise or base price not less than Fair Market
Value on the date of grant, that are granted to or held by a Section 16 Person,
shall qualify as performance-based compensation under Section 162(m) of the
Code, and this Plan shall be interpreted consistent with such intent.
6.12 CAPTIONS.
Captions and headings are given to the sections and subsections of
this Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in
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any way material or relevant to the construction or interpretation of the Plan
or any provision thereof.
6.13 EFFECT OF CHANGE OF SUBSIDIARY STATUS.
For purposes of this Plan and any Award hereunder, if an entity ceases
to be a Subsidiary, a termination of employment shall be deemed to have occurred
with respect to each employee of such Subsidiary who does not continue as an
employee of another entity within the Company.
6.14 NON-EXCLUSIVITY OF PLAN.
Nothing in this Plan shall limit or be deemed to limit the authority
of the Board or the Committee to grant awards or authorize any other
compensation, with or without reference to the Common Stock and/or Realty Stock,
under any other plan or authority.
VII. DEFINITIONS.
7.1 DEFINITIONS.
(a) "AWARD" shall mean an award of any Option, Stock Appreciation
Right, Restricted Stock Award, Performance Share Award, Stock Bonus, Dividend
Equivalent or other right or security that would constitute a "derivative
security" under Rule 16a-1(c) of the Exchange Act, or any combination thereof,
whether alternative or cumulative, authorized by and granted under this Plan.
(b) "AWARD AGREEMENT" shall mean any writing setting forth the terms
of an Award that has been authorized by the Committee.
(c) "AWARD DATE" shall mean the date upon which the Committee took
the action granting an Award or such later date as the Committee designates as
the Award Date at the time of the Award.
(d) "AWARD PERIOD" shall mean the period beginning on an Award Date
and ending on the expiration date of such Award.
(e) "BENEFICIARY" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the benefits
specified in the Award Agreement and under this Plan in the event of a
Participant's death, and shall mean the Participant's executor or administrator
if no other Beneficiary is identified and able to act under the circumstances.
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(f) "BOARD" shall mean the Board of Directors of the Corporation.
(g) "CHANGE IN CONTROL EVENT" shall mean:
(1) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (A) the then
outstanding shares of Common Stock (the "Outstanding Common Stock") or (B)
the combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"); PROVIDED, HOWEVER, that the following
acquisitions shall not constitute a Change in Control Event: (A) any
acquisition directly from the Corporation (except that an acquisition by
virtue of the exercise of a conversion privilege shall not be considered
within this clause (A) unless the converted security was itself acquired
directly from the Corporation), (B) any acquisition by the Corporation, (C)
any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Corporation or any corporation controlled by the
Corporation or (D) any acquisition by any corporation pursuant to a
reorganization, merger or consolidated, if, following such reorganization,
merger or consolidation, the conditions described in clauses (A) and (B) of
paragraph (3) below are satisfied;
(2) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; PROVIDED, HOWEVER, that any individual who becomes a
director subsequent to the date hereof whose election, or nomination for
election by the Corporation's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent
Board; but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(3) Approval by the shareholders of the Corporation of a
reorganization, merger or consolidation (a "transaction"), unless,
following such
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transaction in each case, (A) more than 80% of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
transaction and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Common Stock and Outstanding
Voting Securities immediately prior to such transaction and (B) no Person
(excluding the Corporation, any employee benefit plan (or related trust) of
the Corporation or such corporation resulting from such transaction and any
Person beneficially owning, immediately prior to such transaction, directly
or indirectly, 20% or more of the Outstanding Common Stock or Outstanding
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such transaction or the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors; or
(4) Approval by the shareholders of the Corporation of (A) a
complete liquidation or dissolution of the Corporation or (B) the sale or
other disposition of all or substantially all of the assets of the
Corporation, unless such assets are sold to a corporation and following
such sale or other disposition, the conditions described in clauses (A) and
(B) of paragraph (3) above are satisfied.
(h) "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(i) "COMMISSION" shall mean the Securities and Exchange Commission.
(j) "COMMITTEE" shall mean the Compensation Committee of the Board,
which Committee shall be comprised only of two or more directors or such greater
number of directors as may be required under applicable law, each of whom,
during such time as one or more Participants may be subject to Section 16 of the
Exchange Act, shall be a Disinterested and Outside director.
(k) "COMMON STOCK" shall mean the common stock of the Corporation,
$.10 par value per share, and such other securities or property as may become
the subject of Awards, or become subject to Awards, pursuant to an adjustment
made under Section 6.2 of this Plan.
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(l) "COMPANY" shall mean, collectively, the Corporation and its
Subsidiaries.
(m) "CORPORATION" shall mean Santa Anita Operating Company, a
Delaware corporation, and its successors.
(n) "DISINTERESTED AND OUTSIDE" shall mean "disinterested" within the
meaning of any applicable regulatory requirements, including Rule 16b-3, and
"outside" within the meaning of Section 162(m) of the Code.
(o) "DIVIDEND EQUIVALENT" shall mean an amount equal to the amount of
cash dividends or other cash distributions paid (or such portion of such
dividend or other distribution as may be designated by the Committee) with
respect to each Paired Share after the date of an Award of a Dividend
Equivalent.
(p) "ELIGIBLE EMPLOYEE" shall mean an officer (whether or not a
director) or any other employee of the Company, or any Other Eligible Person, as
determined by the Committee in its discretion.
(q) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
(r) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(s) "FAIR MARKET VALUE" shall mean, with respect to Common Stock or
Realty Stock, the fair market value of an unpaired share of Common Stock or
Realty Stock, as the case may be, as determined in good faith by the Committee.
The Fair Market Value of a Paired Share shall mean the closing price of a Paired
Share on the Composite Tape, as published in the Western Edition of The Wall
Street Journal, of the principal national securities exchange on which the
Paired Shares are so listed or admitted to trade, on such date, or, if there is
no trading of the Paired Shares on such date, then the closing price of the
Paired Shares as quoted on such Composite Tape on the next preceding date on
which there was trading in such shares; PROVIDED, HOWEVER, if the Paired Shares
are not listed or admitted to trade on a national securities exchange, the
Committee may designate such other exchange, market or source of data as it
deems appropriate for determining such value for Plan purposes.
(t) "INCENTIVE STOCK OPTION" shall mean an Option which is designated
as an incentive stock option within the meaning of Section 422 of the Code and
which contains such provisions as are necessary to comply with that section.
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(u) "NONQUALIFIED STOCK OPTION" shall mean an Option that is
designated as a Nonqualified Stock Option and shall include any Option intended
as an Incentive Stock Option that fails to meet the applicable legal
requirements thereof. Any Option granted hereunder that is not designated as an
incentive stock option shall be deemed to be designated a nonqualified stock
option under this Plan and not an incentive stock option under the Code.
(v) "NON-EMPLOYEE DIRECTOR" shall mean a member of the Board who is
not an officer or employee of the Company.
(w) "OPTION" shall mean an option to purchase Paired Shares under
this Plan. The Committee shall designate any Option granted to an Eligible
Employee as a Nonqualified Stock Option or an Incentive Stock Option, PROVIDED
that all Options with respect to Realty Stock shall be Nonqualified Stock
Options.
(x) "OTHER ELIGIBLE PERSON" shall mean any individual consultant,
advisor or (to the extent provided in the next sentence) agent who renders or
has rendered BONA FIDE services (other than services in connection with the
offering or sale of securities of the Company in a capital raising transaction)
to the Company, and who is selected to participate in this Plan by the
Committee; PROVIDED that if the Corporation's officers and directors are or
become subject to Section 16 of the Exchange Act, a Non-Employee Director shall
not thereafter be selected as an Other Eligible Person. A non-employee agent
providing BONA FIDE services to the Company (other than as an eligible advisor
or consultant) may also be selected as an Other Eligible Person if such agent's
participation in this Plan would not adversely affect (x) the Corporation's
eligibility to use Form S-8 to register under the Securities Act of 1933, as
amended, the offering of shares issuable under this Plan by the Company or (y)
the Corporation's compliance with any other applicable laws.
(y) "PAIRED SHARE" means a share of Common Stock and a share of
Realty Stock.
(z) "PAIRING AGREEMENT" means the Pairing Agreement between the
Corporation and Realty, dated as of December 31, 1979, as it may be amended from
time to time.
(aa) "PARTICIPANT" shall mean an Eligible Employee who has been
granted an Award under this Plan.
(bb) "PERFORMANCE SHARE AWARD" shall mean an Award made pursuant to
the provisions, and subject to the terms and conditions, of Article V of the
Plan.
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(cc) "PERSONAL REPRESENTATIVE" shall mean the person or persons who,
upon the Total Disability or incompetence of a Participant, shall have acquired
on behalf of the Participant, by legal proceeding or otherwise, the power to
exercise the rights or receive benefits under this Plan and who shall have
become the legal representative of the Participant.
(dd) "PLAN" shall mean this 1995 Share Award Plan.
(ee) "QDRO" shall mean a qualified domestic relations order as defined
in Section 414(p) of the Code or Title I, Section 206(d)(3) of ERISA (to the
same extent as if this Plan were subject thereto), or the applicable rules
thereunder.
(ff) "REALTY" means Santa Anita Realty Enterprises, Inc., a Delaware
corporation.
(gg) "REALTY STOCK" means the common stock of Realty, $.10 par value
per share, and such other securities or property as may become subject of Awards
or become subject to Awards, pursuant to an adjustment made under Section 6.2 of
this Plan.
(hh) "RESTRICTED STOCK" shall mean Paired Shares awarded to a
Participant subject to payment of such consideration, if any, and such
conditions on vesting and such transfer and other restrictions as are
established in or pursuant to this Plan, for so long as such shares remain
unvested under the terms of the applicable Award Agreement.
(ii) "RETIREMENT" shall mean retirement from active service as an
employee or officer of the Company on or after attaining age 65.
(jj) "RULE 16B-3" shall mean Rule 16b-3 as promulgated by the
Commission pursuant to the Exchange Act.
(kk) "SECTION 16 PERSON" shall mean a person subject to Section 16(a)
of the Exchange Act.
(ll) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended from time to time.
(mm) "STOCK APPRECIATION RIGHT" shall mean a right to receive a number
of Paired Shares or an amount of cash, or a combination of shares and cash, the
aggregate amount or value of which is determined by reference to a change in the
Fair Market Value of the Paired Shares that is authorized under this Plan.
27
<PAGE>
(nn) "SUBSIDIARY" shall mean any corporation or other entity a
majority of whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Corporation.
(oo) "TOTAL DISABILITY" shall mean a "permanent and total disability"
within the meaning of Section 22(e)(3) of the Code and such other disabilities,
infirmities, afflictions or conditions as the Committee by rule may include.
EXECUTED this 15th day of December, 1995.
SANTA ANITA OPERATING COMPANY
By: /s/ Kathryn J. McMahon
-----------------------------------
Its: General Counsel and Secretary
----------------------------------
28
<PAGE>
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT dated as of the 15th day of December, 1994,
is between Santa Anita Operating Company, a Delaware corporation (the
"Corporation"), and Stephen F. Keller (the "Employee").
W I T N E S S E T H
WHEREAS, the Corporation and the Employee previously entered into a
Deferred Compensation Agreement ("DCA") on January 6, 1993.
WHEREAS, the Board of Directors of this Corporation ("Board") has,
subject to appropriate shareholder approval, adopted the Santa Anita Operating
Company 1995 Share Award Plan ("Plan").
WHEREAS, the Compensation Committee of the Corporation has
conditionally granted Employee a restricted stock award consisting of a number
(as determined below) of paired shares of common stock of the Corporation and
common stock of Santa Anita Realty Enterprises, Inc. ("Realty") in exchange for
all of Employee's rights and benefits under the DCA.
NOW, THEREFORE, in consideration of the mutual promises and
covenants made herein and the mutual benefits to be derived herefrom, the
parties agree as follows:
1. RESTRICTED STOCK AWARD. (a) Subject to Section 3 and
the other provisions of the Agreement, in exchange for the voiding of the
DCA and other agreements set forth in Section 2, the Corporation grants
the Employee a number of paired shares of restricted common stock of the
Corporation and Realty ("Paired Shares") in accordance with the restricted
stock agreement attached as Appendix A to this Agreement.
(b) The number of such Paired Shares shall be determined by KPMG
Peat Marwick, in accordance with the methodology and the assumptions set
forth in its report, dated October 1994, to the Compensation Committee of
the Corporation entitled "Restricted Stock Grant To Fund And Replace
Existing Deferred Compensation Arrangements Between Santa Anita Operating
Company And Each Of Stephen Keller & Clifford Goodrich," with the
following modifications: (i) the effective date and valuation date shall
be the date the Board approves the Plan, rather than January 1, 1995, (ii)
the Paired Share value shall be the average of the closing prices of the
Paired Shares on the five days, immediately following the date the Board
approves the Plan,
<PAGE>
on which the Paired Shares are traded on the New York Stock Exchange, in
lieu of a $17 Paired Share value, and (iii) the calculations shall be
adjusted to take into account the fact that the Paired Shares will not be
issued (and thus not pay dividends) prior to the date the shareholders of
the Corporation approve the Plan. KPMG Peat Marwick shall determine the
number of Paired Shares granted to Employee in accordance with the
preceding sentence within 15 business days after the Board approves the
Plan.
(c) KPMG Peat Marwick shall notify, by telecopy, the Chairman of
the Compensation Committee of this Corporation and Employee of the correct
number of shares, along with its calculations (in comparable detail as set
forth in the October 1994 report to the Compensation Committee). If
either party disagrees with such calculations, such party shall notify the
other party and KPMG Peat Marwick immediately (by telecopy) and in no
event later than five business days after the letter from KPMG Peat
Marwick was telecopied to such objecting party. In the event of a
disagreement, the parties, including KPMG Peat Marwick, shall have five
additional business days to agree on the correct number of Paired Shares
to be awarded. If the parties cannot agree by the end of such five day
period, this Exchange Agreement shall be null and void unless the Chairman
of the Compensation Committee of this Corporation agrees in writing to
extend the period.
(d) Upon agreement of the number of Paired Shares to be awarded,
the Employee (and his spouse) and the Corporation shall execute the
restricted stock agreement (attached as Appendix A), modified to insert
the correct number of Paired Shares awarded and to provide that the date
the Board approves the Plan is the award date.
(e) Notwithstanding the foregoing provisions of this Section 1 or
any other provision of this Agreement, if the total number of Paired
Shares to be awarded to the Employee pursuant to this Agreement and to Mr.
Clifford Goodrich pursuant to an exchange agreement, dated on or about the
date of this Agreement, with the Company exceeds 160,000 Paired Shares in
the aggregate, then the Chairman of the Compensation Committee shall
determine, in his sole and complete discretion, whether this Agreement
(and the restricted stock agreement attached as Appendix A) shall be
executed on behalf of the Corporation or whether the additional approval
by the Board of Directors of this Corporation should be obtained. If
Board of Directors' approval is requested, and the Board of Directors
fails to grant such approval, then this Agreement (and the restricted
stock agreement attached as Appendix A) shall be completely null and void.
2
<PAGE>
2. DCA IS NULL AND VOID. (a) Subject to Section 3 and the
other provisions of the Agreement, in exchange for the restricted stock
award described in Section 1 above, Employee agrees that the DCA (which,
for purposes of this Agreement, shall include any and all rights and
benefits set forth in any predecessor agreements and any and all rights
relating to the DCA set forth in any employment or other agreement between
the Corporation and Employee or in any plan of this Corporation) shall be
null and void and the Corporation shall have absolutely no liabilities,
obligations or duties whatsoever under the DCA.
(b) Subject to Section 3 and the other provisions of the
Agreement, Employee on behalf of himself, his spouse, his descendants,
ancestors, dependents, heirs, executors, administrators, assigns, and
successors (collectively "Employee and his Successors"), and each of them,
hereby covenants not to sue and fully releases and discharges Corporation,
and its subsidiaries and affiliates, past and present, and each of them,
as well as its and their directors, officers, agents, attorneys, insurers,
employees, stockholders, representatives, assigns, and successors, past
and present, and each of them, hereinafter together and collectively
referred to as "Releasees," with respect to and from any and all deferral
compensation, claims, wages, demands, rights, liens, agreements,
contracts, covenants, actions, suits, causes of action, obligations,
debts, costs, expenses, attorneys' fees, damages, judgments, orders and
liabilities of whatever kind or nature in law, equity or otherwise,
whether now known or unknown, suspected or unsuspected, and whether or not
concealed or hidden, which he now owns or holds or has at any time
heretofore owned or held as against said Releasees arising out of or in
any way connected with the DCA (as defined in Section 2(a) above).
(c) It is the intention of Employee in executing this instrument
that the same shall be effective as a bar to each and every claim, demand
and cause of action hereinabove specified. In furtherance of this
intention, Employee hereby expressly waives any and all rights and
benefits conferred upon him by the provisions of SECTION 1542 OF THE
CALIFORNIA CIVIL CODE and expressly consents that this Agreement shall be
given full force and effect according to each and all of its express terms
and provisions, including those related to unknown and unsuspected claims,
demands and causes of action, if any, as well as those relating to any
other claims, demands and causes of action hereinabove specified. SECTION
1542 provides:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME
OF EXECUTING THE RELEASE, WHICH IF
3
<PAGE>
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
Employee acknowledges that he may hereafter discover claims or facts in
addition to or different from those which Employee now knows or believes
to exist with respect to the subject matter of this Agreement and which,
if known or suspected at the time of executing this Agreement, may have
materially affected this settlement. Nevertheless, Employee hereby waives
any right, claim or cause of action that might arise as a result of such
different or additional claims or facts. Employee acknowledges that he
understands the significance and consequence of such release and such
specific waiver of SECTION 1542.
(d) Employee expressly acknowledges and agrees that, by entering
into this Exchange Agreement, he is giving up valuable rights under the
DCA and that various circumstances exist under which the DCA would provide
a more valuable benefit than provided under the restricted stock award.
In entering into this Agreement, Employee represents that he has relied
upon the advice of his consultants and attorneys, who are consultants and
attorneys of his own choice, and the terms of this Exchange Agreement have
been completely explained to him by his attorney, and that those terms are
fully understood and voluntarily accepted by him.
3. AGREEMENT VOID UNDER CERTAIN CONDITIONS. Except for this
Section 3, this Agreement and the restricted stock agreement attached as
Appendix A shall be completely null and void if the shareholders of the
Corporation do not approve the Plan at the May, 1995 shareholders' meeting of
the Corporation. In addition, except for this Section 3, this Agreement and the
restricted stock agreement attached as Appendix A shall be completely null and
void if a Triggering Event occurs prior to the such date of approval ("Approval
Date"). A Triggering Event shall mean any of the following events:
(i) the death of the Employee;
(ii) the "total disability" of the Employee;
(iii) the termination, whether voluntary or involuntary, of the
Employee for any reason, including without limitation, termination by the
Corporation for theft or embezzlement;
(iv) competing with the business of the Corporation unless written
approval is received from the Corporation; or
(v) a "change in control," whether or not followed by a
"qualifying termination" prior to the Approval Date.
4
<PAGE>
(The quoted terms in clauses (i) through (v) shall be defined in accordance with
the DCA.)
If any such Triggering Event occurs prior to the Approval Date, the
DCA shall continue in full force and effect and payments under the DCA shall be
made or forfeited, as applicable, in accordance with the DCA.
4. CONTINUANCE OF EMPLOYMENT. Nothing contained herein or in
the Plan shall confer upon the Employee any right with respect to the
continuation of employment by the Corporation or any subsidiary or interfere in
any way with the right of the Corporation or of any subsidiary at any time to
terminate such employment or to increase or decrease the compensation of the
Employee from the rate in existence at any time.
5. NOTICES. Any notice to be given under the terms of this
Agreement shall be in writing and addressed to (a) the Corporation at its
principal office to the attention of the Corporate Secretary, (b) the Employee
at the address given beneath the Employee's signature hereto, or at such other
address as either party may hereafter designate in writing to the other, and (c)
the Chairman of the Compensation Committee, Thomas P. Mullaney, at 1331 Amalfi
Drive, Pacific Palisades, CA [telecopy (310) 454-6187].
6. (a) This Agreement shall inure to the benefit of and be
binding upon the Corporation and its successors and assigns. As used in
the preceding sentence, "successor" and "assign" shall include any person,
firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires the stock
of the Corporation to which the Corporation assigns this Agreement by
operation of law or otherwise.
(b) This Agreement shall inure to the benefit of and be binding
upon the Employee and his Successors.
7. No waiver of any breach of any term or provision of this
Agreement shall be construed to be, nor shall be, a waiver of any other breach
of this Agreement. No waiver shall be binding unless in writing and signed by
the party waiving the breach.
8. This Agreement may not be amended or modified other than by a
written agreement executed by the Employee and the Corporation (after approval
by the Board of Directors of the Corporation).
9. (a) The parties believe that each provision of this
Agreement is legal, binding and fully enforceable.
5
<PAGE>
Subsections (b) and (c) below provide certain remedies if Section 1 or 2
is not valid, binding or enforceable.
(b) If, notwithstanding Section 2 of this Agreement, the
Corporation is determined to be required to pay benefits to Employee or
his Successors pursuant to the DCA, Section 1 of this Agreement and the
restricted stock agreement attached hereto shall be null and void and, to
the extent the shares subject to such agreement have been transferred,
free of restrictions set forth in Section 3 of such agreement, to Employee
or his Successors, Employee and his Successors shall be obligated to
immediately return to the Corporation all such shares so transferred (or
cash equal to the fair market value of such shares on the date the
Corporation is determined to be liable under the DCA, plus interest at the
rate of 8-1/2% per annum from such date to the date of payment).
(c) If, notwithstanding Section 1 of this Agreement, the
restricted stock award is determined to be invalid, the provisions of
Section 2 of this Agreement shall be null and void and the Corporation
shall pay all benefits, if any, due under the DCA to Employee and his
Successors.
(d) Except as set forth in subsections (b) and (c), if any
provision of this Agreement or the application thereof is held invalid,
the invalidity shall not affect other provisions or applications of the
Agreement which can be given effect without the invalid provisions or
applications and to this limited extent the provisions of this Agreement
are declared to be severable.
10. This instrument constitutes and contains the entire agreement
and understanding concerning the matters addressed herein between the parties,
and supersedes and replaces all prior negotiations and all agreements proposed
or otherwise, whether written or oral, concerning the subject matters hereof.
This is an integrated document.
11. This Agreement shall be deemed to have been executed and
delivered within the State of California, and the rights and obligations of the
parties hereunder shall be construed and enforced in accordance with, and
governed by, by the laws of the State of California without regard to principles
of conflict of laws.
12. In any construction to be made of this Agreement, no provision
shall not be construed against any party on the basis that the party was the
drafter. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect.
6
<PAGE>
13. This Agreement is being executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Photographic copies of such signed
counterparts may be used in lieu of the originals for any purpose.
7
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by a duly authorized officer and the Employee has
hereunder set his or her hand as of the day and year first above written.
SANTA ANITA OPERATING COMPANY
By: /s/ Kathryn J. McMahon
_________________________________
Title: Secretary and General Counsel
_____________________________
EMPLOYEE
/s/ Stephen F. Keller
_____________________________________
(Signature)
Stephen F. Keller
_____________________________________
(Address)
_____________________________________
(City, State, Zip Code)
_____________________________________
(Social Security Number)
8
<PAGE>
AMENDMENT I
TO THE
EXCHANGE AGREEMENT
This Amendment I to the Exchange Agreement, dated as of December 15,
1994 between Santa Anita Operating Company (the "Corporation") and Stephen F.
Keller (the "Employee"), is made between the Corporation, Employee and the
Keller Family Trust (the "Trust" and collectively with Employee, the
"Recipient").
In consideration of the mutual promises and covenants made herein and
the mutual benefits to be derived herefrom, the parties agree that the Exchange
Agreement shall be amended as follows:
1. The restricted stock granted to Employee pursuant to Section 1 of
the Exchange Agreement will be issued in the name of the Trust. Employee shall
execute an amended restricted stock agreement attached as Exhibit A hereto.
2. The term "Employee and his Successors" and "Employee or his
Successors" shall include the Trust and its beneficiaries.
3. Any notice to be given to the Trust shall be deemed given to the
Trust upon notice to Employee.
4. This amended Exchange Agreement may not be amended or modified
except by a written agreement executed by the Employee, Trust and the
Corporation (after approval by the Board of Directors of the Corporation).
5. Recipient represents that the Trust is treated as a grantor trust
under Section 671 et. seq. of the Code and that Employee and Sarah Mage Keller
are the only trustees of the Trust.
6. All of the other terms and conditions of the Exchange Agreement
shall continue in effect.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amendment to be
executed on its behalf by a duly authorized officer and the Recipient has
hereunto set his or her hand.
SANTA ANITA OPERATING COMPANY
(a Delaware corporation)
By /s/ Kathryn J. McMahon
____________________________________
Title Secretary and General Counsel
_______________________________
EMPLOYEE
/s/ Stephen F. Keller
__________________________________
(Signature)
Stephen F. Keller
__________________________________
(Address)
__________________________________
(City, State, Zip Code)
TRUST
/s/ Stephen F. Keller
___________________________________
Stephen F. Keller, Trustee
/s/ Sarah Mage Keller
___________________________________
Sarah Mage Keller, Trustee
2
<PAGE>
Exhibit A
SANTA ANITA OPERATING COMPANY
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT dated as of ___________________________ is between
Santa Anita Operating Company, a Delaware corporation (the "Corporation"),
Stephen F. Keller (the "Employee") and the Keller Family Trust (the "Trust" and
collectively with Employee, the "Recipient").
W I T N E S S E T H
-------------------
WHEREAS, pursuant to the Santa Anita Operating Company 1995 Share
Award Plan, as amended (the "Plan"), which Plan remains subject to shareholder
approval, the Corporation has granted to the Recipient effective as of the 15th
day of December, 1994 (the "Award Date") a restricted stock award of 86,322
paired shares of Common Stock, $.10 par value, and Realty Stock, $.10 par value
(a "Paired Share") upon the terms and conditions set forth herein and in the
Plan.
NOW, THEREFORE, in consideration of the mutual promises and
covenants made herein and the mutual benefits to be derived herefrom, the
parties agree as follows:
1. DEFINED TERMS. Capitalized terms used herein and not
otherwise defined herein shall have the meaning assigned to such terms in the
Plan.
2. GRANT OF AWARD. The Corporation hereby grants to the Trust
the right to purchase, and Trust hereby agrees to purchase, on the date the
shareholders of this Corporation approve the Plan (the "Approval Date") and
pursuant to the terms and conditions set forth herein and in the Plan, an
aggregate of ______ Paired Shares, in consideration of services heretofore
rendered, receipt of which is hereby acknowledged.
3. RESTRICTIONS ON TRANSFER.
(a) The Paired Shares so purchased and any additional shares
attributable thereto received by Recipient as a result of any stock
dividend, recapitalization, merger, reorganization or similar event
(collectively the "Restricted Stock") shall be subject to the restrictions
set forth herein. During the Restricted Period as hereinafter described,
except as permitted by this Agreement or the Plan, the Restricted Stock
and the rights and privileges
1
<PAGE>
conferred hereby are not transferable or assignable and may not be
offered, sold, pledged, hypothecated or otherwise disposed of in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment, garnishment, levy or similar process.
Notwithstanding the preceding, Trust may transfer the Restricted Stock to
Employee.
(b) Except as earlier permitted by or pursuant to the Plan or by
resolution of the Committee adopted AFTER the date hereof, the
Restricted Period shall commence as of the Award Date and shall terminate
as follows:
Date Percentage og Paired
---- Shares Free from
Restrictions
---------------------
July 1, 1996 50%
July 1, 1997 60%
July 1, 1998 70%
July 1, 1999 80%
July 1, 2000 90%
July 1, 2001 100%
(c) Notwithstanding subsection (b),
(1) if, prior to July 1, 1996, the Corporation terminates
the Employee's employment for other than cause, or the Employee
voluntarily terminates his employment with the Corporation for good
reason, then 50% of the Paired Shares shall be free from the
restrictions set forth above. For this purpose, "cause" and "good
reason" shall be defined in accordance with Employee's employment
agreement with the Corporation entered into as of the first day of
January, 1994; and
(2) if Employee terminates his employment with the
Corporation because of death or Total Disability, all of the
Restricted Stock held by Recipient under this Agreement be free from
the restrictions set forth above upon the date of termination of
Employee's employment with the Corporation, and the Restricted
Period shall end on that date.
2
<PAGE>
4. CORPORATION RIGHT OF REACQUISITION.
(a) Recipient hereby agrees that the Corporation shall have the
right and option to reacquire shares of Restricted Stock as hereinafter
provided as long as such shares are subject to the restrictions in
Section 3. If Employee's employment with the Corporation is terminated
for any reason, other than death or Total Disability, then the
Corporation may exercise its right and option to reacquire all or any
portion of the shares of Restricted Stock that are not free from
restrictions in accordance with Section 3. Such reacquisition shall be
made in consideration of such termination of employment prior to the
expiration of the Restricted Period; no additional consideration shall
be payable by the Corporation in connection with such reacquisition.
Such right and option shall be exercised by giving written notice of
exercise to Recipient within 90 days of the date of termination
of employment.
(b) If the Corporation exercises its right and option to reacquire
shares of Restricted Stock, stock certificates representing such shares
shall be promptly surrendered to the Corporation.
(c) References to the Corporation in this Section include the
Corporation's Subsidiaries. A transfer of Employee's employment between
Subsidiaries of the Corporation, or between any Subsidiary and the
Corporation shall not be considered a termination of employment for
purposes of this Agreement. If Employee is employed by an entity which
ceases to be a Subsidiary, such event shall be deemed for purposes of this
Section 4 to be a termination of employment described in subsection (a) in
respect of Employee. Absence from work caused by military service or
authorized sick leave shall not be considered as a termination of
employment for purposes of this Section.
5. STOCK CERTIFICATES.
(a) Upon the purchase of the Restricted Stock by Trust, stock
certificates issued in respect of such shares of Restricted Stock shall be
registered in the name of Trust (on the books of the Corporation and
Realty, as applicable) and shall be deposited by Trust with the
Corporation, together with a stock power endorsed in blank in the form
attached as Attachment 1.
(b) All stock certificates for shares of Restricted Stock during
the Restricted Period shall bear the following legend:
3
<PAGE>
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions contained
in an Agreement entered into between the registered owner and Santa
Anita Operating Company. A copy of such Agreement is on file in the
office of the Secretary of Santa Anita Operating Company, 285 West
Huntington Drive, Arcadia, California 91006."
(c) With regard to any shares of Restricted Stock which cease to
be subject to restrictions pursuant to Section 3, the Corporation shall,
within sixty (60) days of the date such shares cease to be subject to
restrictions, deliver a stock certificate for the Paired Shares, free of
all restrictions set forth in Section 3 of this Agreement, to the Trust.
Such shares shall be paired and stapled.
6. SHAREHOLDER'S RIGHTS. Subject to the terms of this
Agreement, during the Restricted Period, Trust shall have, with respect to the
Restricted Stock, all rights of a shareholder of the Corporation and of Realty,
including the right to vote such shares and the right to receive all dividends
paid with respect to the shares of Restricted Stock while subject to the
restrictions of Section 3. Notwithstanding the preceding sentence, prior to the
Approval Date, Recipient shall not have any rights of a shareholder of this
Corporation or Realty with respect to the Restricted Stock.
7. REGULATORY COMPLIANCE. The issue and sale of shares of
Restricted Stock shall be subject to full compliance with all then applicable
requirements of law and the requirements of any stock exchange upon which the
Paired Shares may be listed.
8. WITHHOLDING TAX. Recipient agrees that, in the event the
purchase of the Restricted Stock or the expiration of restrictions thereon
results in Recipient's realization of income which for Federal, State or local
income tax purposes is subject to withholding of tax at source by Employee's
employer, Recipient will pay to such Employee's employer an amount in cash or
previously owned Paired Shares (valued at their Fair Market Value at the time of
payment) equal to such withholding tax (or such employer on behalf of the
Corporation may withhold such amount from Employee's salary). In addition,
notwithstanding any other provision of this Agreement, if permitted by
applicable law, to the extent that withholding is required at the time of the
expiration of restrictions set forth in Section 3 hereof, withholding may at the
election of Employee be satisfied by the reduction of the number of Paired
Shares to be delivered to Trust at the time such restrictions lapse.
4
<PAGE>
9. INVESTMENT REPRESENTATION. Recipient represents and agrees
that if Recipient purchases the Restricted Stock at a time when there is not in
effect under the Securities Act of 1933 a registration statement relating to the
shares and there is not available for delivery a prospectus meeting the
requirements of Section 10(a)(3) of said Act, (i) Recipient will acquire the
shares upon such purchase for the purpose of investment and not with a view to
their resale or distribution, (ii) that upon such purchase, Recipient will
furnish to the Corporation an investment letter in form and substance
satisfactory to the Corporation, (iii) if and when the Recipient proposes to
publicly offer or sell shares of Restricted Stock, the Recipient shall notify
the Corporation prior to any such offering or sale and shall abide by the
opinion of counsel to the Corporation as to whether and under what conditions
and circumstances, if any, Recipient may offer and sell such shares of
Restricted Stock; and (iv) the certificate or certificates representing the
Restricted Stock may bear a legend referring to the foregoing matters and any
limitations under the Act and state securities laws with respect to the transfer
of such Restricted Stock, and the Corporation may impose stop transfer
instructions to implement such limitations, if applicable.
Notwithstanding the foregoing or Section 5(c), stock certificates
evidencing shares of Restricted Stock, both during the Restricted Period and
thereafter, shall bear such legends that may be required to evidence the paired
status of the Common Stock and Realty Stock and Recipient's status as an
affiliate of the Corporation.
10. FEDERAL INCOME TAX ELECTION. Recipient hereby acknowledges
receipt of advice that pursuant to current Federal income tax laws, (i)
Recipient has 30 days in which to elect to be taxed in the current taxable year
on the Fair Market Value of the Restricted Stock in accordance with the
provisions of Internal Revenue Code Section 83(b) and, (ii) if no such election
made, the taxable event will occur when the shares of Restricted Stock cease to
be subject to the Corporation's right of repurchase, and the tax will be
measured by the Fair Market Value of the Restricted Stock on the date of the
taxable event.
11. ACCELERATION OF RESTRICTED STOCK AWARDS.
(a) If there is a Change in Control Event (as defined in the Plan)
and a Qualifying Termination occurs on or prior to the third anniversary
of the date the Change in Control Event occurred, the Restricted Period
for Restricted Stock shall immediately expire. Acceleration of awards
shall comply with applicable regulatory requirements, including, without
limitation,
5
<PAGE>
Rule 16b-3 promulgated by the Securities and Exchange Commission. For
purposes of this Section 11 only, Committee shall mean the Committee of
the Corporation as constituted immediately prior to the Change in Control
Event.
(b) (1) Notwithstanding subsection (a), the Restricted Period
hereunder shall not expire to the extent that the Committee
determines that such expiration would cause the deduction
limitations of Section 280G of the Code to come into effect. In the
event that the Restricted Period does not expire for any of the
Restricted Stock, the Employee may request independent verification
of the Committee's calculations with respect to the application of
Section 280G. In such case, the Committee will provide to the
Employee within 15 business days after such a request an opinion
from a nationally recognized accounting firm selected by Employee
(the "Accounting Firm"). The opinion shall state the Accounting
Firm's opinion that the limitation on the expiration of the
Restricted Period hereunder is necessary to avoid the limits of
Section 280G and contain supporting calculations. The cost of such
opinion shall be paid for by the Corporation.
(2) The Corporation and the Employee have also entered into
a Severance Agreement which provide certain payments in the event of
a Qualified Termination after a Change in Control Event. Section 8
of such Severance Agreement provides limitations on the amount of
such severance payments if such severance payments, together with
all other "parachute payments" (as defined in the Severance
Agreement), would cause the deduction limitations of Section 280G of
the Code to come into effect. Notwithstanding Section 8(d) of the
Severance Agreement, if the Employee so elects, Employee may elect
that the Restricted Period not expire with respect to all or part of
a Restricted Stock prior to any reductions of payments under the
Severance Agreement.
(c) If, subsequent to a Change in Control Event and during the
period described in Section 11(a), Employee's employment terminates, such
termination SHALL be considered a Qualifying Termination if either of
the following events occurs:
(1) Employee voluntarily terminates employment for Good
Reason. For purposes of this Section, "Good Reason" shall mean the
occurrence
6
<PAGE>
of one of the following events without Employee's consent:
(i) The assignment to Employee of any duties
inconsistent in any material respect with the Employee's
position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as they
existed in their most significant form during the 90 days
preceding the Change in Control Event or any other action by
the Corporation which results in a diminution in such
position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action
not taken in bad faith and which is remedied by the
Corporation promptly after receipt of notice thereof given by
the Employee;
(ii) Any reduction in Employee's total compensation not
agreed to by Employee, which reduction shall be deemed to occur
if there is a reduction in (I) Employee's base salary or annual
bonus (which shall be deemed to be reduced if the annual bonus is
less than the average annual bonus for the three fiscal years
preceding the Change in Control Event) or (II) Employee's ability
to participate in employee benefit plans, receive expense
reimbursements, receive other fringe benefits, receive office and
support staff, or receive paid vacation, on the same terms as
such benefits were applicable during the 90 days preceding the
Change in Control Event, provided that, (I) an isolated,
insubstantial, and inadvertent failure not occurring in bad faith
and which is promptly remedied after notice by the Employee shall
not be deemed a violation of this paragraph and (II) a reduction
in one element of Employee's total compensation shall not be
deemed a violation of this paragraph if a counterbalancing
increase in another element of Employee's total compensation
occurs (the determination of whether the increase is
counterbalancing shall be determined by Employee in good faith);
and
(iii) The transfer of Employee's job location to a site
which is more than 30 miles away from his or her place of
employment prior to the Change in Control
7
<PAGE>
Event of the Corporation, unless the transfer is to the
headquarters of Santa Anita Realty Enterprises, Inc. or Santa
Anita Operating Company.
(2) Employee is involuntarily terminated without "Cause." For
purposes of this Section, "Cause" shall mean (i) an act or acts of
dishonesty (including but not limited to conviction of a felony) taken
by Employee which materially injures or damages the Corporation or
(ii) Employee's willful failure to substantially perform Employee's
duties where such willful failure results in demonstrable material
injury and damage to the Corporation.
(d) In the event a Change in Control Event occurs before Employee's
termination from the Corporation, the following rules shall apply:
(1) Because it is agreed that time will be of the essence in
determining the extent to which the Restricted Stock is vested in
Recipient (or the beneficiary) under this Agreement, Recipient (or the
beneficiary) may, if he or she desires, submit any claim for payment
under this Agreement or dispute regarding the interpretation of this
Agreement to arbitration. This right to select arbitration shall be
solely that of Recipient (or the beneficiary) and Recipient (or the
beneficiary) may decide whether or not to arbitrate in his or her
discretion. The "right to select arbitration" is not mandatory on
Recipient (or the beneficiary) and Recipient (or the beneficiary) may
choose in lieu thereof to bring an action in an appropriate civil
court. Once an arbitration is commenced, however, it may not be
discontinued without the mutual consent of both parties to the
arbitration. During the lifetime of the Employee only Recipient can
use the arbitration procedure set forth in this section.
(2) Any claim for arbitration may be submitted as follows: if
Recipient (or the beneficiary) disagrees with the Corporation
regarding the interpretation of this Agreement and the claim is
finally denied by the Corporation in whole or in part, such claim may
be filed in writing with an arbitrator of Recipient's or beneficiary's
choice who is selected by the method described in the next four
sentences. The first step of the selection shall consist of Recipient
or beneficiary submitting a list of five
8
<PAGE>
potential arbitrators to the Corporation. Each of the five
arbitrators must be either (i) a member of the National Academy of
Arbitrators located in the State of California or (ii) a retired
California Superior Court or Appellate Court judge. Within one week
after receipt of the list, the Corporation shall select one of the
five arbitrators as the arbitrator for the dispute in question. If
the Corporation fails to select an arbitrator in a timely manner,
Recipient (or beneficiary) shall then designate one of the five
arbitrators as the arbitrator for the dispute in question.
(3) The arbitration hearing shall be held within seven days (or
as soon thereafter as possible) after the picking of the arbitrator.
No continuance of said hearing shall be allowed without the mutual
consent of Recipient (or beneficiary) and the Corporation. Absence
from or nonparticipation at the hearing by either party shall not
prevent the issuance of an award. Hearing procedures which will
expedite the hearing may be ordered at the arbitrator's discretion,
and the arbitrator may close the hearing in his or her sole discretion
when he or she decides he or she has heard sufficient evidence to
satisfy issuance of an award.
(4) The arbitrator's award shall be rendered as expeditiously as
possible and in no event later than one week after the close of the
hearing. In the event the arbitrator finds that the Corporation has
breached this Agreement, he or she shall order the Corporation to
immediately take the necessary steps to remedy the breach. The award
of the arbitrator shall be final and binding upon the parties. The
award may be enforced in any appropriate court as soon as possible
after its rendition. If an action is brought to confirm the award,
both the Corporation and Recipient agree that no appeal shall be taken
by either party from any decision rendered in such action.
(5) Solely for purposes of determining the allocation of the
costs described in this subsection, the Corporation will be considered
the prevailing party in a dispute if the arbitrator determines (i)
that the Corporation has not breached this Agreement and (ii) the
claim by Recipient (or beneficiary) was frivolous. Otherwise,
Recipient (or beneficiary) will be considered the prevailing party.
In the event that the Corporation is the prevailing party, the fee
9
<PAGE>
of the arbitrator and all necessary expenses of the hearing (excluding
any attorneys' fees incurred by the Corporation) including
stenographic reporter, if employed, shall be paid by the other party.
In the event that Recipient (or beneficiary) is the prevailing party,
the fee of the arbitrator and all necessary expenses of the hearing
(INCLUDING all attorneys' fees incurred by Recipient (or beneficiary)
in pursuing his or her claim), including the fees of a stenographic
reporter if employed, shall be paid by the Corporation.
(6) If the arbitrator determines that (i) the Corporation has
breached this Agreement and (ii) the Corporation was unjustified in
failing to make the payments required under this Agreement to
Recipient, Corporation shall pay to Recipient, as liquidated damages
and not as a penalty, an additional amount equal to 10% of the amount
involved in the arbitration with respect to this Agreement.
(e) This Section 11 shall be effective through September 30, 1997 and
may not be amended or terminated during such period except pursuant to an
instrument in writing executed by all of the parties hereto.
Notwithstanding the preceding sentence, the board of directors of the
Corporation may, in its sole discretion and for any reason, provide written
notice of termination or amendment (effective as of the then applicable
expiration date, but not with respect to a Change in Control Event
occurring on or before such expiration date) to Employee no later than six
months before the expiration date of this Section 11. If written notice is
not so provided, this Section 11 shall be automatically extended for an
additional period of 60 months past the expiration date. This Section 11
shall continue to be automatically extended for an additional 60 months at
the end of such 60-month period and each succeeding 60-month period unless
notice is given in the manner described in this Section 11.
12. CONTINUANCE OF EMPLOYMENT. Nothing contained herein or in the
Plan shall confer upon the Employee any right with respect to the continuation
of employment by the Corporation or any subsidiary or interfere in any way with
the right of the Corporation or of any subsidiary at any time to terminate such
employment or to increase or decrease the compensation of the Employee from the
rate in existence at any time.
10
<PAGE>
13. NOTICES. Any notice to be given under the terms of this
Agreement shall be in writing and addressed to the Corporation at its principal
office to the attention of the Corporate Secretary and to the Recipient at the
address given beneath the Employee's signature hereto, or at such other address
as either party may hereafter designate in writing to the other. Any notice to
or from Employee shall be deemed a notice to or from the Trust.
14. PLAN. This award and all rights of Recipient thereunder are
subject to, and the Recipient agrees to be bound by, all of the terms and
conditions of the provisions of the Plan, incorporated herein by this reference,
to the extent such provisions are applicable to restricted stock awards granted
to Eligible Employees. The Recipient acknowledges receipt of a copy of the
Plan, which is made a part hereof by this reference, and agrees to be bound by
the terms thereof. Unless otherwise expressly provided in other Sections of
this Agreement, provisions of the Plan that confer discretionary authority on
the Committee do not (and shall not be deemed to) create any rights in the
Recipient unless such rights are expressly set forth herein or are otherwise in
the sole discretion of the Committee so conferred by appropriate action of the
Committee under the Plan after the date hereof.
15. Notwithstanding any provision of this Agreement to the contrary,
this Agreement and the award set forth herein shall be null and void if (i) the
Plan is not approved by the shareholders of the Corporation at its May, 1995
meeting OR (ii) prior to the date of such shareholder approval, a "triggering
event" (as defined in accordance with the Exchange Agreement, dated as of the
Award Date, between the Corporation and the Recipient) occurs.
11
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by a duly authorized officer and the Recipient has
hereunto set his or her hand.
SANTA ANITA OPERATING COMPANY
(a Delaware corporation)
By________________________________
Title___________________________
EMPLOYEE
__________________________________
(Signature)
Stephen F. Keller
__________________________________
(Address)
__________________________________
(City, State, Zip Code)
TRUST
___________________________________
Stephen F. Keller, Trustee
___________________________________
Sarah Mage Keller, Trustee
12
<PAGE>
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Restricted Stock
Agreement by Santa Anita Operating Company, I, ____________________________, the
spouse of the Employee herein named, do hereby join with my spouse in executing
the foregoing Restricted Stock Agreement and do hereby agree to be bound by all
of the terms and provisions thereof and of the Plan.
DATED: ______________, 19__. _____________________________
Signature of Spouse
13
<PAGE>
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT dated as of the 15th day of December, 1994,
is between Santa Anita Operating Company, a Delaware corporation (the
"Corporation"), and Clifford C. Goodrich (the "Employee").
W I T N E S S E T H
-------------------
WHEREAS, the Corporation and the Employee previously entered into a
Deferred Compensation Agreement ("DCA") on January 6, 1993.
WHEREAS, the Board of Directors of this Corporation ("Board") has,
subject to appropriate shareholder approval, adopted the Santa Anita Operating
Company 1995 Share Award Plan ("Plan").
WHEREAS, the Compensation Committee of the Corporation has
conditionally granted Employee a restricted stock award consisting of a number
(as determined below) of paired shares of common stock of the Corporation and
common stock of Santa Anita Realty Enterprises, Inc. ("Realty") in exchange for
all of Employee's rights and benefits under the DCA.
NOW, THEREFORE, in consideration of the mutual promises and
covenants made herein and the mutual benefits to be derived herefrom, the
parties agree as follows:
1. RESTRICTED STOCK AWARD. (a) Subject to Section 3 and
the other provisions of the Agreement, in exchange for the voiding of the
DCA and other agreements set forth in Section 2, the Corporation grants
the Employee a number of paired shares of restricted common stock of the
Corporation and Realty ("Paired Shares") in accordance with the restricted
stock agreement attached as Appendix A to this Agreement.
(b) The number of such Paired Shares shall be determined by KPMG
Peat Marwick, in accordance with the methodology and the assumptions set
forth in its report, dated October 1994, to the Compensation Committee of
the Corporation entitled "Restricted Stock Grant To Fund And Replace
Existing Deferred Compensation Arrangements Between Santa Anita Operating
Company And Each Of Stephen Keller & Clifford Goodrich," with the
following modifications: (i) the effective date and valuation date shall
be the date the Board approves the Plan, rather than January 1, 1995, (ii)
the Paired Share value shall be the average of the closing prices of the
Paired Shares on the five days, immediately following the date the Board
approves the Plan,
<PAGE>
on which the Paired Shares are traded on the New York Stock Exchange, in
lieu of a $17 Paired Share value, and (iii) the calculations shall be
adjusted to take into account the fact that the Paired Shares will not be
issued (and thus not pay dividends) prior to the date the shareholders of
the Corporation approve the Plan. KPMG Peat Marwick shall determine the
number of Paired Shares granted to Employee in accordance with the
preceding sentence within 15 business days after the Board approves the
Plan.
(c) KPMG Peat Marwick shall notify, by telecopy, the Chairman of
the Compensation Committee of this Corporation and Employee of the correct
number of shares, along with its calculations (in comparable detail as set
forth in the October 1994 report to the Compensation Committee). If
either party disagrees with such calculations, such party shall notify the
other party and KPMG Peat Marwick immediately (by telecopy) and in no
event later than five business days after the letter from KPMG Peat
Marwick was telecopied to such objecting party. In the event of a
disagreement, the parties, including KPMG Peat Marwick, shall have five
additional business days to agree on the correct number of Paired Shares
to be awarded. If the parties cannot agree by the end of such five day
period, this Exchange Agreement shall be null and void unless the Chairman
of the Compensation Committee of this Corporation agrees in writing to
extend the period.
(d) Upon agreement of the number of Paired Shares to be awarded,
the Employee (and his spouse) and the Corporation shall execute the
restricted stock agreement (attached as Appendix A), modified to insert
the correct number of Paired Shares awarded and to provide that the date
the Board approves the Plan is the award date.
(e) Notwithstanding the foregoing provisions of this Section 1 or
any other provision of this Agreement, if the total number of Paired
Shares to be awarded to the Employee pursuant to this Agreement and to Mr.
Stephen Keller pursuant to an exchange agreement, dated on or about the
date of this Agreement, with the Company exceeds 160,000 Paired Shares in
the aggregate, then the Chairman of the Compensation Committee shall
determine, in his sole and complete discretion, whether this Agreement
(and the restricted stock agreement attached as Appendix A) shall be
executed on behalf of the Corporation or whether the additional approval
by the Board of Directors of this Corporation should be obtained. If
Board of Directors' approval is requested, and the Board of Directors
fails to grant such approval, then this Agreement (and the restricted
stock agreement attached as Appendix A) shall be completely null and void.
2
<PAGE>
2. DCA IS NULL AND VOID. (a) Subject to Section 3 and the
other provisions of the Agreement, in exchange for the restricted stock
award described in Section 1 above, Employee agrees that the DCA (which,
for purposes of this Agreement, shall include any and all rights and
benefits set forth in any predecessor agreements and any and all rights
relating to the DCA set forth in any employment or other agreement between
the Corporation and Employee or in any plan of this Corporation) shall be
null and void and the Corporation shall have absolutely no liabilities,
obligations or duties whatsoever under the DCA.
(b) Subject to Section 3 and the other provisions of the
Agreement, Employee on behalf of himself, his spouse, his descendants,
ancestors, dependents, heirs, executors, administrators, assigns, and
successors (collectively "Employee and his Successors"), and each of them,
hereby covenants not to sue and fully releases and discharges Corporation,
and its subsidiaries and affiliates, past and present, and each of them,
as well as its and their directors, officers, agents, attorneys, insurers,
employees, stockholders, representatives, assigns, and successors, past
and present, and each of them, hereinafter together and collectively
referred to as "Releasees," with respect to and from any and all deferral
compensation, claims, wages, demands, rights, liens, agreements,
contracts, covenants, actions, suits, causes of action, obligations,
debts, costs, expenses, attorneys' fees, damages, judgments, orders and
liabilities of whatever kind or nature in law, equity or otherwise,
whether now known or unknown, suspected or unsuspected, and whether or not
concealed or hidden, which he now owns or holds or has at any time
heretofore owned or held as against said Releasees arising out of or in
any way connected with the DCA (as defined in Section 2(a) above).
(c) It is the intention of Employee in executing this instrument
that the same shall be effective as a bar to each and every claim, demand
and cause of action hereinabove specified. In furtherance of this
intention, Employee hereby expressly waives any and all rights and
benefits conferred upon him by the provisions of SECTION 1542 OF THE
CALIFORNIA CIVIL CODE and expressly consents that this Agreement shall be
given full force and effect according to each and all of its express terms
and provisions, including those related to unknown and unsuspected claims,
demands and causes of action, if any, as well as those relating to any
other claims, demands and causes of action hereinabove specified. SECTION
1542 provides:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME
OF EXECUTING THE RELEASE, WHICH IF
3
<PAGE>
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
Employee acknowledges that he may hereafter discover claims or facts in
addition to or different from those which Employee now knows or believes
to exist with respect to the subject matter of this Agreement and which,
if known or suspected at the time of executing this Agreement, may have
materially affected this settlement. Nevertheless, Employee hereby waives
any right, claim or cause of action that might arise as a result of such
different or additional claims or facts. Employee acknowledges that he
understands the significance and consequence of such release and such
specific waiver of SECTION 1542.
(d) Employee expressly acknowledges and agrees that, by entering
into this Exchange Agreement, he is giving up valuable rights under the
DCA and that various circumstances exist under which the DCA would provide
a more valuable benefit than provided under the restricted stock award,
including the fact that the DCA provides better vesting provisions. In
entering into this Agreement, Employee represents that he has relied upon
the advice of his consultants and attorneys, who are consultants and
attorneys of his own choice, and the terms of this Exchange Agreement have
been completely explained to him by his attorney, and that those terms are
fully understood and voluntarily accepted by him.
3. AGREEMENT VOID UNDER CERTAIN CONDITIONS. Except for this
Section 3, this Agreement and the restricted stock agreement attached as
Appendix A shall be completely null and void if the shareholders of the
Corporation do not approve the Plan at the May, 1995 shareholders' meeting of
the Corporation. In addition, except for this Section 3, this Agreement and the
restricted stock agreement attached as Appendix A shall be completely null and
void if a Triggering Event occurs prior to the such date of approval ("Approval
Date"). A Triggering Event shall mean any of the following events:
(i) the death of the Employee;
(ii) the "total disability" of the Employee;
(iii) the termination, whether voluntary or involuntary, of the
Employee for any reason, including without limitation, termination by the
Corporation for theft or embezzlement;
(iv) competing with the business of the Corporation unless written
approval is received from the Corporation; or
4
<PAGE>
(v) a "change in control," whether or not followed by a
"qualifying termination" prior to the Approval Date.
(The quoted terms in clauses (i) through (v) shall be defined in accordance with
the DCA.)
If any such Triggering Event occurs prior to the Approval Date, the
DCA shall continue in full force and effect and payments under the DCA shall be
made or forfeited, as applicable, in accordance with the DCA.
4. CONTINUANCE OF EMPLOYMENT. Nothing contained herein or in
the Plan shall confer upon the Employee any right with respect to the
continuation of employment by the Corporation or any subsidiary or interfere in
any way with the right of the Corporation or of any subsidiary at any time to
terminate such employment or to increase or decrease the compensation of the
Employee from the rate in existence at any time.
5. NOTICES. Any notice to be given under the terms of this
Agreement shall be in writing and addressed to (a) the Corporation at its
principal office to the attention of the Corporate Secretary, (b) the Employee
at the address given beneath the Employee's signature hereto, or at such other
address as either party may hereafter designate in writing to the other, and (c)
the Chairman of the Compensation Committee, Thomas P. Mullaney, at 1331 Amalfi
Drive, Pacific Palisades CA 90272 [telecopy (310) 454-6187].
6. (a) This Agreement shall inure to the benefit of and be
binding upon the Corporation and its successors and assigns. As used in
the preceding sentence, "successor" and "assign" shall include any person,
firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires the stock
of the Corporation to which the Corporation assigns this Agreement by
operation of law or otherwise.
(b) This Agreement shall inure to the benefit of and be binding
upon the Employee and his Successors.
7. No waiver of any breach of any term or provision of this
Agreement shall be construed to be, nor shall be, a waiver of any other breach
of this Agreement. No waiver shall be binding unless in writing and signed by
the party waiving the breach.
8. This Agreement may not be amended or modified other than by a
written agreement executed by the Employee and the Corporation (after approval
by the Board of Directors of the Corporation).
5
<PAGE>
9. (a) The parties believe that each provision of this
Agreement is legal, binding and fully enforceable. Subsections (b) and
(c) below provide certain remedies if Section 1 or 2 is not valid, binding
or enforceable.
(b) If, notwithstanding Section 2 of this Agreement, the
Corporation is determined to be required to pay benefits to Employee or
his Successors pursuant to the DCA, Section 1 of this Agreement and the
restricted stock agreement attached hereto shall be null and void and, to
the extent the shares subject to such agreement have been transferred,
free of restrictions set forth in Section 3 of such agreement, to Employee
or his Successors, Employee and his Successors shall be obligated to
immediately return to the Corporation all such shares so transferred (or
cash equal to the fair market value of such shares on the date the
Corporation is determined to be liable under the DCA, plus interest at the
rate of 8-1/2% per annum from such date to the date of payment).
(c) If, notwithstanding Section 1 of this Agreement, the
restricted stock award is determined to be invalid, the provisions of
Section 2 of this Agreement shall be null and void and the Corporation
shall pay all benefits, if any, due under the DCA to Employee and his
Successors.
(d) Except as set forth in subsections (b) and (c), if any
provision of this Agreement or the application thereof is held invalid,
the invalidity shall not affect other provisions or applications of the
Agreement which can be given effect without the invalid provisions or
applications and to this limited extent the provisions of this Agreement
are declared to be severable.
10. This instrument constitutes and contains the entire agreement
and understanding concerning the matters addressed herein between the parties,
and supersedes and replaces all prior negotiations and all agreements proposed
or otherwise, whether written or oral, concerning the subject matters hereof.
This is an integrated document.
11. This Agreement shall be deemed to have been executed and
delivered within the State of California, and the rights and obligations of the
parties hereunder shall be construed and enforced in accordance with, and
governed by, by the laws of the State of California without regard to principles
of conflict of laws.
12. In any construction to be made of this Agreement, no provision
shall not be construed against any party on the basis that the party was the
drafter. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect.
6
<PAGE>
13. This Agreement is being executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Photographic copies of such signed
counterparts may be used in lieu of the originals for any purpose.
7
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by a duly authorized officer and the Employee has
hereunder set his or her hand as of the day and year first above written.
SANTA ANITA OPERATING COMPANY
By: /s/ Kathryn J. McMahon
_________________________________
Title: Secretary and General Counsel
_____________________________
EMPLOYEE
/s/ Clifford C. Goodrich
__________________________________
(Signature)
Clifford C. Goodrich
__________________________________
(Address)
__________________________________
(City, State, Zip Code)
__________________________________
(Social Security Number)
8
<PAGE>
Appendix A
SANTA ANITA OPERATING COMPANY
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT dated as of ___________________________ is between
Santa Anita Operating Company, a Delaware corporation (the "Corporation") and
Clifford C. Goodrich (the "Employee").
W I T N E S S E T H
WHEREAS, pursuant to the Santa Anita Operating Company 1995 Share
Award Plan, as amended (the "Plan"), which Plan remains subject to shareholder
approval, the Corporation has granted to the Employee effective as of the 15th
day of December, 1994 (the "Award Date") a restricted stock award of 40,325
paired shares of Common Stock, $.10 par value, and Realty Stock, $.10 par value
(a "Paired Share") upon the terms and conditions set forth herein and in the
Plan.
NOW, THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties agree as
follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise
defined herein shall have the meaning assigned to such terms in the Plan.
2. GRANT OF AWARD. The Corporation hereby grants to the Employee
the right to purchase, and Employee hereby agrees to purchase, on the date the
shareholders of this Corporation approve the Plan (the "Approval Date") and
pursuant to the terms and conditions set forth herein and in the Plan, an
aggregate of ______ Paired Shares, in consideration of services heretofore
rendered, receipt of which is hereby acknowledged.
3. RESTRICTIONS ON TRANSFER.
(a) The Paired Shares so purchased and any additional shares
attributable thereto received by Employee as a result of any stock
dividend, recapitalization, merger, reorganization or similar event
(collectively the "Restricted Stock") shall be subject to the restrictions
set forth herein. During the Restricted Period as hereinafter described,
except as permitted by this Agreement or the Plan, the Restricted Stock and
the rights and privileges
-1-
<PAGE>
conferred hereby are not transferable or assignable and may not be offered,
sold, pledged, hypothecated or otherwise disposed of in any way (whether by
operation of law or otherwise) and shall not be subject to execution,
attachment, garnishment, levy or similar process.
(b) Except as earlier permitted by or pursuant to the Plan or by
resolution of the Committee adopted AFTER the date hereof, the Restricted
Period shall commence as of the Award Date and shall terminate as follows:
PERCENTAGE OF PAIRED
SHARES FREE FROM
DATE RESTRICTIONS
------------- --------------------
Approval Date 20%
July 1, 1996 60%
July 1, 1997 70%
July 1, 1998 80%
July 1, 1999 90%
July 1, 2000 100%
(c) Notwithstanding subsection (b), if the Employee's employment
terminates and such termination is a Qualifying Termination (as defined
below) or is due to Employee's death or Total Disability, all of the
Restricted Stock held by Employee under this Agreement be free from the
restrictions set forth above upon the date of termination of Employee's
employment with the Corporation, and the Restricted Period shall end on
that date. A Qualifying Termination shall occur if either of the following
events occurs:
(1) Employee voluntarily terminates employment for Good Reason.
For purposes of this Section, "Good Reason" shall mean the occurrence
of one of the following events without Employee's consent:
(i) The assignment to Employee of any duties inconsistent
in any material respect with the Employee's position (including
status, offices, titles and reporting requirements), authority,
duties or responsibilities as they existed on the date hereof or
any other action by the Corporation which results in a diminution
in such position, authority, duties or responsibilities, ex-
2
<PAGE>
cluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied
by the Corporation promptly after receipt of notice thereof given
by the Employee;
(ii) Any reduction in Employee's total compensation not
agreed to by Employee, which reduction shall be deemed to occur
if there is a reduction in (I) Employee's base salary or (II)
Employee's ability to participate in employee benefit plans,
receive expense reimbursements, receive other fringe benefits,
receive office and support staff, or receive paid vacation, on
the same terms as such benefits were applicable on the date
hereof, provided that, (I) an isolated, insubstantial, and
inadvertent failure not occurring in bad faith and which is
promptly remedied after notice by the Employee shall not be
deemed a violation of this paragraph, (II) a reduction in
Employee's annual bonus shall not be deemed a violation of this
paragraph and (III) a reduction in one element of Employee's
total compensation shall not be deemed a violation of this
paragraph if a counterbalancing increase in another element of
Employee's total compensation occurs (the determination of
whether the increase is counterbalancing shall be determined by
Employee in good faith); and
(iii) The transfer of Employee's job location to a site
which is more than 30 miles away from his or her place of
employment on the date hereof, unless the transfer is to the
headquarters of Santa Anita Realty Enterprises, Inc. or Santa
Anita Operating Company.
(2) Employee is involuntarily terminated without "Cause." For
purposes of this Section, "Cause" shall mean (i) an act or acts of
dishonesty (including but not limited to conviction of a felony) taken
by Employee which materially injures or damages the Corporation or
(ii) Employee's willful failure to substantially perform Employee's
duties where such willful failure results in demonstrable material
injury and damage to the Corporation.
3
<PAGE>
4. CORPORATION RIGHT OF REACQUISITION.
(a) Employee hereby agrees that the Corporation shall have the right
and option to reacquire shares of Restricted Stock as hereinafter provided
as long as such shares are subject to the restrictions in Section 3. If
Employee's employment with the Corporation is terminated for any reason,
other than death, Total Disability or Qualifying Termination, then the
Corporation may exercise its right and option to reacquire all or any
portion of the shares of Restricted Stock that are not free from
restrictions in accordance with Section 3. Such reacquisition shall be
made in consideration of such termination of employment prior to the
expiration of the Restricted Period; no additional consideration shall be
payable by the Corporation in connection with such reacquisition. Such
right and option shall be exercised by giving written notice of exercise to
Employee within 90 days of the date of termination of employment.
(b) If the Corporation exercises its right and option to reacquire
shares of Restricted Stock, stock certificates representing such shares
shall be promptly surrendered to the Corporation.
(c) References to the Corporation in this Section include the
Corporation's Subsidiaries. A transfer of Employee's employment between
Subsidiaries of the Corporation, or between any Subsidiary and the
Corporation shall not be considered a termination of employment for
purposes of this Agreement. If Employee is employed by an entity which
ceases to be a Subsidiary, such event shall be deemed for purposes of this
Section 4 to be a termination of employment described in subsection (a) in
respect of Employee. Absence from work caused by military service or
authorized sick leave shall not be considered as a termination of
employment for purposes of this Section.
5. STOCK CERTIFICATES.
(a) Upon the purchase of the Restricted Stock by Employee, stock
certificates issued in respect of such shares of Restricted Stock shall be
registered in the name of Employee (on the books of the Corporation and
Realty, as applicable) and shall be deposited by Employee with the
Corporation, together with a stock power endorsed in blank in the form
attached as Attachment 1.
(b) All stock certificates for shares of Restricted Stock during the
Restricted Period shall bear the following legend:
4
<PAGE>
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions contained
in an Agreement entered into between the registered owner and Santa
Anita Operating Company. A copy of such Agreement is on file in the
office of the Secretary of Santa Anita Operating Company, 285 West
Huntington Drive, Arcadia, California 91006."
(c) With regard to any shares of Restricted Stock which cease to be
subject to restrictions pursuant to Section 3, the Corporation shall,
within sixty (60) days of the date such shares cease to be subject to
restrictions, deliver a stock certificate for the Paired Shares, free of
all restrictions set forth in Section 3 of this Agreement, to Employee or,
in the event of such Employee's death, to Employee's legal representative,
heir or legatee. Such shares shall be paired and stapled.
6. SHAREHOLDER'S RIGHTS. Subject to the terms of this Agreement,
during the Restricted Period, Employee shall have, with respect to the
Restricted Stock, all rights of a shareholder of the Corporation and of Realty,
including the right to vote such shares and the right to receive all dividends
paid with respect to the shares of Restricted Stock while subject to the
restrictions of Section 3. Notwithstanding the preceding sentence, prior to the
Approval Date, Employee shall not have any rights of a shareholder of this
Corporation or Realty with respect to the Restricted Stock.
7. REGULATORY COMPLIANCE. The issue and sale of shares of
Restricted Stock shall be subject to full compliance with all then applicable
requirements of law and the requirements of any stock exchange upon which the
Paired Shares may be listed.
8. WITHHOLDING TAX. Employee agrees that, in the event the purchase
of the Restricted Stock or the expiration of restrictions thereon results in
Employee's realization of income which for Federal, State or local income tax
purposes is subject to withholding of tax at source by Employee's employer,
Employee will pay to such Employee's employer an amount in cash or previously
owned Paired Shares (valued at their Fair Market Value at the time of payment)
equal to such withholding tax (or such employer on behalf of the Corporation may
withhold such amount from Employee's salary). In addition, notwithstanding any
other provision of this Agreement, if permitted by applicable law, to the extent
that withholding is required at the time of the expiration of restrictions set
forth in Section 3 hereof, withholding may at the election of Employee be
satisfied by the reduction of the number of Paired Shares to
5
<PAGE>
be delivered to Employee at the time such restrictions lapse.
9. INVESTMENT REPRESENTATION. Employee represents and agrees that
if Employee purchases the Restricted Stock at a time when there is not in effect
under the Securities Act of 1933 a registration statement relating to the shares
and there is not available for delivery a prospectus meeting the requirements of
Section 10(a)(3) of said Act, (i) Employee will acquire the shares upon such
purchase for the purpose of investment and not with a view to their resale or
distribution, (ii) that upon such purchase, Employee will furnish to the
Corporation an investment letter in form and substance satisfactory to the
Corporation, (iii) if and when the Employee proposes to publicly offer or sell
shares of Restricted Stock, the Employee shall notify the Corporation prior to
any such offering or sale and shall abide by the opinion of counsel to the
Corporation as to whether and under what conditions and circumstances, if any,
he or she may offer and sell such shares of Restricted Stock; and (iv) the
certificate or certificates representing the Restricted Stock may bear a legend
referring to the foregoing matters and any limitations under the Act and state
securities laws with respect to the transfer of such Restricted Stock, and the
Corporation may impose stop transfer instructions to implement such limitations,
if applicable.
Notwithstanding the foregoing or Section 5(c), stock certificates
evidencing shares of Restricted Stock, both during the Restricted Period and
thereafter, shall bear such legends that may be required to evidence the paired
status of the Common Stock and Realty Stock and Employee's status as an
affiliate of the Corporation.
10. FEDERAL INCOME TAX ELECTION. Employee hereby acknowledges
receipt of advice that pursuant to current Federal income tax laws, (i) Employee
has 30 days in which to elect to be taxed in the current taxable year on the
Fair Market Value of the Restricted Stock in accordance with the provisions of
Internal Revenue Code SECTION 83(b) and, (ii) if no such election is made, the
taxable event will occur when the shares of Restricted Stock cease to be subject
to the Corporation's right of repurchase, and the tax will be measured by the
Fair Market Value of the Restricted Stock on the date of the taxable event.
11. CONTINUANCE OF EMPLOYMENT. Nothing contained herein or in the
Plan shall confer upon the Employee any right with respect to the continuation
of employment by the Corporation or any subsidiary or interfere in any way with
the right of the Corporation or of any subsidiary at any time to terminate such
employment or to increase or decrease
6
<PAGE>
the compensation of the Employee from the rate in existence at any time.
12. NOTICES. Any notice to be given under the terms of this
Agreement shall be in writing and addressed to the Corporation at its principal
office to the attention of the Corporate Secretary and to the Employee at the
address given beneath the Employee's signature hereto, or at such other address
as either party may hereafter designate in writing to the other.
13. PLAN. This award and all rights of Employee thereunder are
subject to, and the Employee agrees to be bound by, all of the terms and
conditions of the provisions of the Plan, incorporated herein by this reference,
to the extent such provisions are applicable to restricted stock awards granted
to Eligible Employees. The Employee acknowledges receipt of a copy of the Plan,
which is made a part hereof by this reference, and agrees to be bound by the
terms thereof. Unless otherwise expressly provided in other Sections of this
Agreement, provisions of the Plan that confer discretionary authority on the
Committee do not (and shall not be deemed to) create any rights in the Employee
unless such rights are expressly set forth herein or are otherwise in the sole
discretion of the Committee so conferred by appropriate action of the Committee
under the Plan after the date hereof.
14. Notwithstanding any provision of this Agreement to the contrary,
this Agreement and the award set forth herein shall be null and void if (i) the
Plan is not approved by the shareholders of the Corporation at its May, 1995
meeting OR (ii) prior to the date of such shareholder approval, a "triggering
event" (as defined in accordance with the Exchange Agreement, dated as of the
Award Date, between the Corporation and the Employee) occurs.
7
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by a duly authorized officer and the Employee has
hereunto set his or her hand.
SANTA ANITA OPERATING COMPANY
(a Delaware corporation)
By___________________________
Title______________________
EMPLOYEE
_____________________________
(Signature)
Clifford C. Goodrich
_____________________________
(Address)
_____________________________
(City, State, Zip Code)
8
<PAGE>
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Restricted Stock
Agreement by Santa Anita Operating Company, I, ____________________________, the
spouse of the Employee herein named, do hereby join with my spouse in executing
the foregoing Restricted Stock Agreement and do hereby agree to be bound by all
of the terms and provisions thereof and of the Plan.
DATED: ______________, 19__. _____________________________
Signature of Spouse
9
<PAGE>
EXHIBIT 23.1
[KENNETH LEVENTHAL & COMPANY LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated February 10,
1995 accompanying the financial statements and schedules of:
(a) Santa Anita Realty Enterprises, Inc. and Santa Antia Operating Company and
Subsidiaries Combined;
(b) Santa Anita Realty Enterprises, Inc.; and
(c) Santa Anita Operating Company and Subsidiaries
appearing in the above-listed entities' Annual Report on Form 10-K for the year
ended December 31, 1994, in the Prospectus contained in Post-Effective Amendment
No.3 to Joint Registration Statement on Form S-8 (No. 2-95228) and Registration
Statement on Form S-8 (No. 33-51843).
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
March 24, 1995
<PAGE>
EXHIBIT 23.2
[KENNETH LEVENTHAL & COMPANY LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Joint Registration Statement
on Form S-8 (No. 2-95228), as amended through Post-Effective Amendment No. 3 and
Registration Statement on Form S-8 (No. 33-51843) and in the Prospectus, related
thereto, of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating
Company of our report dated January 28, 1993, accompanying the 1992 consolidated
financial statements of H-T Associates and Subsidiary appearing in the Joint
Annual Report on Form 10-K of Santa Anita Reality Enterprises, Inc. and Santa
Anita Operating Company for the year ended December 31, 1994.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
March 24, 1995
<PAGE>
Exhibit 23.3
[KPMG Peat Marwick LLP Letterhead]
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Santa Anita Realty Enterprise, Inc.
and
Santa Anita Operating Company:
We consent to incorporation by reference in the Joint Registration Statement
(No. 2-95228) on Form S-8, as amended through Post-Effective Amendment No. 3
and in the Registration Statement on Form S-8 (No. 33-51843) of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating Company of our report
dated February 8, 1995, related to the consolidated balance sheets of H-T
Associates and subsidiary as of December 31, 1994 and 1993, and the related
consolidated statements of operations, partners' capital and cash flows for
each of the years in the two-year period ended December 31, 1994, which
report appears in the December 31, 1994 Joint Annual Report on Form 10-K of
Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company.
KPMG PEAT MARWICK LLP
San Diego, California
March 28, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SANTA ANITA
REALTY ENTERPRISES, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000314661
<NAME> SANTA ANITA REALTY ENTERPRISES, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 5,431,000
<SECURITIES> 0
<RECEIVABLES> 2,274,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 183,230,000
<DEPRECIATION> (53,273,000)
<TOTAL-ASSETS> 178,133,000
<CURRENT-LIABILITIES> 0
<BONDS> 102,472,000
<COMMON> 1,125,000
0
0
<OTHER-SE> 62,659,000
<TOTAL-LIABILITY-AND-EQUITY> 178,133,000
<SALES> 0
<TOTAL-REVENUES> 40,263,000
<CGS> 0
<TOTAL-COSTS> 9,714,000
<OTHER-EXPENSES> 14,133,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,871,000
<INCOME-PRETAX> 5,545,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,545,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,545,000
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SANTA ANITA
OPERATING COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000313749
<NAME> SANTA ANITA OPERATING COMPANY, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 7,243,000
<SECURITIES> 5,600,000
<RECEIVABLES> 2,382,000
<ALLOWANCES> 0
<INVENTORY> 437,000
<CURRENT-ASSETS> 17,324,000
<PP&E> 42,559,000
<DEPRECIATION> (23,093,000)
<TOTAL-ASSETS> 38,912,000
<CURRENT-LIABILITIES> 22,185,000
<BONDS> 2,529,000
<COMMON> 1,114,000
0
0
<OTHER-SE> 7,886,000
<TOTAL-LIABILITY-AND-EQUITY> 38,912,000
<SALES> 0
<TOTAL-REVENUES> 65,149,000
<CGS> 0
<TOTAL-COSTS> 58,147,000
<OTHER-EXPENSES> 9,834,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 446,000
<INCOME-PRETAX> (3,278,000)
<INCOME-TAX> 0
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<NET-INCOME> (3,278,000)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> 0
</TABLE>
