<PAGE>
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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, 1996
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 SPECIFIED (EXACT NAME OF REGISTRANT AS SPECIFIED
IN ITS CHARTER) IN ITS CHARTER)
DELAWARE DELAWARE
(STATE OF INCORPORATION) (STATE OF INCORPORATION)
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 EACH CLASS) (TITLE OF EACH CLASS)
NEW YORK STOCK EXCHANGE NEW YORK STOCK EXCHANGE
(NAME OF EACH EXCHANGE ON WHICH (NAME OF EACH EXCHANGE ON WHICH
REGISTERED) 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 twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to
the 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. _________.
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 31, 1997 was $287,621,000.
The number of shares of common stock, par value $.10 per share, outstanding
as of March 31, 1997 for Santa Anita Realty Enterprises, Inc. was 11,586,375
and Santa Anita Operating Company was 11,495,675.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I.................................................................. 3
Item 1. Business................................................... 3
Introduction............................................... 3
Recent Developments........................................ 3
Realty..................................................... 4
Summary Financial Information.............................. 6
Real Estate Investments.................................... 7
Santa Anita Racetrack...................................... 8
Santa Anita Fashion Park................................... 8
Santa Anita Medical Plaza.................................. 9
Assets Sold or Held For Sale............................... 10
Towson Town Center......................................... 10
Joppa Associates........................................... 10
Neighborhood Shopping Centers.............................. 10
Office Buildings........................................... 11
Land....................................................... 11
Pacific Gulf Properties Inc................................ 11
Management of Properties................................... 11
Competitive and Other Conditions........................... 11
Environmental Matters...................................... 11
Employees.................................................. 12
Seasonal Variations in Business............................ 12
Operating Company.......................................... 12
Santa Anita Racetrack...................................... 13
Wagering Commissions....................................... 13
On-Track Wagering.......................................... 14
Satellite Wagering--Southern California.................... 14
Satellite Wagering--Northern California.................... 14
Satellite Wagering--Out-of-State (Commingled Pools)........ 14
Satellite Wagering--Out-of-State (Separate Pools).......... 14
Competitive and Other Conditions........................... 18
Dependence on Limited Number of Customers.................. 18
Employee and Labor Relations............................... 18
Seasonal Variations in Business............................ 19
Income Tax Matters......................................... 19
Special Considerations Regarding Forward Looking
Statements................................................. 20
Item 2. Properties................................................. 20
Item 3. Legal Proceedings.......................................... 21
Item 4. Submission of Matters to a Vote of Security Holders........ 21
PART II................................................................. 22
Market for Registrants' Common Equity and Related
Item 5. Shareholder Matters........................................ 22
Item 6. Selected Financial Data.................................... 23
Item 7. Managements' Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Item 8. Financial Statements and Supplementary Data................ 33
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................. 33
PART III................................................................ 34
Item 10. Directors and Executive Officers........................... 34
Item 11. Executive Compensation..................................... 36
Security Ownership of Certain Beneficial Owners and
Item 12. Management................................................. 46
Item 13. Certain Relationships and Related Transactions............. 47
PART IV................................................................. 47
Exhibits, Financial Statement Schedules and Reports on Form
Item 14. 8-K........................................................ 47
SIGNATURES.............................................................. 48
INDEX TO FINANCIAL STATEMENTS........................................... 50
INDEX TO FINANCIAL STATEMENT SCHEDULES.................................. 51
INDEX TO EXHIBITS....................................................... 125
</TABLE>
2
<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 (symbol SAR). 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.
RECENT DEVELOPMENTS
In August 1996, the Companies announced that they had entered into an
agreement calling for a strategic alliance with Colony Investors II, L.P.
("Colony"), a Los Angeles-based real estate investment fund administered by
Colony Capital, Inc. ("Colony Capital"). Pursuant to the strategic alliance,
which was subject to shareholder approval, Colony would invest, over time, a
total of $138 million in the Companies. Thomas J. Barrack, Jr., then a
director of the Companies, is the Chief Executive Officer of Colony Capital.
The strategic alliance did not involve a transfer of control of the Companies.
Concurrent with the announcement of the strategic alliance with Colony, the
Companies also announced the resignation of Operating Company's Chairman and
Chief Executive Officer, the retirement of Realty's Vice Chairman and
Executive Vice President, and the appointment of William C. Baker as Chairman
and Chief Executive Officer of Operating Company and Brian L. Fleming as
Acting Chief Executive Officer and President of Realty.
In September 1996, as part of its investment, Colony acquired 112,700 shares
of paired common stock and 867,343 shares of paired Series A Redeemable
Preferred Stock ("Preferred Stock") for $12.716 million. The Companies and
Colony contemplated that the Preferred Stock would be exchanged for paired
common stock following shareholder approval of the transaction. Upon the
occurrence of certain events, including termination of the agreement or
closing of the transaction, Colony has the option to require the Companies to
redeem the Preferred Stock for cash or a combination of cash and a promissory
note. Colony was also entitled to a termination fee and reimbursement of
expenses if the transaction was not closed.
On October 1996, the Companies received an unsolicited offer from Koll
Arcadia Investors, LLC ("KAI"), an investor group comprised of Apollo Real
Estate Investors II, L.P. and principals of the Koll Company, seeking to
acquire control of the Companies. In response to this proposal, the Boards of
Directors of the Companies formed special committees of independent directors
(the "Independent Committees") to review the proposal and other proposals of a
strategic nature.
In January 1997, the Companies and Colony revised their agreement to allow
the Companies to enter into discussions and negotiations with third parties
with respect to transactions that might involve a transfer of control or other
transactions that would maximize shareholder value, and therefore would be
inconsistent with the Colony strategic alliance. Thereafter, the Companies
commenced a process in which interested parties were invited to make proposals
to the Independent Committees, which indicated that they would respond to such
parties once they had an opportunity to evaluate fully all proposals.
3
<PAGE>
In January and again in March 1997, KAI revised its offer. The March offer
was announced simultaneously with an offer by Colony Capital. These offers, by
their terms, expired March 28, 1997.
On March 27, 1997, the Companies announced they had received confidential,
written proposals from several strategic and financial buyers in addition to
the previously described KAI and Colony Capital proposals and that, the
Companies' Independent Committees and financial advisors had been authorized
to commence final negotiations with selected potential buyers.
On March 31, 1997, the August 17, 1996 agreement with Colony was terminated
in accordance with its terms. The Companies paid the $4.5 million termination
fee and expenses owed to Colony pursuant to the agreement.
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.
Realty is a self-administered equity REIT.
Currently, Realty owns an approximate 400 acre parcel in Arcadia, California
which is the site for the Santa Anita Park racetrack, a thoroughbred horse
racing facility, the Santa Anita Fashion Park Mall, a 1.1 million square foot
regional mall of which Realty owns a 50 percent interest in the operations,
and Santa Anita Medical Plaza, a six story, 85,000 square foot medical office
building owned by Realty. Additionally, Realty owns a 32.5 percent interest in
the Towson Town Center mall in Towson, Maryland, a 50 percent interest in a
parcel of land adjacent to the Towson Town Center mall, two neighborhood
shopping centers, and a 24 acre undeveloped land parcel in Southern
California, of which all but one neighborhood center and the undeveloped land
parcel are in agreements to be sold to third parties. The neighborhood center
and land parcel are held for sale by Realty.
Over the past three years, Realty has undergone significant changes in its
asset holdings and strategic direction. In November 1993, Realty entered into
an agreement to sell its multifamily and industrial operations to its wholly
owned subsidiary, Pacific Gulf Properties Inc. ("Pacific"), in conjunction
with Pacific's proposed public offering of common stock and debentures. This
asset disposition, which was completed in 1994, resulted in Realty 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 to
Pacific. Realty also received 784,419 shares of common stock of Pacific (a
16.2% interest). The senior management of Realty prior to the restructuring
became senior management of Pacific, and Realty commenced the hiring of new
senior management in Spring 1994.
Consistent with Realty's stated strategy in 1994 to focus on development of
the Arcadia property as part of the Companies' strategic direction to grow The
Santa Anita Companies into a premier gaming and entertainment concern with
thoroughbred racing at its core, in March 1995, Realty filed an application
with the City of Arcadia for entitlements for a 1.5 million square foot
development on approximately 100 acres of land adjacent to the Santa Anita
Park racetrack and the Santa Anita Fashion Park regional mall. As part of the
planned development, Realty entered into a lease with a movie exhibitor for a
25 screen multiplex theater and negotiations with a variety of prospective
tenants, including a large screen theater, book superstore and other specialty
retail stores and restaurants. Realty formed a community advisory group to
facilitate community acceptance of the project and continued to engage in
negotiations with the City government regarding the entitlement process.
In May 1995, Realty and Operating Company, with the assistance of two
nationally recognized investment banking firms, filed for registration of an
underwritten public offering of paired common stock, for which the proceeds
were to be used to repay bank debt and to finance the initial phase of the
proposed entertainment center. The offering was withdrawn in July 1995 because
of insufficient market interest. Subsequent to this period, Realty pursued
financing the proposed entertainment center on a joint venture basis but
elected not to enter into a joint venture arrangement.
4
<PAGE>
In Fall 1995, management of Realty and Operating Company jointly met with
the Boards of Directors to review the strategic issues facing the Companies.
Issues discussed included the financing of the development of the
entertainment center, the more effective utilization of the paired share
structure of the Companies and the composition of Realty's asset portfolio.
Realty's management and Board of Directors determined to dispose of selected
real estate assets which were determined not to be part of the strategic
direction of Realty. As a result of the planned sale of these non-core
properties, Realty recognized in the 1995 third quarter a one-time non-cash
charge of $26.3 million which charge reduced the book value of these assets to
estimated realizable value. In the 1995 fourth quarter, an additional $4.0
million reduction in book value was recorded. See "Notes to Financial
Statements--Note 3--Disposition of Non-Core Real Estate Assets." In addition,
at this meeting, the Boards of Directors authorized management of Realty and
Operating Company to retain Morgan Stanley & Co. Incorporated as a financial
advisor to The Companies.
Following meetings with managements of both Companies and further
investigation and analyses, Morgan Stanley discussed strategic alternatives
with the Boards of each of the Companies in February, 1996. Subsequent to
those meetings, a committee of outside directors was formed to formulate
recommendations concerning Realty's investments. As a consequence of the
committee's meetings, the committee recommended that Mr. William C. Baker, a
director of the Companies, be appointed Chairman of the Board and Chief
Executive Officer of Realty and that the responsibilities and compensation of
certain officers be modified. These changes took effect on April 1, 1996.
In April 1996, Realty made the strategic decision to withdraw the 1.5
million square foot specific plan application which it had previously
submitted in June 1995 to the City of Arcadia. This specific plan application
concerned the development of a 1.5 million square foot retail/entertainment
project on 100 acres of excess land at Santa Anita Park. The specific plan
application withdrawal was made in reaction to significant mitigation costs
and public use requirements likely to be imposed on the project by the City of
Arcadia. Subsequent to the withdrawal, Realty continued development plans for
the larger project. In September 1996, a new City general plan was adopted
which provided for a commercial land use designation allowing 1.1 million
square feet of commercial development. In November 1996, a public initiative
was defeated which would have prevented development on the Realty property.
After the defeat of this measure, Realty concluded that a smaller scale
project would be supported by City management and not be subjected to
mitigation costs and public use requests inherent in a larger project.
Accordingly, Realty has reconfigured and downsized the project. The proposed
development is in its early stages and its ultimate configuration and success,
which is dependent on obtaining financing, entitlements and general economic
conditions, cannot be determined. See Item 1. "Business--Special
Considerations Regarding Forward Looking Statements."
To date, Realty has disposed of seven of the assets in its portfolio of non-
core assets held for sale and is in binding agreements to sell three
additional assets in the disposition program, all three of which are
anticipated at this time to close in the second quarter of 1997.
See Item 1. "Business--Recent Developments" for an explanation of recent
corporate developments at Realty.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth certain unaudited financial information with
respect to Realty:
SUMMARY OF FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994 1993 1992
------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues...................... $19,184(b) $ 22,426 $26,232(c) $41,961 $35,967
Net income (loss) (d)......... 1,332 (22,948) 5,256 1,840 9,318
Preferred stock dividends
(a).......................... 12,368 -- -- -- --
Net income (loss) applicable
to common shares............. (11,036) (22,948) 5,256 1,840 9,318
Funds from operations (e)..... 12,690 13,147 14,224 17,093 17,345
Per common share:
Net income (loss)........... (.97) (2.03) .47 .16 .82
Dividends paid.............. .80 .80 1.08 1.36 1.36
Dividends declared.......... .80 .80 .94 1.36 1.36
Weighted average common shares
outstanding.................. 11,429 11,326 11,256 11,256 11,256
</TABLE>
- --------
(a) See "Notes to Financial Statements--Note 16--Redeemable Preferred Stock."
(b) The decline in revenues was due primarily to the sale of non-core real
estate assets. See Item 1. "Business--Realty--Assets Sold or Held For
Sale."
(c) The decline in revenues was due primarily to the sale of properties to
Pacific. See Item 1. "Business--Realty--Assets Sold or Held For Sale--
Pacific Gulf Properties Inc."
(d) Net income (loss) for the years ended December 31, 1996, 1995, 1994 and
1993 each included several non-recurring items totaling a net charge of
$6,219,000, $27,870,000, $1,782,000 and $5,240,000. Net income excluding
nonrecurring charges was $7,551,000, $4,922,000, $7,038,000 and $7,080,000
for the years ended December 31, 1996, 1995, 1994 and 1993.
(e) 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,
sales of property and nonrecurring items, plus depreciation and
amortization (including Realty's portion of depreciation from
unconsolidated joint ventures).
6
<PAGE>
REAL ESTATE INVESTMENTS
Realty's portfolio of real estate investments is outlined below.
SUMMARY OF REAL ESTATE INVESTMENTS
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT LEASABLE PERCENT NET BOOK ENCUMBRANCES
LEASED AREA(A) OWNERSHIP VALUE(B) (C)
------- --------- --------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INVESTMENTS TO BE HELD
Racing Facility:
Santa Anita Racetrack, Ar-
cadia, California......... 100% 312 acres 100% $ 9,180 $ --
======= =======
Office Building:
Medical Office Building,
Arcadia, California....... 97 75,000 100 $12,026 $ 8,691
Land:
Land underlying Fashion
Park, Arcadia,
California................ 100 73 acres 100 346 3,678
------- -------
$12,372 $12,369
======= =======
INVESTMENTS TO BE SOLD(D)
Shopping Centers:
Yorba Linda, California.... 91 53,000 100 $ 3,893 $ 3,398
Encinitas, California...... 84 80,000 100 4,813 4,160
Land:
Temecula, California....... N/A 24 acres 50 280 480
------- -------
$ 8,986 $ 8,038
======= =======
INVESTMENTS IN UNCONSOLIDATED
JOINT VENTURES
Anita Associates......................................... $(3,966)
H-T Associates........................................... 4,047
Joppa Associates......................................... 2,216
-------
$ 2,297
=======
REAL ESTATE LOANS RECEIVABLE
Principal and accrued interest........................... $13,147
Valuation allowance...................................... (2,473)
-------
$10,674
=======
</TABLE>
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(a) Square feet except as indicated.
(b) Net book value (total cost of project less accumulated depreciation) at
December 31, 1996.
(c) Amounts represent 100% of project encumbrances.
(d) During 1996, Realty sold four shopping centers and two office buildings.
7
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SANTA ANITA RACETRACK
Santa Anita Racetrack, which is leased by Realty to 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. The physical plant consists of a large
grandstand structure occupying approximately 970,000 square feet, 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 houses 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 1996, 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 Oak Tree Racing Association ("Oak
Tree"). In addition, Realty receives 26.5% 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. When LATC operates as a satellite for
Hollywood Park Racetrack, Del Mar Racetrack and Pomona Fairplex, Realty
receives 26.5% of LATC's wagering commissions as additional rent. The lease
with LATC is scheduled to expire on December 31, 1999. The previous lease,
which was in effect through 1994, provided for rent of 1.5% of the aggregate
on-track wagering on live races at Santa Anita Racetrack and 40% of LATC's
wagering commissions from satellite wagering on races originating at Santa
Anita Racetrack. 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").
The following table shows rental earned by Realty based on the rental
formula under the LATC lease for the last five years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT FOR RACING DAYS)
<S> <C> <C> <C> <C> <C>
Combined racing days................. 114 120 117 114 121
======= ======= ======= ======= =======
Rent from Racetrack.................. $10,861 $11,342(a) $13,070 $11,634 $12,683
======= ======= ======= ======= =======
</TABLE>
- --------
(a) The decrease in Rent from Racetrack in 1995 was primarily due to amended
lease terms. 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.
For a further description of thoroughbred horse racing operations, see Item
1. "Business--Operating Company--Santa Anita Racetrack."
SANTA ANITA FASHION PARK
Santa Anita Fashion Park is a completely enclosed, climate-controlled
regional mall located adjacent to Santa Anita Racetrack with 1,102,000 square
feet of leasable area. Fashion Park, apart from space occupied by anchor
tenants, is owned and operated by a partnership, Anita Associates, of which
Realty is a 50% limited
8
<PAGE>
partner. The general partner of Anita Associates is Hahn-UPI, which in turn is
a limited partnership of which TrizecHahn Centers Inc., a developer of
shopping centers, is the general partner.
Fashion Park completed a significant expansion in August 1994, including the
addition of a new 136,000 square foot Nordstrom store and an additional 40,000
square feet of mall stores. Other anchor tenants are Robinsons-May (165,000
square feet), J.C. Penney (215,000 square feet) and Macy's (188,000 square
feet). Since 1994, new mall tenants include The Disney Store, Williams Sonoma,
Ann Taylor, the Gap, Talbots Petites, Gymboree, Jacadi and California Pizza
Kitchen. 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. Since 1994, each of the anchor department stores has
completed a major remodeling of its store.
In January 1994, Anita Associates 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, 1996, $60,381,000 was outstanding under the agreement.
There are currently 133 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 was $527,000 annually until October 1996 when the annual rent increased
to $795,000 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, Macy's 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, 1996 of $3,678,000. 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,
----------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Number of mall tenants..................... 133 135 130 116 107
====== ====== ====== ====== ======
Average annual rental rates per square foot
including overage rents................... $23.13 $20.81 $19.78 $16.42 $16.98
====== ====== ====== ====== ======
</TABLE>
SANTA ANITA MEDICAL PLAZA
Realty owns a medical office building located in Arcadia, California which
is adjacent to Santa Anita Park. 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,
1996, the medical office building was 100% occupied.
9
<PAGE>
ASSETS SOLD OR HELD FOR SALE
Pursuant to the determination of the Board of Directors of Realty to dispose
of certain assets, Realty sold a number of properties in 1996, has entered
into contracts for sale of other properties (which transactions are scheduled
to close in 1997) and continues efforts to sell other assets. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Santa Anita Realty Enterprises, Inc." for a discussion of the use
of proceeds and anticipated use of proceeds of such sales and the impact of
such sales on Realty's results of operations. The sales anticipated below are
subject to a number of contractual conditions, including completion of due
diligence by buyers that may affect whether and when the sales occur. See also
Item 1 "Business--Special Considerations Regarding Forward Looking
Statements."
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 TrizecHahn
Centers Inc. in H-T Associates, a joint venture which owns a
65% interest in a partnership which owns the Towson Town Center. The anchor
tenants at Towson Town Center are Nordstrom (224,000 square feet) and Hecht's
(193,000 square feet) department stores.
There are 165 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 $33.96 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 has executed joint and several guaranties of loans used to expand the
Towson Town Center in the amount of $66,135,000. In January 1997, Realty
entered into an agreement to sell its 50% partnership interest in H-T
Associates to its partner (see "Notes to Financial Statements--Note 9--
Investments in Unconsolidated Joint Ventures"). Such sale is expected to close
in the 1997 second quarter.
JOPPA ASSOCIATES
In 1988 Realty entered into a partnership for the acquisition and financing
of real property to be used in the planned expansion of Towson Town Center.
The partnership ceased development activities in 1995 and decided to sell the
property. In 1996, the partnership entered into an agreement of sale, which is
expected to close on June 30, 1997.
NEIGHBORHOOD SHOPPING CENTERS
Realty owns two neighborhood shopping centers located in Yorba Linda,
California, and Encinitas, California. The Yorba Linda shopping center
consists of two major stores, a fabric/craft retail store and a private
preschool/grade school and also includes a variety of service and general
merchandise stores and three restaurants. The Encinitas shopping center does
not have a single major tenant but includes a variety of specialty stores,
general merchandise and service stores and four restaurants. 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, 1996, the average occupancy of the two shopping
centers was 86%.
In November 1995, Realty announced its intention to dispose of all of its
neighborhood shopping centers and during 1996, Realty sold four such
properties.
In January 1997, Realty reached an agreement to sell the Yorba Linda
neighborhood shopping center and anticipates closing of that sale in the 1997
second quarter. Realty continues its efforts to sell the Encinitas shopping
center, and recently determined to spend approximately $1.7 million to
renovate the center in anticipation of such sale.
10
<PAGE>
OFFICE BUILDINGS
During 1996, Realty sold two general use office buildings.
LAND
Realty is a 50% partner in French Valley Ventures, a partnership which
acquired 24 acres of unimproved land located in Temecula, California. In
November 1995, Realty announced its intention to dispose of its interest in
this property.
PACIFIC GULF PROPERTIES INC.
In November 1993, Realty entered into a Purchase and Sale Agreement to sell
its multifamily and industrial operations to its wholly owned subsidiary,
Pacific Gulf Properties Inc. ("Pacific"), in conjunction with Pacific's
proposed public offering of common stock and debentures. (see "Notes to
Financial Statements--Note 8--Investment in Pacific Gulf Properties Inc.").
As a result of the sale to Pacific, Realty owned 784,419 shares (or
approximately 16.2%) of Pacific's outstanding common shares. On May 30, 1996,
Realty sold its shares of Pacific common stock, at a gross selling price of
$16.375 per share, pursuant to the terms of an underwritten, registered public
offering by Pacific.
MANAGEMENT OF PROPERTIES
Realty manages its neighborhood shopping centers and office building
directly.
COMPETITIVE AND OTHER CONDITIONS
The regional shopping malls, neighborhood shopping centers and office
building 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. Recessionary measures 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.
Realty's properties are located in Southern California, which is an area
subject to earthquakes and, therefore, there can be no assurance that any
earthquakes that may occur will not damage Realty's properties or negatively
impact the financial position or results of operations of Realty.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, an
owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The costs
of investigation, removal or remediation of such substances may be
substantial, and the presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell or
rent such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may
also be liable for the costs of removal or remediation of a release of such
substances at a disposal treatment facility, whether or not such facility is
owned or operated by such person. Certain environmental laws impose liability
for release of asbestos-containing materials ("ACMs") into the air and third
parties may seek recovery from owners or operators of real properties for
personal injury associated with ACMs. In connection with the ownership (direct
or indirect), operation, management and development of real properties, the
Companies may be considered an owner or operator of such properties or as
having arranged for the disposal or treatment of hazardous or toxic
11
<PAGE>
substances and therefore, potentially liable for removal or remediation costs,
as well as certain other related costs, including governmental fines and
injuries to persons and property.
EMPLOYEES
At December 31, 1996, Realty employed 14 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 1996 and
1995 (before preferred dividends):
<TABLE>
<CAPTION>
QUARTERS ENDED 1996
-------------------------------------------
MARCH JUNE SEPT. DEC.
------------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total revenues................... $ 9,322 $ 4,240 $ 2,379 $ 3,243
Costs and expenses............... 2,722 2,221 2,645 1,604
Interest and other............... 944 756 502 468
Strategic alliance costs......... -- -- -- 1,090
Arcadia development costs........ -- -- -- 2,900
Program for disposition of non-
core real estate assets......... -- 855 90 1,055
--------- --------- ----------- ----------
Net income (loss)................ $ 5,656 $ 408 $ (858) $ (3,874)
========= ========= =========== ==========
Net income (loss) per common
share .......................... $ .50 $ .04 $ (.08) $ (.34)
========= ========= =========== ==========
<CAPTION>
QUARTERS ENDED 1995
-------------------------------------------
MARCH JUNE SEPT. DEC.
------------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total revenues................... $ 9,066 $ 4,795 $ 3,009 $ 5,556
Costs and expenses............... 3,227 2,713 3,169 2,994
Interest and other............... 1,120 1,118 1,074 1,009
Costs of equity offering......... -- 700 -- --
Card club option write-off....... -- -- 2,000 --
Program for disposition of non-
core real estate assets......... -- -- 26,300 4,000
--------- --------- ----------- ----------
Income (loss) before
extraordinary gain.............. 4,719 264 (29,534) (2,447)
Extraordinary gain on early
retirement of debt.............. -- -- -- 4,050
--------- --------- ----------- ----------
Net income (loss)................ $ 4,719 $ 264 $ (29,534) $ 1,603
========= ========= =========== ==========
Net income (loss) per common
share
Before extraordinary gain...... $ .42 $ .02 $ (2.59) $ (.22)
Extraordinary gain............. -- -- -- .36
--------- --------- ----------- ----------
$ .42 $ .02 $ (2.59) $ .14
========= ========= =========== ==========
</TABLE>
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 the Santa
Anita Racetrack from Realty.
12
<PAGE>
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 horse 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 for a fee of 1.5% of
total live on-track wagering at Santa Anita Racetrack, including live on-track
wagering during the meet conducted by Oak Tree. In addition, LATC pays to
Realty 26.5% of its revenues from satellite wagering (not to exceed 1.5% of
such wagering) and the simulcasting of races originating from Santa Anita
Racetrack after mandated payments to the State, to horse owners and to
breeders. When LATC operates as a satellite for Hollywood Park Racetrack, Del
Mar Racetrack and Pomona Fairplex, LATC pays to Realty 26.5% of its wagering
commissions as additional rent. The lease with Realty is scheduled to expire
on December 31, 1999. The previous lease, which was in effect through 1994,
provided for rent of 1.5% of the aggregate on-track wagering on live races at
Santa Anita Racetrack and 40% of LATC's wagering commissions from satellite
wagering on races originating at Santa Anita Racetrack. LATC has sublet the
racetrack to Oak Tree to conduct Oak Tree's annual thoroughbred horse racing
meet (27 days in 1996), which commences in late September or early October.
Oak Tree normally races five weeks in even-numbered years and six weeks in
odd-numbered years.
Under a sublease which expires December 31, 1999, 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 of California, to horse owners and to
breeders. LATC pays to Realty 26.5% of all satellite and simulcast revenues
received from Oak Tree. 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 1995-96 Santa Anita meet:
<TABLE>
<CAPTION>
DISTRIBUTION OF PARI-
MUTUEL WAGERING
-------------------------
PERCENTAGE AMOUNT
---------- --------------
(IN THOUSANDS)
<S> <C> <C>
Return to Wagerers................................. 80.87% $663,556
State of California................................ 3.22 26,384
Track Commissions to LATC.......................... 3.92 32,164
Horse Owners and Breeders.......................... 4.07 33,435
Satellite Operator and Location Fees............... 7.71 63,267
Cities and Counties................................ .21 1,750
------ --------
100.00% $820,556
====== ========
</TABLE>
13
<PAGE>
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 4.3% of the wagers made.
During the Hollywood Park, Del Mar and Pomona Fairplex 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 1996, Santa Anita Racetrack operated
165 days as a satellite for Hollywood Park, Del Mar and Pomona Fairplex.
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 4.5% 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. In 1996, LATC participated in satellite wagering
with Alabama, Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida,
Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland,
Massachusetts, Michigan, Minnesota, Montana, Nebraska, Nevada, New Hampshire,
New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon,
Pennsylvania, Rhode Island, Texas, Virginia, Washington, West Virginia,
Wisconsin and Wyoming and receives a negotiated percentage of the pari-mutuel
wagering at such sites.
Out-of-state satellite wagering started in 1991. Total out-of-state pari-
mutuel wagering was $68,689,000 in 1992 and increased to $271,632,000 in 1996.
LATC's share of the commissions from out-of-state satellite wagering was
$4,454,000 in 1996, or approximately 1.6% of the out-of-state wagering.
Satellite Wagering--Out-of-State (Separate Pools)
LATC and Oak Tree transmit their live racing signals to numerous locations
in the United States, Mexico, the Caribbean, Central America and Canada.
LATC's share of the commissions for transmitting its racing signal
14
<PAGE>
was $1,481,000 in 1996 and $1,599,000 in 1995. During the Oak Tree meet, LATC
receives a percentage of Oak Tree's share of simulcasting revenues. LATC is
pursuing opportunities to transmit its signal to additional locations.
The following tables summarize key operating statistics for the 1992-1996
Santa Anita and Oak Tree meets, together with the attendance and wagering
statistics relating to the transmission of the Hollywood Park, Del Mar and
Pomona Fairplex signals to Santa Anita Racetrack.
<TABLE>
<CAPTION>
RACING MEETS ENDED IN
------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
LIVE RACING
Santa Anita Meet:
Number of racing days.. 87 88 90 83 94
========== ========== ========== ========== ==========
Attendance
On-track.............. 1,071,950 1,144,568 1,257,909 1,215,208 1,531,538
Southern California
satellite locations.. 1,301,990 1,388,249 1,523,220 1,332,126 1,576,763
---------- ---------- ---------- ---------- ----------
Total............... 2,373,940 2,532,817 2,781,129 2,547,334 3,108,301
========== ========== ========== ========== ==========
Average daily......... 27,287 28,782 30,901 30,691 33,067
========== ========== ========== ========== ==========
Wagering ($000)(a)
On-track.............. $ 232,711 $ 244,271 $ 270,452 $ 250,729 $ 323,223
Southern California
satellite locations.. 318,526 333,630 315,731 267,346 315,851
Northern California
satellite
locations(b)......... 90,744 96,187 37,639 -- --
Out-of-state
locations............ 376,032 309,305 263,235 135,815 112,871
---------- ---------- ---------- ---------- ----------
Total............... $1,018,013 $ 983,393 $ 887,057 $ 653,890 $ 751,945
========== ========== ========== ========== ==========
Average daily......... $ 11,701 $ 11,175 $ 9,856 $ 7,878 $ 7,999
========== ========== ========== ========== ==========
Oak Tree Meet:
Number of racing
days(c)............... 27 32 27 31 27
========== ========== ========== ========== ==========
Attendance
On-track.............. 336,180 394,251 377,007 499,617 425,774
Southern California
satellite locations.. 352,247 428,876 378,256 444,932 390,088
---------- ---------- ---------- ---------- ----------
Total............... 688,427 823,127 755,263 944,549 815,862
========== ========== ========== ========== ==========
Average daily......... 25,497 25,723 27,973 30,469 30,217
========== ========== ========== ========== ==========
Wagering ($000)
On-track.............. $ 61,965 $ 80,084 $ 74,319 $ 99,789 $ 79,162
Southern California
satellite locations.. 84,053 104,495 86,237 80,024 75,714
Northern California
satellite
locations(b)......... 20,246 27,000 21,715 6,403 --
Out-of-state
locations............ 97,057 110,646 65,107 75,426 28,581
---------- ---------- ---------- ---------- ----------
Total............... $ 263,321 $ 322,225 $ 247,378 $ 261,642 $ 183,457
========== ========== ========== ========== ==========
Average daily......... $ 9,753 $ 10,070 $ 9,162 $ 8,440 $ 6,795
========== ========== ========== ========== ==========
</TABLE>
- --------
(a) Includes wagering on races originating at other racetracks.
(b) Northern California satellite wagering began in October 1993 and expanded
in August 1994.
(c) Oak Tree normally races five weeks in even-numbered years and six weeks in
odd-numbered years.
15
<PAGE>
Total wagering on the Santa Anita meet increased from $751.9 million in 1992
to $1,018.0 million in 1996. In 1992, $428.7 million of the total amount
wagered was wagered at satellite locations with $323.2 million wagered on-
track. In 1996, $785.3 million of the total amount wagered was wagered at
satellite locations with $232.7 million wagered on-track.
Total attendance was 3,108,000 in 1992, of which 1,577,000 was at satellite
locations. By 1996, total attendance had declined to 2,374,000. Although
1,302,000 and 1,388,000 patrons attended Southern California satellite
locations during the Santa Anita meets in 1996 and 1995, LATC does not share
in the revenues from admissions, parking and food and beverage sales at the
satellite locations.
<TABLE>
<CAPTION>
RACING MEETS ENDED IN
--------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
AS A SATELLITE
Santa Anita as Satellite for
Hollywood Park:
Number of racing days.......... 103 97 102 99 101
======== ======== ======== ======== ========
Attendance
Total........................ 448,619 457,480 486,581 505,239 515,510
======== ======== ======== ======== ========
Average daily.................. 4,356 4,716 4,770 5,103 5,104
======== ======== ======== ======== ========
Wagering ($000)
Total........................ $114,392 $113,899 $117,661 $112,623 $114,858
======== ======== ======== ======== ========
Average daily.................. $ 1,111 $ 1,174 $ 1,154 $ 1,138 $ 1,137
======== ======== ======== ======== ========
Santa Anita as Satellite for Del
Mar:
Number of racing days.......... 43 43 43 42 43
======== ======== ======== ======== ========
Attendance
Total........................ 188,277 200,725 212,817 223,599 242,947
======== ======== ======== ======== ========
Average daily.................. 4,379 4,668 4,949 5,324 5,650
======== ======== ======== ======== ========
Wagering ($000)
Total........................ $ 51,763 $ 51,589 $ 52,118 $ 54,928 $ 55,435
======== ======== ======== ======== ========
Average daily.................. $ 1,204 $ 1,200 $ 1,212 $ 1,308 $ 1,289
======== ======== ======== ======== ========
</TABLE>
During 1996, Santa Anita was a satellite location for Pomona Fairplex for 19
racing days. Total attendance and average daily attendance were 44,753 and
2,355. Total wagering and average daily wagering were $12,309,000 and
$648,000.
During the last five years, 62.6% 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.
16
<PAGE>
The following table sets forth certain unaudited financial information with
respect to LATC:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Wagering commissions:
On-track............................. $14,324 $15,262 $16,831 $15,878 $18,695
Southern California satellite
locations........................... 14,470 14,866 13,665 12,078 13,706
Northern California satellite
locations........................... 1,958 2,193 654 -- --
Out-of-state locations............... 5,935 5,127 4,719 3,238 2,792
Satellite for Hollywood Park, Del Mar
and Pomona Fairplex................. 3,286 3,210 3,310 3,391 3,422
Sublease income...................... 4,808 4,929 3,917 3,843 2,724
Admission related..................... 23,825 24,060 24,750 25,842 28,795
------- ------- ------- ------- -------
Revenues.............................. 68,606 69,647 67,846 64,270 70,134
------- ------- ------- ------- -------
Costs and Expenses:
Horse racing operating costs......... 48,735 48,686 48,352 46,696 52,254
Depreciation and amortization........ 3,212 3,196 4,251 2,768 2,732
General and administrative........... 3,223 3,216 3,125 3,973 3,739
------- ------- ------- ------- -------
Costs and expenses................... 55,170 55,098 55,728 53,437 58,725
------- ------- ------- ------- -------
Income from operations before rent and
income taxes.......................... $13,436 $14,549 $12,118 $10,833 $11,409
======= ======= ======= ======= =======
</TABLE>
The mix of revenues has changed significantly from 1992 to 1996 primarily as
a result of the introduction of satellite wagering on races originating at
Santa Anita Racetrack, operating as a satellite location for Hollywood Park,
Del Mar and Pomona Fairplex, 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 $58.7 million in 1992 to $55.2 million
in 1996. The majority of these expenses are pari-mutuel wagering or
attendance-related, the result of operating as a satellite location for
Hollywood Park, Del Mar and Pomona Fairplex, and the aggregate effect of a new
lease with Oak Tree. 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 was replaced in 1995. From 1994 to 1996,
total costs and expenses have remained flat.
Included in the results of operations are the revenues and expenses 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 one
percent of total on-track pari-mutuel wagering. 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."
17
<PAGE>
See Item 1. "Business--Recent Developments" for an explanation of recent
corporate developments at 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 racing day 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 two days of racing
because of inclement weather.
A local Arcadia ordinance limits live horse racing to daylight hours but
allows the importation of a horse racing broadcast signal two weekend evenings
per week.
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 provided 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 Native American
lands if conducted in conformance with a Tribal-State compact, which the
applicable state must negotiate with a Native American tribe in good faith.
Certain Native American 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. Federal law provides that states must allow Native
American 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.
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, 1996, LATC regularly employed
approximately 1,550 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 250 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.
18
<PAGE>
All of LATC's employees, except for approximately 80 full-time management
and clerical employees, are covered by collective bargaining agreements with
labor unions. Fifteen of the seventeen labor agreements covering racetrack
employees were renegotiated in 1995. The two remaining labor agreements were
renegotiated in 1996.
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 1996
and 1995:
<TABLE>
<CAPTION>
QUARTERS ENDED 1996
--------------------------------------------
MARCH JUNE SEPT. DEC.
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total revenues............. $ 38,267 $ 14,093 $ 6,549 $ 10,278
Costs and expenses......... 35,836 13,945 7,664 12,216
Interest................... 73 69 64 82
---------- ---------- ---------- ----------
Net income (loss).......... $ 2,358 $ 79 $ (1,179) $ (2,020)
========== ========== ========== ==========
Net income (loss) per
common share ............. $ .21 $ .01 $ (.10) $ (.18)
========== ========== ========== ==========
<CAPTION>
QUARTERS ENDED 1995
--------------------------------------------
MARCH JUNE SEPT. DEC.
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total revenues............. $ 37,003 $ 15,572 $ 6,269 $ 11,489
Costs and expenses......... 34,944 15,135 6,246 12,341
Interest................... 91 87 130 93
---------- ---------- ---------- ----------
Income (loss) before income
taxes..................... 1,968 350 (107) (945)
Income tax benefit......... -- -- -- 2,000
---------- ---------- ---------- ----------
Net income (loss).......... $ 1,968 $ 350 $ (107) $ 1,055
========== ========== ========== ==========
Net income (loss) per
common share.............. $ .18 $ .03 $ (.01) $ .09
========== ========== ========== ==========
</TABLE>
Operating Company records operating revenues associated with thoroughbred
horse racing at Santa Anita Racetrack on a daily basis, except for season
admissions which are recorded ratably over the racing season. Costs and
expenses associated with thoroughbred horse racing revenues are charged
against income in those interim periods in which the thoroughbred horse racing
revenues are recognized. Other costs and expenses are recognized as they
actually occur throughout the year. The rental fee paid by Operating Company
to Realty is recognized by both Realty and Operating Company as it is earned.
INCOME TAX MATTERS
In 1979, prior to the pairing of the stock of Realty and Operating Company,
the IRS issued a private letter ruling (the "Ruling") in which the IRS held,
in effect, that the stock-pairing arrangement between the Companies and the
operation of the Racetrack by an Operating Company subsidiary would not
preclude Realty's qualification as a REIT. Subsequent to the issuance of the
Ruling, Congress amended the Internal Revenue Code (the "Amendment") to
prohibit a stock-pairing arrangement between a REIT and an operating company.
However, the Amendment does not apply to the Companies since they were paired
prior to June 30, 1983, the effective date of the legislation. Furthermore,
the Amendment does not affect Realty's Ruling. Realty is one of only three
continuing publicly-traded REITs whose stock was paired with an operating
company prior to 1983 and is thus not subject to the Amendment.
19
<PAGE>
REALTY
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. If, as intended, Realty continues to qualify as a REIT,
it generally will not be subject to federal corporate income taxes on its
taxable income and gains that it distributes to its shareholders. This
treatment substantially eliminates the "double taxation" (once at the
corporate level and again at the stockholder level) that generally results
from investment in a typical corporation. 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"
(which is, in general, property acquired on default of a lease of such
property), income from the sale of property held primarily for sale to
customers in the ordinary course of business and excessive unqualified income.
In order to qualify as a REIT, among other things, the rental income received
by Realty from LATC must qualify as "rents from real property" for REIT
purposes. One requirement for such qualification is that Realty may not own,
directly or constructively, 10% or more of the outstanding voting power or
total number of shares of stock of LATC. Realty would be treated as owning
shares of stock in LATC in violation of this 10% limit if any person owns,
directly or constructively, 10% or more by value of the shares of stock of
Realty and Operating Company. In such an event, the rent paid to Realty by
LATC could not qualify as income of the type that can be received by a REIT.
In order to prevent such a situation, which would likely result in Realty's
disqualification as a REIT, the by-laws of Realty and Operating Company
preclude any transfer of shares which would cause any person to own, actually
or constructively, shares of stock of the Companies in violation of the above
limitation.
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.
SPECIAL CONSIDERATIONS REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements which, to the extent
that they are not recitations of historical fact, constitute "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. All forward looking
statements involve risks and uncertainties. The forward looking statements in
this document are intended to be subject to the safe harbor protection
provided by Sections 27A and 21E. Reference is made in particular to Realty's
plans for future sales of its non-core assets and the use of proceeds thereof,
Realty's proposed development of land adjacent to Santa Anita Park and other
forward looking statements in the annual report. Such statements may be
identified by the use of terms such as "may," "will," "expect," "believe,"
"estimate," "anticipate," "intend," "continue" or similar terms. Such
statements are based on management's current expectations and are subject to a
number of factors and uncertainties.
ITEM 2. PROPERTIES
Information concerning property owned by Realty and Operating Company
required by this Item is incorporated by reference to the information
contained in Item 1. "Business" of this Report.
20
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In October 1996, a purported class action complaint was filed by Barbara J.
Gignac in the Superior Court of Los Angeles County, California, naming as
defendants the Companies, certain of their officers and directors and Colony
Capital, Inc. The complaint alleges breaches of fiduciary duties by the
individually named defendants, as a result of the proposed transaction with an
affiliate of Colony Capital, Inc. ("Colony Transaction"), for not conducting
an auction for control of the Companies, not negotiating with other bidders,
not making adequate and truthful disclosures and not acting independently. The
suit seeks certification of the class, a preliminary and permanent injunction
of the Colony Transaction, directives to the defendants to issue corrective
disclosures and discharge fiduciary duties, a preliminary and permanent
injunction of breaching fiduciary duties, compensatory damages of an
unspecified amount, costs and expenses and punitive damages. See Item 1.
"Business--Recent Developments." The defendants believe the allegations in the
complaint are without merit and intend to contest vigorously the claims
asserted against them in this lawsuit.
Certain other 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, 1996. 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.
21
<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>
1995
1st Quarter.................................... $17 1/2 $13 3/8 $.20
2nd Quarter.................................... 17 1/8 14 3/8 .20
3rd Quarter.................................... 15 13 3/8 .20
4th Quarter.................................... 13 5/8 11 7/8 .20
----
$.80
====
1996
1st Quarter.................................... $15 1/4 $12 $.20
2nd Quarter.................................... 15 1/8 12 3/8 .20
3rd Quarter.................................... 18 1/2 12 1/2 .20
4th Quarter.................................... 27 7/8 18 1/4 .20
----
$.80
====
1997
1st Quarter.................................... $30 1/2 $26 1/4 $.20
====
</TABLE>
A regular quarterly dividend of $.20 per share was paid on March 28, 1997 to
shareholders of record on March 6, 1997. The closing price of the paired
Common Stock on the New York Stock Exchange Composite Tape on March 31, 1997
was $27.375 per share. As of March 31, 1997, there were approximately 21,000
holders of the paired Common Stock, including the beneficial owners of shares
held in nominee accounts.
The current policy of the Board of Directors of Realty is to declare and pay
regular quarterly dividends equal to the greater of (i) $.20 per share
(provided sufficient funds are legally available and not required for other
purposes and provided further that such dividend payments are not prohibited
by the terms of any applicable credit agreements), or (ii) an amount
calculated to maintain Realty's qualification as a REIT under the Code by
effecting the distribution in each year of an amount approximating 95% of its
taxable income (other than net capital gains) (see item 1. "Business--Income
Tax Matters--Realty"). This policy is subject to review by the Board of
Directors from time to time in light of Realty's results of operations, its
financial condition, its cash requirements and such other factors as the Board
of Directors deems relevant.
Realty's 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.").
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.
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.
22
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The financial data set forth on the following pages includes the information
for The Santa Anita Companies, Realty and Operating Company, for each of the
five years in the period ended December 31, 1996.
The separate net income (loss) and related per share amounts of Realty and
Operating Company cannot usually be added together to total the net income
(loss) and related per share amounts of The Santa Anita Companies, 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 The Santa Anita Companies, Realty and
Operating Company for each of the five years in the period ended December 31,
1996 have been audited by Ernst & Young LLP, 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.
THE SANTA ANITA COMPANIES
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
RESTATED
-------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues................ $ 77,225 $ 81,206 $ 81,449 $ 95,011 $ 94,177
Costs and expenses............ 76,685 106,838 79,424 97,912 87,851
-------- -------- -------- -------- --------
Income (loss) before income
taxes........................ 540 (25,632) 2,025 (2,901) 6,326
Income tax benefit............ -- 2,000 -- 2,523 158
-------- -------- -------- -------- --------
Income (loss) before extraor-
dinary gain.................. 540 (23,632) 2,025 (378) 6,484
Extraordinary gain on early
retirement of debt........... -- 4,050 -- -- --
-------- -------- -------- -------- --------
Net income (loss)............. 540 (19,582) 2,025 (378) 6,484
Preferred stock dividends(a).. 12,420 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) applicable
to common shares............. $(11,880) $(19,582) $ 2,025 $ (378) $ 6,484
======== ======== ======== ======== ========
Net income (loss) per common
share:
Before extraordinary gain... $ (1.05) $ (2.11) $ .18 $ (.03) $ .58
Extraordinary gain.......... -- .36 -- -- --
-------- -------- -------- -------- --------
$ (1.05) $ (1.75) $ .18 $ (.03) $ .58
======== ======== ======== ======== ========
Dividends paid by Realty per
common share................. $ .80 $ .80 $ 1.08 $ 1.36 $ 1.36
======== ======== ======== ======== ========
Dividends declared by Realty
per common share............. $ .80 $ .80 $ .94 $ 1.36 $ 1.36
======== ======== ======== ======== ========
Weighted average common shares
outstanding.................. 11,317 11,214 11,143 11,141 11,141
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets(b)(c)(d)......... $ 93,481 $114,876 $142,121 $257,239 $248,043
======== ======== ======== ======== ========
Loans payable(b)(d)........... $ 25,824 $ 51,074 $ 50,375 $153,131 $133,217
======== ======== ======== ======== ========
Shareholders' equity(c)....... $ 14,789 $ 31,901 $ 59,720 $ 68,088 $ 83,619
======== ======== ======== ======== ========
</TABLE>
- --------
(a) See "Notes to Financial Statements--Note 16--Redeemable Preferred Stock."
(b) The decrease in total assets and loans payable in 1996 compared with 1995
was due primarily to the sale of four neighborhood shopping centers and
two office buildings and to the sale of the investment in Pacific Gulf
Properties Inc. (see "Notes to Financial Statements--Note 3--Disposition
of Non-Core Real Estate Assets").
(c) The decrease in total assets and shareholders' equity in 1995 compared
with 1994 was due primarily to the nonrecurring charge of $30,300,000 in
1995 relating to Realty's plan to dispose of its non-core real estate
assets (see "Notes to Financial Statements--Note 3--Disposition of Non-
Core Real Estate Assets").
(d) The decrease in total assets and loans payable in 1994 compared with 1993
was due primarily to the sale of Realty's multifamily and industrial
properties in 1994 (see "Notes to Financial Statements--Note 8--Investment
in Pacific Gulf Properties Inc.").
23
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
RESTATED
-------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Rental from racetrack....... $ 10,861 $ 11,342 $ 13,070 $ 11,634 $ 12,683
Rental property............. 6,671 8,447 11,054 25,105 21,164
Interest and other.......... 1,652 2,637 2,108 5,222 2,120
-------- -------- -------- -------- --------
Total revenues............ 19,184 22,426 26,232 41,961 35,967
-------- -------- -------- -------- --------
Costs and expenses:
Rental property operating
expenses................... 2,434 2,671 4,182 11,039 8,405
Depreciation and
amortization............... 1,718 3,899 4,152 7,079 6,520
General and administrative.. 4,046 3,420 4,148 4,244 4,156
Interest and other.......... 2,670 4,321 5,930 9,866 9,303
Losses (earnings) from
unconsolidated joint
ventures................... 994 2,113 1,521 333 (609)
Minority interest in losses
of consolidated joint
ventures................... -- -- -- (891) (1,126)
Strategic alliance costs.... 1,090 -- -- -- --
Arcadia development costs... 2,900 -- -- -- --
Program for disposition of
non-core real estate
assets..................... 2,000 30,300 -- -- --
Costs of equity offering.... -- 700 -- -- --
Card club option write-off
........................... -- 2,000 -- -- --
Write-down of land held for
development................ -- -- 1,043 -- --
Loss on disposition of
multifamily and industrial
operations................. -- -- -- 10,974 --
-------- -------- -------- -------- --------
Total costs and expenses.. 17,852 49,424 20,976 42,644 26,649
-------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
gain......................... 1,332 (26,998) 5,256 (683) 9,318
Income tax benefit............ -- -- -- 2,523 --
-------- -------- -------- -------- --------
Income (loss) before
extraordinary gain........... 1,332 (26,998) 5,256 1,840 9,318
Extraordinary gain on early
retirement of debt........... -- 4,050 -- -- --
-------- -------- -------- -------- --------
Net income (loss)............. 1,332 (22,948) 5,256 1,840 9,318
Preferred stock dividends..... 12,368 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) applicable
to common shares............. $(11,036) $(22,948) $ 5,256 $ 1,840 $ 9,318
======== ======== ======== ======== ========
Net income (loss) per common
share:
Before extraordinary gain... $ (.97) $ (2.39) $ .47 $ .16 $ .83
Extraordinary gain.......... -- .36 -- -- --
-------- -------- -------- -------- --------
$ (.97) $ (2.03) $ .47 $ .16 $ .83
======== ======== ======== ======== ========
Dividends paid per common
share ....................... $ .80 $ .80 $ 1.08 $ 1.36 $ 1.36
======== ======== ======== ======== ========
Dividends declared per common
share ....................... $ .80 $ .80 $ .94 $ 1.36 $ 1.36
======== ======== ======== ======== ========
Weighted average common shares
outstanding.................. 11,429 11,326 11,256 11,256 11,256
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets.................. $ 61,753 $ 81,072 $109,606 $220,658 $214,325
======== ======== ======== ======== ========
Loans payable................. $ 24,957 $ 49,339 $ 47,846 $149,877 $129,299
======== ======== ======== ======== ========
Shareholders' equity.......... $ 8,675 $ 25,842 $ 56,061 $ 61,385 $ 74,854
======== ======== ======== ======== ========
</TABLE>
24
<PAGE>
SANTA ANITA OPERATING COMPANY
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues:
Wagering commissions....... $ 44,781 $ 45,587 $ 43,096 $ 38,428 $ 41,339
Admission related.......... 23,825 24,060 24,750 25,842 28,795
Interest and other......... 581 686 565 571 747
-------- -------- -------- -------- --------
Total revenues........... 69,187 70,333 68,411 64,841 70,881
-------- -------- -------- -------- --------
Costs and expenses:
Horse racing operating
costs..................... 48,735 48,686 48,352 46,696 52,254
Depreciation and
amortization.............. 3,212 3,196 4,251 2,768 2,732
General and
administrative............ 6,353 5,442 5,583 5,801 6,154
Interest and other......... 788 401 446 493 194
Rental expense to Realty... 10,861 11,342 13,057 11,315 12,686
-------- -------- -------- -------- --------
Total costs and
expenses................ 69,949 69,067 71,689 67,073 74,020
-------- -------- -------- -------- --------
Income (loss) before income
taxes....................... (762) 1,266 (3,278) (2,232) (3,139)
Income tax benefit .......... -- 2,000 -- -- 243
-------- -------- -------- -------- --------
Net income (loss)............ (762) 3,266 (3,278) (2,232) (2,896)
Preferred stock dividends.... 52 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) applicable
to common shares............ $ (814) $ 3,266 $ (3,278) $ (2,232) $ (2,896)
======== ======== ======== ======== ========
Net income (loss) per common
share....................... $ (.07) $ .29 $ (.29) $ (.20) $ (.26)
======== ======== ======== ======== ========
Dividends declared per common
share....................... $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
Weighted average common
shares outstanding.......... 11,317 11,214 11,143 11,141 11,141
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets................. $ 38,807 $ 39,370 $ 38,912 $ 42,152 $ 39,458
======== ======== ======== ======== ========
Loans payable................ $ 867 $ 1,735 $ 2,529 $ 3,254 $ 3,918
======== ======== ======== ======== ========
Shareholders' equity......... $ 11,186 $ 11,210 $ 9,000 $ 12,274 $ 14,506
======== ======== ======== ======== ========
</TABLE>
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE SANTA ANITA COMPANIES
COMBINED RESULTS OF OPERATIONS--1996 COMPARED WITH 1995 AND 1994
Combined results of operations for the year ended December 31, 1996 were
income of $540,000 or $.05 per share (before preferred stock dividends),
compared with a loss of $23,632,000 or $2.11 per share in 1995 (before the
1995 extraordinary gain) and income of $2,025,000 or $.18 per share in 1994.
All three years contained several nonrecurring charges and credits which make
comparison of the results of operations difficult. Management believes that
income before nonrecurring charges and extraordinary gain is a more meaningful
measure of the results of operations of the combined companies.
25
<PAGE>
Income, before nonrecurring items, was $7,720,000 or $.68 per share in 1996,
compared with $6,770,000 or $0.60 per share in 1995 (excluding the 1995
extraordinary gain), and $5,233,000, or $.47 per share in 1994, and reconciles
to income (loss) before extraordinary gain as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ---------------- --------------
INCOME PER INCOME PER INCOME PER
(LOSS) SHARE (LOSS) SHARE (LOSS) SHARE
------- ----- -------- ------ ------- -----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
RESTATED
--------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before nonrecurring
items and
extraordinary gain........... $ 7,720 $ .68 $ 6,770 $ .60 $ 5,233 $.47
Nonrecurring items:
Executive severance......... (1,080) (.09) -- -- -- --
Strategic alliance costs.... (1,200) (.10) -- -- -- --
Arcadia development costs... (2,900) (.26) -- -- -- --
Program for disposition of
non-core real estate
assets..................... (2,000) (.18) (30,300) (2.70) -- --
Costs of equity offering.... -- -- (750) (.07) -- --
Card club option write-off.. -- -- (2,000) (.17) -- --
Equity in Pacific real
estate gain................ -- -- 1,080 .10 -- --
Write-down of turf course... -- -- (432) (.04) (1,426) (.13)
Write-down of land held for
development................ -- -- -- -- (1,043) (.09)
Debt repayment costs on
Fashion Park financing, net
of minority interest....... -- -- -- -- (739) (.07)
Franchise tax adjustments,
refunds and interest....... -- -- 2,000 .17 -- --
------- ----- -------- ------ ------- ----
Income (loss) before
extraordinary gain........... $ 540 $ .05 $(23,632) $(2.11) $ 2,025 $.18
======= ===== ======== ====== ======= ====
</TABLE>
For additional information on the nonrecurring items, see separate
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Realty" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Operating Company."
SANTA ANITA REALTY ENTERPRISES, INC.
The following narrative discusses Realty's results of operations for the
years ended December 31, 1996, 1995 and 1994, together with liquidity and
capital resources as of December 31, 1996.
RESULTS OF OPERATIONS--1996 COMPARED WITH 1995
Realty's revenues are derived principally from the rental of real property.
Total revenues for the year ended December 31, 1996 were $19,184,000, compared
with $22,426,000 for the year ended December 31, 1995, a decrease of
$3,242,000. The lower 1996 revenues were due primarily to a decrease in rental
revenues from Santa Anita Racetrack (which is the most significant source of
rental revenue for Realty) and to Realty selling certain non-core real estate
assets in 1996.
Pursuant to the terms of the lease agreement for Santa Anita Racetrack,
rental revenue is determined by wagering levels (see Item 1. "Business--
Realty--Santa Anita Racetrack"). Racetrack rental revenues for 1996 were
$10,861,000, a decrease of 4.2% from rental revenues of $11,342,000 in 1995
due to a decrease in wagering commissions to Operating Company (see Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Operating Company--Results of Operations 1996 Compared with
1995").
Rental revenues from neighborhood shopping center and office building real
estate investments in 1996 were $6,671,000, a decrease of 21.0% from revenues
of $8,447,000 in 1995. The decrease in 1996 was due primarily to the sale of
three neighborhood shopping centers located in Phoenix, Arizona, in June 1996,
one neighborhood
26
<PAGE>
shopping center located in Orange, California, in November 1996, and to the
sale of an office building, located in Upland, California, in August 1996, and
an office building located in Santa Ana, California, in September 1996. As a
result of Realty's intended disposition of non-core real estate assets, Realty
anticipates that rental revenues will decline in 1997, representing income
from two neighborhood shopping centers. Revenue from these properties in 1996
was $271,000 (see "Notes to Financial Statements--Note 3-- Disposition of Non-
Core Real Estate Assets" and Item 1. "Business--Realty--Assets Sold or Held
for Sale and--Special Considerations Regarding Forward Looking Statements").
Interest and other income was $1,652,000 in 1996, a decrease of 37.4% from
interest and other income of $2,637,000 in 1995. The decrease in interest and
other income was due primarily to Realty's recognition of its portion of a
one-time gain by Pacific in 1995.
Costs and expenses for 1996 were $11,633,000, excluding executive severance
of $229,000 included in general and administrative expense, and excluding
nonrecurring expenses totaling $5,990,000, a decrease of 29.2% from costs and
expenses for 1995 of $16,424,000, excluding nonrecurring expenses totaling
$33,000,000. The 1996 decrease, excluding nonrecurring costs and expenses,
resulted primarily from decreases in depreciation and amortization expense of
$2,181,000, decreases in interest and other expense of $1,651,000 and
decreases in losses from unconsolidated joint ventures of $1,119,000. These
decreases were partially offset by an increase in general and administrative
costs of $626,000.
The decrease in depreciation and amortization expense was due to no
depreciation being taken in 1996 on the assets held for sale, which treatment
is in accordance with FAS No. 121. See "Notes to Financial Statements--Note
2--Disposition of Non-Core Real Estate Assets". The decrease in interest and
other expense is due to the reduction of debt by using the proceeds from the
1996 sales of non-core real estate assets to payoff the mortgage loan on the
Santa Ana office building in November 1995, payoff the mortgage loans on the
three Phoenix shopping centers in May 1996, payoff the mortgage loan on the
Orange shopping center in November 1996, and paydown of borrowings under the
revolving credit agreement in May 1996. The decrease in losses from
unconsolidated joint ventures is due to improved operating results at Santa
Anita Fashion Park. The increase in general and administrative costs is due
principally to costs incurred to defeat a municipal initiative concerning
development of Realty's property (See "Notes to Financial Statements--Note 5--
Santa Anita Commercial Center") and termination expenses associated with
personnel reductions.
Executive severance costs of $229,000 related to the resignation of three
executive officers in 1996. (See "Notes to Financial Statements--Note 5--
Executive Severance"). Nonrecurring expenses of $5,990,000 resulted from
strategic alliance costs of $1,090,000 (See "Notes to Financial Statements--
Note 4--Strategic Alliance Transactions"), development costs for the Arcadia
property of $2,900,000 (See "Notes to Financial Statements--Note 5--Santa
Anita Commercial Center") and charges associated with the program for
disposition of non-core real estate assets (see "Notes to Financial
Statements--Note 3--Disposition of Non-Core Real Estate Assets").
RESULTS OF OPERATIONS--1995 COMPARED WITH 1994
Realty's revenues are derived principally from the rental of real property.
Total revenues for the year ended December 31, 1995 were $22,426,000, compared
with $26,232,000 for the year ended December 31, 1994, a decrease of
$3,806,000. The lower 1995 revenues were due primarily to a decrease in
Racetrack rental revenues and to Realty selling its multifamily and industrial
operations to Pacific in 1994.
Racetrack rental revenues for 1995 were $11,342,000, a decrease of 13.2%
from rental revenues of $13,070,000 in 1994. The decrease in rental revenues
resulted primarily from new lease terms with LATC. The lease with LATC for the
Santa Anita Racetrack expired in December 1994 and was amended and extended
through December 31, 1999. The new lease provides that Realty will receive
1.5% of the aggregate on-track wagering on live races at Santa Anita Racetrack
and that the rental rate on wagering commissions from satellite wagering on
races originating at Santa Anita Racetrack will be 26.5%. In addition, Realty
receives 26.5% of the 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.
27
<PAGE>
Rental revenues from other real estate investments for 1995 were $8,447,000,
a decrease of 23.6% from other rental revenues of $11,054,000 in 1994. The
decrease in 1995 was due primarily to Realty selling its multifamily and
industrial operations in 1994 to Pacific. (See "Notes to Financial
Statements--Note 8--Investment in Pacific Gulf Properties Inc.").
Costs and expenses for 1995 were $16,424,000, excluding nonrecurring costs
and expenses totaling $33,000,000, a decrease of 14.6% from costs and expenses
for 1994 of $18,905,000, excluding nonrecurring expenses of $1,782,000. The
decrease in 1995, excluding nonrecurring costs and expenses, was due primarily
to cost savings from the disposition of the multifamily and industrial
operations including a decrease in interest expense resulting from the
$44,300,000 of associated mortgage debt which was transferred to Pacific as
part of the disposition and a decrease in general and administrative expense,
partially offset by an increase in losses from unconsolidated joint ventures.
Nonrecurring expenses of $33,000,000 resulted from charges of $30,300,000
for the program to dispose of non-core real estate assets which was adopted by
Realty in 1995 (See "Notes to Financial Statements--Note 3--Disposition of
Non-Core Real Estate Assets"), costs of $700,000 for an equity offering which
was not consummated and costs of $2,000,000 for a now-expired option to
acquire an interest in a card club operation (See "Notes to Financial
Statements--Note 7--Card Club Write Offs").
LIQUIDITY AND CAPITAL RESOURCES
Realty has funds available from a combination of short- and long-term
sources. Short-term sources included cash and cash equivalents of $12,921,000
at December 31, 1996.
The increase in cash for the year ended December 31, 1996 was $12,754,000,
compared with a decrease in cash of $2,084,000 for the year ended December 31,
1995. The comparative increase in cash of $14,838,000 was attributable to an
increase of $32,059,000 in cash provided by investing activities, partially
offset by a decrease of $175,000 in cash provided by operating activities and
an increase of $17,046,000 in cash used in financing activities.
The decrease in cash provided by operating activities of $175,000 was due
primarily to a decrease in shopping center and office building operating
income of $1,539,000, due to the sale of non-core real estate assets, a
decrease in racetrack rental income of $481,000 and an increase in general and
administrative expense of $626,000. These decreases in cash were partially
offset by a decrease in interest expense of $1,651,000 and equity offering
costs of $700,000 in 1995.
The increase in cash provided by investing activities of $32,059,000 in 1996
was due primarily to proceeds from the sale of Pacific common stock of
$12,139,000 in 1996, proceeds from the sale of non-core real estate assets of
$19,069,000 in 1996, a decrease of $1,689,000 in additions to certain other
assets, primarily the purchase of the option on the Bell casino in 1995,
partially offset by an increase in expenditures associated with development of
the Santa Anita Commercial Center, and a decrease of $1,388,000 in additions
to real estate assets, primarily due to the sale of non-core real estate
assets. These increases in cash provided were partially offset by an increase
of $3,354,000 in investments in and advances to unconsolidated joint ventures,
partially offset by an increase of $2,502,000 in capital distributions from
unconsolidated joint ventures and from dividends of $1,224,000 received from
Pacific in 1995.
The increase in cash used in financing activities of $17,046,000 in 1996 was
due primarily to repayment of borrowings under the revolving credit agreement
of $16,400,000 in 1996, additional borrowings under the revolving credit
agreement of $13,650,000 in 1995 and the issuance of common stock to Operating
Company in 1995, valued at $1,810,000, for its use in granting restricted
stock awards. These increases in cash used were partially offset by the
issuance of common and preferred stock of $10,957,000 in 1996, in connection
with the Colony transaction, the issuance of common stock of $1,779,000 in
1996, in connection with stock option exercises, and an increase in
intercompany payables of $1,592,000 in 1996 due to working capital needs,
compared with a decrease in intercompany payables of $641,000 in 1995.
28
<PAGE>
Realty has entered into a revolving credit agreement with a commercial bank,
under which it may borrow up to $20,000,000. The credit agreement terminates
on June 1, 1997. Borrowings under the revolving credit agreement bear
interest, at Realty's option, at the prime rate, at LIBOR plus 1 1/4%, or at a
certificate of deposit rate plus 1 1/4. Realty's Racetrack rental revenues
have been pledged as collateral under the credit agreement. At April 1, 1997,
$11,800,000 was outstanding under the credit agreement.
The revolving credit agreement contains a restriction on the payment of
dividends and certain other financial ratio and maintenance restrictions. In
any twelve-month period beginning on or after July 1, 1994, dividends are
limited to the greater of $.80 per share or an amount calculated to maintain
Realty's qualification as a REIT. Realty's current dividend policy is in
compliance with this dividend restriction. Additionally, at December 31, 1996,
Realty was in compliance with the other financial ratio and maintenance
restrictions.
During 1995, Realty adopted a plan to dispose of its non-core real estate
assets and, accordingly, reduced the book value of these assets to their
estimated realizable values, resulting in a nonrecurring charge of
$30,300,000, of which $26,300,000 was recorded in the third quarter and
$4,000,000 was recorded in the fourth quarter. See "Notes to Financial
Statements--Note 3--Disposition of Non-Core Real Estate Assets".
On August 19, 1996, the Companies announced a major transaction with Colony,
a Los Angeles based real estate investment company administered by Colony
Capital, Inc., which pursuant to the terms of an agreement, would have
invested in the Companies, over time, a total of $138 million. This agreement
was terminated effective March 31, 1997 and Colony was paid a termination fee
of $4,000,000 and reimbursed expenses of $500,000 on April 1, 1997. See Item
1. "Business--Recent Developments" and "Notes to Financial Statements--Note
4--Strategic Alliance Transactions."
Effective March 31, 1997, Colony has the right to redeem its 867,343
preferred shares at the average trading price of the Companies' common stock
for a period preceding the date of Colony's redemption notice. The redemption
price may be paid by cash of $11,254,000 and a six-month note for the balance.
The Companies currently have cash on hand to pay the cash portion of the
redemption price, if the shares were redeemed. The Companies expect to pay the
note balance, if necessary, by a combination of additional cash on hand,
proceeds from sales of non-core assets and borrowings under the revolving
credit agreement. See Item 1. "Business--Realty--Assets Sold or Held for Sale"
and "--Special Considerations Relating to Forward Looking Statements."
On December 6, 1996, Realty reached agreement for the sale of its 50%
partnership interest in H-T Associates to a third party. The buyer also agreed
to assume Realty's joint and several guaranty of a loan issued to expand the
Towson Town Center in the amount of $66,135,000. At December 31, 1996, Realty
was in default under the minimum net worth covenant of this guaranty. The
lender may, among other things, foreclose on the assets of H-T Associates and
pursue other remedies under the guaranties, however, as of December 31, 1996,
the lender had not exercised such rights.
Under the partnership agreement, each of Realty's two partners had a right
of refusal in the event Realty chose to sell its partnership interest. In
January 1997, one of Realty's partners, TrizecHahn Centers Inc. exercised it
right of first refusal and elected to purchase Realty's interest in the
partnership, pursuant to the terms of the original sales agreement. See "Notes
to Financial Statements--Note 9--Investments in Unconsolidated Joint Ventures"
and See Item 1. "Business--Realty--Assets Sold or Held for Sale" and "--
Special Considerations Relating to Forward Looking Statements."
During 1996, Realty contributed $5,033,000 to Joppa Associates to fund the
mortgage loan payment due October 31, 1996. During 1996, Joppa Associates
agreed to sell the partnership property to Heritage Properties, Inc. for
$5,500,000. The sale is expected to close in the 1997 second quarter. In
November 1996, one of Realty's two partners assigned to Realty and Realty's
other partner its partnership interest and relinquished its right to any
proceeds from the sale of the partnership property. The ownership interests of
Realty and Realty's other partner were increased to 50%. Realty' share of the
net proceeds from the sale are estimated to be $2,500,000. At December 31,
1996, the carrying value of Realty's investment in Joppa Associates was
$2,216,000. See "Notes to Financial Statements--Note 9--Investments in
Unconsolidated Joint Ventures."
29
<PAGE>
Realty has agreed to provide Operating Company with up to $10,000,000 in
short-term advances, which is dependent upon Realty's liquidity and capital
resources. At December 31, 1996, Realty has guaranteed an Operating Company
capital lease that will require payments of $907,000 in 1997.
At December 31, 1996, Realty's secured real estate loans receivable were
carried at $10,674,000, net of $2,473,000 of valuation allowances, and had
maturities ranging from 1997 to 2002. For the year ended December 31, 1996,
secured real estate loans receivable earned interest income of $1,088,000. See
"Notes to Financial Statements--Note 11--Real Estate Loans Receivable."
In the event of a "change in control, participants in the Realty and
Operating Company joint non-contributory defined benefit retirement plan will
become fully vested in plan benefits and participants in the thrift plan will
become fully vested in matching company contributions. Additionally, all
Realty and Operating Company stock options will become fully vested except for
200,000 Realty options whose vesting is dependent on common stock performance.
Realty has entered into severance agreements with certain officers and key
employees. If there is a "change in control" and under certain circumstances,
certain executive officers will be entitled to a lump sum payment equal to 2
1/2 times base pay, calculated as annual base salary plus average bonuses over
the preceding three calendar years. In addition, one executive officer, and
certain employees will be entitled to a lump sum payment equal to one times
base pay, as calculated above. Pursuant to a resignation agreement with an
executive officer, if there is a "change in control" on or prior to May 17,
1997, he will be entitled to an additional lump sum cash payment totaling
$303,920. No provision has been accrued or funded under this agreement.
Realty expects that funds provided by operating activities and the sale of
non-core real estate assets will provide sufficient liquidity to meet working
capital needs and reduce outstanding borrowings under the revolving credit
agreement.
IMPACT OF INFLATION
Realty's management believes that, for the foreseeable future, revenues and
income from Santa Anita Racetrack and its other real estate investments should
not be adversely affected in a material way by inflationary pressures. Certain
leases include clauses enabling Realty to participate in tenants' future
increases and gross revenues and other leases include provisions which tie the
lease payments to the Consumer Price Index or include step-up provisions.
SANTA ANITA OPERATING COMPANY
The following narrative discusses Operating Company's results of operations
for the years ended December 31, 1996, 1995 and 1994, together with liquidity
and capital resources as of December 31, 1996.
RESULTS OF OPERATIONS--1996 COMPARED WITH 1995
Operating company derives its revenues from thoroughbred horse racing
activities. Horse racing revenues were $68,606,000 in 1996, down 1.5% from
$69,647,000 in 1995 primarily due to a decrease in live racing days and total
wagering.
In 1996, live thoroughbred horse racing at Santa Anita Racetrack totaled 114
days compared to 120 days in 1995. Total on-track attendance at the live
racing events in 1996 was down 8.2% from the prior year and average daily
attendance declined 3.3%. Total wagering was down 2.1% while average daily
wagering was up 3.1% compared with 1995. Total on-track wagering decreased
9.2%, wagering at Southern California satellite locations decreased 8.3%,
wagering at out-of-state locations increased 11.6% and wagering at Northern
California locations decreased 9.9% in 1996 compared with 1995. See Item 1.
"Business--Operating Company--Santa Anita Racetrack--Wagering Commissions."
30
<PAGE>
Management anticipates that the movement from on-track attendance and
wagering to off-site is likely to continue albeit at a slower rate. The growth
rate in off-site wagering is dependent primarily upon such factors as
Operating Company's ability to access new markets and the removal of various
legal barriers which inhibit or restrict entry into such markets.
Also, Santa Anita Racetrack operated 165 days in 1996 and 140 days in 1995
as a satellite wagering facility for Hollywood Park, Del Mar and, in 1996
only, Pomona Fairplex. Total attendance as a satellite wagering facility was
up 3.6% while average daily attendance was down 12.2% in 1996 compared to
1995. Total wagering was up 7.8% while average daily wagering was down 8.5% in
1996 compared with 1995.
Horse racing operating costs were $48,735,000 (or 71.0% of horse racing
revenues) in 1996 versus $48,686,000 (or 69.9% of horse racing revenues) in
1995. The operating margin decline was primarily due to the decrease in horse
racing revenues from 1995.
Depreciation expense was $3,212,000 in 1996, $16,000 higher than the
$3,196,000 in 1995. Depreciation expense includes an accelerated depreciation
charge of $432,000 in 1995 on the Santa Anita Racetrack turf course, which was
replaced in April 1995.
General and administrative expenses were $6,353,000 in 1996, an increase of
16.7% from $5,442,000 in 1995 due to a charge of $851,000 in 1996 for
executive severance costs. See "Notes to Financial Statements--Note 5--
Executive Severance." Interest expense decreased to $288,000 in 1996 from
$401,000 in 1995 due to lower average borrowings.
Rental expense to Realty was $10,861,000 in 1996 compared with $11,342,000
in 1995. The decrease in rental expense of 4.2% is due to the decrease in
wagering commissions. See Item 1. "Business--Operating Company--Santa Anita
Racetrack."
RESULTS OF OPERATIONS--1995 COMPARED WITH 1994
Horse racing revenues were $69,647,000 in 1995, up 2.7% from $67,846,000 in
1994, primarily due to an increase in racing days and total wagering.
In 1995, live thoroughbred horse racing at Santa Anita Racetrack totaled 120
days compared with 117 days in 1994. Total on-track attendance at the live
racing events in 1995 was down 5.9% from the prior year and average daily
attendance declined 11.9%. Total and average daily wagering were up 12.0% and
9.2% in 1995 compared with 1994. On-track wagering decreased 6.3%, wagering at
Southern California satellite locations increased 8.8%, wagering at out-of-
state locations increased 20.3% and wagering at Northern California locations
increased 106.6% in 1995 compared with 1994.
Also, Santa Anita Racetrack operated 140 days in 1995 and 145 days in 1994
as a satellite wagering facility for Hollywood Park and Del Mar. Total and
average daily attendance as a satellite wagering facility were down 5.9% and
2.5% in 1995 compared with 1994. Total wagering was down 2.5%, while average
daily wagering was up 1.0% in 1995 compared with 1994.
Horse racing operating costs were $48,686,000 (or 69.9% of horse racing
revenues) in 1995 versus $48,352,000 (or 71.3% of horse racing revenues) in
1994. The operating margin improvement was primarily due to the implementation
of certain cost control measures.
Depreciation expense was $3,196,000 in 1995, $1,055,000 lower than the
$4,251,000 in 1994. Depreciation expense includes an accelerated depreciation
charge of $432,000 in 1995 and $1,426,000 in 1994 on the Santa Anita Racetrack
turf course, which was replaced in April 1995.
General and administrative expenses were $5,442,000 in 1995, a decrease of
2.5% from $5,583,000 in 1994 due to lower executive compensation expenses in
1995. Interest expense decreased to $401,000 in 1995 from $446,000 in 1994.
31
<PAGE>
Rental expense to Realty was $11,342,000 in 1995 compared with $13,057,000
in 1994. The decrease in rental expense of 13.1% reflected the new lease terms
with Realty. Under the lease, LATC paid to Realty 1.5% of the on-track
wagering on live races at Santa Anita Racetrack and 26.5% of its wagering
commissions from all satellite wagering. The old lease required LATC to pay
Realty the same 1.5% of the on-track wagering on live races at Santa Anita
Racetrack but required 40% of its wagering commissions from satellite wagering
during the live race meets.
An income tax benefit of $2,000,000 was recognized in 1995, as a result of
various items, the most significant of which, related to a draw down of
deferred taxes relating to an expected withdrawal of Franchise Tax Board
assessments for 1986 through 1988.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, Operating Company's sources of liquidity included cash
and short-term investments of $10,301,000, together with a verbal commitment
from Realty to provide up to $10,000,000 in short-term advances. In addition,
Realty has guaranteed an Operating Company capital lease that will require
payments by Operating Company of $907,000 in 1997. Operating Company's ability
to borrow from Realty is dependent upon Realty's liquidity and capital
resources (see Item 7. "Managements' Discussion and Analysis of Financial
Condition and Results of Operations--Santa Anita Realty Enterprises, Inc.--
Liquidity and Capital Resources"). For the year ended December 31, 1996,
short-term investments earned interest income of $499,000.
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 maintained by LATC,
including amounts to be disbursed for payment of license fees payable to the
state, purses payable to horse owners and un-cashed winning pari-mutuel
tickets payable to the public.
Operating Company generated $3,843,000 less cash from operations in 1996
than in 1995. Net cash provided by operating activities was $2,319,000 in 1996
compared with $6,162,000 in 1995. The decrease in cash from operations was
primarily due to decreased operating income from horse racing operations.
Net cash used in investment activities was $4,532,000 in 1996 compared with
$5,142,000 in 1995. The $610,000 decrease in cash used in investment
activities was attributable to the purchase of common stock of Realty for the
grant of restricted stock during 1995, partially offset by a higher level of
capital improvements at Santa Anita Racetrack during 1996.
Net cash used in financing activities was $1,196,000 in 1996 compared with
$153,000 in 1995. The increase is due primarily to an increase in intercompany
receivables partially offset by the issuance of common and preferred stock in
1996.
In the event of a "change in control, participants in the Realty and
Operating Company joint non-contributory defined benefit retirement plan will
become fully vested in plan benefits and participants in the thrift plan will
become fully vested in matching company contributions. Additionally, all
Realty and Operating Company stock options will become fully vested except for
200,000 Realty options whose vesting is dependent on common stock performance.
Operating Company has entered into severance agreements with certain
officers and key employees. If there is a "change in control" and under
certain circumstances, certain executive officers will be entitled to a lump
sum payment equal to 2 1/2 times base pay, calculated as annual base salary
plus average bonuses over the preceding three calendar years. In addition, one
officer will be entitled to a lump sum payment equal to one times base pay, as
calculated above. Pursuant to resignation agreements with two executive
officers, if there is a "change in control" on or prior to May 17, 1997, they
will be entitled to additional lump sum cash payments totaling $355,666. No
provision has been accrued or funded under these agreements.
32
<PAGE>
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
1995 and 1996. Management continues to address cost containment and labor
productivity in all areas.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to the
information listed in the Index to Financial Statements filed with this
Report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
33
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
(a) The names, ages and business experience of the Companies' directors and
executive officers during the past five years are set forth below:
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE DURING
NAME AND AGE PAST 5 YEARS AND ALL POSITIONS WITH THE COMPANIES
------------ ---------------------------------------------------------
<S> <C>
William C. Baker, 63.... Chairman of the Board of Operating Company and Realty
since 1996, Director since 1991; Chief Executive Officer
of Operating Company since 1996; Chief Executive Officer
of Realty, 1996; President, Red Robin International,
Inc., 1993-1995; Chairman of the Board and Chief
Executive Officer, Carolina Restaurant Enterprises, Inc.
(restaurant franchisee), 1992-1996; Director, Callaway
Golf Company (golf equipment) and Public Storage, Inc.
(REIT).
Brian L. Fleming, 53.... Director of Realty since 1996; Acting President and Chief
Executive Officer of Realty since 1996; Executive Vice
President, Chief Financial Officer and Secretary of
Realty since 1994; Senior Vice President, Carter Hawley
Hale Stores, Inc., 1987-1994.
Clifford C. Goodrich,
54..................... Director of Operating Company since 1989; Executive Vice
President of Operating Company since 1995; Vice President
of Operating Company, 1989-1995; President of Los Angeles
Turf Club, Incorporated since 1989.
Richard S. Cohen, 62.... Director of Operating Company and Realty since 1967;
Attorney, Law Offices of Richard S. Cohen and Donna Frost
Cohen since 1991; President, Four Seas Restaurants, Inc.
(restaurant franchisee) since 1988.
James P. Conn, 59....... Director of Operating Company and Realty since 1995;
Managing Director and Chief Investment Officer, Financial
Security Assurance, Inc. (insurance) since 1992;
President and Chief Executive Officer, Bay Meadows
Operating Company (horse racing), 1988-1992; Director,
California Jockey Club (REIT); Trustee, Gabelli Equity
Trust and Gabelli Global Multimedia Trust (investment
companies).
Arthur Lee Crowe, 73.... Director of Operating Company and Realty since 1960;
Investor; Vice Chairman of Operating Company and Realty
since 1988.
John C. Cushman, III,
56..................... Director of Operating Company and Realty since 1996;
President and Chief Executive Officer, Cushman Realty
Corporation since 1978; Director, National Golf
Properties, Inc. (golf course management).
Taylor B. Grant, 47..... Director of Operating Company since 1996 and Realty since
1988; Senior Vice President, Beazer Homes California,
Inc. since 1996; Investor; Receiver Superior Court, State
of California since 1993; Chief Executive Officer, Optima
Asset Management Services (property management), 1992-
1993; President, Grant Building Company, 1984-1992 (real
estate development).
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE DURING
NAME AND AGE PAST 5 YEARS AND ALL POSITIONS WITH THE COMPANIES
------------ ---------------------------------------------------------
<S> <C>
J. Terrence Lanni, 54... Director of Operating Company and Realty since 1995;
Chairman and Chief Executive Officer, MGM Grand Inc.
(hotel/casino) since 1995; President and Chief Operating
Officer, Caesars World Inc., 1981-1995.
Thomas P. Mullaney, 64.. Director of Operating Company and Realty since 1989;
General Partner, Matthews, Mullaney & Co. (private
investment partnership) since 1991; Director, Ducommun
Incorporated (manufacturing).
William D. Schulte, 64.. Director of Operating Company and Realty since 1994;
Investor; former Vice Chairman, KPMG Peat Marwick LLP;
Director, H.F. Ahmanson & Company (thrift) and Vastar
Resources, Inc. (energy).
Thomas S. Robbins, 43... Vice President--Racing of Operating Company since 1990;
Vice President--Racing of LATC since 1990.
Kathryn J. McMahon, 36.. General Counsel and Secretary of Operating Company since
1994; Vice President and General Counsel of LATC since
1997; Secretary of LATC since 1994; Attorney, Sheppard,
Mullin, Richter & Hampton, 1986-1994.
Mark T. Stephens, 34.... Vice President--Marketing and Customer Relations of LATC
since 1994; Director of Marketing of LATC 1993-1994;
Director of Marketing, Bay Meadows Operating Co., 1991-
1992.
Tom D. Austin, 55....... Vice President Design and Construction of Realty since
1995; Director of Development of Realty, 1995; Owner,
Austin Affiliates, 1992-1994; Vice President, Western
Region Design and Construction, Homart Development
Company, 1989-1992.
</TABLE>
Each executive officer of Operating Company is appointed by the Operating
Company Board of Directors annually and holds office until a successor is duly
appointed.
Each executive officer of Realty is appointed by the Board of Realty
Directors annually and holds office until a successor is duly appointed.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 (a) of the Securities Exchange Act of 1934 requires the directors
and officers of the Companies to file with the Securities and Exchange
Commission ("SEC") and the New York Stock Exchange initial reports of
ownership and reports of changes in ownership of common stock of the
Companies. Such directors and officers are required by regulation to furnish
the Companies with copies of all Section 16(a) forms they file.
To the Companies' knowledge, based solely on a review of the copies of such
reports furnished to the Companies and written representations that no other
reports were required, during the fiscal year ended December 31, 1996, each of
its directors and officers complied with all applicable Section 16(a) filing
requirements except for Thomas J. Barrack, Jr., who filed on Form 5 an
acquisition by an affiliate of shares in September 1996 and Tom D. Austin, who
filed a Form 5 in March 1997 reporting a series of small acquisitions
otherwise exempt from reporting on Form 4.
35
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
OPERATING COMPANY
COMPENSATION
The following table sets forth information concerning the annual and long-
term compensation for services in all capacities to Operating Company for the
years ended December 31, 1996, 1995, and 1994 of the Chief Executive Officers
during such periods, together with the other four most highly compensated
executive officers of Operating Company earning in excess of $100,000 in
salary and bonus in 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION
---------------------- -----------------------
RESTRICTED SECURITIES ALL OTHER
NAME AND STOCK AWARDS UNDERLYING COMPENSATION
PRINCIPAL POSITION SALARY BONUS ($) OPTIONS(#) (2)
------------------ -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
William C. Baker........ 1996 $112,500 $125,000 $-- $150,000 $ --
President and Chief
Executive Officer (3)
Stephen F. Keller....... 1996 250,000 -- -- -- 681,714(5)
President and Chief 1995 400,000 -- -- 10,000
Executive Officer (4) 1994 379,167 85,000 (6) 20,000 9,448
Clifford C. Goodrich.... 1996 252,000 70,000 -- -- --
Executive Vice 1995 242,000 50,000 -- 9,000 --
President 1994 231,667 40,000 (6) 15,000 --
Thomas S. Robbins....... 1996 169,000 27,000 -- -- 9,714
Vice President--Racing 1995 161,333 23,000 -- 5,000 2,429
1994 153,750 20,000 -- 8,000 9,433
Mark T. Stephens........ 1996 127,083 35,000 -- -- 7,797
Vice President--LATC(7) 1995 121,000 17,500 -- 5,000 --
1994 111,667 17,500 -- 8,000 --
Michael J. Manning...... 1996 163,571 -- -- -- --
Vice President--LATC(8) 1995 151,333 30,000 -- 7,000 --
</TABLE>
- --------
(1) Operating Company provides automobiles, club memberships and other
perquisites to certain key employees, including the officers listed above,
the value of which is not included in the table above and which in no case
exceeded 10% of the annual salary and bonus of any individual for the
years indicated.
(2) Except as otherwise indicated, amounts shown are those expensed for
financial reporting purposes under the Thrift Plan. See "Other Benefit
Plans for Operating Company and Realty" for a description of the Thrift
Plan.
(3) Mr. Baker was appointed Chairman of the Board, President and Chief
Executive Officer effective August 16, 1996.
(4) Mr. Keller served as Chairman of the Board, President and Chief Executive
Officer until his resignation effective August 16, 1996.
(5) Includes $672,000 paid to Mr. Keller as severance pursuant to the terms of
a resignation agreement. See "Resignation Agreements."
(6) Pursuant to Exchange Agreements entered into as of December 15, 1994 with
each of Messrs. Keller and Goodrich, Operating Company awarded 86,322
shares of Restricted Stock ("Restricted Shares") to Mr. Keller and 40,325
Restricted Shares to Mr. Goodrich under Operating Company's 1995 Share
Award Plan
36
<PAGE>
in exchange for each of such officer's agreement to release all of his
rights and benefits under previous deferred compensation arrangements with
Operating Company ("DCA's"). On the date of the awards (December 15, 1994),
the closing market price of a share of paired Common Stock was $14.125 as
reflected on the New York Stock Exchange Composite Tape. The number of
Restricted Shares subject to each award was calculated on the basis of
various assumptions (including, without limitation, assumptions regarding
salary increases, post retirement interest, dividend and tax rates, and
stock price appreciation) to provide each of Messrs. Keller and Goodrich
(as of their normal retirement dates) with approximately the equivalent
value of the benefits anticipated under their existing DCA's.
The Restricted Shares are subject to certain restrictions on transfer,
which expire as follows: In the case of Mr. Keller, the restrictions
expired with respect to 50% of the Restricted Shares on July 1, 1996.
Pursuant to the terms of Mr. Keller's resignation agreement, the
restrictions on the remaining 50% of Restricted Shares will terminate only
in the event one of the following occurs prior to May 17, 1997: (a) Mr.
Keller's death, (b) Mr. Keller's total disability or (c) a change of
control event. See "Resignation Agreements" for further information on Mr.
Keller's agreement. If no such event occurs prior to May 17, 1997,
Operating Company has the right to acquire such 43,161 Restricted Shares.
In the case of Mr. Goodrich, the restrictions on such transfers expired
with respect to 20% of the Restricted Shares on May 2, 1995, expired with
respect to an additional 40% of such shares on July 1, 1996 and expire with
respect to an additional 10% of such shares on July 1 of each year
thereafter with all such restrictions terminating on July 1, 2000. The
restrictions on transfer may terminate earlier upon the occurrence of
certain events including termination of employment without "cause" or a
voluntary termination for "good reason" as defined in the Restricted Stock
Agreement. Restrictions also terminate on death or total disability. Upon a
termination of employment prior to the lapse of restrictions, Operating
Company has the right to acquire all Restricted Shares which are subject to
the restrictions without consideration. A "change in control event" is
generally defined as a 20% change in ownership of Operating Company, the
replacement of a majority of the members of the incumbent board of
directors of Operating Company (excluding replacement directors nominated
by the incumbent board of directors) or the liquidation or dissolution of
Operating Company, subject to certain exceptions. At year-end 1996, the
Restricted Shares were worth $1,556,385 at the then current market value
(including $1,132,976 with respect to 43,161 Restricted Shares held by Mr.
Keller and $423,413 with respect to 16,130 Restricted Shares held by Mr.
Goodrich) without giving effect to the diminution of value attributable to
the restrictions on such shares. Dividends are paid on the Restricted
Shares at the same rate payable on all other shares of Paired Common Stock.
(7) Mr. Stephens, Vice President of Los Angeles Turf Club, Incorporated, a
wholly-owned subsidiary of Operating Company, has been considered an
executive officer of Operating Company since 1994.
(8) Mr. Manning, served as Vice President of Los Angeles Turf Club,
Incorporated, a wholly-owned subsidiary of Operating Company, until his
resignation effective December 13, 1996. Mr. Manning had been considered
an executive officer of Operating Company since 1995.
STOCK OPTION.
The following table sets forth the individual grants to the named executive
officers during 1996, the percentage that each grant represents of the total
options granted to employees during 1996, the exercise price, the expiration
date, and the potential realizable value of each of the options (assuming
either a 5% or 10% annualized rate of appreciation from the date of grant).
37
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF POTENTIAL REALIZABLE VALUE
PAIRED AT ASSUMED ANNUAL
COMMON % OF TOTAL RATES OF STOCK
STOCK OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------------
GRANTED FISCAL YEAR PRICE ($/SH) DATE 5% 10%
---------- ------------ ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William C. Baker........ 150,000(2)(3) 100% $15.25(4) (5) $ 1,041,000 $ 3,013,500
Stephen F. Keller....... -- -- -- -- -- --
Clifford C. Goodrich.... -- -- -- -- -- --
Thomas S. Robbins....... -- -- -- -- -- --
Mark T. Stephens........ -- -- -- -- -- --
Michael J. Manning...... -- -- -- -- -- --
</TABLE>
- --------
(1) The amounts in these columns are based upon assumed rates of appreciation
over the option term which are prescribed by applicable SEC regulations.
Actual gains, if any, on stock option exercises are dependent on the
future performance of the Paired Common Stock, overall market conditions
and the option holder's continued employment through the applicable
vesting periods.
(2) This option grant becomes exercisable as to fifty percent of the grant on
April 1, 1997 and as to the remaining fifty percent on April 1, 1998. The
options become immediately exercisable if Mr. Baker is discharged without
cause, resigns for good reason, dies or becomes totally disabled, or upon
the occurrence of a change of control event (except to the extent the
Operating Company Compensation Committee ("Committee") determines that an
acceleration of the exercise date upon a change in control event would
cause the deduction limits of Section 280G of the Internal Revenue code to
come into effect). The provision allowing for acceleration of the vesting
date for the options upon the occurrence of a change in control event is
effective only through September 30, 1997, but is subject to automatic and
successive 60-month extensions unless the Board of Directors of Operating
Company delivers six-months advance written notice to Mr. Baker of
termination of such provision. No such notice was delivered in 1997. Under
the option agreement, a "change in control event" is generally defined as
a 20% change in ownership of Operating Company, the replacement of a
majority of the members of the incumbent board of directors of Operating
Company (excluding replacement of directors nominated by the incumbent
board of directors) or the liquidation or dissolution of Operating
Company, subject to certain exceptions.
(3) Does not include a purported grant of 200,000 performance-vesting options
which were unable to be issued due to limitations in the 1995 Share Awards
Plan.
(4) Full payment for shares purchased upon the exercise of the options shall
be made at the time of such exercise by one or a combination of the
following methods (such methods other than the methods specified in clause
(i) being subject to the Committee's approval): (i) cash, electronic funds
transfer or check, (ii) third party payment, (iii) the delivery of shares
of Operating Company stock already owned by Mr. Baker, or (iv) requesting
that Operating Company reduce the number of shares of Operating Company
stock otherwise issuable upon exercise by a number of shares of Operating
Company stock with a fair market value equal to the option exercise price.
The options are not transferable by Mr. Baker other than by will or the
laws of descent and distribution or pursuant to a qualified domestic
relations order.
(5) To the extent that any of the options are or become exercisable, they may
be exercised until March 31, 2001 regardless of the status of Mr. Baker's
employment with Operating Company. On or after April 1, 2001, the options
may be exercised only if Mr. Baker is then employed by Operating Company
except that under certain circumstances if Mr. Baker has not been
terminated for cause, the options may be exercised after such date. In all
events, all options expire on March 31, 2006.
38
<PAGE>
The following table sets forth the number of stock options exercised during
1996 and the number of unexercised options held and the value of "in the
money" options held as of December 31, 1996:
OPTIONS EXERCISED AND FISCAL YEAR-END OPTION HOLDINGS
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PAIRED
NUMBER COMMON STOCK UNDERLYING VALUE OF UNEXERCISED
OF SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED DECEMBER 31, 1996 AT DECEMBER 31, 1996
ON VALUE ------------------------------ -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- -------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William C. Baker........ -- $ -- -- 150,000 $ -- $1,650,000
Stephen F. Keller....... 87,400 384,229 -- 46,600(1) -- 463,122(1)
Clifford C. Goodrich.... -- -- 47,800 26,200 297,025 267,925
Thomas S. Robbins....... -- -- 15,100 12,400 111,898 129,982
Mark T. Stephens........ -- -- 8,100 11,400 77,418 121,362
Michael J. Manning...... -- -- 13,500 -- 126,522 --
</TABLE>
- --------
(1) Pursuant to the terms of a resignation agreement with Mr. Keller, all
nonvested stock options held by Mr. Keller at August 31, 1996 shall remain
outstanding but not be exercisable unless a change in control event occurs
prior to May 17, 1997. If a change in control event occurs prior to May
17, 1997, subject to all applicable limitations relating to Section 280G
of the Internal Revenue Code set forth in the share award plan, all such
nonvested stock options shall become 100% vested and Mr. Keller shall have
three months after such event to exercise such options; at the end of such
three month period, all such options shall expire. If a change in control
event does not occur prior to May 17, 1997, all such options shall expire.
Under the option agreement, a "change in control event" is generally
defined as a 20% change in ownership of Operating Company, the replacement
of a majority of the members of the incumbent board of directors of
Operating Company (excluding replacement directors nominated by the
incumbent board of directors) or the liquidation or dissolution of
Operating Company, subject to certain exceptions. See "Resignation
Agreements."
INDEBTEDNESS OF MANAGEMENT
In 1990, Mr. Goodrich, Executive Vice President and Director of Operating
Company, exercised stock options whereby he purchased 5,000 shares of paired
Common Stock at $3.00 and $21.75 per share, respectively, by delivering cash
in an amount equal to the aggregate par value of the shares and executing a
promissory note in payment of the balance of the purchase price, payable in
five annual installments at initial annual interest rates of 10.5% and 10.0%
respectively. The promissory notes delivered to Operating Company also
included amounts advanced to cover income tax liabilities occasioned by the
stock option exercise. The highest amount owed by Mr. Goodrich during 1996 to
Operating Company was $61,375. In 1996, Mr. Goodrich paid the note balance in
full and no amount was outstanding as of December 31, 1996. The interest rate
in effect during 1996 on the amount owed was 8.25%.
39
<PAGE>
REALTY
COMPENSATION
The following table sets forth information concerning the annual and long-
term compensation for services in all capacities to Realty for the years ended
December 31, 1996, 1995, and 1994 of the Chief Executive Officers during such
periods, together with the other most highly compensated executive officers of
Realty earning in excess of $100,000 in salary and bonus in 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
-----------------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#) COMPENSATION(2)
- --------------------------- ----------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Brian L. Fleming........ 1996 $ 218,370 $ 100,000 -- $ 7,894
Acting President and 1995 170,625 60,000 6,000 --
Chief Executive 1994 99,687 20,000 35,000 --
Officer, Executive Vice
President, Chief
Financial Officer
and Secretary(3)
William C. Baker........ 1996 112,500 125,000 200,000 --
President and Chief
Executive Officer(4)
Sherwood C. Chillingworth 1996 124,157 -- -- 206,080(6)
Chief Executive Officer 1995 175,000 30,000 9,000 --
and Vice Chairman(5) 1994 129,167 30,000 45,000 --
Tom D. Austin(7)........ 1996 106,450 30,000 -- 5,570
Vice President 1995 100,000 11,000 5,000 --
</TABLE>
- --------
(1) Realty provides automobiles or automobile allowances, club memberships and
other perquisites to certain key employees, including the officers listed
above, the value of which is not included in the table above and which in
no case exceeded 10% of the annual salary and bonus of any individual.
(2) Except as otherwise indicated, amounts shown are those expensed for
financial reporting purposes under the Thrift Plan. See "Other Benefit
Plans for Operating Company and Realty" for a description of the Thrift
Plan.
(3) Mr. Fleming joined Realty and was appointed Executive Vice President and
Chief Financial Officer effective May 11, 1994. He was appointed Acting
Chief Executive Officer and President effective August 16, 1996. Bonus for
1995 included a $30,000 bonus contingent upon Mr. Fleming's employment at
Realty on December 31, 1995 pursuant to the terms of his employment
agreement. Bonus for 1994 has been restated to reflect bonus awarded in
December 1995 for services performed in 1994.
(4) Mr. Baker joined Realty and was appointed Chairman of the Board, President
and Chief Executive Officer effective April 1, 1996. He served until his
resignation on August 16, 1996 when he was appointed Chairman of the
Board, President and Chief Executive Officer of Operating Company.
(5) Mr. Chillingworth joined Realty and was appointed Chief Executive Officer
and Vice Chairman effective March 16, 1994. Mr. Chillingworth served as
Chief Executive Officer of Realty until March 31, 1996.
(6) Represents amount paid to Mr. Chillingworth as severance pursuant to the
terms of his resignation agreement. See "Resignation Agreements."
(7) Mr. Austin became an executive officer of Realty on May 2, 1995. Previous
to that, he served as Director of Development. Mr. Austin began his
employment with Realty in January 1995.
40
<PAGE>
STOCK OPTIONS
The following table sets forth the individual grants to the named executive
officers during 1996, the percentage that each grant represents of the total
options granted to employees during 1996, the exercise price, the expiration
date, and the potential realizable value of each of the options (assuming
either a 5% or 10% annualized rate of appreciation from the date of grant).
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF POTENTIAL REALIZABLE
PAIRED VALUE AT ASSUMED
COMMON % OF TOTAL ANNUAL RATES OF STOCK
STOCK OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTIONS TERM(1)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------
GRANTED FISCAL YEAR PRICE ($/SH) DATE 5% 10%
---------- ------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Brian L. Fleming........ -- $-- $ -- -- $ -- $ --
William C. Baker........ 200,000(2)(3) 95% 14.04(4) (5) 1,388,000 4,018,000
Sherwood C.
Chillingworth.......... -- -- -- -- -- --
Tom D. Austin........... -- -- -- -- -- --
</TABLE>
- --------
(1) The amounts in these columns are based upon assumed rates of appreciation
over the option term which are prescribed by applicable SEC regulations.
Actual gains, if any, on stock option exercises are dependent on the
future performance of the Paired Common Stock, overall market conditions
and the option holder's continued employment through the applicable
vesting periods.
(2) This option grant becomes exercisable only in the following circumstances:
(i) if the price of a share of paired common stock reaches or exceeds
$27.50 for a period of sixty consecutive business days before April 1,
2001; (ii) immediately prior to a reorganization that is consummated
before April 1, 2001 in which Realty is not the surviving entity and the
shareholders of Realty receive consideration worth at least $27.50 per
share of paired common stock; or (iii) immediately prior to a sale by the
shareholders that occurs before April 1, 2001 of substantially all of the
shares of paired common stock at a price of $27.50 or more per paired
common stock. The stock price performance standard of $27.50 per share of
paired common stock is subject to proportional adjustment by the Realty
Compensation Committee ("Committee") in such manner and to such extent as
it deems equitable in the event of any extraordinary dividend or other
extraordinary distribution in respect of the paired common stock, any
reclassification, recapitalization, stock split, stock dividend, reverse
stock split, reorganization, merger, combination, consolidation, split-up
or spin-off of Realty, any repurchase or exchange of Operating Company
stock, Realty stock or other securities of the Companies or any similar
extraordinary corporate transactions. The vesting schedule for the options
is not subject to acceleration.
(3) Does not include a grant of 150,000 time-vesting options which were
granted by Realty in April 1996 (subject to shareholder approval) and
surrendered by Mr. Baker in August 1996 upon the grant by Operating
Company to Mr. Baker of 150,000 time-vesting options in connection with
his employment by Operating Company.
(4) Full payment for shares purchased upon the exercise of the options shall
be made at the time of such exercise by one or a combination of the
following methods (such methods other than the methods specified in clause
(i) being subject to the Committee's approval), (i) cash, electronic funds
transfer or check, (ii) third party payment, (iii) the delivery of shares
of Realty stock already owned by Mr. Baker, or (iv) requesting that Realty
reduce the number of shares of Realty stock otherwise issuable upon
exercise by a number of shares of Realty stock with a fair market value
equal to the option exercise price. In addition, to comply with the
Pairing Agreement between Realty and Operating Company (the "Pairing
Agreement"), the option agreement requires Mr. Baker, at the time he
exercises an option, to purchase from Operating
41
<PAGE>
Company a number of unpaired shares of Operating Company stock equal to the
number of shares of Realty stock acquired pursuant to the exercise of the
option. The shares of Operating Company stock are required to be purchased
from Operating Company at their fair market value on the date of exercise
of the option, as determined pursuant to the terms of the Pairing
Agreement. However, in connection with any such purchase of Operating
Company stock by Mr. Baker, Realty has agreed to pay to Mr. Baker an amount
which is equal to the excess, if any, of the purchase price paid by Mr.
Baker for such Operating Company stock over the fair market value of such
Operating Company stock on the award date. The options are not transferable
by Mr. Baker other than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order.
(5) To the extent that any of the options are or become exercisable, they may
be exercised until the later of March 31, 2001 or 90 days after the 60th
consecutive business day on which the paired common stock has attained a
price of at least $27.50 per share regardless of the status of Mr. Baker's
employment with Realty. On or after the later of April 1, 2001 or the
expiration of the 90-day period referred to in the preceding sentence, the
options which have vested may be exercised only if Mr. Baker is then
employed by Realty. In all events, the options granted expire on March 31,
2006.
The following table sets forth the number of stock options exercised during
1996 and the number of unexercised options held and the value of "in the
money" options held as of December 31, 1996:
OPTIONS EXERCISED AND FISCAL YEAR-END OPTION HOLDINGS
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PAIRED
NUMBER COMMON STOCK UNDERLYING VALUE OF UNEXERCISED
OF SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1996 DECEMBER 31, 1996
ON VALUE ------------------------------ -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- -------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Brian L. Fleming........ -- $-- $ 15,200 25,800 $129,100 $ 234,525
William C. Baker........ -- -- -- 200,000 -- 2,200,000
Sherwood C.
Chillingworth.......... -- -- 15,000 39,000(1) 99,375 340,125
Tom D. Austin........... -- -- 1,600 6,400 17,675 70,700
</TABLE>
- --------
(1) Pursuant to the terms of a resignation agreement with Mr. Chillingworth,
all nonvested stock options held by Mr. Chillingworth at August 31, 1996
shall remain outstanding but not be exercisable unless a change in control
event occurs prior to May 17, 1997. If a change in control event occurs
prior to May 17, 1997, subject to all applicable limitations relating to
Section 280G of the Internal Revenue Code set forth in the share award
plan, all such nonvested stock options shall become 100% vested and Mr.
Chillingworth shall have three months after such event to exercise such
options; at the end of such three month period, all such options shall
expire. If a change in control event does not occur prior to May 17, 1997,
all such options shall expire. Under the option agreement, a "change in
control event" is generally defined as a 20% change in ownership of
Realty, the replacement of a majority of the members of the incumbent
board of directors of Realty (excluding replacement directors nominated by
the incumbent board of directors or the liquidation of dissolution of
Realty, subject to certain exceptions. See "Resignation Agreements."
OPERATING COMPANY AND REALTY
RETIREMENT INCOME PLAN
Operating Company and Realty have a joint defined benefit Retirement Income
Plan that is non-contributory. Benefits are determined regardless of position
under a formula applied uniformly to all employees of Operating Company and
its participating subsidiaries, and Realty (except as otherwise required under
Internal Revenue Code "top-heavy" rules relating to "key" employees), and
depend upon the employee's length of service, and the five year highest
average salary up to $150,000, less certain Social Security benefits.
42
<PAGE>
Employees are eligible to participate in the plan after attaining age 21 and
completing one year of service. The plan currently provides for 100% vesting
of an employee's interest after five years of service (except to the extent
faster vesting is required under Internal Revenue Code "top-heavy" rules).
However, in the event of a change in control (as defined in the plan), the
plan provides for immediate 100% vesting.
The following table illustrates the estimated annual retirement benefit
payable under the plan starting at age 65, after reduction for certain Social
Security benefits, for participants with compensation and credited years of
service shown. The benefits shown assumed retirement at age 65 as of December
31, 1996 subject to the maximum annual benefit of $120,000 shown below. This
maximum annual amount is actuarially increased for participants who retire
after age 65.
<TABLE>
<CAPTION>
BENEFITS BASED ON YEARS OF SERVICE
-----------------------------------
BASE SALARY 10 YEARS 20 YEARS 30 YEARS 40 YEARS
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$100,000............................. $18,208 $36,415 $57,222 $ 79,014
125,000............................. 23,208 46,415 72,222 99,014
150,000............................. 28,208 56,415 87,222 119,014
175,000............................. 28,208 56,415 87,222 120,000
200,000............................. 28,208 56,415 87,222 120,000
225,000............................. 28,208 56,415 87,222 120,000
250,000............................. 28,208 56,415 87,222 120,000
275,000............................. 28,208 56,415 87,222 120,000
300,000............................. 28,208 56,415 87,222 120,000
325,000............................. 28,208 56,415 87,222 120,000
350,000............................. 28,208 56,415 87,222 120,000
375,000............................. 28,208 56,415 87,222 120,000
400,000............................. 28,208 56,415 87,222 120,000
425,000............................. 28,208 56,415 87,222 120,000
450,000............................. 28,208 56,415 87,222 120,000
475,000............................. 28,208 56,415 87,222 120,000
500,000............................. 28,208 56,415 87,222 120,000
</TABLE>
The officers under this plan as of December 31, 1996 and their years of
credited service are as follows: For Operating Company: Baker--1 year;
Keller--5 years; Goodrich--16 years; Robbins--13 years; Manning--15 years; and
Stephens--4 years. For Realty: Fleming--3 years and Austin--1 year.
THRIFT PLAN
Operating Company and Realty have a joint Thrift Plan under which employees
may elect to contribute up to 21% of their annual compensation on a
combination before-and-after tax basis, excluding bonuses. A percentage of
these contributions by the employee is matched by either Operating Company or
Realty with total matching contributions not exceeding a maximum of 6% of the
contributing employee's annual compensation. Matching contributions are in the
form of cash, which is used by the trustee to purchase shares of Paired Common
Stock. Employee contributions are invested in various funds, according to the
employee's choices. The plan provides for 20% vesting of Company contributions
after two years of service, increasing to 100% vesting after six years of
service. However, upon a change in control, the plan provides for immediate
100% vesting.
DIRECTORS' COMPENSATION
In 1996, each active director who was not an employee of Operating Company
or Realty received a $7,500 annual fee plus $400 for each meeting of the Board
of Directors and each committee meeting attended and, in the case of Operating
Company, for each separate subsidiary board meeting attended.
Each director retiring subsequent to 1960 and serving Realty, Operating
Company or Santa Anita Consolidated, Inc. as an outside director for at least
ten years is remunerated at the annual rate of $480 times his
43
<PAGE>
or her number of years of service. This annual payment is payable for five
years. During 1996, six former directors with years of service ranging from 20
to 34 years participated in the plan. Amounts payable under the plan in 1996
totaled $68,520.
SEVERANCE AGREEMENTS
Operating Company has in effect severance agreements with certain officers,
including Messrs. Baker, Goodrich, Robbins, and Stephens. Realty has in effect
a similar severance agreement with Mr. Fleming. These agreements, which have a
term of five years, become effective if there is a change in control followed
by a Qualifying Termination of the named executive within three years. In that
event, the executive becomes entitled to a lump sum payment equal to 2 1/2
times the sum of (1) the executive's current annual base salary rate plus
(2) the executive's average bonuses over the three calendar years preceding
the change in control ("Base Pay"). In addition, the executive may continue to
participate in the Company's medical and dental plans for three years if the
executive pays the applicable premium. The severance agreements provide that
no payments shall be made to the extent such payments, together with other
payments by the Company, would cause the limits of Section 280G of the
Internal Revenue Code to be exceeded. Operating Company has an agreement with
an officer and Realty has similar agreements with selected employees,
including Mr. Austin, which have comparable terms as those described above
except (a) in the event the employee becomes entitled to a lump sum payment,
the payment is calculated as one times the Base Pay, rather than 2 1/2 times
the Base Pay and, (b) the employee is not entitled to participate in medical
and dental plans for the three year period.
RESIGNATION AGREEMENTS
Mr. Keller entered into a resignation agreement with Operating Company,
providing for his resignation as an officer of Operating Company and a
director of the Companies, effective August 16, 1996. Pursuant to the
resignation agreement, Operating Company paid to Mr. Keller a cash lump sum of
$672,000 and in the event a change in control occurs prior to May 17, 1997,
Operating Company shall pay to Mr. Keller an additional cash lump sum of
$148,333 and shall provide Mr. Keller the benefit of participating in the
Company's medical and dental plans for three years if he pays the applicable
premium. The resignation agreement also provided (subject to Compensation
Committee approval) that the right of Operating Company to repurchase 43,161
shares of restricted shares issued to Mr. Keller would be deferred until May
17, 1997 and the restrictions on such stock would expire only in the event of
the occurrence of one of the following events prior to May 17, 1997:
(1) Mr. Keller's death, (2) Mr. Keller's total disability, or (3) a change in
control, (generally defined as a 20% change in ownership of Operating Company,
the replacement of a majority of the members of the incumbent board of
directors of Operating Company (excluding replacement directors nominated by
the incumbent board of directors) or the liquidation or dissolution of Realty,
subject to certain exceptions). Under the agreement (and subject to
Compensation Committee approval), Mr. Keller's rights to exercise his vested
stock options at resignation were extended to the later of (a) May 17, 1997
and (b) three months after a change in control event and, further, in the
event of a change in control prior to May 17, 1997, all stock options unvested
at resignation will vest. Mr. Keller and Operating Company agreed that the
resignation agreement discharged all obligations of Operating Company to Mr.
Keller and Mr. Keller released Operating Company from any claims, obligations
and liabilities.
Mr. Chillingworth entered into a resignation agreement with Realty with
terms similar to Mr. Keller's resignation agreement, except that Mr.
Chillingworth was paid a cash lump sum of $206,080 by Realty and, in the event
of a change in control prior to May 17, 1997, would receive an additional cash
lump sum of $303,920. Mr. Chillingworth does not own any restricted shares.
EMPLOYMENT AGREEMENTS
Mr. Baker has an agreement for employment with Operating Company, effective
August 16, 1996 and expiring March 31, 1998, subject to automatic renewal for
one year periods unless either Mr. Baker or Operating Company has noticed the
other of his or its desire to terminate the agreement at least six months
44
<PAGE>
prior to its expiration and subject to earlier termination under the
circumstances described below. The agreement provides that Mr. Baker shall
serve as Chief Executive Officer of Operating Company and shall devote all of
his time, energy and ability to the business of Operating Company. The
agreement provides for various benefits to Mr. Baker, including an annual base
salary, which is subject to periodic review and increase, but not to decrease
below $300,000. The agreement provides that, in the Board of Directors' sole
discretion, Mr. Baker may earn an annual bonus in an amount up to 100% of his
annual salary, which bonus will take into consideration Mr. Baker's success in
accomplishing goals with respect to Operating Company which have been
established by the Compensation Committee. Mr. Baker is also entitled under
the agreement to various fringe benefits and perquisites (such as car and club
membership) and to participate in the savings and retirement welfare and
vacation plans, programs and policies applicable generally to other peer
executives of Operating Company. The agreement provides for certain
supplemental retirement benefits.
The agreement automatically terminates in the event of Mr. Baker's death or
"disability" (as defined in the agreement). Operating Company may also
terminate Mr. Baker's employment under the agreement at any time, with or
without "cause" (as defined in the agreement), upon 60 days written notice.
The agreement provides for various payments to Mr. Baker or his estate or
beneficiaries, as applicable, in the event of termination of his employment.
In the event of termination for death or disability or for cause or by
voluntary termination (without "good reason"), Mr. Baker (or his legal
representatives, as applicable) would be entitled to receive within 30 days of
such termination a lump sum payment equal to his accrued but unpaid (i) salary
and (ii) reasonable employment expenses and fringe benefit allowances
(collectively, "Accrued Obligations") as well as payment of any amounts due
pursuant to the terms of any applicable welfare or pension benefit plans. If
Operating Company terminates Mr. Baker's employment for other than cause or
death or disability, or if Mr. Baker voluntarily terminates his employment for
"good reason" (as defined in the agreement), then he is entitled to receive
timely payment of his Accrued Obligations, payment of any amounts due pursuant
to the terms of any applicable welfare or pension benefit plans and a lump sum
payment equal to 112% of his then current base salary which would otherwise be
payable for the succeeding 18 months, subject to offset for any cash lump sum
payment he may receive pursuant to a severance agreement with Operating
Company.
Mr. Goodrich has an agreement for employment with Operating Company to serve
as its Vice President and with Los Angeles Turf Club, Incorporated to serve as
its President and Chief Operating Officer effective January 1, 1994 and
expiring December 31, 1996, subject to automatic renewal for one year periods
unless either Mr. Goodrich or Operating Company has noticed the other of his
or its desire to terminate the agreement at least six months prior to its
expiration. No such notice was provided in 1996. The other terms of his
agreement are similar to those described above for Mr. Baker, except that (a)
Mr. Goodrich is entitled to receive an annual base salary which is subject to
periodic review and increase, but not to decrease below $230,000, (b) Mr.
Goodrich is entitled to participate in bonus and incentive plans but not in
the supplemental retirement benefits provided for Mr. Baker and (c) Operating
Company may terminate Mr. Goodrich's employment with or without "cause" upon
90 days' written notice.
Mr. Fleming has an agreement for employment with Realty to serve as its
Executive Vice President and Chief Financial Officer, commencing May 9, 1994
and, as amended, expiring December 31, 1997, subject to automatic renewal for
one year periods unless either Mr. Fleming or Realty has noticed the other of
his or its desire to terminate the agreement at least six months prior to its
expiration. The other terms of his agreement are similar to those described
above for Mr. Baker, except that (a) Mr. Fleming is entitled to receive an
annual base salary which is subject to periodic review and increase, but not
to decrease, (b) Mr. Fleming is entitled to participate in bonus and incentive
plans but not in the supplemental retirement benefits provided for Mr. Baker
and (c) Realty may terminate Mr. Fleming's employment with or without "cause"
upon 90 days' written notice. Under the agreement, Mr. Fleming was entitled to
a guaranteed bonus of $30,000 provided he was employed by Realty on December
31, 1995 and as a condition of the agreement, Mr. Fleming was granted options
to purchase 25,000 shares of Realty stock at the fair market value of the date
of grant (which was $17.125).
45
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth the number of shares of the Companies' common
stock beneficially owned, directly or indirectly, by each person known to be
the beneficial owner of more than five percent of any class of the Companies'
voting stock, each of the named executive officers, all current directors and
executive officers of Operating Company as a group and all current directors
and executive officers of Realty as a group at February 28, 1997 (unless
otherwise stated).
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
CLASS OF SHARES OF SHARES OF
NAME STOCK STOCK(1)(2) STOCK(1)(2)
- ---- --------- ----------- -----------
<S> <C> <C> <C>
Apollo Real Estate Investment Fund II, L.P.
and affiliates............................. Common 989,900(3) 8.6%
1301 Avenue of the Americas
New York, New York 10019
GAMCO Investors, Inc. and affiliates....... Common 794,900(4) 6.9
One Corporate Center
Rye, New York 10580
Gotham Partners, L.P. and affiliates....... Common 589,300(5) 5.1
110 East 42nd Street, 18th Floor
New York, New York 10017
Colony Investors, II, L.P. ................ Preferred 867,343 100.0
1999 Avenue of the Stars Common 112,700 1.0
Los Angeles, California 90067
OPERATING COMPANY MANAGEMENT
William C. Baker........................... Common 81,400 *
Stephen F. Keller(6)....................... Common 49,967 *
Clifford C. Goodrich(7).................... Common 86,082 *
Thomas S. Robbins.......................... Common 19,006 *
Michael J. Manning......................... Common 13,500 *
Mark T. Stephens........................... Common 8,338 *
All current directors and executive
officers as a group (13 persons)(7)(8).... Common 971,492 8.3
REALTY MANAGEMENT
Brian L. Fleming........................... Common 15,348 *
William C. Baker........................... Common 81,400 *
Sherwood C. Chillingworth.................. Common 16,000 *
Tom D. Austin.............................. Common 2,135 *
All current directors and executive
officers as a group (12 persons)(8)....... Common 870,922 7.5
</TABLE>
- --------
* Less than one percent
(1) Includes shares subject to options exercisable within 60 days of February
28, 1997, as follows: Baker--75,000; Goodrich--47,800; Robbins--15,100;
Manning--13,500; Stephens--8,100; all current directors and executive
officers of Operating Company as a group--149,200; Fleming--15,200;
Chillingworth--15,000; Austin--1,600; and all current directors and
executive officers of Realty as a group--91,800.
(2) Includes fully-vested shares allocated to the named officer's accounts in
the Companies' Thrift Plan as follows: Keller--1,806; Goodrich--1,957;
Robbins--3,906; Stephens--238; all current directors and executive
officers of Operating Company as a group--6,228; Fleming--148; Austin--95;
and all current directors and executive officers of Realty as a group--
247.
(3) As disclosed in Amendment No. 4 to Schedule 13D dated April 3, 1997.
46
<PAGE>
(4) As disclosed in Amendment No. 7 to Schedule 13D dated January 17, 1997.
(5) As disclosed in Schedule 13D dated November 21, 1996.
(6) Includes 5,000 shares held indirectly in a trust for which Mr. Keller acts
as trustee. Includes 43,161 shares of restricted stock which provide for
restrictions on transfer prior to vesting and are subject to forfeiture in
certain circumstances.
(7) Includes 16,130 shares of restricted stock which provide for restrictions
on transfer prior to vesting and are subject to forfeiture in certain
circumstances.
(8) Includes 166,743 shares held in different trusts by separate directors,
159,871 shares beneficially owned by a director's spouse, 183,039 shares
held in trust for the benefit of a director's non-immediate family members
and a charitable organization for which a director's spouse has voting
power, 91 shares owned by a director's minor children and 249,295 shares
of which a director has been granted a revocable proxy to represent and
vote all such shares. Excludes 100,000 shares owned by California Jockey
Club of which a director is a director and shareholder.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Chillingworth, Chief Executive Officer of Realty until March 31, 1996,
serves as Executive Vice President of Oak Tree. Oak Tree subleases Santa Anita
Racetrack from LATC, a wholly-owned subsidiary of Operating Company, for the
purpose of conducting a thoroughbred horse racing meet normally lasting
between five and six weeks each year. Under the current sublease, which has
been in place since January 1990 and expires in December 1999, Oak Tree made
rental payments of $4,808,000 to LATC during 1996.
On August 19, 1996, the Companies announced a major transaction with Colony,
which, pursuant to the terms of an agreement, would have invested in the
Companies, over time, a total of $138 million. Thomas J. Barrack, Jr., then a
director of the Companies, is the Chief Executive Officer of Colony Capital.
Mr. Barrack resigned as a director of the Companies in January 1997.
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.
The following reports on Form 8-K have been filed by Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company:
(i) Current Report, dated October 24, 1996, reporting "Other Events"
pursuant to Item 5 of Form 8-K.
(ii) Current Report, dated January 7, 1997, reporting "Other Events"
pursuant to Item 5 of Form 8-K.
47
<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
Brian L. Fleming William C. Baker
By: _________________________________ By: _________________________________
Brian L. Fleming William C. Baker
Acting President and Chief Chairman of the Board and Chief
Executive Officer and Executive Executive Officer (Principal
Vice President and Chief Financial Executive Officer)
Officer (Principal Executive
and Financial Officer)
Date: April 14, 1997 Date: April 14, 1997
Roger C. Allen Elizabeth P. Haug
By: _________________________________ By: _________________________________
Roger C. Allen Elizabeth P. Haug
Controller (Principal Accounting Controller (Principal Financial
Officer) and Accounting Officer)
Date: April 14, 1997 Date: April 14, 1997
48
<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 CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE
William C. Baker Chairman of the Board and Chief
_____________________________________ Executive Officer (Principal
William C. Baker Executive Officer) of Operating
Company and Chairman of the
Board of Realty
Brian L. Fleming Acting President and Chief
_____________________________________ Executive Officer and Executive
Brian L. Fleming Vice President and Chief
Financial Officer (Principal
Executive and Financial
Officer) of Realty and Director
of Realty
Richard S. Cohen Director of Operating Company
_____________________________________ and Director of Realty
Richard S. Cohen
James P. Conn Director of Operating Company
_____________________________________ and Director of Realty
James P. Conn
Arthur Lee Crowe Director of Operating Company
_____________________________________ and Director of Realty
Arthur Lee Crowe
John C. Cushman, III Director of Operating Company
_____________________________________ and Director of Realty
John C. Cushman, III
Clifford C. Goodrich Executive Vice President and
_____________________________________ Director of Operating Company
Clifford C. Goodrich
Taylor B. Grant Director of Operating Company
_____________________________________ and 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: April 14, 1997
49
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT.............................................. 52
THE SANTA ANITA COMPANIES
Combined Balance Sheets as of December 31, 1996 and 1995................ 53
Combined Statements of Operations for the years ended December 31, 1996,
1995 and 1994.......................................................... 54
Combined Statements of Shareholders' Equity for the years ended December
31, 1996, 1995
and 1994............................................................... 55
Combined Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994.......................................................... 56
SANTA ANITA REALTY ENTERPRISES, INC.
Consolidated Balance Sheets as of December 31, 1996 and 1995............ 57
Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994.................................................... 58
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995
and 1994............................................................... 59
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.................................................... 60
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets as of December 31, 1996 and 1995............ 61
Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994.................................................... 62
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995
and 1994............................................................... 63
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.................................................... 64
NOTES TO FINANCIAL STATEMENTS............................................. 65
ANITA ASSOCIATES
Independent Auditors' Report............................................ 100
Financial Statements and Notes.......................................... 101
H-T ASSOCIATES
Independent Auditors' Report............................................ 113
Financial Statements and Notes.......................................... 114
</TABLE>
50
<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:
<TABLE>
<CAPTION>
SCHEDULES FOR
----------------
OPERATING
SCHEDULE REALTY COMPANY
-------- ------ ---------
(REFERENCE IS TO
PAGE NUMBER)
<C> <S> <C> <C>
Valuation and Qualifying Accounts as of December 31,
II 1996 and 1995.......................................... 96 Omitted
Real Estate and Accumulated Depreciation as of December
III 31, 1996............................................... 98 Omitted
</TABLE>
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.
51
<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 50
and 51 of:
(a) The Santa Anita Companies
(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, 1996 and 1995 and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996,
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.
As discussed in Note 2, prior its decision to dispose of certain non-core
real estate assets in 1995, Santa Anita Realty Enterprises, Inc. evaluated
impairment of two investments with common ownership in unconsolidated joint
ventures on a combined basis rather than evaluating impairment on a separate
basis. In addition, Santa Anita Realty Enterprises, Inc. should have reflected
a larger percentage of the losses of one of the unconsolidated joint ventures
prior to its actual increase in ownership during 1996. Santa Anita Realty
Enterprises, Inc.'s 1995 and 1994 financial statements have been restated for
these items to decrease the net loss in 1995 by $7,923,000 ($.70 per share)
and decrease net income in 1994 by $289,000 ($.02 per share).
Ernst & Young LLP
Los Angeles, California
April 14, 1997
52
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
(RESTATED)
<S> <C> <C>
ASSETS
Real estate assets:
Santa Anita Racetrack, less accumulated
depreciation of $21,069,000 and
$20,216,000................................... $ 9,180,000 $ 9,030,000
Commercial properties, less accumulated
depreciation of $4,203,000 and $3,631,000..... 9,412,000 10,342,000
Commercial properties to be sold, less
accumulated depreciation of $4,395,000 and
$16,737,000................................... 8,986,000 27,337,000
Investments in and advances to unconsolidated
joint ventures................................ 2,297,000 871,000
Real estate loans receivable................... 10,674,000 10,954,000
------------- -------------
40,549,000 58,534,000
Cash and cash equivalents........................ 23,222,000 13,877,000
Accounts receivable.............................. 2,442,000 3,771,000
Prepaid expenses and other assets................ 6,696,000 6,494,000
Investment in Pacific Gulf Properties Inc........ -- 12,967,000
Property, plant and equipment, at cost, less
accumulated depreciation of $28,059,000 and
$24,968,000..................................... 20,572,000 19,233,000
------------- -------------
$ 93,481,000 $ 114,876,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Real estate loans payable........................ $ 20,407,000 $ 28,389,000
Bank loans payable............................... 5,417,000 22,685,000
Accounts payable................................. 11,540,000 11,208,000
Other liabilities................................ 13,007,000 14,472,000
Income taxes..................................... -- 326,000
Dividends payable................................ 2,468,000 2,277,000
Deferred revenues................................ 1,803,000 2,379,000
Deferred income taxes............................ 1,282,000 1,239,000
------------- -------------
55,924,000 82,975,000
------------- -------------
Series A Redeemable Preferred Stock, $.10 par
value; 867,343 shares authorized, issued and
outstanding..................................... 22,768,000 --
------------- -------------
Shareholders' equity:
Preferred stock, $.10 par value; authorized
5,132,657 shares.............................. -- --
Common stock, $.10 par value; authorized
19,000,000 shares; issued and outstanding
11,474,600 and 11,270,500 shares.............. 2,295,000 2,253,000
Additional paid-in capital..................... 139,834,000 136,552,000
Unearned compensation expense.................. (685,000) (1,209,000)
Retained earnings (deficit).................... (126,655,000) (105,695,000)
------------- -------------
14,789,000 31,901,000
------------- -------------
$ 93,481,000 $ 114,876,000
============= =============
</TABLE>
See accompanying notes.
53
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
(RESTATED)
<S> <C> <C> <C>
Revenues:
Horse racing........................ $ 68,606,000 $ 69,647,000 $67,846,000
Rental property..................... 6,671,000 8,447,000 11,054,000
Interest and other.................. 1,948,000 3,112,000 2,549,000
------------ ------------ -----------
77,225,000 81,206,000 81,449,000
------------ ------------ -----------
Costs and expenses:
Horse racing operating costs........ 48,735,000 48,686,000 48,339,000
Rental property operating expenses.. 2,434,000 2,671,000 4,182,000
Depreciation and amortization....... 4,870,000 6,905,000 8,232,000
General and administrative.......... 10,289,000 8,812,000 9,731,000
Interest and other.................. 3,263,000 4,601,000 6,376,000
Losses from unconsolidated joint
ventures........................... 994,000 2,113,000 1,521,000
Strategic alliance costs............ 1,200,000 -- --
Arcadia development costs........... 2,900,000 -- --
Program for disposition of non-core
real estate assets................. 2,000,000 30,300,000 --
Costs of equity offering............ -- 750,000 --
Card club option write-off.......... -- 2,000,000 --
Write-down of land held for
development........................ -- -- 1,043,000
------------ ------------ -----------
76,685,000 106,838,000 79,424,000
------------ ------------ -----------
Income (loss) before income taxes and
extraordinary gain................... 540,000 (25,632,000) 2,025,000
Income tax benefit.................... -- 2,000,000 --
------------ ------------ -----------
Income (loss) before extraordinary
gain................................. 540,000 (23,632,000) 2,025,000
Extraordinary gain on early retirement
of debt.............................. -- 4,050,000 --
------------ ------------ -----------
Net income (loss)..................... 540,000 (19,582,000) 2,025,000
Preferred stock dividends............. 12,420,000 -- --
------------ ------------ -----------
Net income (loss) applicable to common
shares............................... $(11,880,000) $(19,582,000) $ 2,025,000
============ ============ ===========
Weighted average common shares
outstanding.......................... 11,316,623 11,213,943 11,143,146
============ ============ ===========
Income (loss) per common share:
Before extraordinary gain........... $ (1.05) $ (2.11) $ .18
Extraordinary gain.................. -- .36 --
------------ ------------ -----------
Net income (loss) per common share.... $ (1.05) $ (1.75) $ .18
============ ============ ===========
Dividends declared per common share... $ .80 $ .80 $ .94
============ ============ ===========
</TABLE>
See accompanying notes.
54
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED UNEARNED
--------------------- PAID-IN EARNINGS COMPENSATION
SHARES AMOUNT CAPITAL (DEFICIT) EXPENSE TOTAL
---------- ---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Combined balance,
December 31, 1993, as
previously reported.... 11,140,853 $2,227,000 $134,554,000 $ (61,259,000) $ -- $ 75,522,000
Restatement ........... -- -- -- (7,434,000) -- (7,434,000)
---------- ---------- ------------ ------------- ----------- ------------
Combined balance,
December 31, 1993, as
restated............... 11,140,853 2,227,000 134,554,000 (68,693,000) -- 68,088,000
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, as
restated.............. -- -- -- 2,025,000 -- 2,025,000
---------- ---------- ------------ ------------- ----------- ------------
Combined balance,
December 31, 1994...... 11,143,853 2,227,000 134,615,000 (77,122,000) -- 59,720,000
Stock issued in
connection with
restricted stock
awards................ 126,647 26,000 1,937,000 -- (1,963,000) --
Amortization of
unearned compensation
expense............... -- -- -- -- 754,000 754,000
Dividends declared on
common stock.......... -- -- -- (8,991,000) -- (8,991,000)
Net loss, as restated.. -- -- -- (19,582,000) -- (19,582,000)
---------- ---------- ------------ ------------- ----------- ------------
Combined balance,
December 31, 1995...... 11,270,500 2,253,000 136,552,000 (105,695,000) (1,209,000) 31,901,000
Stock issued in
connection with stock
option plan........... 91,400 18,000 1,917,000 -- -- 1,935,000
Stock issued in
connection with Colony
transaction........... 112,700 24,000 1,365,000 -- -- 1,389,000
Amortization of
unearned compensation
expense............... -- -- -- -- 524,000 524,000
Dividends declared on
common stock.......... -- -- -- (9,080,000) -- (9,080,000)
Dividends declared on
preferred stock....... -- -- -- (347,000) -- (347,000)
Additional preferred
stock dividend........ -- -- -- (12,073,000) -- (12,073,000)
Net income............. -- -- -- 540,000 -- 540,000
---------- ---------- ------------ ------------- ----------- ------------
Combined balance,
December 31, 1996...... 11,474,600 $2,295,000 $139,834,000 $(126,655,000) $ (685,000) $ 14,789,000
========== ========== ============ ============= =========== ============
</TABLE>
See accompanying notes.
55
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
(RESTATED)
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............... $ 540,000 $(19,582,000) $ 2,025,000
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and amortization.. 4,870,000 6,905,000 8,232,000
Amortization of unearned
compensation expense.......... 524,000 754,000 --
Deferred income taxes.......... (283,000) (2,000,000) --
Equity in losses of
unconsolidated joint
ventures...................... 994,000 2,113,000 1,521,000
Equity in earnings from
investment in Pacific Gulf
Properties Inc................ -- (1,374,000) (203,000)
Strategic alliance costs....... 1,200,000 -- --
Arcadia development costs...... 2,900,000 -- --
Program for disposition of non-
core real estate assets....... 2,000,000 30,300,000 --
Card club option write-off..... -- 2,000,000 --
Extraordinary gain on early
retirement of debt............ -- (4,050,000) --
Write-down of land held for
development................... -- -- 1,043,000
Net decrease (increase) in
certain other assets.......... 112,000 (183,000) 958,000
Net (decrease) increase in
certain other liabilities..... (880,000) 1,002,000 (1,294,000)
------------ ------------ ------------
Net cash provided by operating
activities..................... 11,977,000 15,885,000 12,282,000
------------ ------------ ------------
Cash flows from investing
activities:
Proceeds from disposition of
multifamily and industrial
operations..................... -- -- 44,425,000
Payments received on loans
receivable..................... 307,000 484,000 10,216,000
Origination of loans
receivable..................... -- (27,000) --
Additions and improvements to
real estate assets............. (2,044,000) (3,432,000) (2,911,000)
Additions to property, plant and
equipment...................... (4,551,000) (3,332,000) (1,553,000)
Additions to certain other
assets......................... (3,836,000) (5,415,000) --
Investments in and advances to
unconsolidated joint ventures.. (7,636,000) (4,282,000) (1,660,000)
Capital distributions from
unconsolidated joint ventures.. 4,364,000 1,862,000 3,014,000
Sale of Pacific Gulf Properties
Inc. common stock.............. 12,139,000 -- --
Sale of non-core real estate
assets......................... 19,069,000 -- --
Dividends received from Pacific
Gulf Properties Inc............ -- 1,224,000 203,000
------------ ------------ ------------
Net cash provided by (used in)
investing activities........... 17,812,000 (12,918,000) 51,734,000
------------ ------------ ------------
Cash flows from financing
activities:
Proceeds from real estate loans
payable........................ -- -- 24,400,000
Proceeds from bank loans
payable........................ -- 13,650,000 7,300,000
Repayment of real estate loans
payable........................ (7,982,000) (8,074,000) (11,150,000)
Repayment of bank loans
payable........................ (17,268,000) (794,000) (78,638,000)
Dividends paid.................. (9,213,000) (8,966,000) (11,993,000)
Issuance of common and preferred
stock.......................... 12,084,000 -- --
Exercise of stock options....... 1,935,000 -- 61,000
------------ ------------ ------------
Net cash used in financing
activities..................... (20,444,000) (4,184,000) (70,020,000)
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents............ 9,345,000 (1,217,000) (6,004,000)
Cash and cash equivalents at
beginning of year............... 13,877,000 15,094,000 21,098,000
------------ ------------ ------------
Cash and cash equivalents at end
of year......................... $ 23,222,000 $ 13,877,000 $ 15,094,000
============ ============ ============
</TABLE>
See accompanying notes.
56
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- ------------
(RESTATED)
<S> <C> <C>
ASSETS
Real estate assets:
Santa Anita Racetrack, less accumulated
depreciation of $21,069,000 and $20,216,000.... $ 9,180,000 $ 9,030,000
Commercial properties, less accumulated
depreciation of $4,700,000 and $4,068,000...... 12,372,000 13,047,000
Commercial properties to be sold, less
accumulated depreciation of $4,395,000 and
$18,085,000.................................... 8,986,000 27,652,000
Investments in and advances to unconsolidated
joint ventures................................. 2,297,000 871,000
Real estate loans receivable.................... 10,674,000 10,954,000
------------- ------------
43,509,000 61,554,000
Cash and cash equivalents......................... 12,921,000 167,000
Accounts receivable............................... 90,000 658,000
Prepaid expenses and other assets................. 5,233,000 5,726,000
Investment in Pacific Gulf Properties Inc......... -- 12,967,000
------------- ------------
$ 61,753,000 $ 81,072,000
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Real estate loans payable......................... $ 20,407,000 $ 28,389,000
Bank loans payable................................ 4,550,000 20,950,000
Accounts payable.................................. 205,000 420,000
Other liabilities................................. 1,700,000 2,779,000
Dividends payable................................. 2,491,000 2,277,000
Due to Operating Company.......................... 2,007,000 415,000
------------- ------------
31,360,000 55,230,000
------------- ------------
Series A Redeemable Preferred Stock, $.10 par
value; 867,343 shares authorized, issued and
outstanding...................................... 21,718,000 --
------------- ------------
Shareholders' equity:
Preferred stock, $.10 par value; authorized
5,132,657 shares............................... -- --
Common stock, $.10 par value; authorized
19,000,000 shares;
issued and outstanding 11,586,100 and
11,383,000 shares.............................. 1,159,000 1,138,000
Additional paid-in capital...................... 121,899,000 118,881,000
Retained earnings (deficit)..................... (114,383,000) (94,177,000)
------------- ------------
8,675,000 25,842,000
------------- ------------
$ 61,753,000 $ 81,072,000
============= ============
</TABLE>
See accompanying notes.
57
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
(RESTATED)
<S> <C> <C> <C>
Revenues:
Rent from Racetrack............. $ 10,861,000 $ 11,342,000 $13,070,000
Shopping centers................ 3,251,000 4,441,000 4,501,000
Office buildings................ 3,420,000 4,006,000 4,301,000
Apartments and industrial....... -- -- 2,252,000
Interest and other.............. 1,652,000 2,637,000 2,108,000
------------ ------------ -----------
19,184,000 22,426,000 26,232,000
------------ ------------ -----------
Costs and expenses:
Shopping centers................ 906,000 1,045,000 1,065,000
Office buildings................ 1,528,000 1,626,000 1,862,000
Apartments and industrial....... -- -- 1,255,000
Depreciation and amortization... 1,718,000 3,899,000 4,152,000
General and administrative...... 4,046,000 3,420,000 4,148,000
Interest and other.............. 2,670,000 4,321,000 5,930,000
Losses from unconsolidated joint
ventures....................... 994,000 2,113,000 1,521,000
Strategic alliance costs........ 1,090,000 -- --
Arcadia development costs....... 2,900,000 -- --
Program for disposition of non-
core real estate assets........ 2,000,000 30,300,000 --
Costs of equity offering........ -- 700,000 --
Card club option write-off...... -- 2,000,000 --
Write-down of land held for
development.................... -- -- 1,043,000
------------ ------------ -----------
17,852,000 49,424,000 20,976,000
------------ ------------ -----------
Income (loss) before income taxes
and extraordinary gain........... 1,332,000 (26,998,000) 5,256,000
Income tax benefit................ -- -- --
------------ ------------ -----------
Income (loss) before extraordinary
gain............................. 1,332,000 (26,998,000) 5,256,000
Extraordinary gain on early
retirement of debt............... -- 4,050,000 --
------------ ------------ -----------
Net income (loss)................. 1,332,000 (22,948,000) 5,256,000
Preferred stock dividends......... 12,368,000 -- --
------------ ------------ -----------
Net income (loss) applicable to
common shares.................... $(11,036,000) $(22,948,000) $ 5,256,000
============ ============ ===========
Weighted average common shares
outstanding...................... 11,429,118 11,326,443 11,256,353
============ ============ ===========
Income (loss) per common share:
Before extraordinary item....... $ (.97) $ (2.39) $ .47
Extraordinary item.............. -- .36 --
------------ ------------ -----------
Net income (loss) per common share
................................. $ (.97) $ (2.03) $ .47
============ ============ ===========
Dividends declared per common
share............................ $ .80 $ .80 $ .94
============ ============ ===========
</TABLE>
See accompanying notes.
58
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
--------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1993, as previously
reported............... 11,256,353 $1,125,000 $117,084,000 $ (49,390,000) $ 68,819,000
Restatement............ -- -- -- (7,434,000) (7,434,000)
---------- ---------- ------------ ------------- ------------
Balance, December 31,
1993, as restated...... 11,256,353 1,125,000 117,084,000 (56,824,000) 61,385,000
Dividends declared on
common stock.......... -- -- -- (10,580,000) (10,580,000)
Net income, as
restated.............. -- -- -- 5,256,000 5,256,000
---------- ---------- ------------ ------------- ------------
Balance, December 31,
1994................... 11,256,353 1,125,000 117,084,000 (62,148,000) 56,061,000
Stock issued to
Operating Company in
connection with
restricted stock
awards................ 126,647 13,000 1,797,000 -- 1,810,000
Dividends declared on
common stock.......... -- -- -- (9,081,000) (9,081,000)
Net loss, as restated.. -- -- -- (22,948,000) (22,948,000)
---------- ---------- ------------ ------------- ------------
Balance, December 31,
1995................... 11,383,000 1,138,000 118,881,000 (94,177,000) 25,842,000
Stock issued in
connection with stock
option plan........... 90,400 9,000 1,770,000 -- 1,779,000
Stock issued in
connection with Colony
transaction........... 112,700 12,000 1,248,000 -- 1,260,000
Dividends declared on
common stock.......... -- -- -- (9,170,000) (9,170,000)
Dividends declared on
preferred stock....... -- -- -- (347,000) (347,000)
Additional preferred
stock dividend........ -- -- -- (12,021,000) (12,021,000)
Net income............. -- -- -- 1,332,000 1,332,000
---------- ---------- ------------ ------------- ------------
Balance, December 31,
1996................... 11,586,100 $1,159,000 $121,899,000 $(114,383,000) $ 8,675,000
========== ========== ============ ============= ============
</TABLE>
See accompanying notes.
59
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
(RESTATED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................. $ 1,332,000 $(22,948,000) $ 5,256,000
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization.... 1,718,000 3,899,000 4,152,000
Equity in losses of unconsoli-
dated joint ventures............ 994,000 2,113,000 1,521,000
Equity in earnings from invest-
ment in Pacific Gulf Properties
Inc............................. -- (1,374,000) (203,000)
Strategic alliance costs......... 1,090,000 -- --
Arcadia development costs........ 2,900,000 -- --
Program for disposition of non-
core real estate assets......... 2,000,000 30,300,000 --
Card club option write-off....... -- 2,000,000 --
Extraordinary gain on early re-
tirement of debt................ -- (4,050,000) --
Write-down of land held for de-
velopment....................... -- -- 1,043,000
Net decrease (increase) in cer-
tain other assets............... 46,000 (87,000) 160,000
Net increase (decrease) in cer-
tain other liabilities.......... (442,000) (40,000) (1,720,000)
------------ ------------ ------------
Net cash provided by operating ac-
tivities.......................... 9,638,000 9,813,000 10,209,000
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from disposition of
multifamily and industrial
operations........................ -- -- 44,425,000
Payments received on loans receiv-
able.............................. 307,000 484,000 10,216,000
Origination of loans receivable.... -- (27,000) --
Additions and improvements to real
estate assets..................... (2,044,000) (3,432,000) (2,911,000)
Additions to certain other assets.. (3,726,000) (5,415,000) --
Investments in and advances to
unconsolidated joint ventures..... (7,636,000) (4,282,000) (1,660,000)
Capital distributions from uncon-
solidated joint ventures.......... 4,364,000 1,862,000 3,014,000
Sale of Pacific Gulf Properties
Inc. common stock................. 12,139,000 -- --
Sale of non-core real estate as-
sets.............................. 19,069,000 -- --
Dividends received from Pacific
Gulf Properties Inc............... -- 1,224,000 203,000
------------ ------------ ------------
Net cash provided by (used in) in-
vesting activities................ 22,473,000 (9,586,000) 53,287,000
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from real estate loans
payable........................... -- -- 24,400,000
Proceeds from bank loans payable... -- 13,650,000 7,300,000
Repayment of real estate loans pay-
able.............................. (7,982,000) (8,074,000) (11,150,000)
Repayment of bank loans payable.... (16,400,000) -- (77,913,000)
Increase (decrease) in due to Oper-
ating Company..................... 1,592,000 (641,000) 1,525,000
Dividends paid..................... (9,303,000) (9,056,000) (12,117,000)
Issuance of common and preferred
stock............................. 10,957,000 -- --
Exercise of stock options.......... 1,779,000 -- --
Issuance of common stock to
Operating Company in connection
with restricted stock awards...... -- 1,810,000 --
------------ ------------ ------------
Net cash used in financing activi-
ties.............................. (19,357,000) (2,311,000) (67,955,000)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................... 12,754,000 (2,084,000) (4,459,000)
Cash and cash equivalents at begin-
ning of year........................ 167,000 2,251,000 6,710,000
------------ ------------ ------------
Cash and cash equivalents at end of
year................................ $ 12,921,000 $ 167,000 $ 2,251,000
============ ============ ============
</TABLE>
See accompanying notes.
60
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 10,301,000 $13,710,000
Accounts receivable............................... 2,352,000 3,113,000
Due from Realty................................... 2,007,000 415,000
Prepaid expenses and other assets................. 1,472,000 777,000
------------ -----------
Total current assets............................ 16,132,000 18,015,000
Investment in common stock of Realty................ 2,103,000 2,122,000
Property, plant and equipment, at cost, less
accumulated depreciation of $28,059,000 and
$24,968,000........................................ 20,572,000 19,233,000
------------ -----------
$ 38,807,000 $39,370,000
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 11,335,000 $10,788,000
Other liabilities................................. 11,284,000 11,693,000
Bank loans payable................................ 867,000 868,000
Income taxes...................................... -- 326,000
------------ -----------
Total current liabilities....................... 23,486,000 23,675,000
Bank loans payable.................................. -- 867,000
Deferred revenues................................... 1,803,000 2,379,000
Deferred income taxes............................... 1,282,000 1,239,000
------------ -----------
26,571,000 28,160,000
------------ -----------
Series A Redeemable Preferred Stock, $.10 par value;
867,343 shares authorized, issued and outstanding.. 1,050,000 --
------------ -----------
Shareholders' equity:
Preferred stock, $.10 par value; authorized
5,132,657 shares................................. -- --
Common stock, $.10 par value; authorized
19,000,000 shares; issued and outstanding
11,474,600 and 11,270,500 shares................. 1,148,000 1,127,000
Additional paid-in capital........................ 20,981,000 20,736,000
Unearned compensation expense..................... (685,000) (1,209,000)
Retained earnings (deficit)....................... (10,258,000) (9,444,000)
------------ -----------
11,186,000 11,210,000
------------ -----------
$ 38,807,000 $39,370,000
============ ===========
</TABLE>
See accompanying notes.
61
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Wagering commissions.................. $44,781,000 $45,587,000 $43,096,000
Admission related..................... 23,825,000 24,060,000 24,750,000
Interest and other.................... 581,000 686,000 565,000
----------- ----------- -----------
69,187,000 70,333,000 68,411,000
----------- ----------- -----------
Costs and expenses:
Horse racing operating costs.......... 48,735,000 48,686,000 48,352,000
Depreciation and amortization......... 3,212,000 3,196,000 4,251,000
General and administrative............ 6,353,000 5,442,000 5,583,000
Interest and other.................... 788,000 401,000 446,000
Rental expense to Realty.............. 10,861,000 11,342,000 13,057,000
----------- ----------- -----------
69,949,000 69,067,000 71,689,000
----------- ----------- -----------
Income (loss) before income taxes....... (762,000) 1,266,000 (3,278,000)
Income tax benefit...................... -- 2,000,000 --
----------- ----------- -----------
Net income (loss)....................... (762,000) 3,266,000 (3,278,000)
Preferred stock dividend................ 52,000 -- --
----------- ----------- -----------
Net income (loss) applicable to common
shares................................. $ (814,000) $ 3,266,000 $(3,278,000)
=========== =========== ===========
Weighted average common shares
outstanding............................ 11,316,623 11,213,943 11,143,146
=========== =========== ===========
Net income (loss) per common share ..... $ (.07) $ .29 $ (.29)
=========== =========== ===========
</TABLE>
See accompanying notes.
62
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED UNEARNED
--------------------- PAID-IN EARNINGS COMPENSATION
SHARES AMOUNT CAPITAL (DEFICIT) EXPENSE TOTAL
---------- ---------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
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
Stock issued in
connection with
restricted stock
awards................ 126,647 13,000 140,000 -- (1,963,000) (1,810,000)
Amortization of
unearned compensation
expense............... -- -- -- -- 754,000 754,000
Net income............. -- -- -- 3,266,000 -- 3,266,000
---------- ---------- ----------- ------------ ----------- -----------
Balance, December 31,
1995................... 11,270,500 1,127,000 20,736,000 (9,444,000) (1,209,000) 11,210,000
Stock issued in
connection with stock
option plan........... 91,400 9,000 128,000 -- -- 137,000
Stock issued in
connection with Colony
transaction........... 112,700 12,000 117,000 -- -- 129,000
Preferred stock
dividend.............. -- -- -- (52,000) -- (52,000)
Amortization of
unearned compensation
expense............... -- -- -- -- 524,000 524,000
Net loss............... -- -- -- (762,000) -- (762,000)
---------- ---------- ----------- ------------ ----------- -----------
Balance, December 31,
1996................... 11,474,600 $1,148,000 $20,981,000 $(10,258,000) $ (685,000) $11,186,000
========== ========== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
63
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $ (762,000) $ 3,266,000 $(3,278,000)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 3,212,000 3,196,000 4,251,000
Amortization of unearned compensation
expense............................. 524,000 754,000 --
Deferred income taxes................ (283,000) (2,000,000) --
Net decrease (increase) in certain
other assets........................ 66,000 (96,000) 798,000
Net (decrease) increase in certain
other liabilities................... (438,000) 1,042,000 426,000
----------- ----------- -----------
Net cash provided by operating
activities............................ 2,319,000 6,162,000 2,197,000
----------- ----------- -----------
Cash flows from investing activities:
Additions to property, plant and
equipment............................. (4,551,000) (3,332,000) (1,553,000)
Purchase of common stock from Realty in
connection with grant of restricted
stock................................. -- (1,810,000) --
Decrease in investment in common stock
of Realty............................. 19,000 -- 57,000
----------- ----------- -----------
Net cash used in investing activities.. (4,532,000) (5,142,000) (1,496,000)
----------- ----------- -----------
Cash flows from financing activities:
Repayment of bank loans payable........ (868,000) (794,000) (725,000)
(Increase) decrease in due from
Realty................................ (1,592,000) 641,000 (1,525,000)
Issuance of common and preferred
stock................................. 1,127,000 -- --
Exercise of stock options.............. 137,000 -- 4,000
----------- ----------- -----------
Net cash used in financing activities.. (1,196,000) (153,000) (2,246,000)
----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents............................ (3,409,000) 867,000 (1,545,000)
Cash and cash equivalents at beginning
of year................................ 13,710,000 12,843,000 14,388,000
----------- ----------- -----------
Cash and cash equivalents at end of
year................................... $10,301,000 $13,710,000 $12,843,000
=========== =========== ===========
</TABLE>
See accompanying notes.
64
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
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 (symbol SAR). 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 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 financial statements have been presented for Realty and for
Operating Company. Combined Realty and Operating Company financial statements
have been presented as The Santa Anita Companies. Realty and The Santa Anita
Companies use an unclassified balance sheet presentation.
The separate net income (loss) and related per share amounts of Realty and
Operating Company cannot usually be added together to total the combined net
income (loss) and related per share amounts for The Santa Anita Companies
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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
REAL ESTATE AND LONG-LIVED ASSETS
Effective January 1, 1996, Realty adopted Financial Accounting Standard No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("FAS No. 121"). FAS No. 121 requires that
impairment losses be recorded on long-lived assets used in operations when
events or changes in circumstances indicate that the undiscounted cash flows
to be generated by these assets are less than their carrying amount. In this
case an impairment loss is recognized to the extent the carrying amount
exceeds the fair value of the asset. FAS No. 121 also requires that long-lived
assets to be disposed of be reported at the lower of their carrying amount or
fair value, less cost to sell. Depreciation of real estate assets held and
used in operations is provided on a straight-line basis over the estimated
useful lives of the properties, ranging primarily from 5 to 45 years. No
depreciation was provided for assets held for sale.
Prior to 1996, real estate assets held for investment and used in operations
were carried at depreciated cost, subject to tests for impairment, and
consisted of land, buildings and related improvements. The carrying values of
such assets were reviewed for impairment when certain events and circumstances
(including operating results and change in use) indicated that such assets
might be impaired if impairment indicators were present. The sum of the
undiscounted cash flows estimated to be generated by an individual asset over
its remaining estimated
65
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
useful life was compared to its carrying value. If the carrying value exceeded
the estimated undiscounted cash flow, then the carrying value was written down
by the amount of the shortfall. Real estate assets to be sold were carried at
the lower of depreciated cost or estimated sales price less costs to sell.
CAPITALIZED COSTS
Realty capitalizes preacquisition costs, development costs and other
indirect costs in accordance with Financial Accounting Standard No. 67,
"Accounting for Costs and Initial Rental Operations of Real Estate Projects."
INVESTMENTS IN JOINT VENTURES
Realty consolidates only those joint ventures over which it has control.
Investments in unconsolidated joint ventures are accounted for using the
equity method of accounting.
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:
<TABLE>
<S> <C>
Buildings and improvements................................. 25 to 40 years
Machinery and other equipment.............................. 5 to 15 years
Leasehold improvements..................................... 5 to 32 years
</TABLE>
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.
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.
66
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OPERATING COMPANY'S REVENUES AND COSTS
Operating Company records operating revenues associated with thoroughbred
horse racing at Santa Anita Racetrack on a daily basis, except for season
admissions which are recorded ratably over the racing season. Costs and
expenses associated with thoroughbred horse racing revenues are charged
against income in those interim periods in which the thoroughbred horse racing
revenues are recognized. Other costs and expenses are recognized as they
actually occur throughout the year. The rental fee paid by Operating Company
to Realty is recognized by both Realty and Operating Company as it is earned.
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 and
commercial tenants, satellite locations and Santa Anita group event patrons.
Real estate loans receivable are secured by first trust deeds on commercial
real estate located in Southern California and Phoenix, Arizona.
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, 1996 and 1995 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, 1996 and 1995.
67
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
During 1996, Realty and Operating Company adopted Financial Accounting
Standard No. 123 "Accounting for Stock-Based Compensation" ("FAS No. 123")
which provides companies an alternative to accounting for stock-based
compensation as prescribed under Accounting Principles Board Opinion No. 25
("APB 25"). FAS No. 123 encourages, but does not require companies to
recognize expense for stock-based awards based on their fair value at date of
grant. FAS No. 123 allows companies to continue to follow existing accounting
rules (intrinsic value method under APB 25) provided that pro-forma
disclosures are made of what net income and earnings per share would have been
had the new fair value method been used. The Companies have elected to adopt
the disclosure requirements of FAS No. 123 but will continue to account for
stock-based compensation under APB 25. The FAS No. 123 disclosure requirements
are applicable to stock-based awards granted in fiscal years beginning after
December 15, 1994.
NET INCOME (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENT
Net income (loss) per common share was 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 111,500 as of December 31, 1996 and 112,500 as of December 31, 1995
and 1994. These shares affect the calculation of Realty's net income per
common share and common share equivalent but are eliminated in the calculation
of net income per common share for The Santa Anita Companies.
NOTE 2--RESTATEMENT
Historically, Realty and its partners have viewed Towson Town Center and the
Joppa parcel as a common economic component since the properties had common
ownership, were physically adjacent and were both commercial retail
operations. Prior to Realty's decision to dispose of its non-core real estate
assets in 1995, Realty's investments in H-T Associates and Joppa Associates
were evaluated for impairment on a combined basis (see "Note 9--Investments in
Unconsolidated Joint Ventures"). In addition, Realty historically recorded its
share of Joppa Associates' losses based on Realty's 33 1/3% interest. During
the preparation of Realty's 1996 financial statements, it was determined that
those two investments should have been evaluated for impairment on a separate
basis. Also, Realty determined that since it was probable that one of Realty's
partners would not bear its share of losses, Realty should have been recording
50%, not 33 1/3%, of Joppa Associates losses. Accordingly, the impairment loss
recorded in the 1995 financial statements related to Joppa Associates should
have been reported in prior years when the investment was impaired as a result
of reduced expansion plans for Towson Town Center and the related Joppa
parcel. Realty has restated its financial statements to reflect these items in
the proper periods. The restatement has the following impact:
68
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--RESTATEMENT (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994
------------ ----------
<S> <C> <C>
Losses from unconsolidated joint ventures:
As originally reported.......................... $ 1,836,000 $1,232,000
As restated..................................... 2,113,000 1,521,000
Program for disposition of non-core real estate
assets:
As originally reported.......................... $ 38,500,000 $ --
As restated..................................... 30,300,000 --
Income (loss) before extraordinary gain:
As originally reported.......................... $(34,921,000) $5,545,000
As restated..................................... (26,998,000) 5,256,000
Net income (loss) applicable to common shares:
As originally reported.......................... $(30,871,000) $5,545,000
As restated..................................... (22,948,000) 5,256,000
Income (loss) per common share:
Before extraordinary gain--
As originally reported........................ $ (3.09) $ .49
As restated................................... (2.39) .47
Net income (loss) per common share--
As originally reported........................ $ (2.73) $ .49
As restated................................... (2.03) .47
</TABLE>
NOTE 3--DISPOSITION OF NON-CORE REAL ESTATE ASSETS
During 1995, Realty adopted a plan to dispose of its non-core real estate
assets. The objective of the plan was to reduce Realty's debt levels, improve
financial flexibility and improve capital availability for the construction of
a major commercial development on excess land at Santa Anita Park.
Accordingly, Realty reduced the book value of assets intended to be sold to
their estimated sales price less costs of sale, resulting in a nonrecurring
charge in 1995 of $30,300,000 (after restatement) (See "Note 2--Restatement"),
reflected as "Program for disposition of non-core real estate assets" in The
Santa Anita Companies and Realty statements of operations. The assets to be
disposed of at December 31, 1995 consisted of six neighborhood shopping
centers in Southern California, and Phoenix, Arizona, two office buildings in
Santa Ana and Upland, California, an investment in Joppa Associates, a
partnership which owns a vacant retail facility and undeveloped land adjacent
to Towson Town Center shopping center in Maryland (see "Note 9--Investments in
Unconsolidated Joint Ventures" and "Note 2--Restatement"), an investment in
French Valley Ventures, a partnership which owns undeveloped land in Temecula,
California (see "Note 10--Investment in Consolidated Joint Venture"), and
mortgage notes receivable (see "Note 11--Real Estate Loans Receivable").
During 1996, the disposition plan was expanded to include an investment in
Pacific Gulf Properties Inc. common stock (see "Note 8--Investment in Pacific
Gulf Properties Inc."), and an investment in H-T Associates, a partnership
that effectively owns 32.5% of Towson Town Center (see "Note 9--Investments in
Unconsolidated Joint Ventures").
69
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--DISPOSITION OF NON-CORE REAL ESTATE ASSETS (CONTINUED)
The components and changes in assets included in the program to dispose of
non-core real estate assets during 1996 were as follows:
<TABLE>
<CAPTION>
1995 1996
------------- ----------------------------------------------------------
BEGINNING
NET ASSET NET BOOK UNREALIZED ENDING
(REDUCTION) VALUE ADDITIONS SALES AND REALIZED NET BOOK
(AS RESTATED) (AS RESTATED) (REDUCTIONS) PROCEEDS LOSS VALUE
------------- ------------- ------------ -------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1995 PROGRAM
Neighborhood Shopping
Centers................ $(14,580) $19,673 $ 829 $(10,736) $(1,060) $ 8,706
Office Buildings........ (13,020) 7,699 724 (8,333) (90) --
Investment in French
Valley................. (200) 280 -- -- -- 280
Investment in Joppa
Associates............. -- (2,235) 4,451 -- -- 2,216
Notes receivable........ (2,500) 10,954 (280) -- -- 10,674
1996 PROGRAM
Investment in PGP
Stock.................. -- 12,967 22 (12,139) (850) --
Investment in H-T
Associates............. -- 6,415 (2,368) -- -- 4,047
-------- ------- ------- -------- ------- -------
$(30,300) $55,753 $ 3,378 $(31,208) $(2,000) $25,923
======== ======= ======= ======== ======= =======
</TABLE>
During the 1996 second quarter, Realty completed the sale of three
neighborhood shopping centers in Phoenix, Arizona, for net proceeds totaling
$8,103,000, resulting in a loss on the sale of $5,000 and sold its investment
in Pacific Gulf Properties common stock for net proceeds of $12,139,000,
resulting in a loss of $850,000. The total nonrecurring charge for the asset
disposal program in the 1996 second quarter was $855,000. During the 1996
third quarter, Realty completed the sale of a commercial office building in
Upland, California, for net proceeds of $1,419,000 and completed the sale of a
commercial office building in Santa Ana, California for net proceeds of
$6,914,000. The net loss on the sale of these two commercial office buildings
totaling $90,000 was recorded as an additional nonrecurring charge in the 1996
third quarter. During the 1996 fourth quarter, Realty completed the sale of a
neighborhood shopping center in Orange, California, for net proceeds of
$2,633,000, resulting in a gain on the sale of $36,000, which was reflected in
an additional nonrecurring charge in the 1996 fourth quarter. The net proceeds
on the sales of the neighborhood shopping centers and commercial office
buildings were used to reduce $7,511,000 of related mortgage debt and the
remainder of the proceeds were used to reduce borrowings under Realty's
working capital line. The net proceeds on the sale of Pacific Gulf Properties
stock was principally used to reduced borrowings under Realty's working
capital line.
At December 31, 1996, two neighborhood shopping centers remained to be sold.
In January 1997, Realty entered into an agreement to sell the center in Yorba
Linda, California, which sale is expected to be completed in the 1997 second
quarter. As a result of estimated net sales proceeds, the net book value of
the Yorba Linda property was reduced by $700,000 in the 1996 fourth quarter.
The neighborhood shopping center in Encinitas, California is undergoing a
refurbishment program to promote a sale by the end of 1997. As a result of the
estimated costs of the refurbishment program, the net book value of the
Encinitas center was reduced by $391,000 in the 1996 fourth quarter.
During the 1996 fourth quarter, Realty determined that an additional
nonrecurring charge for the asset disposal program of $1,055,000 was required.
This charge was comprised of $1,091,000 pertaining to the reduction in the
estimated fair value of the two remaining neighborhood centers as described
above, offset by the gain of $36,000 on the sale of the neighborhood shopping
center in Orange, California in November 1996.
70
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--DISPOSITION OF NON-CORE REAL ESTATE ASSETS (CONTINUED)
Included in the results of operations for the year ended December 31, 1996,
were operating income, net of interest expense, of $1,109,000 pertaining to
the commercial properties sold and $271,000 pertaining to the commercial
properties to be sold, losses of $1,912,000 pertaining to investments in
unconsolidated joint ventures to be sold, a loss of $65,000 pertaining to the
consolidated joint venture to be sold and interest income of $1,088,000
pertaining to the notes receivable to be sold.
Included in the results of operations for the year ended December 31, 1995,
were operating income, net of interest expense, of $641,000 pertaining to the
commercial properties to be sold, losses of $831,000 pertaining to investments
in unconsolidated joint ventures to be sold, a loss of $66,000 pertaining to
the consolidated joint venture to be sold and interest income of $1,057,000
pertaining to the notes receivable to be sold.
NOTE 4--STRATEGIC ALLIANCE TRANSACTIONS
On August 19, 1996, the Companies announced a major transaction with Colony
Investors II, L.P. ("Colony"), Los Angeles based real estate investment
company administered by Colony Capital, Inc., which pursuant to the terms of
an agreement, would have invested in the Companies, over time, a total of $138
million.
On September 5, 1996, as an initial step of the investment, Colony acquired
112,700 newly issued shares of paired common stock and 867,343 newly issued
paired shares of Series A Redeemable Preferred Stock of Realty and Operating
Company for $12,716,000, resulting in an ownership interest in the Companies
of 8%.
On October 9, 1996, the Companies received an unsolicited offer from Koll
Arcadia Investors, LLC ("KAI"), an investor group comprised of Apollo Real
Estate Investors II, L.P. and principals of the Koll Company, seeking to
acquire control of the Companies. In response to this proposal, the Boards of
Directors of the Companies formed special committees of independent directors
(the "Independent Committees") to review the proposal and other proposals of a
strategic nature.
In January 1997, the Companies and Colony revised their agreement to allow
the Companies to enter into discussions and negotiations with third parties
with respect to transactions that might involve a transfer of control or other
transactions that would maximize shareholder value, and therefore would be
inconsistent with the Colony strategic alliance. Thereafter, the Companies
commenced a process in which interested parties were invited to make proposals
to the Independent Committees, which indicated that they would respond to such
parties once they had an opportunity to evaluate fully all proposals.
In January and again in March 1997, KAI revised its offer. The March offer
was announced simultaneously with an offer by Colony Capital. These offers, by
their terms, expired March 28, 1997.
On March 27, 1997, the Companies announced they had received confidential,
written proposals from several strategic and financial buyers in addition to
the previously described KAI and Colony Capital proposals and that the
Companies' Independent Committees and financial advisors had been authorized
to commence final negotiations with selected potential buyers.
Effective March 31, 1997, the August 1996 agreement with Colony was
terminated. Pursuant to the agreement, Colony was entitled to a termination
fee of $4,000,000 and reimbursement of expenses up to $500,000. The $4,500,000
was paid on April 1, 1997 and will be a charge against 1997 first quarter
earnings. Colony now has the right to redeem preferred shares at the average
trading price of the Companies' common stock for a period preceding the date
of Colony's redemption notice. The redemption price may be paid by cash of
$11,254,000 and a six-month note for the balance.
71
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--STRATEGIC ALLIANCE TRANSACTIONS (CONTINUED)
During 1996, the Companies incurred $1,831,000 in strategic alliance costs
associated with the Colony transaction, the issuance of common and preferred
shares to Colony and the unsolicited tender offer from KAI. These costs were
comprised of legal fees, investment advisory fees, other professional fees and
other miscellaneous costs. Colony transaction costs and KAI tender offer costs
totaling $1,200,000, charged $1,090,000 to Realty and $110,000 to Operating
Company, were reflected in strategic alliance costs in The Santa Anita
Companies and the Realty statements of operations and in general and
administrative in the Operating Company statement of operations. Common and
preferred share issuance costs totaling $631,000, charged $573,000 to Realty
and $58,000 to Operating Company were reflected in additional paid-in capital
in The Santa Anita Companies, Realty and Operating Company balance sheets.
NOTE 5--SANTA ANITA COMMERCIAL CENTER
The development, construction and operation of a major commercial center on
excess land at Santa Anita Park has been a corporate strategy of Realty since
1994. In March 1995, Realty submitted zoning and general plan amendment
applications to the City of Arcadia for the development of a 1.5 million
square foot retail/entertainment project on 125 acres. In June 1995, Realty
filed with the City of Arcadia a specific plan application for the project. In
April 1996, Realty made the strategic decision to withdraw the 1.5 million
square foot specific plan application due to mitigation and public use
requirements which were likely to be imposed on the project. Subsequent to the
specific plan application withdrawal, Realty management continued development
plans for the larger project and continued to pursue a land use designation in
the City's general plan to accommodate the project. In September 1996, a new
City general plan was adopted which provided for a commercial land use
designation allowing 1.1 million square feet of commercial development on the
Santa Anita property.
In July 1996, a petition circulated by a group of citizens of Arcadia that
would have prevented a development on the Realty property without a majority
vote of the Arcadia citizens was certified and subsequently placed on the
November ballot. Known as Measure M, this public initiative was defeated on
November 5, 1996. Realty actively campaigned for defeat of Measure M,
incurring costs of $301,000, which were included in general and administrative
expense in the 1996 fourth quarter. After the defeat of Measure M, Realty
management re-evaluated its relationship with the City and the financial
considerations of a large scale project. At this time, Realty management
concluded that a smaller scale project (approximately 500,000 square feet on
50 acres) would be more strongly supported by City government and would not be
subjected to a high level of mitigation costs and public use requirements
inherent in a larger project.
Accordingly, Realty undertook substantial reconfiguration and downsizing of
the project, including site relocation and change in tenant components. As a
result of the down-sizing, Realty re-evaluated its capitalized development
costs, determined which costs had continuing value in the smaller scale
project and wrote off capitalized development costs that were attributable
solely to the larger project totaling $2,900,000, reflected as "Arcadia
development costs" in The Santa Anita Companies and Realty statements of
operations.
In January 1997, Realty submitted a Memorandum of Understanding, for
development of a 500,000 square foot project, to the City of Arcadia. This
agreement was approved by the City in March 1997.
72
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--EXECUTIVE SEVERANCE
During 1996, pursuant to resignation agreements with one Realty and two
Operating Company executive officers, Realty and Operating Company incurred
$229,000 and $851,000 in executive severance costs which have been charged to
general and administrative expense in The Santa Anita Companies, Realty and
Operating Company statements of operations. Pursuant to the resignation
agreements, if there is a "change in control" on or prior to May 17, 1997, the
former executive officers will be entitled to additional lump sum cash
payments totaling $304,000 for Realty and $356,000 for Operating Company. No
provision has been accrued or funded for the contingent severance payments.
NOTE 7--CARD CLUB WRITE-OFFS
In August 1995, the management of Bell Jackpot Casino, which was not
affiliated with Realty, citing intense competition from larger and more
established nearby card clubs, closed the Bell Jackpot Casino in Bell,
California. As a result of this action, during the 1995 third quarter, Realty
wrote-off the $2,000,000 it paid for an option to acquire a 50% interest in
the operation of the casino. The write-off has been reflected as "Card club
option write-off" in the Santa Anita Companies and Realty statements of
operations. Additionally, in the 1995 third quarter, Realty wrote-off $480,000
of development costs for the proposed Irwindale Palace Casino, in Irwindale,
California, which has been charged to general and administrative expense in
The Santa Anita Companies and Realty statements of operations. Realty
discontinued its involvement in the card club following the defeat of an
October 1995 Irwindale ballot measure to permit card clubs in Irwindale.
NOTE 8--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.
In February 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 Pacific common stock and was relieved of $44,290,000 of mortgage
debt on the Transferred Properties.
In October 1994, Realty completed the second part of the transaction, the
sale of its interest in Baldwin Industrial Park to Pacific and 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.
The above transactions resulted in a loss of $10,974,000, which was
reflected in The Santa Anita Companies and Realty statements of operations for
the year ended December 31, 1993. If the transactions had occurred as of
January 1, 1994, The Santa Anita Companies and Realty 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, 1995, Realty owned 16.2% of Pacific's common stock and
accounted for its investment by the equity method of accounting. Effective
January 1, 1996, Realty accounted for its investment under the cost method of
accounting. Realty changed its method of accounting in 1996 since it no longer
had a common board member with Pacific and determined it no longer had the
ability to exercise significant influence.
73
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--INVESTMENT IN PACIFIC GULF PROPERTIES INC. (CONTINUED)
On May 30, 1996, Realty sold its 784,419 shares of Pacific common stock at a
gross selling price of $16.375 per share, pursuant to the terms of an
underwritten, registered public offering by Pacific. The loss on the sale of
Pacific common stock of $850,000 was reflected as an additional nonrecurring
charge in the 1996 second quarter (see "Note 3--Disposition of Non-Core Real
Estate Assets").
NOTE 9--INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
Realty's investments in unconsolidated joint ventures include investments in
the following commercial real estate ventures at December 31, 1996:
<TABLE>
<CAPTION>
OWNERSHIP
NAME PERCENTAGE PROJECT
---- ---------- -------------
<S> <C> <C>
Anita Associates ............................ 50% Regional mall
H-T Associates ................................. 50% Regional mall
Joppa Associates ............................... 50% Retail
</TABLE>
The Anita Associates partnership was formed to develop and operate Santa
Anita Fashion Park in Arcadia, California. The H-T Associates partnership has
a 65% ownership interest in a partnership formed to develop and operate Towson
Town Center in Towson, Maryland. The Joppa Associates partnership was formed
to develop an adjacent retail building and undeveloped land in an expansion of
the Towson Town Center.
Combined condensed financial statement information for the unconsolidated
joint ventures as of December 31, 1996, 1995 and 1994 and for the years then
ended is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Real estate assets.............. $248,675,000 $259,168,000 $265,869,000
============ ============ ============
Liabilities
Secured real estate loans..... $225,022,000 $242,332,000 $243,061,000
Other......................... 53,826,000 35,558,000 32,784,000
------------ ------------ ------------
$278,848,000 $277,890,000 $275,845,000
============ ============ ============
Partners' equity
Realty........................ $(15,084,000) $ (9,359,000) $ (4,986,000)
Others........................ (15,089,000) (9,363,000) (4,990,000)
------------ ------------ ------------
$(30,173,000) $(18,722,000) $ (9,976,000)
============ ============ ============
Revenues........................ $ 38,612,000 $ 36,351,000 $ 33,313,000
============ ============ ============
Net loss
Realty........................ $ (994,000) $ (2,113,000) $ (1,521,000)
Others........................ (2,463,000) (3,510,000) (4,073,000)
------------ ------------ ------------
$ (3,457,000) $ (5,623,000) $ (5,594,000)
============ ============ ============
</TABLE>
74
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A major expansion of Towson Town Center opened in 1991. Prior to the
development of this expansion, Realty and its partners acquired and planned to
develop the Joppa parcel. Subsequently, the partners actively pursued
alternative retail/entertainment projects for the Joppa parcel until the 1995
third quarter, when development activities ceased and the parcel was placed
for sale. Prior to this decision, no impairment loss was recognized since the
expected undiscounted cash flow from the combined Towson/Joppa investment
provided recovery of net book value over a period substantially less than the
remaining useful life of the properties. During the preparation of the 1996
financial statements, Realty determined that the two properties should have
been analyzed on a separate basis with respect to impairment (see "Note 3--
Disposition of Non-Core Real Estate Assets") and restated prior periods to
reflect impairment of the Joppa property.
During 1996 and 1995, Realty determined that proceeds from the sale of the
Joppa property combined with partnership cash would be insufficient to pay
partnership debts, primarily a mortgage on partnership property of $16,494,000
due October 31, 1996 (which mortgage was subject to a Realty corporate
guarantee of $8,247,000).
As a result, it was anticipated that Realty would be required to make an
additional capital contribution to the partnership of approximately
$4,350,000, net of estimated proceeds of $2,500,000 on sale of the Joppa
property. During the 1995 fourth quarter, Realty funded $1,855,000 of this
obligation. At December 31, 1995, Realty's investment balance in Joppa
Associates was a credit of $2,235,000.
During 1996, Realty contributed $5,033,000 to Joppa Associates to fund the
mortgage loan payment due October 31, 1996. This funding represented
approximately $2,500,000 more than originally anticipated since the sale of
the Joppa property had not been completed. In connection with the funding, one
of Realty's two partners assigned to Realty and Realty's other partner its
partnership interest and relinquished its right to any proceeds from the sale
of the partnership property. The ownership interests of Realty and Realty's
other partner were increased to 50%.
During 1996, Joppa Associates agreed to sell the partnership property for
$5,500,000. The sale is expected to close in the 1997 second quarter and
Realty's share of the net proceeds is estimated to be $2,500,000. At December
31, 1996, the carrying value of Realty's investment in Joppa Associates was
$2,216,000.
On December 6, 1996, Realty reached agreement for the sale of its 50%
partnership interest in H-T Associates to a third party for $5,000,000. The
agreement provided for a purchase price increase or decrease based on an
increase or decrease in partnership working capital as of the closing date. At
December 31, 1996, the carrying value of Realty's investment in H-T Associates
was $4,047,000. The buyer also agreed to assume Realty's joint and several
guaranty of a loan issued to expand the Towson Town Center in the amount of
$66,135,000. Realty's two partners in the venture have also each executed
repayment guaranties, although one of the partners has a limited repayment
guaranty. At December 31, 1996, the loan balance to which the guaranties
relate was $164,641,000. The repayment guaranties contain covenants which,
among other matters, require the guarantors to maintain certain minimum levels
of net worth. At December 31, 1996, Realty was in default under the minimum
net worth covenant. The lender may, among other things, foreclose on the
assets of H-T Associates and pursue other remedies under the guaranties,
however, as of December 31, 1996, the lender had not exercised such rights.
Under the partnership agreement, Realty's partner, TrizecHahn Centers, Inc.,
has a right of refusal in the event Realty chooses to sell its partnership
interest. In January 1997, TrizecHahn Centers Inc., exercised its right of
first refusal and elected to purchase Realty's interest in the partnership,
pursuant to the terms of the original sales agreement. The original sales
agreement provided for a $500,000 break-up fee in the event of exercise of the
right of refusal. The break-up fee was paid and expensed in January 1997.
Realty has held ongoing discussions with the lender concerning the assumption
by TrizecHahn of Realty's repayment guaranty and expects such assumption when
the transaction is consummated.
75
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)
On April 4, 1997, Realty and TrizecHahn reached agreement for a purchase
price of $3,900,000 for Realty's interest in H-T Associates, which is not
subject to further adjustment. The purchase price will approximate Realty's
book value at the time of sale.
NOTE 10--INVESTMENT IN CONSOLIDATED JOINT VENTURE
Realty's real estate properties include a 50% ownership interest in French
Valley Ventures a real estate joint venture formed to acquire undeveloped land
in Temecula, California. The financial condition and operations of the joint
venture are consolidated with the financial statements of Realty and The Santa
Anita Companies.
Combined condensed financial information for the consolidated joint venture
as of December 31, 1996, 1995 and 1994 and for the years then ended is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- -----------
<S> <C> <C> <C>
Real estate assets..................... $ 280,000 $ 280,000 $ 480,000
========= ========= ===========
Liabilities
Secured real estate loans............ $ 480,000 $ 480,000 $ 480,000
Other................................ 2,000 2,000 2,000
--------- --------- -----------
$ 482,000 $ 482,000 $ 482,000
========= ========= ===========
Partners' deficit
Realty............................... $(202,000) $(202,000) $ (2,000)
Others............................... -- -- --
--------- --------- -----------
$(202,000) $(202,000) $ (2,000)
========= ========= ===========
Revenues............................... $ -- $ -- $ --
========= ========= ===========
Net loss
Realty............................... $ (65,000) $(266,000) $(1,043,000)
Others............................... -- -- --
--------- --------- -----------
$ (65,000) $(266,000) $(1,043,000)
========= ========= ===========
</TABLE>
During 1995, a further decline in value of the undeveloped land resulted in
a write down of the carrying value to its estimated market value. The
resulting charge of $200,000 was reflected as part of the "Program for
disposition of non-core real estate assets" in the Santa Anita Companies and
Realty statements of operations (see "Note 3--Disposition of Non-Core Real
Estate Assets").
During 1994, a decrease in a maturing note payable secured by land held for
development by French Valley Ventures 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 as "Write-down of land held for
development" in The Santa Anita Companies and Realty statements of operations.
76
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--REAL ESTATE LOANS RECEIVABLE
Realty's real estate loans receivable as of December 31, 1996 and 1995
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
INTEREST MATURITY ------------------------
PROPERTY RATE DATE 1996 1995
-------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Stone Creek.................... 7.3% 11/1997 $ 6,451,000 $ 6,497,000
Anaheim Hills.................. 8.5% -- 1,477,000 1,504,000
Turf Plaza..................... 9.0% 11/2002 4,178,000 4,279,000
Bristol........................ 8.5% 9/2002 1,041,000 1,174,000
----------- -----------
13,147,000 13,454,000
Valuation allowance.............................. (2,473,000) (2,500,000)
----------- -----------
$10,674,000 $10,954,000
=========== ===========
</TABLE>
During 1995, Realty determined that it was probable that Realty would not
collect its real estate loans receivable in accordance with their stated
terms. Realty established an allowance based on discounted cash flows using
the loan's initial effective interest rate for these impaired loans.
Accordingly, Realty included the real estate loans receivable as a component
of its program for disposition of non-core real estate assets (see "Note 3--
Disposition of Non-Core Real Estate Assets"). Realty believes that the most
effective course for disposition of these loans is to encourage refinancing or
sale of related underlying assets and early discounted payoff by the existing
borrowers. During 1995, Realty estimated that the net realizable value of the
loans was $2,500,000 less than the face amount and accordingly, recorded an
impairment loss for that amount. For each of the years ended December 31, 1996
and 1995, the average investment in impaired loans was approximately
$10,814,000. Interest income in 1996 and 1995 on such loans totaled $1,088,000
and $1,057,000. Interest income on impaired loans is generally recognized
using the accrual basis method of income recognition.
These real estate loans originated as seller financing on commercial
properties that were previously owned by Realty. Each loan is secured by a
first trust deed on the related property. The Stone Creek property is a 25,400
square foot neighborhood center and a 120 unit apartment complex in Anaheim,
California. The Anaheim Hills property is a 32,500 square foot neighborhood
center in Anaheim Hills, California. The Turf Plaza property is a 96,300
square foot neighborhood center in Phoenix, Arizona. The Bristol property is a
29,300 square foot neighborhood center in Costa Mesa, California.
The Stone Creek loan is due in November 1997 and the underlying property is
not expected to provide collateral sufficient to assure full collection of
this loan. Realty is assisting the borrower in a restructuring program that
would grant Realty title to the 120 unit apartment complex and Realty would
refinance the remaining retail property with the existing borrower. The
apartment complex and commercial property are both subject to a common ground
lease. This restructuring and property transfer to Realty is subject to
approval of the ground lessor. Realty would sell the related apartment
property upon receipt of title. Realty expects this restructuring and related
asset sale to result in net proceeds of approximately $1,500,000 less than the
face value of the note.
The Anaheim Hills loan matured in December 1996. Realty has granted the
borrower a month to month extension of the maturity date until the borrower
secures refinancing. During 1997, the borrower has continued to make payments
of principal and interest. Realty has received an offer from the holder of the
second mortgage on the property to purchase the note for a discount. Realty
expects to settle this loan during 1997.
Realty has been in active discussions with the Turf Plaza borrower regarding
a discounted, early payoff of the mortgage loan. These repayment discussions
are subject to the borrower obtaining satisfactory financing, which is
expected to occur in 1997.
77
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--REAL ESTATE LOANS RECEIVABLE (CONTINUED)
Contractual repayments on real estate loans receivable as of December 31,
1996 are due as follows:
<TABLE>
<S> <C>
1997.......................................................... $ 8,115,000
1998.......................................................... 204,000
1999.......................................................... 215,000
2000.......................................................... 232,000
2001.......................................................... 253,000
Thereafter.................................................... 4,128,000
-----------
$13,147,000
===========
</TABLE>
NOTE 12--LOANS PAYABLE
Realty's real estate loans payable as of December 31, 1996 and 1995 consist
of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
9.25% note, secured by real estate assets, due in
installments through 2001....................... $ 8,691,000 $ 8,796,000
8.5% note, secured by land with assignment of
ground lease and rent as collateral, due in
installments through 2009....................... 3,678,000 3,831,000
9.75% note, secured by real estate assets,
interest only, due in 2002...................... 480,000 480,000
7.91% variable rate notes, secured by real
estate, due in installments through 2005........ 7,558,000 15,282,000
----------- -----------
$20,407,000 $28,389,000
=========== ===========
</TABLE>
In December 1994, Realty obtained secured loans on each of its six
neighborhood shopping centers. During 1996, four of the neighborhood shopping
centers were sold and the corresponding secured loans totaling $7,511,000 at
the sales dates were repaid. At December 31, 1996, the remaining two secured
loans had an outstanding balance of $7,558,000 and a current interest rate of
7.91%. These secured loans had initial variable interest rates of 8.25% and a
25-year amortization period. 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, 1996
are as follows:
<TABLE>
<S> <C>
1997.......................................................... $ 404,000
1998.......................................................... 440,000
1999.......................................................... 480,000
2000.......................................................... 522,000
2001.......................................................... 8,559,000
Thereafter.................................................... 10,002,000
-----------
$20,407,000
===========
</TABLE>
In November 1995, Realty completed a negotiated, early and reduced payoff of
the mortgage loan on the Santa Ana office building. The mortgage holder agreed
to accept a cash payment of $7,500,000 as settlement in full of the 9.375%
note due in 1998. The prepayment resulted in a gain of $4,050,000, net of
miscellaneous closing expenses, which was reflected as an extraordinary gain
on early retirement of debt in The Santa Anita Companies and Realty statements
of operations.
78
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--LOANS PAYABLE (CONTINUED)
Bank loans payable consist of borrowings under the revolving credit
agreement of $4,550,000 and $20,950,000 as of December 31, 1996 and 1995.
In November 1994, Realty entered into a one-year $30,000,000 revolving
credit agreement with a commercial bank. At December 31, 1996, amendments to
the credit agreement had reduced available borrowings to $20,000,000 and had
extended the term to February 1, 1997. During 1997, the agreement was extended
to June 1, 1997. Borrowings under the revolving credit agreement bear
interest, at Realty's option, at the prime rate, at LIBOR (London Interbank
Offered Rate) plus 1 1/4%, or at the 30-day, 60-day or 90-day certificate of
deposit rate plus 1 1/4%. At December 31, 1996, borrowings were at a rate of
6.8% which was based on the 30-day certificate of deposit rate at the date of
borrowing plus 1 1/4%. At December 31, 1995, borrowings of $17,700,000 were at
a rate of 6.9% which was based on the 30-day certificate of deposit rate plus
1% and borrowings of $3,250,000 were at the prime rate. Realty's Racetrack
rental revenues have been pledged as collateral under the credit agreement.
The revolving credit agreement contains a restriction on the payment of
dividends and certain other financial ratio and maintenance restrictions. In
any twelve-month period beginning on or after July 1, 1994, dividends declared
are limited to the greater of $.80 per share or an amount calculated to
maintain Realty's qualification as a REIT. Realty's current dividend policy is
in compliance with this dividend restriction. Additionally, at December 31,
1996, Realty was in compliance with the other financial ratio and maintenance
restrictions.
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 Santa Anita Companies and Operating Company balance sheets.
Realty has guaranteed the capital lease obligation of $867,000.
Assets relating to the capital lease are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Machinery and equipment......................... $ 4,000,000 $ 4,000,000
Accumulated amortization........................ (3,133,000) (1,667,000)
----------- -----------
$ 867,000 $ 2,333,000
=========== ===========
</TABLE>
79
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--LOANS PAYABLE (CONTINUED)
At December 31, 1996, total future minimum lease payments under the capital
lease were $907,000 and the present value of the minimum lease payments was
$867,000.
Interest costs for the years ended December 31, 1996, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------
THE SANTA
OPERATING ANITA
REALTY COMPANY COMPANIES
---------- --------- ----------
<S> <C> <C> <C>
Interest incurred........................ $3,016,000 $288,000 $3,109,000
Interest capitalized..................... (346,000) -- (346,000)
---------- -------- ----------
Interest expense......................... $2,670,000 $288,000 $2,763,000
========== ======== ==========
Interest paid............................ $3,095,000 $288,000 $3,188,000
========== ======== ==========
<CAPTION>
DECEMBER 31, 1995
--------------------------------
THE SANTA
OPERATING ANITA
REALTY COMPANY COMPANIES
---------- --------- ----------
<S> <C> <C> <C>
Interest incurred........................ $4,409,000 $401,000 $4,689,000
Interest capitalized..................... (88,000) -- (88,000)
---------- -------- ----------
Interest expense......................... $4,321,000 $401,000 $4,601,000
========== ======== ==========
Interest paid............................ $4,259,000 $401,000 $4,539,000
========== ======== ==========
</TABLE>
At December 31, 1996 and 1995, $195,000 and $121,000, of inter-entity
interest was eliminated in The Santa Anita Companies financial
statements.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------------------
THE SANTA
OPERATING ANITA
REALTY COMPANY COMPANIES
---------- --------- ----------
<S> <C> <C> <C>
Interest incurred........................ $6,012,000 $446,000 $6,458,000
Interest capitalized..................... (82,000) -- (82,000)
---------- -------- ----------
Interest expense......................... $5,930,000 $446,000 $6,376,000
========== ======== ==========
Interest paid............................ $6,227,000 $446,000 $6,673,000
========== ======== ==========
</TABLE>
80
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--OTHER LIABILITIES
Other liabilities as of December 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------
THE SANTA
OPERATING ANITA
REALTY COMPANY COMPANIES
---------- ----------- -----------
<S> <C> <C> <C>
Accrued salaries....................... $ -- $ 923,000 $ 923,000
Deferred compensation.................. 822,000 3,149,000 3,971,000
Accrued interest....................... 104,000 -- 104,000
State license fees..................... -- 1,201,000 1,201,000
Other.................................. 774,000 6,011,000 6,808,000
---------- ----------- -----------
$1,700,000 $11,284,000 $13,007,000
========== =========== ===========
<CAPTION>
DECEMBER 31, 1995
----------------------------------
THE SANTA
OPERATING ANITA
REALTY COMPANY COMPANIES
---------- ----------- -----------
<S> <C> <C> <C>
Accrued salaries....................... $ 146,000 $ 947,000 $ 1,093,000
Deferred compensation.................. 947,000 3,444,000 4,391,000
Accrued interest....................... 279,000 -- 279,000
State license fees..................... -- 1,542,000 1,542,000
Other.................................. 555,000 5,760,000 6,315,000
Unconsolidated joint ventures.......... 852,000 -- 852,000
---------- ----------- -----------
$2,779,000 $11,693,000 $14,472,000
========== =========== ===========
</TABLE>
NOTE 14--INCOME TAXES
As a REIT, Realty is taxed only on undistributed REIT income. During each of
the years ended December 31, 1996, 1995 and 1994, Realty distributed at least
95% of its REIT taxable earnings to its shareholders. For the year ended
December 31, 1996, 100% of the dividends distributed to shareholders
represented a distribution other than ordinary income. Depending on a
shareholder's basis, the distribution could have been either a return of
capital or a capital gain. For the year ended December 31, 1995, 84.6% of the
dividends distributed to shareholders represented ordinary income and 15.4%
represented other than ordinary income. For the year ended December 31, 1994,
55.4% of the dividends distributed to shareholders represented other than
ordinary income. Pursuant to Internal Revenue Code Section 857(b)(3)(C) and
the Regulations thereunder, for the year ended December 31, 1994, Realty
designated 44.6% of the dividends distributed as capital gains dividends.
81
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--INCOME TAXES (CONTINUED)
The composition of Operating Company's income tax provision (benefit) and
income taxes paid for the years ended December 31, 1996, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ----------- -------
<S> <C> <C> <C>
Current provision (benefit)
Federal.................................. $(32,000) $ 79,000 $ --
State.................................... (22,000) 247,000 --
-------- ----------- -------
(54,000) 326,000 --
-------- ----------- -------
Deferred provision (benefit)
Federal.................................. (64,000) (79,000) --
State.................................... 118,000 (2,247,000) --
-------- ----------- -------
54,000 (2,326,000) --
-------- ----------- -------
$ -- $(2,000,000) $ --
======== =========== =======
Income taxes paid.......................... $241,000 $ 3,000 $25,000
======== =========== =======
</TABLE>
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, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ----------- --------
<S> <C> <C> <C>
Accelerated depreciation and
amortization methods utilized for tax
reporting purposes..................... $ 675,000 $ (814,000) $(16,000)
Reinstatement of deferred taxes due to
tax net operating loss carryovers...... (784,000) 1,545,000 100,000
State income tax provision (benefit)
deductible when paid for federal income
tax purposes........................... -- (2,100,000) (52,000)
Deductions previously deducted for book
purposes, deductible for tax purposes
currently.............................. 435,000 (918,000) (66,000)
Income previously included for book
purposes, not includable for tax
purposes currently..................... (490,000) 11,000 --
Decrease in valuation allowance for
deferred tax assets.................... 218,000 (50,000) 24,000
Other, net.............................. -- -- 10,000
--------- ----------- --------
$ 54,000 $(2,326,000) $ --
========= =========== ========
</TABLE>
82
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--INCOME TAXES (CONTINUED)
A reconciliation of Operating Company's total income tax provision for the
years ended December 31, 1996, 1995 and 1994 to the statutory federal
corporate income tax rate of 34% and the state rate of 9.3% is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ----------- -----------
<S> <C> <C> <C>
Computed "expected" tax provision... $(330,000) $ 1,414,000 $(1,316,000)
State income taxes, net of federal
income taxes....................... -- 247,000 --
Nondeductible political
contributions...................... 82,000 47,000 59,000
Decrease (increase) in cash
surrender value of life insurance.. -- 3,000 34,000
Establishment (use) of tax net
operating loss carryforwards....... 194,000 (1,316,000) 1,236,000
Deferred effect due primarily to
benefit from reduction of state
accrual............................ -- (2,326,000) --
Other, net.......................... 54,000 (69,000) (13,000)
--------- ----------- -----------
$ -- $(2,000,000) $ --
========= =========== ===========
</TABLE>
The deferred tax assets and liabilities as of December 31, 1996 and 1995
consist of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Compensation deductible for tax purposes when
paid........................................ $ 1,465,000 $ 1,764,000
Pension contribution deductible for tax
purposes when paid.......................... 606,000 490,000
Contribution carryover....................... 160,000 280,000
Other........................................ 51,000 143,000
Federal tax effect of state deferred
liabilities................................. 485,000 444,000
Federal net operating loss carryovers........ 3,145,000 2,211,000
State net operating loss carryovers.......... 32,000 129,000
Business reserve............................. 217,000 --
Valuation allowance.......................... (4,336,000) (4,117,000)
----------- -----------
Total deferred assets........................ 1,825,000 1,344,000
----------- -----------
Deferred tax liabilities:
Difference between tax and book
depreciation................................ (1,452,000) (790,000)
Income previously included for book purposes,
not includable for tax purposes............. -- (148,000)
State income tax deductible when paid for
federal tax purposes........................ (1,655,000) (1,645,000)
----------- -----------
Total deferred tax liabilities............... (3,107,000) (2,583,000)
----------- -----------
Net liability for deferred income taxes........ $(1,282,000) $(1,239,000)
=========== ===========
</TABLE>
83
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--INCOME TAXES (CONTINUED)
The Franchise Tax Board audited the 1986 through 1991 tax years of Operating
Company. Operating Company protested the proposed assessments. In 1996, the
Franchise Tax Board finalized its findings, withdrew the assessments for 1986
through 1988 and determined that there would be no proposed adjustments for
the 1989 through 1991 tax years. Accruals relating to these years were
reversed in 1995.
At December 31, 1996, Operating Company's net operating loss carryforward,
for federal income tax purposes, was $9,251,000 of which $3,246,000 expires in
2002, $99,000 in 2003, $41,000 in 2004, $103,000 in 2005, $440,000 in 2006,
$3,001,000 in 2007, $1,623,000 in 2009 and $698,000 in 2010. Realty's net
operating loss carryforward at December 31, 1996 was $19,033,000 of which
$8,736,000 expires in 2009 and $10,297,000 in 2010.
NOTE 15--COMMITMENTS AND CONTINGENCIES
Realty's owned real estate investments consist of Santa Anita Racetrack, the
land underlying Fashion Park, two neighborhood shopping centers, and an office
building. The racetrack is leased to LATC; the land underlying Fashion Park
has been ground leased for 65 years to Anita Associates; each of the
neighborhood shopping centers has been leased to non-anchor tenants with terms
ranging from three to five years; and, the office building has been leased
with terms generally ranging from two to ten years.
The minimum future lease payments to be received from Realty's owned 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>
1997.............................. $3,530,000
1998.............................. 3,264,000
1999.............................. 2,716,000
2000.............................. 1,925,000
2001.............................. 1,582,000
</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 $114,000 in 1996,
$104,000 in 1995, and $69,000 in 1994.
Realty and Operating Company have entered into severance agreements with
certain officers and key employees. If there is a "change in control" and
under certain circumstances, certain executive officers will be entitled to a
lump sum payment equal to 2 1/2 times base pay, calculated as annual base
salary plus average bonuses over the preceding three calendar years. In
addition, one executive officer and officers and key employees will be
entitled to a lump sum payment equal to one times base pay, as calculated
above. No provision has been accrued or funded under these agreements.
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.
84
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--REDEEMABLE PREFERRED STOCK
The shares of Series A Redeemable Preferred Stock ("Series A Preferred
Stock") are paired in the same manner as the Companies' common stock, and
holders thereof are entitled to participate in any dividends paid to the same
extent as the holders of common stock. Holders of Series A Preferred Stock
will be entitled, except as otherwise required by law, to vote together with
the holders of common stock on all matters presented to the holders of the
common stock. The affirmative vote of 66 2/3% of the shares of Series A
Preferred Stock of Realty or Operating, as the case may be, will be required
for Realty or Operating to amend its certificate of incorporation to (i)
create or increase the authorized number of shares of any class or series of
stock that ranks senior to the Series A Preferred Stock, (ii) amend, alter or
repeal its certificate of incorporation or by-laws in a manner that would
adversely affect the Series A Preferred Stock or (iii) authorize any
reclassification, combination, split or division of any series of stock in a
manner that would adversely affect the Series A Preferred Stock. The Series A
Preferred Stock of each Company has a liquidation preference of $0.01 per
share, plus all unpaid dividends.
The holders of the Series A Preferred Stock may require redemption thereof
at any time, at a redemption price per paired share equal to the average
market price of the common stock for the 30 trading days prior to the date
such shares are surrendered for redemption (the "Redemption Price"). In lieu
of such redemption, Realty and Operating may, subject to shareholder approval,
deliver in exchange shares of common stock on a share-for-share basis. If
Realty and Operating fail to obtain shareholder approval of the exchange of
the Series A Preferred Stock for common stock, they may deliver promissory
notes, due in six months from the date of issue, for any portion of the
redemption price in excess of the original purchase price of $12.975 per
paired share of Series A Preferred Stock. Such notes will bear interest at a
variable rate equal to 2% per annum in excess of the prime commercial lending
rate published from time to time in The Wall Street Journal. Realty and
Operating may require the exchange of the Series A Preferred Stock at any time
for an equal number of shares of common stock, provided that the requisite
shareholder approvals have been obtained. After September 4, 1999, paired
shares of Series A Preferred Stock will be redeemable at the option of the
Companies for cash at a redemption price per paired share equal to the
Redemption Price as of the date the Companies call such shares for redemption,
plus an amount equal to any unpaid dividends.
Realty and Operating Company have excluded the Series A Preferred Stock from
shareholders' equity and have reflected the carrying value at December 31,
1996 at a redemption value based on the market value of the Companies paired
common shares. The excess of the redemption value over issue price of the
Series A Preferred Stock has been treated as a preferred stock dividend and as
a charge to retained earnings. The closing price on the New York Stock
Exchange of the Companies priced common share was $26.25 on December 31, 1996.
NOTE 17--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED
BENEFIT PLANS
STOCK OPTION PROGRAM
During 1995, the shareholders approved the Realty 1995 Share Award Plan and
the Operating Company 1995 Share Award Plan. These plans replaced the Realty
and Operating Company 1984 stock option plans which expired on May 3, 1995. A
maximum of 230,000 shares of common stock may be issued under the Realty 1995
Share Award Plan and a maximum of 780,000 shares of common stock may be issued
under the Operating Company 1995 Share Award Plan. For both Realty and
Operating Company, the maximum number of options and stock appreciation rights
that may be granted to an eligible person during any one-year period shall not
exceed 150,000. Under the 1995 Share Award Plans, shares are to be issued
either as options, dividend equivalents, stock appreciation rights, restricted
stock awards, performance share awards or stock bonuses. At December 31, 1996,
under the Realty and Operating Company 1995 Share Award Plans, 191,500 shares
and 430,753 shares were available for future grant.
85
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED
BENEFIT PLANS (CONTINUED)
STOCK OPTION PROGRAM (CONTINUED)
Except as may be provided in the award agreement, no award made under the
1995 Share Award Plans shall be exercisable or shall vest for a period of six
months after the award date. Each award shall expire on such date as
determined by the Compensation Committee of the respective Board of Directors
("Committee"), but in the case of options or other rights to acquire shares of
paired common stock, not later than ten years after the award date. The
Committee may authorize the deferral of any payment of cash or issuance of
shares of paired common stock under the 1995 Share Award Plans at the election
and request of a participant.
Options granted under the 1995 Share Award Plans and the 1984 stock option
plans are contingent upon continuous employment and 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. During 1996, all options granted were
under the 1995 Share Award Plans, except as described below. Options
outstanding at December 31, 1996 expire in 1997 through 2006. In the event of
a "change in control," all Realty and Operating Company options outstanding at
December 31, 1996 will become fully vested, except for 200,000 Realty options
whose vesting, as described below, is dependent on common stock performance.
Effective April 1, 1996, Realty granted 335,756 stock options, at $15.25 per
share, under two option award agreements to the new Chief Executive Officer of
Realty. One option award agreement granted 200,000 stock options which will
become exercisable only in the following circumstances: (i) if the price of a
share of paired common stock reaches or exceeds $27.50 for a period of sixty
consecutive business days before April 1, 2001; (ii) immediately prior to a
reorganization that is consummated before April 1, 2001 in which Realty is not
the surviving entity and the shareholders of Realty receive consideration
worth at least $27.50 per share of paired common stock; or (iii) immediately
prior to a sale by the shareholders that occurs before April 1, 2001 of
substantially all of the shares of paired common stock at a price of $27.50 or
more per paired common share. These options expire April 1, 2001. The other
option award agreement granted 135,756 stock options, of which 50% would have
vested on April 1, 1997 and 50% would have vested on April 1, 1998 and were
scheduled to expire March 31, 2006. In addition, Realty granted 14,244 stock
options, at $15.25 per share, under the 1995 Share Award Plan. Effective
August 16, 1996, optionee resigned as Chief Executive Officer of Realty and
became Chief Executive Officer of Operating Company. The option award
agreement granting 135,756 shares and the 14,244 stock options granted under
the 1995 Share Award Plan were surrendered by optionee and were replaced by
stock options granted by Operating Company under similar terms and conditions.
86
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED
BENEFIT PLANS (CONTINUED)
STOCK OPTION PROGRAM (CONTINUED)
Information with respect to shares under option as of December 1996, 1995
and 1994 is as follows:
<TABLE>
<CAPTION>
REALTY OPERATING COMPANY
------------------- -------------------
SHARES WEIGHTED SHARES WEIGHTED
SUBJECT TO AVERAGE SUBJECT TO AVERAGE
OPTION PRICE OPTION PRICE
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1994....... 162,006 $21.06 408,500 $19.68
Granted........................ 43,500 $13.57 78,200 $12.63
Exercised -- -- -- --
Forfeited...................... (21,230) $27.32 (1,500) $17.13
Expired........................ -- -- (13,500) $24.75
-------- -------
Balance, December 31, 1995....... 184,276 $18.57 471,700 $18.38
Granted........................ 360,000 $15.18 150,000 $15.25
Exercised...................... (2,000) $17.13 (89,400) $21.17
Forfeited...................... (194,500) $15.63 (15,500) $15.58
Expired........................ (21,276) $29.00 (18,000) $29.00
-------- -------
Balance, December 31, 1996....... 326,500 $15.91 498,800 $16.64
======== =======
</TABLE>
Information regarding stock options outstanding as of December 31, 1996 is
as follows:
<TABLE>
<CAPTION>
REALTY PRICE RANGE OPERATING COMPANY PRICE RANGE
-------------------------- ---------------------------------
$15.25 $17.13 $12.63 $17.13
$12.63 TO $16.75 TO $20.25 TO $15.25 TO $17.63 $29.00
------ --------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options Outstanding
Number................ 33,500 205,000 88,000 221,600 250,700 26,500
Weighted average
exercise price....... $12.63 $15.29 $18.62 $14.40 $17.31 $ 29.00
Weighted average
remaining contractual
life (years)......... 9.1 9.3 7.4 9.4 7.0 2.9
Options Exercisable
Number................ 4,700 1,000 35,200 31,280 192,360 26,500
Weighted average
exercise price....... $12.63 $16.75 $18.62 $12.63 $17.34 $ 29.00
</TABLE>
At the time of exercise of Realty options, Realty employees also have to buy
directly from Operating Company a like number of shares of Operating Company
stock at the fair market value per share to pair with Realty shares.
In addition, at the time of exercise of Operating Company stock options,
Operating Company is required to purchase Realty shares to pair with Operating
Company shares being exercised by its employees. Operating Company held
111,500 shares of Realty stock for this purpose at December 31, 1996 and
112,500 shares at December 31, 1995.
Pro forma information regarding net income and earnings per share is
required by Financial Accounting Standard No. 123 "Accounting and Disclosure
of Stock-Based Compensation" ("FAS No. 123") and has been determined as if the
Companies' had accounted for their stock options under the fair value method
under FAS No. 123. The average fair values of the 1996 and 1995 stock option
grants for Realty were $1.88 and $1.93 and
87
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED
BENEFIT PLANS (CONTINUED)
STOCK OPTION PROGRAM (CONTINUED)
for Operating Company were $1.34 and $1.61. The fair value of stock option
grants were estimated at the date of grant using the following assumptions:
<TABLE>
<CAPTION>
OPERATING
REALTY COMPANY
---------- ----------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Risk Fee interest rates.......................... 6.44% 5.54% 5.68% 5.38%
Dividend yields.................................. 5.29% 5.89% 5.25% 6.34%
Volatility factors of expected market price of
common stock.................................... .235 .231 .272 .229
Weighted average expected life (years)........... 5 5 2 5
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that require the input of highly subjective
assumptions including the expected stock price volatility. Because the
Companies' stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in managements'
option, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
The Realty and Operating Company FAS No. 123 pro forma net income (loss) and
related per share amounts for 1996 are as follows:
<TABLE>
<CAPTION>
OPERATING
REALTY COMPANY
------------ ---------
<S> <C> <C>
Net income (loss) applicable to common shares, as
reported ....................................... $(11,036,000) $(814,000)
Pro forma stock compensation expense............. 67,000 60,000
------------ ---------
Pro forma net loss applicable to common shares... $(11,103,000) $(874,000)
============ =========
Pro forma net loss per share..................... $ (.97) $ (.08)
============ =========
</TABLE>
The effects of applying FAS No. 123 to the Companies stock-based awards for
1995 results in net income and earnings per share that are not materially
different from amounts reported. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the options'
vesting period. The pro forma effect on net income for 1995 and 1996 will not
be representative of the effect on the net income for future years since, in
accordance with FAS No. 123, options granted prior to 1995 are excluded from
the pro forma calculations. Options are generally granted by the companies
each year and the pro forma effect on expense in future years is expected to
increase as layers of amortization are added for future grants. By 1998 the
pro forma calculations will include a full four years of options grants.
RESTRICTED STOCK AWARDS
Under the 1995 Share Award Plans, Realty and Operating Company granted no
shares of common stock as Restricted Stock awards in 1996. During 1995, Realty
granted none and Operating Company granted 126,647 shares of common stock as
Restricted Stock Awards at a value of $15.50 per paired share. Of the shares
issued in 1995, 59,291 shares vested in 1996 and 8,065 shares vested in 1995.
Pursuant to a resignation agreement with an Operating Company executive,
43,161 shares will vest if one of the following occurs on or prior to May 17,
1997: (a) death or total disability of the executive or (b) a change in
control event as defined in the Restricted
88
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED
BENEFIT PLANS (CONTINUED)
RESTRICTED STOCK AWARDS (CONTINUED)
Stock Agreement. If one of the above does not occur, Operating Company has the
right to reacquire the shares
for no consideration. If such election is not made by Operating Company, the
shares will vest in 1997 through 2001. The remaining 16,130 shares vest in
1997 through 2000 or immediately on a "change in control."
RETIREMENT INCOME PLAN
Realty and Operating Company have a joint non-contributory defined benefit
retirement plan for year-round employees who are at least 21 years of age,
have one or more years of service, and 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. In the
event of a "change in control," participants in the defined benefit retirement
plan will become fully vested in plan benefits.
The net periodic pension cost for Realty and Operating Company for 1996 was
$102,000 and $431,000; for 1995 was $59,000 and $325,000; and for 1994 was
$85,000 and $390,000. 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 7.5%) at December 31, 1996 was $6,620,000 and the
plan's net assets available for benefits were $6,176,000.
Combined net periodic pension cost for the years ended December 31, 1996,
1995 and 1994 for the retirement income plan included the following
components:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost............................ $ 342,000 $ 228,000 $ 278,000
Interest cost on projected benefit obli-
gation................................. 545,000 573,000 569,000
Actual return on plan assets............ (479,000) (342,000) (378,000)
Net amortization and deferral........... 125,000 (75,000) 6,000
--------- --------- ---------
Net periodic pension cost............... $ 533,000 $ 384,000 $ 475,000
========= ========= =========
</TABLE>
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, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations at December 31:
Vested....................................... $ 6,451,000 $ 6,818,000
Nonvested.................................... 169,000 412,000
----------- -----------
6,620,000 7,230,000
Additional amounts related to projected compen-
sation levels................................. 802,000 824,000
----------- -----------
Total actuarial projected benefit obligations
for service rendered.......................... 7,422,000 8,054,000
Plan assets at fair value at December 31....... 6,176,000 5,929,000
----------- -----------
Projected benefit obligations in excess of plan
assets........................................ (1,246,000) (2,125,000)
Unrecognized net actuarial loss from difference
in actuarial experience from that assumed..... 328,000 1,237,000
Unrecognized prior service cost................ 179,000 197,000
Initial unrecognized transition obligation
being recognized over 15 years................ 303,000 363,000
----------- -----------
Accrued pension cost........................... $ (436,000) $ (328,000)
=========== ===========
</TABLE>
89
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED
BENEFIT PLANS (CONTINUED)
RETIREMENT INCOME PLAN (CONTINUED)
Assumptions used in determining the funded status of the retirement income
plan are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate......................... 7.5% 7.0% 8.5%
Weighted average rate of increase in compensation
levels................................................ 3.5% 3.5% 5.0%
Expected long-term rate of return...................... 8.0% 8.5% 8.5%
</TABLE>
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.
DEFERRED COMPENSATION PLAN
Realty and Operating Company have defined benefit deferred compensation
agreements which provide selected prior management employees with a fixed
benefit at retirement age. During 1995, the outstanding agreements for active
employees were curtailed and replaced by awards of restricted stock under the
1995 Share Award Plan. Plan benefits are based primarily on years of service
and qualifying compensation.
The net periodic pension cost for Realty and Operating Company for 1996 was
$78,000 and $231,000; for 1995 was $91,000 and $300,000, and for 1994 was
$121,000 and $594,000. It is the policy of Realty and Operating Company to
fund only amounts sufficient to cover current deferred compensation benefits
payable to covered retirees. The present value of accumulated plan benefits
(calculated using a rate of 7.5%) at December 31, 1996, was $4,797,000 and
Realty's and Operating Company's combined accrued liability was $3,971,000. At
December 31, 1996, there were no plan net assets available for benefits.
Net periodic pension cost for the years ended December 31, 1996, 1995, and
1994 for the deferred compensation plan included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service costs................................ $ -- $ 24,000 $146,000
Interest cost on projected benefit
obligation.................................. 309,000 365,000 436,000
Amortization of unrecognized net obligation
and experience losses....................... -- 2,000 133,000
-------- -------- --------
Net periodic pension cost.................... $309,000 $391,000 $715,000
======== ======== ========
</TABLE>
90
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED
BENEFIT PLANS (CONTINUED)
DEFERRED COMPENSATION PLAN (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, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations at December 31:
Vested...................................... $ 4,797,000 $ 4,817,000
Nonvested................................... -- --
----------- -----------
4,797,000 4,817,000
Additional amounts related to projected
compensation levels.......................... -- --
----------- -----------
Total actuarial projected benefit obligations
for service rendered......................... 4,797,000 4,817,000
Plan assets at fair value at December 31...... -- --
----------- -----------
Projected benefit obligations in excess of
plan assets.................................. (4,797,000) (4,817,000)
Unrecognized net obligation and experience
losses....................................... 826,000 426,000
Unrecognized prior service cost............... -- --
----------- -----------
Accrued pension cost.......................... $(3,971,000) $(4,391,000)
=========== ===========
</TABLE>
Assumptions used in determining the funded status of the deferred
compensation plan are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate.......................... 7.5% 7.0% 8.5%
Weighted average rate of increase in compensation
levels................................................. -- 3.5% 5.0%
</TABLE>
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.
NOTE 18--SHAREHOLDER RIGHTS PLAN
Under a shareholder rights plan, one right was distributed to shareholders
in August 1989 per 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 have been or 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.
91
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18--SHAREHOLDER RIGHTS PLAN (CONTINUED)
During such time as the stock-pairing arrangement between Realty and
Operating Company shall remain in effect, Operating Company will issue, on a
share-for-share basis, Operating Company common shares, or, as the case may
be, Operating Company junior participating preferred shares to each person
receiving Realty common shares or preferred shares upon exercise or in
exchange for one or more rights.
Realty is entitled to redeem the rights in whole, but not in part, at a
price of $.001 per right prior to the earlier of the expiration of the rights
in August 1999 or the close of business ten days after the announcement that a
10% position has been acquired.
NOTE 19--RELATED PARTY TRANSACTIONS
LATC leases the racetrack from Realty for the full year for a fee of 1.5% of
the on-track wagering on live races at Santa Anita Racetrack, which includes
the 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, Del Mar
Racetrack and Pomona Fairplex, 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 1996),
which commences in late September or early October. Oak Tree normally races
five weeks in even-numbered years and six weeks in odd-numbered years. For the
years ended December 31, 1996, 1995 and 1994, LATC paid Realty (including
charity days) $10,861,000, $11,342,000, and $13,070,000 in rent. 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 through December 31, 1999. The previous lease
terms required LATC to pay rent 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. 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, 1996 and 1995, for Realty
were none and for Operating Company were none and $61,000.
On August 19, 1996, the Companies announced a major transaction with Colony
which, pursuant to the terms of an agreement, would have invested in the
Companies, over time, a total of $138 million. Thomas J. Barrack, Jr., then a
director of the Companies, is the Chief Executive Officer of Colony Capital.
Mr. Barrack resigned as a director of the Companies in January 1997. See Item
1. "Business--Recent Developments."
92
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 20--SUPPLEMENTAL CASH FLOW INFORMATION
The components of the changes in certain other assets and certain other
liabilities included in the operating activities section of the statements of
cash flows for each of the three years ended December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------
THE
OPERATING SANTA ANITA
REALTY COMPANY COMPANIES
--------- --------- -----------
<S> <C> <C> <C>
(Increase) decrease in certain other
assets:
Accounts receivable.................... $ 568,000 $ 761,000 $1,329,000
Prepaid expenses....................... 134,000 (695,000) (561,000)
Other.................................. (656,000) -- (656,000)
--------- --------- ----------
$ 46,000 $ 66,000 $ 112,000
========= ========= ==========
Increase (decrease) in certain other
liabilities:
Accounts payable....................... $(215,000) $ 547,000 $ 332,000
Other liabilities...................... (227,000) (409,000) (636,000)
Other.................................. -- (576,000) (576,000)
--------- --------- ----------
$(442,000) $(438,000) $ (880,000)
========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------
THE
OPERATING SANTA ANITA
REALTY COMPANY COMPANIES
----------- ---------- -----------
<S> <C> <C> <C>
(Increase) decrease in certain
other assets:
Accounts receivable................ $(1,227,000) $ (731,000) $(1,958,000)
Prepaid expenses................... 1,140,000 266,000 1,406,000
Other.............................. -- 369,000 369,000
----------- ---------- -----------
$ (87,000) $ (96,000) $ (183,000)
=========== ========== ===========
Increase (decrease) in certain
other liabilities:
Accounts payable................... $ (169,000) $ (12,000) $ (181,000)
Other liabilities.................. 124,000 1,102,000 1,226,000
Other.............................. 5,000 (48,000) (43,000)
----------- ---------- -----------
$ (40,000) $1,042,000 $ 1,002,000
=========== ========== ===========
</TABLE>
93
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 20--SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-----------------------------------
THE
OPERATING SANTA ANITA
REALTY COMPANY COMPANIES
----------- --------- -----------
<S> <C> <C> <C>
(Increase) decrease in certain other
assets:
Accounts receivable................. $ 1,706,000 $800,000 $ 2,506,000
Prepaid expenses.................... (1,678,000) (2,000) (1,680,000)
Other............................... 132,000 -- 132,000
----------- -------- -----------
$ 160,000 $798,000 $ 958,000
=========== ======== ===========
Increase (decrease) in certain other
liabilities:
Accounts payable.................... $ (146,000) $730,000 $ 584,000
Other liabilities................... (1,574,000) 474,000 (1,100,000)
Other............................... -- (778,000) (778,000)
----------- -------- -----------
$(1,720,000) $426,000 $(1,294,000)
=========== ======== ===========
</TABLE>
During 1996, accretion of the redemption value of the redeemable preferred
stock resulted in the following non-cash activity.
<TABLE>
<CAPTION>
THE
OPERATING SANTA ANITA
REALTY COMPANY COMPANIES
------------ --------- ------------
<S> <C> <C> <C>
Series A Redeemable Preferred
Stock........................... $ 12,021,000 $ 52,000 $ 12,073,000
Retained earnings (deficit)...... (12,021,000) (52,000) (12,073,000)
</TABLE>
During 1995, accrual of amounts relating to unconsolidated joint ventures
resulted in the following non-cash activity for Realty.
<TABLE>
<S> <C>
Investment in unconsolidated joint ventures.................... $852,000
Other liabilities.............................................. 852,000
</TABLE>
During 1994, the disposition by Realty of the multifamily and industrial
operations involved the transfer of the following noncash items:
<TABLE>
<S> <C>
Real estate assets.......................................... $98,305,000
Other assets................................................ 475,000
Real estate loans payable................................... 44,290,000
Other liabilities........................................... 302,000
</TABLE>
94
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 21--COMBINED QUARTERLY FINANCIAL INFORMATION--UNAUDITED
Condensed unaudited combined quarterly results of operations for The Santa
Anita Companies are as follows:
<TABLE>
<CAPTION>
NET INCOME
(LOSS) PER
COMMON
QUARTER ENDED REVENUES NET INCOME(LOSS) SHARE
------------- ----------- ---------------- ----------
<S> <C> <C> <C>
1996
December 31...................... $11,753,000 $(18,322,000) $(1.60)
September 30..................... 8,440,000 (2,044,000) (.18)
June 30.......................... 16,246,000 479,000 .04
March 31......................... 40,786,000 8,007,000 .71
1995 (restated)
December 31...................... $14,834,000 $ 2,696,000 $ .24
September 30..................... 8,832,000 (29,620,000) (2.63)
June 30.......................... 17,971,000 634,000 .06
March 31......................... 39,569,000 6,708,000 .60
1994 (restated)
December 31...................... $14,141,000 $ (4,254,000) $ (.38)
September 30..................... 8,289,000 (1,015,000) (.09)
June 30.......................... 17,926,000 1,326,000 .12
March 31......................... 41,093,000 5,968,000 .54
</TABLE>
See Note 3--Disposition of Non-Core Real Estate Assets.
The quarter ended December 31, 1995 includes an extraordinary gain on early
retirement of debt of $4,050,000 or $.36 per share.
Operating Company records operating revenues associated with thoroughbred
horse racing at Santa Anita Racetrack on a daily basis, except season
admissions which are recorded ratably over the racing season. Costs and
expenses associated with thoroughbred horse racing revenues are charged
against income in those interim periods in which the thoroughbred horse racing
revenues are recognized. Other costs and expenses are recognized as they
actually occur throughout the year. The rental fee paid by Operating Company
to Realty is recognized by both Realty and Operating Company as it is earned.
The total of the amounts shown as quarterly net income per common share may
differ from the amount shown on The Santa Anita Companies statement of
operations because the annual computation is made separately and is based upon
the average number of shares outstanding for the year.
The Santa Anita Companies are subject to significant seasonal variations in
revenues and net income (loss) due primarily to the seasonality of
thoroughbred horse racing.
95
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SANTA ANITA REALTY ENTERPRISES, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1996:
Allowance for loss on
disposition of non-
core real estate
assets:
Deducted from
commercial
properties.......... $27,800,000 $ 2,000,000 $-- $19,009,000 $10,791,000
Deducted from
investment in
unconsolidated joint
ventures............ 5,762,000 -- -- -- 5,762,000
Deducted from real
estate loans
receivable.......... 2,500,000 -- -- 27,000 2,473,000
----------- ----------- ---- ----------- -----------
$36,062,000 $ 2,000,000 $-- $19,036,000 $19,026,000
=========== =========== ==== =========== ===========
1995 (restated):
Allowance for loss on
disposition of non-
core real estate
assets:
Deducted from
commercial
properties.......... $ -- 27,800,000 -- -- 27,800,000
Deducted from
investment in
unconsolidated joint
ventures............ 5,762,000 -- -- -- 5,762,000
Deducted from real
estate loans
receivable.......... -- 2,500,000 -- -- 2,500,000
----------- ----------- ---- ----------- -----------
$ 5,762,000 $30,300,000 $-- $ -- $36,062,000
=========== =========== ==== =========== ===========
</TABLE>
96
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
97
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
<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>
INVESTMENTS TO BE HELD
Racing Facility:
Santa Anita
Racetrack(a)......... $ -- $ 549,000 $15,150,000 $ 3,545,000 $ 11,005,000
Office Building:
Arcadia, California... 8,691,000 -- 9,122,000 -- 7,604,000
Land:
Land underlying
Fashion Park Mall,
Arcadia, California.. 3,678,000 102,000 -- 244,000 --
----------- ---------- ----------- ------------ -------------
12,369,000 651,000 24,272,000 3,789,000 18,609,000
----------- ---------- ----------- ------------ -------------
INVESTMENTS TO BE SOLD
Shopping Centers:
Yorba Linda, Califor-
nia.................. 3,398,000 2,038,000 6,162,000 -- (1,741,000)
Encinitas, Califor-
nia.................. 4,160,000 2,842,000 8,954,000 -- (5,154,000)
Land:
Temecula, California.. 480,000 1,208,000 -- (928,000) --
----------- ---------- ----------- ------------ -------------
8,038,000 6,088,000 15,116,000 (928,000) (6,895,000)
----------- ---------- ----------- ------------ -------------
$20,407,000 $6,739,000 $39,388,000 $ 2,861,000 $ 11,714,000
=========== ========== =========== ============ =============
</TABLE>
- --------
(a) Initial costs December 31, 1979 book value
(b) Component depreciation used
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
(c)Balance at beginning of period... $ 92,098,000 $117,692,000 $ 223,483,000
Additions--capital expenditures... 2,044,000 3,432,000 2,911,000
Disposals......................... (140,000) (1,226,000) (1,409,000)
Allowance for loss on disposition
of non-core real estate assets... (2,000,000) (27,800,000) --
Disposition of non-core real es-
tate assets...................... (31,300,000) -- --
Disposition of multifamily and in-
dustrial operations.............. -- -- (107,293,000)
------------ ------------ -------------
Balance at end of period.......... $ 60,702,000 $ 92,098,000 $ 117,692,000
============ ============ =============
(d)Balance at beginning of period... $ 42,369,000 $ 39,798,000 $ 45,184,000
Additions--depreciation expense,
net of amortization expense...... 1,624,000 3,797,000 3,602,000
Disposals......................... (140,000) (1,226,000) --
Disposition of non-core real es-
tate assets...................... (13,689,000) -- --
Disposition of multifamily and in-
dustrial operations.............. -- -- (8,988,000)
------------ ------------ -------------
Balance at end of period.......... $ 30,164,000 $ 42,369,000 $ 39,798,000
============ ============ =============
</TABLE>
98
<PAGE>
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT
CLOSE OF PERIOD
- -------------------------------------
LIFE ON
WHICH
DEPRECIATION IN
LATEST
INCOME
BUILDINGS AND ACCUMULATED DATE OF DATE STATEMENT IS
LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
- ---- ------------- ----------- ------------ ------------ -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$4,094,000 $26,155,000 $30,249,000 $21,069,000 1934 1934 5-35 Years(b)
-- 16,726,000 16,726,000 4,700,000 1986 1987 5-45 Years
346,000 -- 346,000 -- 1934
- ---------- ----------- ----------- -----------
4,440,000 42,881,000 47,321,000 25,769,000
- ---------- ----------- ----------- -----------
2,038,000 4,421,000 6,459,000 2,566,000 1985 1985
2,842,000 3,800,000 6,642,000 1,829,000 1985 1985
280,000 -- 280,000 -- 1989
- ---------- ----------- ----------- -----------
5,160,000 8,221,000 13,381,000 4,395,000
- ---------- ----------- ----------- -----------
$9,600,000 $51,102,000 $60,702,000(c) $30,164,000(d)
========== =========== =========== ===========
</TABLE>
99
<PAGE>
[LETTERHEAD OF KPMG Peat Marwick LLP]
Independent Auditors' Report
----------------------------
To the General Partner
Anita Associates:
We have audited the accompanying balance sheets of Anita Associates (a
California limited partnership) as of December 31, 1996 and 1995, and the
related statements of income, partners' deficit and cash flows for each of the
years in the three-year period ended December 31, 1996. These financial
statements are the responsibility of Anita Associates' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Anita Associates as of December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
San Diego, California
February 7, 1997
100
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
-----------------------------
ASSETS 1996 1995
------ ------------- -------------
<S> <C> <C>
SHOPPING CENTER PROPERTY (Notes B and D):
Land $ 2,703,982 $ 2,703,982
Buildings and improvements 61,000,522 60,302,510
Deferred charges 3,919,049 3,678,022
------------ ------------
67,623,553 66,684,514
Less accumulated depreciation and amortization (17,987,437) (15,674,492)
------------ ------------
49,636,116 51,010,022
CASH AND CASH EQUIVALENTS (Note F) 1,663,372 2,218,502
ACCOUNTS RECEIVABLE
less allowance for doubtful accounts
of $344,654 (1996) and $339,719 (1995) 22,049 166,879
DEFERRED RENT RECEIVABLE 2,382,383 1,977,913
PREPAID EXPENSES 657,460 612,103
OTHER ASSETS (Note B) 620,377 654,262
------------ ------------
$ 54,981,757 $ 56,639,681
============ ============
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
NOTES PAYABLE (Note B) $ 60,381,040 $ 61,195,750
ACCOUNTS PAYABLE TO:
TrizecHahn Centers Management Inc. 168,027 36,760
Tenants 585,984 326,408
Others 1,826,001 1,747,081
------------ ------------
62,961,052 63,305,999
COMMITMENTS AND CONTINGENCIES (Notes D and F)
PARTNERS' DEFICIT (7,979,295) (6,666,318)
------------ ------------
$ 54,981,757 $ 56,639,681
============ ============
</TABLE>
See accompanying notes to financial statements.
101
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
STATEMENTS OF INCOME
--------------------
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
REVENUES:
Minimum rent (Note D) $ 8,407,858 $ 7,701,809 $ 6,592,561
Overage rent (Note D) 221,828 149,783 192,454
Recoveries from tenants (Note D) 5,408,794 5,113,622 4,654,608
Other income 1,268,570 524,204 482,452
----------- ----------- -----------
15,307,050 13,489,418 11,922,075
----------- ----------- -----------
EXPENSES (Note F):
Operating expenses (Note D) 3,054,784 2,652,904 2,465,047
Payroll and related benefits paid
to an affiliate 1,591,969 1,444,816 1,427,973
Office expense 635 27,728 140,591
Management fee paid to an affiliate 356,703 329,474 259,957
Promotion 27,193 67,575 117,310
Professional services 25,383 27,334 53,841
Professional services paid to an
affiliate 12,992 15,078 5,941
Ground rent 507,714 505,465 505,465
Bad debt expense 9,983 161,216 139,819
Other expenses 134,525 155,943 114,615
Property taxes 146,088 786,404 414,612
----------- ----------- -----------
5,867,969 6,173,937 5,645,171
----------- ----------- -----------
INCOME FROM OPERATIONS 9,439,081 7,315,481 6,276,904
----------- ----------- -----------
NON-OPERATING REVENUE:
Interest income 245,694 258,980 359,370
----------- ----------- -----------
NON-OPERATING EXPENSES:
Interest expense (Notes B and E) 5,507,198 5,341,999 3,498,533
Depreciation and amortization 2,317,244 2,205,710 1,457,869
Write-off of deferred charges 23,310 710 10,747
----------- ----------- -----------
7,847,752 7,548,419 4,967,149
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 1,837,023 26,042 1,669,125
Extraordinary loss from early
extinguishment of debt (Note B) - - (1,477,754)
----------- ----------- -----------
NET INCOME $ 1,837,023 $ 26,042 $ 191,371
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
102
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
STATEMENTS OF PARTNERS' DEFICIT
-------------------------------
<TABLE>
<CAPTION>
Limited
General Partner Partner
-------------------------------------------- -------------
Hahn - UPI
(a limited partnership) Santa Anita
------------------------------------------- Realty
TrizecHahn UPI Total General Enterprises,
Centers Inc. Associates Partner Inc. Total
------------ ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
DEFICIT,
January 1, 1994 $(1,186,206) $(397,324) $(1,583,530) $(1,579,443) $(3,162,973)
Net income 75,936 19,749 95,685 95,686 191,371
Cash contributions 171,926 44,715 216,641 216,641 433,282
Cash distributions (1,567,360) (407,640) (1,975,000) (1,975,000) (3,950,000)
----------- --------- ----------- ----------- -----------
DEFICIT,
December 31, 1994 (2,505,704) (740,500) (3,246,204) (3,242,116) (6,488,320)
Net income 10,333 2,688 13,021 13,021 26,042
Cash contributions 253,770 66,001 319,771 319,771 639,542
Cash distributions (334,733) (87,058) (421,791) (421,791) (843,582)
----------- --------- ----------- ----------- -----------
DEFICIT,
December 31, 1995 (2,576,334) (758,869) (3,335,203) (3,331,115) (6,666,318)
Net income 728,922 189,590 918,512 918,511 1,837,023
Cash distributions (1,249,904) (325,096) (1,575,000) (1,575,000) (3,150,000)
----------- --------- ----------- ----------- -----------
DEFICIT,
December 31, 1996 $(3,097,316) $(894,375) $(3,991,691) $(3,987,604) $(7,979,295)
=========== ========= =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
103
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,837,023 $ 26,042 $ 191,371
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,317,244 2,205,710 1,457,869
Write-off of deferred charges 23,310 710 10,747
Write-off of deferred charges included
in extraordinary item - - 113,700
Provision for doubtful accounts receivable 9,983 161,216 139,819
Changes in assets and liabilities:
Accounts receivable from:
Tenants 134,847 2,783 (224,467)
Partners - - 22,356
Deferred rent receivable (404,470) (689,851) (441,197)
Prepaid expenses (45,357) (44,798) 308,328
Other assets 33,885 11,042 (639,287)
Accounts payable to:
TrizecHahn Centers Management Inc. 131,267 (43,373) 20,979
Tenants 259,576 122,974 94,642
Others 78,920 (74,709) 419,972
----------- ----------- ------------
Net cash provided by operating activities 4,376,228 1,677,746 1,474,832
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to shopping center property (966,648) (1,153,212) (3,480,713)
Additions to property under development - - (7,581,179)
Accrued construction cost - - (528,207)
----------- ----------- ------------
Net cash used in investing activities (966,648) (1,153,212) (11,590,099)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from new debt - - 62,355,000
Payments of notes payable (814,710) (729,636) (25,743,163)
Good faith deposit - - 1,247,100
Repayments to partners - (551,787) (21,687,479)
Contributions from partners - 639,542 433,282
Distributions to partners (3,150,000) (843,582) (3,950,000)
----------- ----------- ------------
Net cash (used in) provided by
financing activities (3,964,710) (1,485,463) 12,654,740
----------- ----------- ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (555,130) (960,929) 2,539,473
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,218,502 3,179,431 639,958
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,663,372 $ 2,218,502 $ 3,179,431
=========== =========== ============
</TABLE>
(Continued)
See accompanying notes to financial statements.
104
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
STATEMENTS OF CASH FLOWS
------------------------
(Continued)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1996 1995 1994
-------- ---------- -----------
<S> <C> <C> <C>
Interest paid on notes payable
(net of amounts capitalized) $5,513,350 $5,225,886 $5,112,657
========== ========== ==========
</TABLE>
SUPPLEMENTAL DISCLOSURE RELATED TO NON-CASH INVESTING ACTIVITIES
----------------------------------------------------------------
Upon completion of the development project in 1994, the Partnership transferred
$30,924,057 from Property Under Development to Shopping Center Property.
At December 31, 1994, $997,233 of tenant improvements were completed but unpaid
and are included in Shopping Center Property and Accounts Payable - Others.
In addition to the above, the following non-cash activities occurred:
<TABLE>
<CAPTION>
Reduction in
Reduction Accumulated
Write-off of assets: in Property Amortization
- ------------------- ------------------------------ --------------------------
1996 1995 1994 1996 1995 1994
------- ------- -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Deferred charges $27,609 $7,734 $254,792 $4,299 $7,024 $130,345
======= ====== ======== ====== ====== ========
</TABLE>
See accompanying notes to Financial Statements
105
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Years ended December 31, 1996, 1995 and 1994
--------------------------------------------
A. Organization and Accounting Policies:
------------------------------------
Anita Associates (the "Partnership") is a California limited partnership
consisting of Hahn-UPI, the general partner, and Santa Anita Realty
Enterprises, Inc. (the "Limited Partner"), formed to develop and operate a
regional shopping center in Arcadia, California. Hahn-UPI is a limited
partnership consisting of TrizecHahn Centers Inc. ("THCI"), the general
partner, and UPI Associates ("UPI"), the limited partner. UPI does not
have responsibility for, or participation in, any duties, obligations or
rights of approval assumed by Hahn-UPI as general partner of Anita
Associates. The partnership agreement provides that the Partnership shall
continue from year to year until the partners elect to terminate the
Partnership. Profits and losses are shared as follows:
Hahn-UPI:
TrizecHahn Centers Inc. 39.68%
UPI Associates 10.32%
Santa Anita Realty Enterprises, Inc. 50.00%
On November 21, 1996, Ernest W. Hahn, Inc. changed its name to TrizecHahn
Centers Inc.
Certain reclassifications of prior year amounts have been made in order to
conform to the current year presentation.
The Partnership's accounting policies are as follows:
1. Shopping center property and property under development are recorded
at cost and include direct construction costs, interest, construction
loan fees, property taxes and related expenses capitalized during the
pre-opening 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 amortized over the lease and loan periods, respectively.
(Continued)
106
<PAGE>
ANITA ASSOCIATES
----------------
(a Califiornia limited partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Continued)
A. Organization and Accounting Policies (Continued):
------------------------------------------------
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. Lease termination fees received from tenants are recognized as income
when received. 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 Partner-
ship makes no provision for income taxes.
8. The Partnership recognizes scheduled rent increases on a straight-line
basis. Accordingly, a deferred rent receivable and deferred payable
for rents which are to be received or paid in subsequent years,
respectively, are reflected in the accompanying balance sheets. The
deferred payable is included in accounts payable to others.
9. The Partnership considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash
equivalents.
10. The Partnership agreement does not designate investment interests in
units. Investment interests are calculated on a percentage basis.
Accordingly, earnings or losses per unit is not presented in the
accompanying financial statements.
11. The Partnership has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could
differ from those estimates.
(Continued)
107
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Continued)
A. Organization and Accounting Policies (Continued):
------------------------------------------------
12. The Partnership's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and cash
equivalents, accounts receivable and deferred rent receivable.
Management routinely assesses the financial strength of its tenants
and as a consequence, believes that its accounts receivable and
deferred rent receivable credit risk exposure is limited. The
Partnership places its temporary cash investments with high credit
quality institutions and cash accounts with federally insured
institutions. Cash balances with any one institution may be in excess
of federally insured limits. The Partnership has not experienced any
losses in such investments or accounts and believes it is not exposed
to any significant credit risk.
13. The Partnership adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, on January 1, 1996. This Statement requires that long-
lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
Adoption of this Statement had no impact on the Partnership's
financial position, results of operations, or liquidity.
B. Notes Payable:
-------------
The notes payable (collectively "the loan") at December 31, 1996 are
payable in monthly payments of $527,338 including interest, with a balloon
payment of $51,929,396 due January 2003. The notes, $44,975,555 and
$15,405,485, bear interest at 9.0% and 9.25%, respectively, and are secured
by a first lien on the leasehold estate and improvements.
(Continued)
108
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Continued)
B. Notes Payable (Continued):
-------------------------
Annual principal payments are scheduled as follows:
<TABLE>
<CAPTION>
Year ending December 31, Amount
------------------------ ------------
<S> <C>
1997 $ 891,684
1998 975,935
1999 1,068,145
2000 1,169,069
2001 1,279,532
Thereafter 54,996,675
-----------
$60,381,040
===========
</TABLE>
In connection with the funding of the notes in 1994, the Partnership
executed a pledge agreement and deposited $638,933 in a restricted interest
bearing account. The deposit balance remained unchanged during 1995. How-
ever, under the debt coverage ratio requirements of the Pledge Agreement,
the deposit balance was reduced to $594,593 during 1996. These amounts are
included in other assets at December 31, 1996 and December 31, 1995.
As part of the extinguishment of the existing debt on January 25, 1994, the
Partnership was required to pay a prepayment penalty of $1,364,054. This
penalty, along with the write-off of unamortized finance costs related to
the extinguished debt, was recognized as an extraordinary loss during 1994.
C. Fair Value of Financial Instruments:
-----------------------------------
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires that the fair values be disclosed
for the Partnership's financial instruments. The carrying amount of cash
and cash equivalents, accounts receivable, and accounts payable are
reasonable estimates of their fair values due to the short-term nature of
those instruments. The carrying amount of notes payable is a reasonable
estimate of fair value based on management's belief that, the interest
rates and terms of the notes are comparable to those commercially available
to the Partnership in the marketplace for similar instruments.
109
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Continued)
D. Commitments:
-----------
Partnership as Lessor
---------------------
The Partnership 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 vary by tenant
and range from 4 to 25 years, and the majority of the leases also provide
for additional overage rents during any year in which a tenant's gross
sales exceed a stated amount.
Future minimum rents to be received under leases in force at December 31,
1996 are as follows:
<TABLE>
<CAPTION>
Year ending December 31, Amount
------------------------ ------------
<S> <C>
1997 $ 8,272,700
1998 7,820,129
1999 7,411,084
2000 6,954,831
2001 6,238,445
Thereafter 19,168,505
-----------
$55,865,694
===========
</TABLE>
Legal
-----
The Partnership is, from time to time, involved in various claims and legal
actions arising in the ordinary course of business. Although the final
outcome of these legal matters cannot be determined, it is management's
opinion, based in part on advice of legal counsel, that the final
resolution of these matters will not have a material adverse effect on the
Partnership's financial position, results of operations, or liquidity.
E. Partner Advances:
----------------
In 1994, the Partnership substantially completed a $32,000,000 expansion of
the shopping center. The expansion included the addition of a major
department store as well as other tenant leasable area.
(Continued)
110
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Continued)
E. Partner Advances (Continued):
----------------------------
The Partners made advances to fund the expansion cost until construction
loan funds could be obtained (Note B). Such advances bore interest at 10%
per annum, compounded monthly. Advances outstanding at December 31, 1994
were $551,787 and were repaid during 1995. Interest incurred on partner
advances was $16,738 and $1,671,528 for the years ended December 31, 1995
and 1994, respectively.
Interest costs capitalized as part of the shopping center during 1995 and
1994, totaled $297,392 and $2,189,255, respectively, of which $1,262,587
related to advances from partners for 1994.
F. Related-Party Transactions:
--------------------------
Operating Costs
---------------
THCI and its wholly-owned subsidiary, TrizecHahn Centers Management Inc.
("THCMI"), provide property management, leasing and various legal services
to the Partnership. A summary of costs and fees earned by THCI and THCMI
during 1996, 1995 and 1994 is presented as follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Payroll and related benefits $1,591,969 $1,444,816 $1,427,973
Management fee 356,703 329,474 259,957
Development fee - - 68,758
Leasing commissions 295,610 339,398 543,276
Professional services 12,992 15,078 5,941
Legal 30,010 50,544 151,405
</TABLE>
(Continued)
111
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Continued)
F. Related-Party Transactions (Continued):
--------------------------------------
Ground Lease
------------
The shopping center was developed on approximately 70 acres of land leased
from the Limited Partner. The leased property consists of four parcels,
each covered by a separate ground lease, requiring total annual rentals of
$764,746 in 1996 and $762,497 in 1995 and 1994, respectively. Three of the
parcels are subleased to major department stores located in the shopping
center for aggregate rentals of $257,032 annually. The sublease terms,
which commenced with the opening of the shopping center and continue
through October 2017 with two ten-year renewal options, are identical to
the primary lease. The subleases to the major department stores are
assigned to the Limited Partner. The Partnership remains the lessee on the
fourth parcel. In 1993, the ground leases were amended and the area of the
fourth parcel was increased by an additional 8.2 acres. Under the terms of
the Amended Agreement, the monthly rental increased beginning November 1996
from $22,488 to $44,771.
Net rental expense amounted to $507,714 in 1996 and $505,465 in 1995 and
1994, respectively. The minimum annual rental payments under the lease,
net of sublease rentals, are as follows:
<TABLE>
<CAPTION>
Year ending December 31, Amount
------------------------ ------------
<S> <C>
1997 $ 537,255
1998 537,255
1999 537,255
2000 537,255
2001 537,255
Thereafter 8,489,075
----------
$11,175,350
===========
</TABLE>
Cash Equivalents
----------------
At December 31, 1996 and 1995, the Partnership had $2,289 and $1,193,598,
respectively, invested in thirty day bank credit-enhanced commercial paper
issued by an entity in which THCI owns an interest.
112
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
Independent Auditors' Report
----------------------------
To the Managing General Partner
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, 1996 and 1995, and the related consolidated statements of
operations, partners' capital (deficit) and cash flows for each of the years in
the three-year period ended December 31, 1996. These consolidated financial
statements are the responsibility of H-T Associates' management. Our responsi-
bility is to express an opinion on these consolidated financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 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, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1996 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Partnership will continue as a going concern. As discussed in Note G
to the consolidated financial statements, the Partnership's subsidiary, Towson
Town Center Associates, is in technical default on its notes payable at December
31, 1996. As such, the notes may be callable at the lender's discretion. As
Towson Town Center Associates is the primary subsidiary of the Partnership, this
technical default raises substantial doubt about the Partnership's ability to
continue as a going concern. Management's plan in regard to this matter is also
described in Note G to the consolidated financial statements. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
San Diego, California
February 10, 1997
113
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
--------------
(a Maryland general partnership)
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
------------ -------------
<S> <C> <C>
ASSETS
------
SHOPPING CENTER PROPERTY (Note B):
Land $ 11,726,213 $ 11,726,213
Buildings and improvements 178,924,667 178,667,284
Deferred charges 3,091,839 2,961,418
------------ ------------
193,742,719 193,354,915
Less accumulated depreciation and
amortization (35,255,347) (28,659,166)
------------ ------------
158,487,372 164,695,749
CASH 947,415 2,284,753
ACCOUNTS RECEIVABLE, less allowance
for doubtful accounts of $416,799 (1996)
and $447,379 (1995) 667,386 1,122,092
NOTES RECEIVABLE 147,483 171,122
DEFERRED RENT RECEIVABLE 3,646,485 3,493,647
PREPAID EXPENSES 1,317,015 1,350,500
OTHER ASSETS 46,988 49,116
------------ ------------
$165,260,144 $173,166,979
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
NOTES PAYABLE (Note B) $164,641,000 $164,641,000
ADVANCES FROM PARTNERS (Note E)
TrizecHahn Centers Inc. 5,296,213 4,821,988
Santa Anita Realty Enterprises, Inc. 5,283,273 4,810,292
ACCOUNTS PAYABLE TO:
TrizecHahn Centers Management Inc. 162,198 51,243
Tenants 131,344 136,569
Others 1,254,303 1,287,018
------------ ------------
176,768,331 175,748,110
COMMITMENTS AND CONTINGENCIES (Note D)
MINORITY INTEREST (514,605) 2,168,603
PARTNERS' DEFICIT (10,993,582) (4,749,734)
------------ ------------
$165,260,144 $173,166,979
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
114
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
--------------
(a Maryland general partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Minimum rent (Note D) $15,068,602 $15,168,774 $14,639,567
Overage rent (Note D) 395,171 418,254 377,726
Recoveries from tenants (Note D) 6,652,608 6,091,553 5,642,854
Other income 1,188,756 1,183,397 730,436
----------- ----------- -----------
23,305,137 22,861,978 21,390,583
----------- ----------- -----------
EXPENSES (Note F):
Operating expenses 3,519,905 3,112,414 2,705,665
Payroll and related benefits
paid to an affiliate 1,572,852 1,536,176 1,585,083
Property taxes 1,282,354 1,251,686 1,223,371
Office expense - 2,309 273,673
Management fee paid to an affiliate 635,844 670,033 598,697
Promotion 27,842 90,121 153,908
Professional services 46,602 68,900 145,265
Professional services paid to an affiliate 12,803 37,045 9,056
Other expenses 301,367 142,966 179,205
----------- ----------- -----------
7,399,569 6,911,650 6,873,923
----------- ----------- -----------
INCOME FROM OPERATIONS 15,905,568 15,950,328 14,516,660
----------- ----------- -----------
NON-OPERATING REVENUE:
Interest income 225,572 213,404 127,290
----------- ----------- -----------
NON-OPERATING EXPENSES:
Interest expense (Note B) 13,270,908 13,557,828 12,180,198
Interest expense incurred on advances
from partners (Note E) 947,206 910,532 684,469
Depreciation and amortization 6,701,496 6,585,518 6,455,406
Write-off of assets 288,586 8,904 26,444
----------- ----------- -----------
21,208,196 21,062,782 19,346,517
----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST (5,077,056) (4,899,050) (4,702,567)
MINORITY INTEREST 1,423,208 1,398,353 1,403,391
----------- ----------- -----------
NET LOSS $(3,653,848) $(3,500,697) $(3,299,176)
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
115
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
--------------
(a Maryland general partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
------------------------------------------------------
Years ended December 31, 1996, 1995 AND 1994
--------------------------------------------
<TABLE>
<CAPTION>
Santa Anita
TrizecHahn Realty
Centers Inc. Enterprises, Inc. Total
------------ ----------------- ----------
<S> <C> <C> <C>
CAPITAL, January 1, 1994 $ 1,918,819 $ 1,918,820 $ 3,837,639
Net loss (1,649,588) (1,649,588) (3,299,176)
Cash distributions (243,750) (243,750) (487,500)
----------- ----------- ------------
CAPITAL, December 31, 1994 25,481 25,482 50,963
Net loss (1,750,348) (1,750,349) (3,500,697)
Cash distributions (650,000) (650,000) (1,300,000)
----------- ----------- ------------
DEFICIT, December 31, 1995 (2,374,867) (2,374,867) (4,749,734)
Net loss (1,826,924) (1,826,924) (3,653,848)
Cash distributions (1,295,000) (1,295,000) (2,590,000)
----------- ----------- ------------
DEFICIT, December 31, 1996 $(5,496,791) $(5,496,791) $(10,993,582)
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
116
<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,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,653,848) $(3,500,697) $(3,299,176)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 6,701,496 6,585,518 6,455,406
Provision for doubtful accounts
receivable 145,871 (13,546) 44,832
Write-off of assets 288,586 8,904 26,444
Interest accrued on partner
advances 947,206 910,532 684,469
Minority interest (1,423,208) (1,398,353) (1,403,391)
Changes in assets and liabilities:
Accounts receivable 308,835 333,760 (714,087)
Notes receivable 23,639 23,341 196,098
Deferred rent receivable (152,838) (437,474) (513,292)
Prepaid expenses 33,485 (147,071) 160,870
Other assets 2,128 (4,707) (11,045)
Accounts payable to:
TrizecHahn Centers Management
Inc. 110,955 (40,451) (28,153)
Tenants (5,225) (5,338) 59,228
Others (182,715) 334,529 (93,302)
----------- ----------- -----------
Net cash provided by operating
activities 3,144,367 2,648,947 1,564,901
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to shopping center
property (631,705) (1,270,471) (871,192)
Decrease in construction
costs receivable from tenants - 64,714 25,892
----------- ----------- -----------
Net cash used in investing
activities (631,705) (1,205,757) (845,300)
----------- ----------- -----------
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
117
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
--------------
(a Maryland general partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Continued)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------
1996 1995 1994
--------------- --------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to minority interest $(1,260,000) $ (700,000) $ (262,500)
Distributions to partners (2,590,000) (1,300,000) (487,500)
----------- ----------- -----------
Net cash used in financing activities (3,850,000) (2,000,000) (750,000)
----------- ----------- -----------
NET DECREASE IN CASH (1,337,338) (556,810) (30,399)
CASH, BEGINNING OF YEAR 2,284,753 2,841,563 2,871,962
----------- ----------- -----------
CASH, END OF YEAR $ 947,415 $ 2,284,753 $ 2,841,563
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
------------------------------------------------
Interest paid $13,316,375 $13,681,570 $12,244,079
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES
--------------------------------------------------------
During 1996 and 1995, the following non-cash activity
occurred:
<CAPTION>
Additions to shopping center property: 1996 1995
- ------------------------------------- ----------- ------------
<S> <C> <C>
Buildings and improvements $150,000 $75,000
Increase in accounts payable to others 150,000 75,000
-------- -------
$ - $ -
======== =======
<CAPTION>
Accumulated
Depreciation
Reduction and
Write-off of assets: in Property Amortization
- ------------------- ---------------------------- ----------------------------
1996 1995 1994 1996 1995 1994
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Buildings and improvements $191,475 $ - $18,296 $ 67,835 $ - $18,296
Deferred charges 202,426 9,540 28,650 37,480 636 2,206
-------- ------ ------- -------- ---- -------
Total $393,901 $9,540 $46,946 $105,315 $636 $20,502
======== ====== ======= ======== ==== =======
</TABLE>
See accompanying notes to consolidated financial statements.
118
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
--------------
(a Maryland general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years ended December 31, 1996, 1995 AND 1994
--------------------------------------------
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
TrizecHahn Centers Inc. and Santa Anita Realty Enterprises, Inc. The
Partnership is to continue until December 31, 2087, unless terminated
earlier. Profits, losses and distributions are shared as follows:
TrizecHahn Centers Inc. ("THCI") 50%
Santa Anita Realty Enterprises, Inc.
("Santa Anita") 50%
On November 21, 1996, Ernest W. Hahn, Inc. changed its name to TrizecHahn
Centers Inc.
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. DeChiaro's interest is recorded as
minority interest in the accompanying consolidated financial statements. All
significant intercompany balances and transactions have been eliminated.
Certain reclassifications of prior year amounts have been made in order to
conform to 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
amortized over the lease and loan periods, respectively.
4. Maintenance and repairs are charged to operations as incurred.
(Continued)
119
<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):
------------------------------------------------
5. Expenditures for betterments are capitalized and depreciated over the
remaining depreciable life of the property.
6. Lease termination fees received from tenants are recognized as income
when received. 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.
8. The Partnership recognizes scheduled rent increases on a straight-line
basis. Accordingly, a deferred rent 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 has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could
differ from those estimates.
11. The Partnership agreement does not designate investment interests in
units. Investment interests are calculated on a percentage basis.
Accordingly, earnings or losses per unit is not presented in the
accompanying consolidated financial statements.
12. The Partnership's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash, accounts
receivable and deferred rent receivable. Management routinely
assesses the financial strength of its tenants and as a consequence,
believes that its accounts receivable and deferred rent receivable
credit risk exposure is limited. The Partnership places its temporary
cash investments with high credit quality institutions and cash
accounts with federally insured institutions. Cash balances with any
one institution may be in excess of federally insured limits. The
Partnership has not experienced any losses in such investments or
accounts and believes it is not exposed to any significant credit
risk.
(Continued)
120
<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):
------------------------------------------------
13. The Partnership adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, on January 1, 1996. This Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be disposed of
are reported at the lower of the carrying amount or fair value less costs
to sell. Adoption of this Statement had no impact on the Partnership's
financial position, results of operations, or liquidity.
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 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, 1996
and 1995 all funds were obtained under the commercial paper option for a
total outstanding balance of $164,641,000. Interest is payable monthly and
the note balance is due June 3, 1999. The variable interest rate in effect
on the outstanding balance as of December 31, 1996 and 1995 was 5.6% and
6.0%, respectively.
TTCA has also entered into interest rate swap agreements to reduce the impact
of changes in interest rates on its loan (Note C). As of December 31, 1996
and 1995, 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 floating rate
of interest in effect on the swap agreements as of December 31, 1996 was
5.6%. The interest rate swap agreements mature at the time the building loan
matures. TTCA is exposed to credit loss in the event of non-performance by
the commercial bank with respect to the interest rate swap agreements.
(Continued)
121
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
--------------
(a Maryland general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Continued)
B. Notes Payable (Continued):
-------------------------
The net effective interest rate on amounts outstanding under the building
loan agreement at December 31, 1996, 1995 and 1994, after giving effect to
the interest rate swaps, was 7.9%, 8.2% and 7.4%, 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 $13,270,907, $13,557,828 and
$12,180,199, for the years ended December 31, 1996, 1995 and 1994,
respectively.
In connection with the loan, THCI 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 (Note G). In addition, the building loan agreement also provides for a
combined net worth of Santa Anita and THCI. The combined net worth
requirement was met at December 31, 1996 and 1995.
C. Fair Value of Financial Instruments:
------------------------------------
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires that the fair values be disclosed
for the Partnerships' financial instruments. The carrying amount of cash,
accounts receivable, and accounts payable are reasonable estimates of their
fair values due to the short-term nature of those instruments.
The carrying amount of the notes receivable is a reasonable estimate of fair
value based on management's belief that the interest rates on which the notes
bear interest is not materially different than interest rates that would be
used on loans to tenants with similar credit ratings.
The carrying amount of the notes payable is a reasonable estimate of fair
value based on management's belief that the interest rates and terms of the
notes payable are comparable to those commercially available to the
Partnership in the marketplace for similar instruments.
Management has determined that it is not practicable to estimate the fair
value of the advances from partners (Note E) due to the related-party
relationship, as well as the difficulty of evaluating the timing of payments.
The fair value of interest rate swaps (used for hedging purposes) is the
estimated amount that the Partnership 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 as of December 31, 1996 is a net payable of
approximately $5,500,000.
122
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
--------------
(a Maryland general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Continued)
D. Commitments and Contingencies:
-----------------------------
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 vary with the tenants and
the majority of the leases also provide for overage rents during any year in
which a tenant's gross sales exceed a stated amount.
Future minimum rents to be received under leases in force at December 31,
1996 are as follows:
<TABLE>
<CAPTION>
Year ending December 31 Amount
----------------------- ------------
<S> <C>
1997 $ 14,987,588
1998 15,257,415
1999 15,192,251
2000 14,918,996
2001 14,244,864
Thereafter 30,483,577
------------
$105,084,691
============
</TABLE>
Legal
-----
The Partnership is, from time to time, involved in various claims and legal
actions arising in the ordinary course of business. Although the final
outcome of these legal matters cannot be determined, it is management's
opinion, based in part upon advice of legal counsel, that the final
resolution of these matters will not have a material adverse effect on the
Partnership's financial position, results of operations, or liquidity.
E. Advances from Partners:
----------------------
THCI 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 are required to be
repaid prior to any distributions to the partners. Interest incurred on the
advances totaled $947,206, $910,532 and $684,469 for the years ended December
31, 1996, 1995 and 1994, respectively. The prime rate was 8.25%, 8.8% and
8.5% at December 31, 1996, 1995 and 1994, respectively.
123
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
--------------
(a Maryland general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Continued)
F. Related-Party Transactions:
--------------------------
TTCA Property Management
------------------------
THCI and its wholly-owned subsidiary, TrizecHahn Centers Management Inc.
("THCMI"), provide property management, leasing and various legal services to
TTCA. A summary of costs and fees earned by THCI and THCMI through TTCA
during 1996, 1995, and 1994 is presented below:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Payroll and related benefits $1,572,852 $1,536,176 $1,585,083
Management fee 635,844 670,033 598,697
Professional services 12,803 37,045 9,056
Leasing commissions 311,088 416,174 484,074
Legal 42,550 53,628 71,745
</TABLE>
Related Property
----------------
Certain property adjacent to TTCA's regional shopping center is owned by
Joppa Associates ("Joppa"). At December 31, 1995, the partners of TTCA were
also the partners of Joppa. In November 1996, DeChiaro assigned its interest
in Joppa to THCI and Santa Anita in equal shares. TTCA has benefited from
Joppa's ownership of the adjacent property.
G. Loan Repayment Guaranty:
-----------------------
As discussed in Note B, each TTCA partner's repayment guaranty agreement
contains a restrictive covenant requiring the guarantor to maintain a certain
minimum level of net worth. Santa Anita has failed to meet this covenant
requirement under the repayment guaranty.
As the guaranty agreements are considered to be an integral part of the
lending documents, TTCA is in technical default on the notes payable.
Consequently, the notes payable may be callable at the lender's discretion.
TTCA's management believes that uncertainty exists as to whether the lender
would be successful in enforcing its right to call the notes due to
ambiguities within the loan documents. In the event that the lender was
successful in enforcing its right, there would be substantial doubt about the
ability of the Partnership to continue as a going concern. THCI is pursuing
the purchase of Santa Anita's partnership interest which, if consummated,
would remove the effect of Santa Anita's covenant requirement from the
lending agreement.
124
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT DESCRIPTION
NUMBER --------------------
-------
<C> <S>
2.1 Form of Amended and Restated Formation Agreement dated as of October
24, 1996 among Santa Anita Realty Enterprises, Inc., Santa Anita
Operating Company and Colony Investors II, L.P. (incorporated by
reference to Exhibit 2 of the Current Report on Form 8-K of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating Company,
dated October 24, 1996).
2.2 First Amendment to Amended and Restated Formation Agreement, dated as
of January 7, 1997 among Santa Anita Realty Enterprises, Inc., Santa
Anita Operating Company and Colony Investors II, L.P. (incorporated by
reference to Exhibit 2 of the Current Report on Form 8-K of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating Company,
dated January 7, 1997).
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 By-laws of Santa Anita Realty Enterprises, Inc., as amended through
January 15, 1997.
3.4 By-laws of Santa Anita Operating Company, as amended through January
15, 1997.
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).
4.4 First Amendment dated as of May 31, 1995, to 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 4.4 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, 1995).
4.5 Second Amendment dated as of January 26, 1996, to 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 4.5 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, 1995).
4.6 Third Amendment dated as of July 1, 1996, to 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 4.1 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 3, 1996).
</TABLE>
125
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT DESCRIPTION
NUMBER --------------------
-------
<C> <S>
4.7 Letter Agreement dated February 1, 1997, extending the maturity date
of the Credit Agreement dated as of November 9, 1994 between First
Interstate Bank of California and Santa Anita Realty Enterprises, Inc.
4.8 Letter Agreement dated April 1, 1997, extending the maturity date of
the Credit Agreement dated as of November 9, 1994 between First
Interstate Bank of California and Santa Anita Realty Enterprises, Inc.
4.9 Certificate of Designations of Series A Redeemable Preferred Stock of
Santa Anita Realty Enterprises, Inc. (incorporated by reference to
Exhibit N to Exhibit 2 of the Current Report of Form 8-K of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating Company,
dated October 24, 1996).
4.10 Certificate of Designations of Series A Redeemable Preferred Stock of
Santa Anita Operating Company (incorporated by reference to Exhibit O
to Exhibit 2 of the Current Report on Form 8-K of Santa Anita Realty
Enterprises, Inc. and Santa Operating Company, dated October 24,
1996).
Each other outstanding long-term indebtedness of Santa Anita Realty
Enterprises, Inc. and each outstanding long-term indebtedness of Santa
Anita Operating Company and its subsidiaries does not exceed 10% of
the total assets of Santa Anita Realty Enterprises, Inc. or Santa
Anita Operating Company and its subsidiaries on a consolidated basis,
as the case may be. Each such company agrees to furnish copies of such
instruments to the Securities and Exchange Commission upon request.
10.1 Anita Associates Articles of Limited Partnership dated as of April 6,
1972 (incorporated by reference to Exhibit 6(c) to Registration
Statement No. 2-65894).
10.2 First Amendment to Articles of Limited Partnership of Anita
Associates, dated December 26, 1979 (incorporated by reference to
Exhibit 10.13 to Registration Statement No. 2-72866).
10.3 Form of 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).
10.4 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).
10.5 Second Amendment to ground lease between Santa Anita Realty
Enterprises, Inc. and Anita Associates dated of December 29, 1993
(incorporated by reference to Exhibit 10.6 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).
10.6 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).
10.7 Santa Anita Realty Enterprises, Inc. 1984 Stock Option Plan (as
amended and restated September 22, 1998) (incorporated by reference to
Exhibit 4.2 to Registration Statement No. 2-95228).
10.8 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).
10.9 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).
</TABLE>
126
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT DESCRIPTION
NUMBER --------------------
-------
<C> <S>
10.10 Amendment 1993-1 to Santa Anita Operating Company 1984 Stock Option
Program (incorporated by reference to Exhibit 4.3 to Registration
Statement on Form No. S-8 No. 33-51843).
10.11 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).
10.12 Amended and Restated Partnership Agreement of H-T Associates, dated as
of July 28, 1987, between Ernest W. Hahn, Inc. and Santa Anita Realty
Enterprises, Inc. (incorporated by reference to Exhibit 10.18 to
Registration Statement No. 33-27011).
10.13 Amended and Restated Partnership 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).
10.14 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).
10.15 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 of the year ended December 31, 1989).
10.16 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).
10.17 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).
10.18 Schedule of omitted documents and difference in material details
regarding Severance Agreements of certain officers of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating Company.
10.19 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).
10.20 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).
10.21 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).
10.22 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).
</TABLE>
127
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT DESCRIPTION
NUMBER --------------------
-------
<C> <S>
10.23 Santa Anita Realty Enterprises, Inc. 1995 Share Award Plan
(incorporated by reference to Exhibit 10.28 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, 1994).
10.24 Santa Anita Operating Company 1995 Share Award Plan (incorporated by
reference to Exhibit 10.29 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, 1994).
10.25 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 appendix) (incorporated by
reference to Exhibit 10.30 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, 1994).
10.26 Exchange Agreement between Santa Anita Operating Company and Clifford
C. Goodrich, dated as of December 15, 1994 (with appendix)
(incorporated by reference to Exhibit 10.31 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, 1994).
10.27 Form of Indemnity Agreement between Santa Anita Operating Company and
its directors and officers and schedule of omitted documents relating
thereto (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 March 31,
1995).
10.28 Form of Indemnity Agreement between Santa Anita Realty Enterprises,
Inc. and its directors and officers and schedule of omitted documents
relating thereto (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 March 31,
1995).
10.29 Form of Consulting Agreement between Santa Anita Operating Company and
its directors and schedule of omitted documents relating thereto
(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 March 31, 1995).
10.30 Form of Consulting Agreement between Santa Anita Realty Enterprises,
Inc. and its directors and schedule of omitted documents relating
thereto (incorporated by reference to Exhibit 10.5 of the Joint
Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc.
and Santa Anita Operating Company for the quarter ended March 31,
1995).
10.31 Restricted Stock Agreement dated as of April 1, 1995 between Santa
Anita Operating Company, Stephen F. Keller and the Keller Family Trust
(incorporated by reference to Exhibit 10.6 of the Joint Quarterly
Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa
Anita Operating Company for the quarter ended March 31, 1995).
10.32 Restricted Stock Agreement dated as of April 1, 1995 between Santa
Anita Operating Company and Clifford C. Goodrich (incorporated by
reference to Exhibit 10.7 of the Joint Quarterly Report on Form 10-Q
of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating
Company for the quarter ended March 31, 1995).
</TABLE>
128
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT DESCRIPTION
NUMBER --------------------
-------
<C> <S>
10.33 Repayment Guaranty dated as of May 18, 1990 between Santa Anita Realty
Enterprises, Inc. and The Mitsubishi Bank, Limited (incorporated by
reference to Exhibit 10.39 of the Joint Annual Report on Form 10-K of
Santa Anita Enterprises, Inc. and Santa Anita Operating Company for
the year ended December 31, 1995).
10.34 First Amendment dated as of August 10, 1993 to Repayment Guaranty
dated as of May 18, 1990 between Santa Anita Realty Enterprises, Inc.
and The Mitsubishi Bank, Limited (incorporated by referenced to
Exhibit 10.40 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, 1995).
10.35 Unconditional Guaranty of Payment dated as of December 31, 1992
between Santa Anita Realty Enterprises, Inc. and Bank of America
National Trust and Savings Association (incorporated by referenced to
Exhibit 10.41 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, 1995).
10.36 Employment Agreement between Santa Anita Realty Enterprises, Inc. and
William C. Baker dated as of April 1, 1996 (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 March 31, 1996).
10.37 Nonstatutory Stock Option Agreement between Santa Anita Realty
Enterprises, Inc. and William C. Baker dated as of April 1, 1996
awarding an option for 200,000 shares (incorporated by reference to
the appendix to the revised definitive Joint Proxy Statement of Santa
Anita Operating Company and Santa Anita Realty Enterprises, Inc. dated
April 8, 1996).
10.38 Amendment No. 1 to Employment Agreement between Santa Anita Realty
Enterprises, Inc. and Brian L. Fleming as of May 7, 1996 (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, 1996).
10.39 Resignation and General Release Agreement dated August 16, 1996
between Santa Anita Operating Company and Stephen F. Keller
(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, 1996).
10.40 Resignation and General Release Agreement dated August 16, 1996
between Santa Anita Realty Enterprises, Inc. and Sherwood C.
Chillingworth (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,
1996).
10.41 Resignation and General Release Agreement dated August 30, 1996
between Santa Anita Operating Company, Santa Anita Realty Enterprises,
Inc. and Richard D. Brumbaugh (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 September 30, 1996).
10.42 Agreement to Terminate Employment Agreement and Severance Agreement
dated as of August 16, 1996 between Santa Anita Realty Enterprises,
Inc. and William C. Baker (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, 1996).
</TABLE>
129
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT DESCRIPTION
NUMBER --------------------
-------
<C> <S>
10.43 Employment Agreement dated as of August 16, 1996 between Santa Anita
Operating Company and William C. Baker (incorporated by reference to
Exhibit 10.5 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, 1996).
10.44 Form of Retention Agreement of certain officers and employees of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating Company and
schedule of omitted documents relating thereto.
10.45 Resignation and General Release Agreement dated December 13, 1996
between Santa Anita Operating Company and Michael J. Manning.
21 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 Ernst & Young LLP (to be incorporated by reference into the
Prospectus contained in Registration Statement No. 2-95228, the
Prospectus contained in Registration Statement No. 33-51843 and the
Prospectus contained in Registration Statement No. 33-58995).
23.2 Consent of KPMG Peat Marwick LLP (to be incorporated by reference into
the Prospectus contained in Registration Statement No. 2-95228, the
Prospectus contained in Registration Statement
No. 33-51843 and the Prospectus contained in Registration Statement
No. 33-58995).
23.3 Consent of KPMG Peat Marwick LLP (to be incorporated by reference into
the Prospectus contained in Registration Statement No. 2-95228, the
Prospectus contained in Registration Statement
No. 33-51843 and the Prospectus contained in Registration Statement
No. 33-58995).
27(a) Financial Data Schedule for Santa Anita Realty Enterprises, Inc.
27(b) Financial Data Schedule for Santa Anita Operating Company.
</TABLE>
130
<PAGE>
EXHIBIT 3.3
REVISED 1/15/97
---------------
BY-LAWS
OF
SANTA ANITA REALTY ENTERPRISES, INC.
(a Delaware corporation)
ARTICLE I
Offices
Section 1.1. Registered Office. The registered office shall be in
-----------------
the City of Wilmington, County of New Castle, State of Delaware.
Section 1.2. Other Offices. The Corporation may also have offices at
-------------
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
Business Purpose and Investment Policy
Section 2.1. Corporation Taxed as Real Estate Investment Trust. The
-------------------------------------------------
Corporation shall conduct its business in such a manner as to be qualified to be
taxed as
<PAGE>
a real estate investment trust under Sections 856-858 of the Internal Revenue
Code of 1954, as heretofore or hereafter amended.
Section 2.2. Investment Policy. It is the general purpose of the
-----------------
Corporation that the assets of the Corporation be invested principally in real
property and interests in real estate.
ARTICLE III
Meetings of Stockholders
Section 3.1. Place. All meetings of the stockholders for the
-----
election of directors shall be held at such place either within or without the
State of Delaware as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. Meetings of stockholders for
any other purpose may be held at such time or place, within or without the State
of Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
2
<PAGE>
Section 3.2. Annual Meetings. The annual meetings of stockholders
---------------
shall be held on the third Thursday in May of each year at 10 o'clock A.M. of
said day, the first such meeting to be held on the third Thursday in May 1981;
provided, however, that should said day fall upon a legal holiday, then any such
annual meeting of stockholders shall be held at the same time and place on the
next day thereafter ensuing which is a full business day. At such meetings
directors shall be elected, reports of the affairs of the Corporation shall be
considered, and any other business may be transacted which is within the powers
of the stockholders. If for any annual meeting the Board of Directors shall fix
a different day or hour, such action shall be deemed an amendment of this
Section 3.2 effective until the adjournment of that annual meeting sine die.
---- ---
Written notice of each annual meeting shall be given to each
stockholder entitled to vote, either personally or by mail or other means of
written communication, charges prepaid, addressed to such stockholder at his
address appearing on the books of the Corporation or given by him to the
Corporation for the purpose of notice. If a stockholder gives no address,
notice shall be deemed to have been given him if sent by mail or other means of
written communication addressed to the place where the principal office of the
Corporation is situated, or if published at least once in some newspaper of
3
<PAGE>
general circulation in the county in which said office is located. All such
notices shall be sent to each stockholder entitled thereto not less than ten nor
more than sixty days before each annual meeting. Such notices shall specify the
place, the day and the hour of such meeting and shall state such other matters
if any, as may be expressly required by statute.
Section 3.3. Special Meetings. Special meetings of the stockholders,
----------------
for any purpose or purposes whatsoever, may be called at any time by the Board
of Directors. Except in special cases where other express provision is made by
statute, notice of such special meetings shall be given in the same manner as
for annual meetings of stockholders. Notices of any special meeting shall
specify, in addition to the place, day and hour of such meeting, the general
nature of the business to be transacted.
Section 3.4. Business To Be Brought Before Meetings. In order to be
---------------------------------------
properly brought before any meeting of stockholders held pursuant to this
Article III, business (including the election of directors) must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a
4
<PAGE>
stockholder. In order for any such business to be properly brought before the
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. In order to be timely, a
stockholder's notice must be received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that a meeting is called for a date other
than that specified in the By-laws, and less than 75 days' prior public
disclosure of such date is given, notice by the stockholder in order to be
timely must be received by the Secretary of the Corporation not later than the
close of business on the fifteenth (15th) calendar day following the day on
which such public disclosure of the date of the meeting was made. If a
stockholder intends to nominate a candidate or candidates for director at any
meeting of stockholders, such stockholder's notice to the Secretary shall set
forth the name, age, address and principal occupation of each such nominee and
the amount and type of the Corporation's stock held by each such nominee,
together with any additional information reasonably necessary to determine the
eligibility of each such nominee and any information required to be disclosed in
the solicitation of proxies in respect of each such nominee by Schedule 14A, as
amended from time to time, or other applicable Rules and Regulations of the
Securities and Exchange Commission. The notice to the Secretary shall also
5
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set forth the name, address and the amount and type of beneficial ownership of
the Corporation's stock of the stockholder intending to nominate the candidate
or candidates identified in the notice to the Secretary. Any stockholder
desiring to bring any other business before any annual meeting of stockholders
shall set forth in such stockholder's notice to the Secretary (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the meeting, (ii) the name and
record address of the stockholder proposing such business, (iii) the class and
number of shares of the Corporation's stock that are beneficially owned by such
stockholder, and (iv) any material interest of such stockholder in such
business. In order to be properly brought before any special meeting of
stockholders (other than any special meeting held for the purpose of electing
directors), business must be specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors.
Notwithstanding anything in the By-laws to the contrary, no business
(including the election of directors) shall be conducted at the meeting except
in accordance with the procedures set forth in this Section 3.4; provided
however, that nothing in this Section 3.4 shall preclude or be deemed or
construed to preclude discussion by any
6
<PAGE>
stockholder of any business properly brought before the annual meeting of
stockholders.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 3.4, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Section 3.5. List of Stockholders. The officer who has charge of the
--------------------
stock ledger of the Corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
7
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Section 3.6. Quorum. The holders of a majority of the stock issued
------
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute. If, however,
such quorum shall not be present or represented at any meeting of stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 3.7. Questions Before Meeting. When a quorum is present at
------------------------
any meeting, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any question
brought before such meeting unless the question is one upon which by express
provision of the statutes, of these By-laws or of the Certificate of
Incorporation, a different vote is
8
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required, in which case such express provision shall govern and control the
decision of such question.
Section 3.8. Action Without Meeting. Any action required or
----------------------
permitted to be taken by holders of stock of the Corporation must be taken at a
meeting of such holders and may not be taken by consent in writing.
Section 3.9. Waiver of Notice. Whenever notice is required to be
----------------
given under the Delaware Corporation Law or the Certificate of Incorporation or
the By-laws, a written waiver, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation.
9
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ARTICLE IV
Directors
Section 4.1. Size of Board. The Board of Directors shall consist of
-------------
ten members, or as many as shall be determined from time to time by resolution
of the Board.
Section 4.2. Election of Directors. The directors shall be divided
---------------------
into three classes, designated Class I, Class II, and Class III, such classes to
be as nearly equal in number as possible. At the annual meeting of stockholders
in 1986, directors of Class I shall be elected to hold office for a term
expiring at the next succeeding annual meeting, directors of Class II shall be
elected to hold office for a term expiring at the second succeeding annual
meeting, and directors of Class III shall be elected to hold office for a term
expiring at the third succeeding annual meeting. Thereafter at each annual
meeting of stockholders, directors shall be chosen for a term of three years to
succeed those whose terms then expire and shall hold office until the third
following annual meeting of stockholders and until the election of their
respective successors. Directors need not be stockholders.
Section 4.3. Vacancies. Vacancies and newly created directorships
---------
resulting from any increase in the authorized number of directors may be filled
by a majority
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of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office for the
unexpired term of the vacant directorship, or, in the case of any increase in
the number of directors, as designated by the directors then in office,
consistent with the provisions of Section 4.2. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute. If, at the time of filling any vacancy or any newly created
directorship the directors then in office shall constitute less than a majority
of the whole Board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his term of office.
Section 4.4. Powers. The business of the Corporation shall be
------
managed by its Board of Directors which may exercise all such powers of the
Corporation and do all
11
<PAGE>
such lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-laws directed or required to be exercised or done
by the stockholders.
Section 4.5. Meetings. The Board of Directors of the Corporation may
--------
hold meetings, both regular and special, either within or without the State of
Delaware.
Section 4.6. First Meeting. The first meeting of each newly elected
-------------
Board of Directors shall be held immediately following the annual meeting of
stockholders at which such directors are elected and no notice of such meeting
shall be necessary to the newly elected directors in order legally to constitute
the meeting, provided a quorum shall be present; or the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 4.7. Regular Meetings. Regular meetings of the Board may be
----------------
held without notice at such time and at such place as shall from time to time be
determined by the Board.
Section 4.8. Special Meetings. Special meetings of the Board may be
----------------
called by the Secretary at the request
12
<PAGE>
of the Chairman of the Board or President on two business days' notice to each
director, either personally or by mail, by telegram or by telephone; special
meetings shall be called by the President or Secretary in like manner and on
like notice on the written request of two directors.
Section 4.9. Quorum. At all meetings of the Board a majority of the
------
total number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 4.10. Conference Telephone. Unless otherwise restricted by
--------------------
the Certificate of Incorporation or these By-laws, members of the Board of
Directors (or any committee designated by the Board) may participate in a
meeting of the Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
13
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Section 4.11. Unanimous Consent. Unless otherwise restricted by the
-----------------
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 4.12. Committees. The Board of Directors may, by resolution
----------
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. Any such committee, to the extent provided in the resolution, shall
have and may exercise the power of the Board of Directors in the management of
the business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; provided, however,
that in the absence or disqualification of any member of such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another
14
<PAGE>
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
Section 4.13. Minutes. Each committee shall keep regular minutes of
-------
its meetings and report the same to the Board of Directors when required.
Section 4.14. Fees and Compensation. Directors and members of
---------------------
committees may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
Board.
ARTICLE V
Notices
Section 5.1. Methods of Notice. Whenever, under the provisions of
-----------------
the Laws of the State of Delaware or of the Certificate of Incorporation or of
these By-laws, notice is required to be given to any director or stockholder, it
shall not be construed to mean personal notice, but notice may be given in
writing, by mail, addressed to such director or stockholder, at his address as
it appears on the records of the Corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same
15
<PAGE>
shall be deposited in the United States mail. Notice to directors may also be
given by telegram or telephone.
Section 5.2. Waiver. Whenever any notice is required to be given
------
under the provisions of the statutes or of the Certificates of Incorporation or
of these By-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE VI
Officers
Section 6.1. Officers. The Officers of the Corporation shall be a
--------
President, a Vice President, a Secretary and a Treasurer. The Corporation may
also have, at the discretion of the Board of Directors, one or more additional
Vice Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 6.3 and Section 6.5 of this Article. The Board of
Directors may also choose, in its discretion, a Chairman of the Board and one or
more Vice Chairmen of the Board. The positions of Chairman of the Board and
Vice Chairman of the Board shall not constitute officers of the Corporation. One
person may hold two or more offices.
16
<PAGE>
Section 6.2. Election. The officers of the Corporation, except such
--------
officers as may be appointed in accordance with the provisions of Section 6.3 or
Section 6.5 of this Article, shall be chosen annually by the Board of Directors,
and each shall hold his office until he shall resign or shall be removed or
otherwise disqualified to serve, or his successor shall be elected and
qualified.
Section 6.3. Subordinate Officers, etc. The Board of Directors may
--------------------------
appoint, and may empower the President to appoint, such other officers as the
business of the Corporation may require, each of whom shall hold office for such
period, have such authority and perform such duties as are provided in the By-
laws or as the Board of Directors may from time to time determine.
Section 6.4. Removal and Resignation. Any officer may be removed,
-----------------------
either with or without cause, by the Board of Directors, at any regular or
special meeting thereof, or, except in the case of an officer chosen by the
Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
Board of Directors or to the President, or to the Secretary of the Corporation.
Any such resignation shall take effect at the date of the receipt of
17
<PAGE>
such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 6.5. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the By-laws for regular appointments to such office.
Section 6.6. Salaries. The salaries and other compensation of all
--------
officers of the Corporation shall be fixed by the Board of Directors.
Section 6.7. Chairman of the Board. The Chairman of the Board shall,
---------------------
if present, preside at all meetings of the Board of Directors.
Section 6.7A. Vice Chairman of the Board. In the absence of the
--------------------------
Chairman of the Board, the Vice Chairman of the Board designated by the Board of
Directors shall preside at all meetings of the Board of Directors.
Section 6.8. President. The President shall be the Chief Executive
---------
Officer of the Corporation and shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the business and
officers of the Corporation. He shall preside at all
18
<PAGE>
meetings of the stockholders and, in the absence of the Chairman of the Board
and the Vice Chairman of the Board, or if there be none, at all meetings of the
Board of Directors. He shall be ex-officio a member of all the standing
committees, including the Executive Committee, if any, and shall have the
general powers and duties of management usually vested in the office of the
president of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the By-laws.
Section 6.9. Vice President. In the absence or disability of the
--------------
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors or, if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the By-laws.
Section 6.10. Secretary. The Secretary shall keep or cause to be
---------
kept, at the principal office or such other place as the Board of Directors may
order, a book of minutes of all meetings of directors and stockholders, with the
time and place of holding, whether regular or special, and, if special, how
authorized, the notice thereof given,
19
<PAGE>
the names of those present at directors' meetings, the number of shares present
or represented at stockholders meetings, and the proceedings thereof. The
Secretary shall keep, or cause to be kept, at the principal office or at the
office of the Corporation's transfer agent, a share register, or a duplicate
share register, showing the names of the stockholders and their addresses, the
number and class of shares held by each, the number and date of certificates
issued for the same, and the number and date of cancellation of every
certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the stockholders and of the Board of Directors required by the By-
laws or bylaw to be given, and he shall keep the seal of the Corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board of Directors or by the By-laws.
Section 6.11. Treasurer. The Treasurer shall keep and maintain, or
---------
cause to be kept and maintained, adequate and correct accounts of the properties
and business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus and
shares. Any surplus, including earned surplus, paid-in surplus and surplus
arising from a
20
<PAGE>
reduction of stated capital, shall be classified according to source and shown
in a separate account. The books of account shall at all reasonable times be
open to inspection by any director.
The Treasurer shall deposit all moneys and other valuables in the name
and to the credit of the Corporation with such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the Corporation as
may be ordered by the Board of Directors, shall render to the President and
directors, whenever they request it, an account of all of his transactions as
Treasurer and of the financial condition of the Corporation, and shall have such
other powers and perform such other duties as may be prescribed by the Board of
Directors or the By-laws.
ARTICLE VII
Stock and Stock Certificates
Section 7.1. Right to Certificate. Every holder of stock in the
--------------------
Corporation shall be entitled to have a certificate, signed by or in the name of
the Corporation, by the Chairman of the Board of Directors or the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the
21
<PAGE>
Corporation, certifying the number of shares owned by him in the Corporation.
Section 7.2. Statements Setting Forth Rights. If the Corporation
-------------------------------
shall be authorized to issue more than one class of stock or more than one
series of any class, the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and rights
shall be set forth in full or summarized on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock,
provided that, except as otherwise provided in Section 202 of the Corporation
Law of Delaware, in lieu of the foregoing requirements, there may be set forth
on the face or back of the certificate which the Corporation shall issue to
represent such class or series of stock, a statement that the Corporation will
furnish without charge to each stockholder who so requests the designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations and
restrictions of such preferences and rights.
Section 7.3. Facsimile Signatures. Any of or all the signatures on
--------------------
the certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has
22
<PAGE>
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent, or registrar at the date of issue.
Section 7.4. Lost Certificates. Except as hereinafter in this
-----------------
section provided, no new certificate for shares shall be issued in lieu of an
old one unless the latter is surrendered and cancelled at the same time. The
Board of Directors may, however, in case any certificate for shares is lost,
stolen, mutilated or destroyed, authorize the issuance of a new certificate in
lieu thereof, upon such terms and conditions, including reasonable
indemnification of the Corporation, as the Board shall determine.
Section 7.5. Transfers of Stock.
------------------
(a) Subject to paragraphs (b), (c) and (d) of this Section 7.5, upon
surrender to any transfer agent of the Corporation of a certificate for shares
of the Corporation duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
23
<PAGE>
(b) Subject to the provisions of subparagraph (vi) of this paragraph
(b), beginning at the time that (A) the merger of Santa Anita Consolidated, Inc.
("Santa Anita") into the Corporation and (B) the payment by the Corporation of
the dividend in kind of the shares of Santa Anita Operating Company, a Delaware
corporation ("Operating Company"), shall have both occurred (hereinafter called
the "effective time of the restriction"), and continuing thereafter until such
time as the limitation on transfer provided for in the Pairing Agreement between
the Corporation and Operating Company shall be terminated in the manner therein
provided:
(i) The shares of common stock of the Corporation shall not be
transferable, and shall not be transferred on the books of the Corporation,
unless (1) a simultaneous transfer is made by the same transferor to the
same transferee, or (2) such transferor has previously arranged with
Operating Company for the transfer to the transferee, of a like number of
common shares of Operating Company and such shares are paired with one
another.
(ii) Except for certificates representing shares of common stock
of this Corporation referred to in subparagraph (vi) below, each
certificate evidencing ownership of shares of common stock of this
Corporation
24
<PAGE>
(including certificates issued by Santa Anita) issued and not cancelled
prior to the effective time of the restriction shall be deemed to evidence
a like number of shares of common stock of Operating Company.
(iii) Except for certificates representing common stock of this
Corporation referred to in subparagraph (vi) below, any registered holder
of a certificate evidencing ownership of shares of common stock of the
Corporation (including certificates issued by Santa Anita) issued prior to
the effective time of the restriction may, upon request and presentation of
said certificate to the Corporation's transfer agent, obtain in
substitution therefor a certificate or certificates registered in such
holder's name evidencing the same number of shares of common stock of the
Corporation and a like number of common shares of Operating Company.
(iv) A conspicuous legend shall be placed on the face of each
certificate evidencing ownership of shares of common stock of the
Corporation issued after the effective time of the restriction, referring
to the restrictions on transfer set forth in the Corporation's By-laws.
25
<PAGE>
(v) For purposes of this paragraph (b) only, the terms "common
stock" and "common shares" shall include preferred stock which is
convertible into shares of common stock.
(vi) Notwithstanding the other provisions of this paragraph (b),
any stockholder whose ownership of Operating Company common stock at the
effective time of the restriction would be deemed, after application of the
attribution rules of the Internal Revenue Code of 1954 (the "Code"), to
result in the Corporation owning, directly or indirectly, more than 9.25%
of the Operating Company common stock will not be subject to the
restrictions imposed by this paragraph (b) to the extent that such
ownership would cause the Corporation, directly or indirectly, to be deemed
to own, after application of the attribution rules of the Code, more than
9.25% of the total number of the outstanding shares of Operating Company,
provided that (1) a sufficient amount of Operating Company common stock (or
the right to receive such common stock) which would otherwise be paired
with common stock of the Corporation is sold to a transferee so that the
Corporation, directly or indirectly, after application of the attribution
rules of the Code, will not own in excess of 9.25% of the outstanding
Operating Company common stock, (2) all holders of the unpaired shares
26
<PAGE>
enter into an agreement, satisfactory to the Boards of Directors of the
Corporation, Operating Company and Santa Anita, providing that such shares
not be transferable by sale or any other means, without arranging for such
shares to be paired with an equal number of shares of Operating Company,
unless such sale is made to the Corporation or Operating Company, and (3)
such stockholder executes a waiver of any claims he or she may have arising
out of the close business relationship between the Corporation and
Operating Company and claims arising out of conflicts of interest inherent
in such business relationship. The other provisions of this paragraph (b)
shall apply to all shares of the Corporation otherwise held by any
stockholder unless they are specifically exempted by this subparagraph
(vi).
(c) If the Board of Directors shall at any time and in good faith be
of the opinion that direct or indirect ownership of shares of either common
stock or preferred stock, or both, of the Corporation has or may become
concentrated to an extent which would cause this Corporation to fail to qualify
or be disqualified as a real estate investment trust by virtue of Section
856(a)(5) and (6) of the Code, or similar provisions of successor statutes, the
Board of Directors shall have the power (i) by lot or other means deemed
equitable by them to call for purchase from any
27
<PAGE>
stockholder of the Corporation such number of shares sufficient in the opinion
of the Board of Directors to maintain or bring the direct or indirect ownership
of shares of stock of the Corporation into conformity with the requirements of
said Section 856(a)(5) and (6) and (ii) to refuse to register the transfer of
shares of stock to any person whose acquisition of such shares would, in the
opinion of the Board of Directors, result in the Corporation being unable to
conform to the requirements of said Section 856(a)(5) and (6). The purchase
price for the shares of stock purchased pursuant hereto shall be equal to the
fair market value of such shares as reflected in the closing price for such
shares on the principal stock exchange on which such shares are listed or, if
such shares are not listed, then the last bid quotation for shares of stock as
of the close of business on the date fixed by the Board of Directors for such
purchase or, if no quotation for the shares is available, as determined in good
faith by the Board of Directors. From and after the date fixed for purchase by
the Board of Directors, the holder of any shares so called for purchase shall
cease to be entitled to dividends, voting rights and other benefits with respect
to such shares, excepting only the right to payment of the purchase price fixed
as aforesaid. In order to further assure that ownership of the shares of stock
does not become so concentrated, any transfer of shares that would prevent the
Corporation from continuing to be qualified as a real
28
<PAGE>
estate investment trust by virtue of the application of Section 856(a)(5) and
(6) of the Code shall be void ab initio and the intended transferee of such
-- ------
shares shall be deemed never to have had an interest therein. If the foregoing
provision is determined to be void or invalid by virtue of any legal decision,
statute, rule or regulation, then the transferee of such shares shall be deemed
to have acted as agent on behalf of the Corporation in acquiring such shares and
to hold such shares on behalf of the Corporation. For purposes of determining
whether the Corporation is in compliance with Section 856(a)(5) and (6), Section
542(a)2) and Section 544 of the Code, or similar provisions of successor
statutes, shall be applied.
(d) In addition to the requirements of subparagraph (c) above, if the
Board of Directors shall at any time and in good faith be of the opinion that
direct or indirect ownership of shares of either common stock or preferred
stock, or both, of the Corporation has or may become concentrated to an extent
which would cause any rent to be paid to this Corporation to fail to qualify or
be disqualified as rent from real property by virtue of Section 856(d)(2)(B) of
the Code, or similar provisions of successor statutes, the Board of Directors
shall have the power (i) by lot or other means deemed equitable by them to call
for purchase from any stockholder of the Corporation such number of shares
sufficient in the opinion of the Board of
29
<PAGE>
Directors to maintain or bring the direct or indirect ownership of shares of
stock of the Corporation into conformity with the requirements of Section
856(d)(2)(B) and (ii) to refuse to register the transfer of shares of stock to
any person whose acquisition of such shares would, in the opinion of the Board
of Directors, result in this Corporation being unable to conform to the
requirements of said Section 856(d)(2)(B). The purchase price for the shares of
stock purchased pursuant hereto shall be equal to the fair market value of such
shares as reflected in the closing price for such shares on the principal stock
exchange on which such shares are listed, or if such shares are not listed, then
the last bid quotation for shares of stock, as of the close of business on the
date fixed by the Board of Directors for such purchase or, if no quotation for
the shares is available, as determined in good faith by the Board of Directors.
From and after the date fixed for purchase by the Board of Directors, the holder
of any shares so called for purchase shall cease to be entitled to dividends,
voting rights and other benefits with respect to such shares, excepting only the
right to payment of the purchase price fixed as aforesaid. In order to further
assure that ownership of the shares of stock does not become so concentrated,
any transfer of shares that would prevent this Corporation from continuing to be
qualified as a real estate investment trust by virtue of the application of
Section 856(d)(2)(B) of the Code shall be void ab initio and
-- ------
30
<PAGE>
the intended transferee of such shares shall be deemed never to have had an
interest therein. If the foregoing provision is determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
transferee of such shares shall be deemed to have acted as agent on behalf of
the Corporation in acquiring such shares and to hold such shares on behalf of
the Corporation. For purposes of determining whether this Corporation is in
compliance with Section 856(d)(2)(B), Section 856(d)(5) of the Code, or similar
provisions of successor statutes, shall be applied.
(e) The stockholders of the Corporation shall upon demand disclose to
the Board of Directors in writing such information with respect to their direct
and indirect ownership of the stock of the Corporation as the Board of Directors
deems necessary to determine whether the Corporation satisfies the provisions of
Section 856(a)(5) and (6) and 856(d) of the Code and the regulations thereunder
as the same shall be from time to time amended, or to comply with the
requirements of any other taxing authority.
Section 7.6. Form of Consideration. In purchasing such shares from
---------------------
any shareholder in accordance with the foregoing provisions, the Corporation may
pay consideration in the form of cash or, at the option of the Board of
Directors, in the form of subordinated indebtedness
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of the Corporation. The principal amount of such subordinated indebtedness
shall be equal to the purchase price of the shares (less amounts paid in cash,
if any) and it shall have such other terms as may be determined by the Board of
Directors at the time of issuance.
Section 7.7. Record Date. In order that the Corporation may
-----------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereto, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 7.8. Registered Stockholders. The Corporation shall be
-----------------------
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and
32
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shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
Section 7.9. Transfer Agents and Registrars. The Board of Directors
------------------------------
may appoint one or more corporate transfer agents and registrars.
Section 7.10. Dividends. Dividends upon the capital stock of the
---------
Corporation may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock.
Section 7.11. Reserves. Before payment of any dividend, there may be
--------
set aside out of any funds of the Corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
33
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ARTICLE VIII
Indemnification and Insurance
Section 8.1. Right to Indemnification. Each person who was or is a
------------------------
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employer or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
or inaction in an official capacity or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent permitted by the laws of Delaware, as the
same exist or may hereafter be amended, against all costs, charges, expenses,
liabilities and losses (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of
34
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his or her heirs, executors and administrators; provided, however, that, except
as provided in Section 8.2 hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
35
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Section 8.2. Right of Claimant to Bring Suit. If a claim under
-------------------------------
Section 8.1 of this Article is not paid in full by the Corporation within thirty
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has failed to meet a standard of
conduct which makes it permissible under Delaware law for the Corporation to
indemnify the claimant for the amount claimed. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the circumstances
because he or she has met such standard of conduct, nor an actual determination
by the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
failed to meet such standard of conduct.
36
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Section 8.3. Non-Exclusivity of Rights. The right to indemnification
-------------------------
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 8.4. Insurance. The Corporation may maintain insurance, at
---------
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Delaware law.
Section 8.5. Expenses as a Witness. To the extent that any director,
---------------------
officer, employee or agent of the Corporation is by reason of such position, or
a position with another entity at the request of the Corporation, a witness in
any action, suit or proceeding, he or she shall be indemnified against all costs
and expenses actually and reasonably incurred by him or her or on his or her
behalf in connection therewith.
37
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Section 8.6. Indemnity Agreements. The Corporation may enter into
--------------------
agreements with any director, officer, employee or agent of the Corporation
providing for indemnification to the full extent permitted by Delaware law.
ARTICLE IX
General Provisions
Section 9.1. Annual Reports. Not later than one hundred twenty
--------------
(120) days after the close of each fiscal year of the Corporation, the Board of
Directors shall mail a report of the business and operation of the Corporation
during such fiscal year to the stockholders. The report shall be in such form
and have such content as the Board deems proper. This report shall include a
balance sheet and a statement of income and surplus and a statement of changes
in financial position of the Corporation. Such financial statements shall be
accompanied by the report of an independent certified public accountant thereon.
Section 9.2. Quarterly Reports. Within 90 days after the close of
-----------------
each of the first three quarters of each fiscal year of the Corporation, the
Board of Directors shall send interim reports to the stockholders, having such
form and content as the Board of Directors deems proper.
38
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Section 9.3. Fiscal Year. The fiscal year of the Corporation shall
-----------
be fixed by resolution of the Board of Directors.
Section 9.4. Seal. The corporate seal shall have inscribed thereon
----
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
Section 9.5. Checks, Drafts, etc. All checks, drafts or other orders
-------------------
for payment of money, notes or other evidences of indebtedness, issued in the
name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board of Directors.
Section 9.6. Representation of Shares of Other Corporations. The
----------------------------------------------
President or any Vice President and the Secretary or Assistant Secretary of this
Corporation are authorized to vote, represent and exercise on behalf of this
Corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this Corporation. The authority herein
granted to said officers to vote or represent on behalf of this Corporation any
and all shares held by this Corporation in any other corporation or corporations
may be exercised either by such
39
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officers in person or by any other person authorized so to do by proxy or power
of attorney duly executed by said officers.
Section 9.7. Employee Stock Purchase Plans. The Corporation may,
-----------------------------
upon terms and conditions herein authorized, provide and carry out an employee
stock purchase plan or plans providing for the issue and sale, or for the
granting of options for the purchase, of its unissued shares, or of issued
shares purchased or to be purchased or acquired, to employees of the Corporation
or of any subsidiary or to a trustee on their behalf. Such plan may provide for
such consideration as may be fixed therein, for the payment of such shares in
installments or at one time and for aiding any such employees in paying for such
shares by compensation for services or by loans from the Corporation or
otherwise. Any such plan before becoming effective must be approved or
authorized by the Board of Directors of the Corporation.
Such plan may include, among other things, provisions determining or
providing for the determination by the Board of Directors, or any committee
thereof designated by the Board of Directors, of: (a) eligibility of employees
(including officers and directors) to participate therein, (b) the number and
class of shares which may be subscribed for or for which options may be granted
under the plan,
40
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(c) the time and method of payment therefor, (d) the price or prices at which
such shares shall be issued or sold, (e) whether or not title to the shares
shall be reserved to the Corporation until full payment therefor, (f) the effect
of the death of an employee participating in the plan or termination of his
employment, including whether there shall be any option or obligation on the
part of the Corporation to repurchase the shares thereupon, (g) restrictions, if
any, upon the transfer of the shares, and the time limits and termination of the
plan, (h) termination, continuation or adjustments of the rights of
participating employees upon the happening of specified contingencies, including
increase or decrease in the number of issued shares of the class covered by the
plan without receipt of consideration by the Corporation or any exchange of
shares of such class for stock or securities of another corporation pursuant to
a reorganization or merger, consolidation or dissolution of the Corporation, (i)
amendment, termination, interpretation and administration of such plan by the
Board of Directors or any committee thereof designated by the Board of
Directors, and (j) any other matters, not repugnant to law, as may be included
in the plan as approved or authorized by the Board of Directors or any such
committee.
41
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ARTICLE X
Amendments
Section 10.1. Power of Stockholders. New By-laws may be adopted or
---------------------
these By-laws may be amended or repealed by the stockholders only by the
affirmative vote of at least 80% of the voting power of the Corporation, except
as otherwise provided by law. Any proposal to amend or repeal, or adopt any
provisions inconsistent with, Article Tenth of the Certificate of Incorporation
shall require for approval the affirmative vote of at least 80% of the voting
power of the Corporation.
Section 10.2. Power of Directors. Subject to the right of
------------------
stockholders as provided in Section 10.1 of this Article X to adopt, amend or
repeal By-laws, By-laws may be adopted, amended or repealed by the Board of
Directors; provided, however, that Section 7.5 of these By-laws may not be
amended or repealed except with approval of the holders of 80% of the
outstanding common stock of the Corporation.
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EXHIBIT 3.4
REVISED 1/15/97
---------------
BY-LAWS
OF
SANTA ANITA OPERATING COMPANY
(a Delaware corporation)
ARTICLE I
Offices
Section 1.1. Registered Office. The registered office shall be in
-----------------
the City of Wilmington, County of New Castle, State of Delaware.
Section 1.2. Other Offices. The Corporation may also have offices at
-------------
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
Meetings of Stockholders
Section 2.1. Place. All meetings of the stockholders for the
-----
election of directors shall be held at such place either within or without the
State of Delaware as shall be designated from time to time by the Board of
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<PAGE>
Directors and stated in the notice of the meeting. Meetings of stockholders for
any other purpose may be held at such time or place, within or without the State
of Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2.2. Annual Meetings. The annual meetings of stockholders
---------------
shall be held on the third Thursday in May of each year at 10 o'clock A.M. of
said day, the first such meeting to be held on the third Thursday in May 1981;
provided, however, that should said day fall upon a legal holiday, then any such
annual meeting of stockholders shall be held at the same time and place on the
next day thereafter ensuing which is a full business day. At such meetings
directors shall be elected, reports of the affairs of the Corporation shall be
considered, and any other business may be transacted which is within the powers
of the stockholders. If for any annual meeting the Board of Directors shall
fix a different day or hour, such action shall be deemed an amendment of this
Section 2.2 effective until the adjournment of that annual meeting sine die.
---- ---
Written notice of each annual meeting shall be given to each
stockholder entitled to vote, either personally or by mail or other means of
written communication, charges prepaid, addressed to such stockholder at his
address appearing on the books of the Corporation or
2
<PAGE>
given by him to the Corporation for the purpose of notice. If a stockholder
gives no address, notice shall be deemed to have been given him if sent by mail
or other means of written communication addressed to the place where the
principal office of the Corporation is situated, or if published at least once
in some newspaper of general circulation in the county in which said office is
located. All such notices shall be sent to each stockholder entitled thereto
not less than ten nor more than sixty days before each annual meeting. Such
notices shall specify the place, the day and the hour of such meeting and shall
state such other matters if any, as may be expressly required by statute.
Section 2.3. Special Meetings. Special meetings of the stockholders,
----------------
for any purpose or purposes whatsoever, may be called at any time by the Board
of Directors. Except in special cases where other express provision is made by
statute, notice of such special meetings shall be given in the same manner as
for annual meetings of stockholders. Notices of any special meeting shall
specify, in addition to the place, day and hour of such meeting, the general
nature of the business to be transacted.
Section 2.4. Business To Be Brought Before Meeting. In order to be
-------------------------------------
properly brought before any meeting of stockholders held pursuant to this
Article II, business
3
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(including the election of directors) must be (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder. In order for any such business to be properly
brought before the meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation. In order
to be timely, a stockholder's notice must be received at the principal executive
offices of the Corporation not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that a meeting is called for a
date other than that specified in the By-laws, and less than 75 days' prior
public disclosure of such date is given, notice by the stockholder in order to
be timely must be received by the Secretary of the Corporation not later than
the close of business on the fifteenth (15) calendar day following the day on
which such public disclosure of the date of the meeting was made. If a
stockholder intends to nominate a candidate or candidates for director at any
meeting of stockholders, such stockholder's notice to the Secretary shall set
forth the name, age, address and principal occupation of each such nominee and
the amount and type of the Corporation's stock held by each such nominee,
together with any additional information reasonably necessary to
4
<PAGE>
determine the eligibility of each such nominee and any information required to
be disclosed in the solicitation of proxies in respect of each such nominee by
Schedule 14A, as amended from time to time, or other applicable Rules and
Regulations of the Securities and Exchange Commission. The notice to the
Secretary shall also set forth the name, address and the amount and type of
beneficial ownership of the Corporation's stock of the stockholder intending to
nominate the candidate or candidates identified in the notice to the Secretary.
Any stockholder desiring to bring any other business before any annual meeting
of stockholders shall set forth in such stockholder's notice to the Secretary
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the meeting, (ii) the
name and record address of the stockholder proposing such business, (iii) the
class and number of shares of the Corporation's stock that are beneficially
owned by such stockholder, and (iv) any material interest of such stockholder in
such business. In order to be properly brought before any special meeting of
stockholders (other than any special meeting held for the purpose of electing
directors), business must be specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors.
Notwithstanding anything in the By-laws to the contrary, no business
(including the election of directors)
5
<PAGE>
shall be conducted at the meeting except in accordance with the procedures set
forth in this Section 2.4; provided, however, that nothing in this Section 2.4
shall preclude or be deemed or construed to preclude discussion by any
stockholder of any business properly brought before the annual meeting of
stockholders.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 2.4, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Section 2.5. List of Stockholders. The officer who has charge of the
--------------------
stock ledger of the Corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is
6
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to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 2.6. Quorum. The holders of a majority of the stock issued
------
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute. If, however,
such quorum shall not be present or represented at any meeting of stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 2.7. Questions Before Meeting. When a quorum is present at
------------------------
any meeting, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any question
7
<PAGE>
brought before such meeting unless the question is one upon which by express
provision of the statutes, of these By-laws or of the Certificate of
Incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of such question.
Section 2.8. Action Without Meeting. Any action required or
----------------------
permitted to be taken by holders of stock of the Corporation must be taken at a
meeting of such holders and may not be taken by consent in writing.
Section 2.9. Waiver of Notice. Whenever notice is required to be
----------------
given under the Delaware Corporation Law or the Certificate of Incorporation or
the By-laws, a written waiver, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation.
8
<PAGE>
ARTICLE III
Directors
Section 3.1. Size of Board. The Board of Directors shall consist of
-------------
ten members, or as many as shall be determined from time to time by resolution
of the Board.
Section 3.2. Election of Directors. The directors shall be divided
---------------------
into three classes, designated Class I, Class II, and Class III, such classes to
be as nearly equal in number as possible. At the annual meeting of stockholders
in 1986, directors of Class I shall be elected to hold office for a term
expiring at the next succeeding annual meeting, directors of Class II shall be
elected to hold office for a term expiring at the second succeeding annual
meeting, and directors of Class III shall be elected to hold office for a term
expiring at the third succeeding annual meeting. Thereafter at each annual
meeting of stockholders, directors shall be chosen for a term of three years to
succeed those whose terms then expire and shall hold office until the third
following annual meeting of stockholders and until the election of their
respective successors. Directors need not be stockholders.
Section 3.3. Vacancies. Vacancies and newly created directorships
---------
resulting from any increase in the
9
<PAGE>
authorized number of directors may be filled by a majority of the directors then
in office, though less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office for the unexpired term of the vacant
directorship, or, in the case of any increase in the number of directors, as
designated by the directors then in office, consistent with the provisions of
Section 3.2. If there are no directors in office, then an election of directors
may be held in the manner provided by statute. If, at the time of filling any
vacancy or any newly created directorship, the directors then in office shall
constitute less than a majority of the whole Board (as constituted immediately
prior to any such increase), the Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent of the total number of
the shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his term of office.
Section 3.4. Powers. The business of the Corporation shall be
------
managed by its Board of Directors which may exercise all such powers of the
Corporation and do all such
10
<PAGE>
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-laws directed or required to be exercised or done
by the stockholders.
Section 3.5. Meetings. The Board of Directors of the Corporation may
--------
hold meetings, both regular and special, either within or without the State of
Delaware.
Section 3.6. First Meeting. The first meeting of each newly elected
-------------
Board of Directors shall be held immediately following the annual meeting of
stockholders at which such directors are elected and no notice of such meeting
shall be necessary to the newly elected directors in order legally to constitute
the meeting, provided a quorum shall be present; or the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 3.7. Regular Meetings. Regular meetings of the Board may be
----------------
held without notice at such time and at such place as shall from time to time be
determined by the Board.
Section 3.8. Special Meetings. Special meetings of the Board may be
----------------
called by the Secretary at the request
11
<PAGE>
of the Chairman of the Board or President on two business days' notice to each
director, either personally or by mail, by telegram or by telephone; special
meetings shall be called by the Chairman of the Board or Secretary in like
manner and on like notice on the written request of two directors.
Section 3.9. Quorum. At all meetings of the Board a majority of the
------
total number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 3.10. Conference Telephone. Unless otherwise restricted by
--------------------
the Certificate of Incorporation or these By-laws, members of the Board of
Directors (or any committee designated by the Board) may participate in a
meeting of the Board or committee by means of conference telephone or similar
communications equipment by means of
12
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which all persons participating in the meeting can hear each other.
Section 3.11. Unanimous Consent. Unless otherwise restricted by the
-----------------
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 3.12. Committees. The Board of Directors may, by resolution
----------
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. Any such committee, to the extent provided in the resolution, shall
have and may exercise the power of the Board of Directors in the management of
the business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; provided,
however, that in the absence or disqualification of any member of such committee
or committees, the member or members thereof present at any meeting and not
disqualified
13
<PAGE>
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
Section 3.13. Minutes. Each committee shall keep regular minutes of
-------
its meetings and report the same to the Board of Directors when required.
Section 3.14. Fees and Compensation. Directors and members of
---------------------
committees may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
Board.
ARTICLE IV
Notices
Section 4.1. Methods of Notice. Whenever, under the provisions of
-----------------
the Laws of the State of Delaware or of the Certificate of Incorporation or of
these By-laws, notice is required to be given to any director or stockholder, it
shall not be construed to mean personal notice, but notice may be given in
writing, by mail, addressed to such director or stockholder, at his address as
it appears on the records of the Corporation, with postage thereon prepaid, and
such
14
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notice shall be deemed to be given at the time when the same shall be deposited
in the United States mail. Notice to directors may also be given by telegram or
telephone.
Section 4.2. Waiver. Whenever any notice is required to be given
------
under the provisions of the statutes or of the Certificate of Incorporation or
of these By-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
Officers
Section 5.1. Officers. The Officers of the Corporation shall be a
--------
Chairman of the Board, a President, a Secretary and a Treasurer. The
Corporation may also have, at the discretion of the Board of Directors, one or
more Vice Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 5.3 and Section 5.5 of this Article. The Board of
Directors may also choose, at its discretion, one or more Vice Chairmen of the
Board, who shall not constitute officers of the Corporation. One person may
hold two or more offices.
15
<PAGE>
Section 5.2. Election. The officers of the Corporation, except such
--------
officers as may be appointed in accordance with the provisions of Section 5.3 or
Section 5.5 of this Article, shall be chosen annually by the Board of Directors,
and each shall hold his office until he shall resign or shall be removed or
otherwise disqualified to serve, or his successor shall be elected and
qualified.
Section 5.3. Subordinate Officers, etc. The Board of Directors may
--------------------------
appoint, and may empower the Chairman of the Board to appoint, such other
officers as the business of the Corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in the By-laws or as the Board of Directors may from time to time
determine.
Section 5.4. Removal and Resignation. Any officer may be removed,
-----------------------
either with or without cause, by the Board of Directors, at any regular or
special meeting thereof, or, except in the case of an officer chosen by the
Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
Board of Directors or to the Chairman of the Board, or to the Secretary of the
Corporation. Any such resignation shall take effect at the date of the receipt
of
16
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such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 5.5. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the By-laws for regular appointments to such office.
Section 5.6. Salaries. The salaries and other compensation of all
--------
officers of the Corporation shall be fixed by the Board of Directors.
Section 5.7. Chairman of the Board. The Chairman of the Board shall
---------------------
preside at all meetings of the stockholders and all meetings of the Board of
Directors. He shall be an ex-officio member of all standing committees,
including the Executive Committee, if any, and shall have such other powers and
duties as may be prescribed by the Board of Directors or the By-laws.
Section 5.7A. Vice Chairman of the Board. In the absence of the
--------------------------
Chairman of the Board, the Vice Chairman of the Board designated by the Board of
Directors shall preside at meetings of the Board of Directors.
17
<PAGE>
Section 5.8. President. The President shall be the Chief Executive
---------
Officer of the Corporation and shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the Corporation.
He shall be an ex-officio member of all standing committees, including the
Executive Committee, if any, shall have the general powers and duties of
management usually vested in the office of the chief executive officer of a
corporation, and shall have such other powers and perform such other duties as
from time to time may be prescribed for him by the Board of Directors or the By-
laws.
Section 5.9. Vice President. In the absence or disability of the
--------------
Chairman of the Board and the President, the Vice Presidents in order of their
rank as fixed by the Board of Directors or, if not ranked, the Vice President
designated by the Board of Directors, shall perform all the duties of the
Chairman of the Board and the President, and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the Chairman of the
Board and the President. The Vice Presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by the Board of Directors or the By-laws.
Section 5.10. Secretary. The Secretary shall keep or cause to be
---------
kept, at the principal office or such
18
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other place as the Board of Directors may order, a book of minutes of all
meetings of directors and stockholders, with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at directors' meetings, the number of shares
present or represented at stockholders' meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office or at the
office of the Corporation's transfer agent, a share register, or a duplicate
share register, showing the names of the stockholders and their addresses, the
number and class of shares held by each, the number and date of certificates
issued for the same, and the number and date of cancellation of every
certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the stockholders and of the Board of Directors required by the By-
laws or by law to be given, and he shall keep the seal of the Corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by the By-laws.
Section 5.11. Treasurer. The Treasurer shall keep and maintain, or
---------
cause to be kept and maintained, adequate and correct accounts of the properties
and business transactions of the Corporation, including accounts of its
19
<PAGE>
assets, liabilities, receipts, disbursements, gains, losses, capital, surplus
and shares. Any surplus, including earned surplus, paid-in surplus and surplus
arising from a reduction of stated capital, shall be classified according to
source and shown in a separate account. The books of account shall at all
reasonable times be open to inspection by any director.
The Treasurer shall deposit all moneys and other valuables in the name
and to the credit of the Corporation with such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the Corporation as
may be ordered by the Board of Directors, shall render to the Chairman of the
Board and directors, whenever they request it, an account of all of his
transactions as Treasurer and of the financial condition of the Corporation, and
shall have such other powers and perform such other duties as may be prescribed
by the Board of Directors or the By-laws.
ARTICLE VI
Stock and Stock Certificates
Section 6.1. Right to Certificate. Every holder of stock in the
--------------------
Corporation shall be entitled to have a certificate, signed by or in the name of
the Corporation, by
20
<PAGE>
the Chairman of the Board of Directors or the President or a Vice President, and
by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by him in
the Corporation.
Section 6.2. Statements Setting Forth Rights. If the Corporation
-------------------------------
shall be authorized to issue more than one class of stock or more than one
series of any class, the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and rights
shall be set forth in full or summarized on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock,
provided that,except as otherwise provided in Section 202 of the Corporation Law
of Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the Corporation shall issue to
represent such class or series of stock, a statement that the Corporation will
furnish without charge to each stockholder who so requests the designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations and
restrictions of such preferences and rights.
21
<PAGE>
Section 6.3 Facsimile Signatures. Any of or all the signatures on
--------------------
the certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
Section 6.4. Lost Certificates. Except as hereinafter in this
-----------------
section provided, no new certificate for shares shall be issued in lieu of an
old one unless the latter is surrendered and cancelled at the same time. The
Board of Directors may, however, in case any certificate for shares is lost,
stolen, mutilated or destroyed, authorize the issuance of a new certificate in
lieu thereof, upon such terms and conditions, including reasonable
indemnification of the Corporation, as the Board shall determine.
Section 6.5 Transfers of Stock.
------------------
(a) Subject to paragraphs (b), (c) and (d) of this Section 6.5, upon
surrender to any transfer agent of the Corporation of a certificate for shares
of the Corporation duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be
22
<PAGE>
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
(b) Beginning at the time that (A) the merger of Santa Anita
Consolidated, Inc. ("Santa Anita") into Santa Anita Realty Enterprises, Inc., a
Delaware corporation ("Realty"), and (B) the payment by Realty of the dividend
in kind of the shares of the Corporation (the "Distribution") shall have both
occurred (hereinafter called the "effective time of the restriction"), and
continuing thereafter until such time as the limitation on transfer provided for
in the Pairing Agreement between Realty and the Corporation shall be terminated
in the manner therein provided:
(i) The shares of common stock of the Corporation shall not be
transferable, and shall not be transferred on the books of the Corporation,
unless (1) a simultaneous transfer is made by the same transferor to the same
transferee, or (2) such transferor has previously arranged with Realty for the
transfer to the transferee, of a like number of shares of common stock of Realty
and such shares are paired with one another.
(ii) Except for certificates representing shares of common stock of
Realty referred to in subparagraph (vi) below, each certificate evidencing
ownership of shares of
23
<PAGE>
common stock of Realty (including certificates issued by Santa Anita) issued and
not cancelled prior to the effective time of the restriction shall be deemed to
evidence a like number of shares of common stock of the Corporation.
(iii) Except for certificates representing common stock of Realty
referred to in subparagraph (vi) below, any registered holder of a certificate
evidencing ownership of shares of common stock of Realty (including certificates
issued by Santa Anita) issued prior to the effective time of the restriction
may, upon request and presentation of said certificate to the Corporation's
transfer agent, obtain in substitution therefor a certificate or certificates
registered in such holder's name evidencing the same number of common shares of
the Corporation and a like number of shares of common stock of Realty.
(iv) A conspicuous legend shall be placed on the face of each
certificate evidencing ownership of shares of common stock of the Corporation
issued after the effective time of the restrictions, referring to the
restrictions on transfer set forth in the Corporation's By-laws.
(v) For purposes of this paragraph (b) only, the terms "common stock"
and "common shares" shall include preferred stock which is convertible into
shares of common stock.
24
<PAGE>
(vi) Notwithstanding the other provisions of this paragraph (b), any
stockholder whose ownership of the common stock of the Corporation at the
effective time of the restriction would be deemed, after application of the
attribution rules of the Internal Revenue Code of 1954 (the "Code"), to result
in Realty owning, directly or indirectly, more than 9.25% of the common stock of
the Corporation will not be subject to the restrictions imposed by this
paragraph (b) to the extent that such ownership would cause Realty, directly or
indirectly, to be deemed to own, after application of the attribution rules of
the Code, more than 9.25% of the total number of the outstanding shares of the
Corporation, provided that (1) a sufficient amount of the common stock of the
Corporation (or the right to receive such common stock) which would otherwise be
paired with stock of Realty is sold to third parties so that Realty, directly or
indirectly, after application of the attribution rules of the Code, will not own
in excess of 9.25% of the common stock of the Corporation, (2) all holders of
the unpaired shares enter into an agreement, satisfactory to the Boards of
Directors of Realty, the Corporation and Santa Anita, providing that such shares
not be transferable by sale or any other means, without arranging for such
shares to be paired with an equal number of shares of Realty, unless such sale
is made to the Corporation or Realty and (3) such stockholder and any transferee
of such stockholder executes a waiver of any claims he or she may have arising
out of the
25
<PAGE>
close business relationship between the Corporation and Realty and claims
arising out of conflicts of interest inherent in such business relationship.
The other provisions of this paragraph (b) shall apply to all shares of the
Corporation otherwise held by any stockholder unless they are specifically
exempted by this subparagraph (vi).
(c) If the Board of Directors shall at any time and in good faith be
of the opinion that direct or indirect ownership of shares of either common
stock or preferred stock, or both, of the Corporation has or may become
concentrated to an extent which would cause Realty to fail to qualify or be
disqualified as a real estate investment trust by virtue of Section 856(a)(5)
and (6) of the Code, or similar provisions of successor statutes, pertaining to
the qualification of Realty as a real estate investment trust, the Board of
Directors shall have the power (i) by lot or other means deemed equitable by
them to call for purchase from any stockholder of the Corporation such number of
shares sufficient in the opinion of the Board of Directors to maintain or bring
the direct or indirect ownership of shares of stock of the Corporation into
conformity with the requirements of said Section 856(a)(5) and (6) pertaining to
Realty and (ii) to refuse to register the transfer of shares of stock to any
person whose acquisition of such shares would, in the opinion of the Board of
Directors, result in Realty being unable to conform to the requirements of said
26
<PAGE>
Section 856(a)(5) and (6). The purchase price for the shares of stock purchased
pursuant hereto shall be equal to the fair market value of such shares as
reflected in the closing price for such shares on the principal stock exchange
on which such shares are listed or, if such shares are not listed, then the last
bid quotation for shares of stock as of the close of business on the date fixed
by the Board of Directors for such purchase or, if no quotation for the shares
is available, as determined in good faith by the Board of Directors. From and
after the date fixed for purchase by the Board of Directors, the holder of any
shares so called for purchase shall cease to be entitled to dividends, voting
rights and other benefits with respect to such shares excepting only the right
to payment of the purchase price fixed as aforesaid. In order to further assure
that ownership of the shares of stock does not become so concentrated, any
transfer of shares that would prevent Realty from continuing to be qualified as
a real estate investment trust by virtue of the application of Section 856(a)(5)
and (6) of the Code shall be void ab initio and the intended transferee of such
-- ------
shares shall be deemed never to have had an interest therein. If the foregoing
provision is determined to be void or invalid by virtue of any legal decision,
statute, rule or regulation, then the transferee of such shares shall be deemed
to have acted as agent on behalf of the Corporation in acquiring such shares and
to hold such shares on behalf of the Corporation. For purposes
27
<PAGE>
of determining whether the Corporation is in compliance with Section 856(a)(5)
and (6), Section 542(a)(2) and Section 544 of the Code, or similar provisions of
successor statutes, shall be applied.
(d) In addition to the requirements of subparagraph (c) above, if
the Board of Directors shall at any time and in good faith be of the opinion
that direct or indirect ownership of shares of either common stock or preferred
stock, or both, of the Corporation has or may become concen trated to an extent
which would cause any rent to be paid to Realty to fail to qualify or be
disqualified as rent from real property by virtue of Section 856(d)(2)(B) of the
Code, or similar provisions of successor statutes, pertaining to the
qualification of Realty as a real estate investment trust, the Board of
Directors shall have the power (i) by lot or other means deemed equitable by
them to call for purchase from any stockholder of the Corporation such number of
shares sufficient in the opinion of the Board of Directors to maintain or bring
the direct or indirect ownership of shares of stock of the Corporation into
conformity with the requirements of Section 856(d)(2)(B) pertaining to Realty
and (ii) to refuse to register the transfer of shares of stock to any person
whose acquisition of such shares would, in the opinion of the Board of
Directors, result in Realty being unable to conform to the requirements of said
Section 856(d)(2)(B). The purchase price for the shares of
28
<PAGE>
stock purchased pursuant hereto shall be equal to the fair market value of such
shares as reflected in the closing price for such shares on the principal stock
exchange on which such shares are listed, or if such shares are not listed, then
the last bid quotation for shares of stock, as of the close of business on the
date fixed by the Board of Directors for such purchase or, if no quotation for
the shares is available, as determined in good faith by the Board of Directors.
From and after the date fixed for purchase by the Board of Directors, the
holders of any shares so called for purchase shall cease to be entitled to
dividends, voting rights and other benefits with respect to such shares,
excepting only the right to payment of the purchase price fixed as aforesaid.
In order to further assure that ownership of the shares of stock does not become
so concentrated, any transfer of shares that would prevent Realty from
continuing to be qualified as a real estate investment trust by virtue of the
application of Section 856(d)(2)(B) of the Code shall be void ab initio and the
-- ------
intended transferee of such shares shall be deemed never to have had an interest
therein. If the foregoing provision is determined to be void or invalid by
virtue of any legal decision, statute, rule or regulation, then the transferee
of such shares shall be deemed to have acted as agent on behalf of the
Corporation in acquiring such shares and to hold such shares on behalf of the
Corporation. For purposes of determining whether this Corporation is in
compliance
29
<PAGE>
with Section 856(d)(2)(B), Section 856(d)(5) of the Code, or similar provisions
of successor statutes, shall be applied.
(e) The stockholders of the Corporation shall upon demand disclose to
the Board of Directors in writing such information with respect to their direct
and indirect ownership of the stock of the Corporation as the Board of Directors
deems necessary to determine whether Realty satisfies the provisions of Section
856(a)(5) and (6) and 856(d) of the Code and the regulations thereunder as the
same shall be from time to time amended, or to comply with the requirements of
any other taxing authority.
Section 6.6. Form of Consideration. In purchasing such shares from
---------------------
any shareholder in accordance with the foregoing provisions, the Corporation may
pay consideration in the form of cash or, at the option of the Board of
Directors, in the form of subordinated indebtedness of the Corporation. The
principal amount of such subordinated indebtedness shall be equal to the
purchase price of the shares (less amounts paid in cash, if any) and it shall
have such other terms as may be determined by the Board of Directors at the time
of issuance.
Section 6.7. Record Date. In order that the Corporation may
-----------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any
30
<PAGE>
adjournment thereto, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 6.8. Registered Stockholders. The Corporation shall be
-----------------------
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
Section 6.9. Transfer Agents and Registrars. The Board of Directors
------------------------------
may appoint one or more corporate transfer agents and registrars.
31
<PAGE>
Section 6.10. Dividends. Dividends upon the capital stock of the
---------
Corporation may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock.
Section 6.11. Reserves. Before payment of any dividend, there may be
--------
set aside out of any funds of the Corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ARTICLE VII
Indemnification and Insurance
Section 7.1. Right to Indemnification. Each person who was or is a
------------------------
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal represen-
32
<PAGE>
tative, is or was a director or officer of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action or inaction in an official
capacity or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the Corporation to the
fullest extent permitted by the laws of Delaware, as the same exist or may
hereafter be amended, against all costs, charges, expenses, liabilities and
losses (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith, and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in Section 7.2
hereof, the Corporation shall indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Article shall
be a contract right and shall include the right to be paid by the Corporation
the expenses
33
<PAGE>
incurred in defending any such proceeding in advance of its final disposition;
provided, however, that, if the Delaware General Corporation Law requires, the
payment of such expenses incurred by a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
Section 7.2. Right of Claimant to Bring Suit. If a claim under
-------------------------------
Section 7.1 of this Article is not paid in full by the Corporation within thirty
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to
34
<PAGE>
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has failed to meet a
standard of conduct which makes it permissible under Delaware law for the
Corporation to indemnify the claimant for the amount claimed. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is permissible
in the circumstances because he or she has met such standard of conduct, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not met
such standard of conduct, shall be a defense to the action or create a
presumption that the claimant has failed to meet such standard of conduct.
Section 7.3. Non-Exclusivity of Rights. The right to indemnification
-------------------------
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
35
<PAGE>
Section 7.4. Insurance. The Corporation may maintain insurance, at
---------
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Delaware law.
Section 7.5. Expenses as a Witness. To the extent that any director,
---------------------
officer, employee or agent of the Corporation is by reason of such position, or
a position with another entity at the request of the Corporation, a witness in
any action, suit or proceeding, he or she shall be indemnified against all costs
and expenses actually and reasonably incurred by him or her or on his or her
behalf in connection therewith.
Section 7.6. Indemnity Agreements. The Corporation may enter into
--------------------
agreements with any director, officer, employee or agent of the Corporation
providing for indemnification to the full extent permitted by Delaware law.
36
<PAGE>
ARTICLE VIII
General Provisions
Section 8.1. Annual Reports. Not later than one hundred twenty (120)
--------------
days after the close of each fiscal year of the Corporation, the Board of
Directors shall mail a report of the business and operation of the Corporation
during such fiscal year to the stockholders. The report shall be in such form
and have such content as the Board deems proper. This report shall include a
balance sheet and a statement of income and surplus and a statement of changes
in financial position of the Corporation. Such financial statements shall be
accompanied by the report of an independent certified public accountant
thereon.
Section 8.2. Quarterly Reports. Within 90 days after the close of
-----------------
each of the first three quarters of each fiscal year of the Corporation, the
Board of Directors shall send interim reports to the stockholders, having such
form and content as the Board of Directors deems proper.
Section 8.3. Fiscal Year. The fiscal year of the Corporation shall
-----------
be fixed by resolution of the Board of Directors.
37
<PAGE>
Section 8.4. Seal. The corporate seal shall have inscribed thereon
----
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
Section 8.5. Checks, Drafts, etc. All checks, drafts or other orders
--------------------
for payment of money, notes or other evidences of indebtedness, issued in the
name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board of Directors.
Section 8.6. Representation of Shares of Other Corporations. The
----------------------------------------------
Chairman of the Board, the President or any Vice President and the Secretary or
Assistant Secretary of this Corporation are authorized to vote, represent and
exercise on behalf of this Corporation all rights incident to any and all shares
of any other corporation or corporations standing in the name of this
Corporation. The authority herein granted to said officers to vote or represent
on behalf of this Corporation any and all shares held by this Corporation in any
other corporation or corporations may be exercised either by such officers in
person or by any other person authorized so to do by proxy or power of attorney
duly executed by said officers.
38
<PAGE>
Section 8.7. Employee Stock Purchase Plans. The Corporation may,
-----------------------------
upon terms and conditions herein authorized, provide and carry out an employee
stock purchase plan or plans providing for the issue and sale, or for the
granting of options for the purchase, of its unissued shares, or of issued
shares purchased or to be purchased or acquired, to employees of the Corporation
or of any subsidiary or to a trustee on their behalf. Such plan may provide for
such consideration as may be fixed therein, for the payment of such shares in
installments or at one time and for aiding any such employees in paying for such
shares by compensation for services or by loans from the Corporation or
otherwise. Any such plan before becoming effective must be approved or
authorized by the Board of Directors of the Corporation.
Such plan may include, among other things, provisions determining or
providing for the determination by the Board of Directors, or any committee
thereof designated by the Board of Directors, of: (a) eligibility of employees
(including officers and directors) to participate therein, (b) the number and
class of shares which may be subscribed for or for which options may be granted
under the plan, (c) the time and method of payment therefor, (d) the price or
prices at which such shares shall be issued or sold, (e) whether or not title to
the shares shall be reserved to the Corporation until full payment therefor, (f)
the effect of the death of an employee participating in the plan or
39
<PAGE>
termination of his employment, including whether there shall be any option or
obligation on the part of the Corporation to repurchase the shares thereupon,
(g) restrictions, if any, upon the transfer of the shares, and the time limits
and termination of the plan, (h) termination, continuation or adjustments of the
rights of participating employees upon the happening of specified contingencies,
including increase or decrease in the number of issued shares of the class
covered by the plan without receipt of consideration by the Corporation or any
exchange of shares of such class for stock or securities of another corporation
pursuant to a reorganization or merger, consolidation or dissolution of the
Corporation, (i) amendment, termination, interpretation and administration of
such plan by the Board of Directors or any committee thereof designated by the
Board of Directors, and (j) any other matters, not repugnant to law, as may be
included in the plan as approved or authorized by the Board of Directors or any
such committee.
ARTICLE IX
Amendments
Section 9.1. Power of Stockholders. New By-laws may be adopted or
---------------------
these By-laws may be amended or repealed by the stockholders only by the
affirmative vote of at least 80% of the voting power of the Corporation, except
as
40
<PAGE>
otherwise provided by law. Any proposal to amend or repeal, or adopt any
provisions inconsistent with, Article Tenth of the Certificate of Incorporation
shall require for approval the affirmative vote of at least 80% of the voting
power of the Corporation.
Section 9.2. Power of Directors. Subject to the right of
------------------
stockholders as provided in Section 9.1 of this Article IX to adopt, amend or
repeal By-laws, By-laws may be adopted, amended or repealed by the Board of
Directors; provided, however, that Section 6.5 of these By-laws may not be
amended or repealed except with the approval of the holders of 80% of the
outstanding common stock of the Corporation.
41
<PAGE>
EXHIBIT 4.7
[LOGO OF WELLS FARGO]
Flair Industrial Park
Regional Commercial Banking Office
9000 Flair Drive, Suite 100
El Monte, CA 91731
February 1, 1997
Mr. Brian L. Fleming, Executive Vice President/
Chief Financial Officer
Santa Anita Realty Enterprises, Inc.
301 West Huntington Drive, Suite 405
Arcadia, CA 91007
Dear Mr. Fleming:
This letter is to confirm that Wells Fargo Bank, National Association,
successor-by-merger to First Interstate Bank of California ("Bank") has agreed
to extend the maturity date of that certain credit accommodation granted by Bank
to Santa Anita Realty Enterprises, Inc. ("Borrower") in the original maximum
principal amount of Thirty Million Dollars ($30,000,000.00), with said principal
amount subsequently reduced to Twenty Million Dollars ($20,000,000.00) pursuant
to the terms and conditions of that certain Credit Agreement between Bank and
Borrower dated as of November 9, 1994, as amended from time to time (the
"Agreement").
The maturity date of said credit accommodation is hereby extended until
April 1, 1997. Until such date, all terms and conditions of the Agreement which
pertain to said credit accommodation shall remain in full force and effect,
except as expressly modified hereby. The promissory note dated as of November
9, 1994, as modified and/or amended from time to time, executed by Borrower and
payable to the order of Bank which evidences said credit accommodation, a copy
of which is attached hereto as Exhibit A (the "Note"), shall be deemed modified
as of the date this letter is acknowledged by Borrower to reflect the new
maturity date set forth above and to require that, until said new maturity date,
Borrower continue to make payments of principal. All other terms and conditions
of the Note remain in full force and effect, without waiver or modification.
Borrower acknowledges that Bank has not committed to make any renewal or
further extension of the maturity date of the above-described credit
accommodation beyond the new maturity date specified herein, and that any such
renewal or further extension remains in the sole discretion of Bank. This
letter constitutes the entire agreement between Bank and Borrower with respect
to the maturity date extension for the above-described credit
<PAGE>
Santa Anita Realty
Enterprises, Inc.
February 1, 1997
Page 2
accommodation, and supersedes all prior negotiations, discussions and
correspondence concerning said extension.
Please acknowledge your acceptance of the terms and conditions contained
herein by dating and signing one copy below and returning it to my attention at
the above address on or before February 15, 1997.
Very truly yours,
WELLS FARGO BANK
NATIONAL ASSOCIATION
SUCCESSOR-BY-MERGER TO FIRST
INTERSTATE BANK OF CALIFORNIA
By: /s/ Daniel F. Maddox
------------------------------
Daniel F. Maddox
Vice President
Acknowledged and accepted as of 1/23/97:
-------
Santa Anita Realty Enterprises, Inc.
By: /s/ Brian L. Fleming
-----------------------------
Brian L. Fleming
Executive Vice President/
Chief Financial Officer
<PAGE>
EXHIBIT 4.8
[LOGO OF WELLS FARGO]
Flair Industrial Park
Regional Commercial Banking Office
9000 Flair Drive, Suite 100
El Monte, CA 91731
April 1, 1997
Mr. Brian L. Fleming
Executive Vice President/
Chief Financial Officer
Santa Anita Realty Enterprises, Inc.
301 West Huntington Drive, Suite 405
Arcadia, CA 91007
Dear Mr. Fleming:
This letter is to confirm that Wells Fargo Bank, National Association,
successor-by-merger to First Interstate Bank of California ("Bank") has agreed
to extend the maturity date of that certain credit accommodation granted by Bank
to Santa Anita Realty Enterprises, Inc. ("Borrower") in the original maximum
principal amount of Thirty Million Dollars ($30,000,000), with said principal
amount subsequently reduced to Twenty Million Dollars ($20,000,000) pursuant to
the terms and conditions of that certain Credit Agreement between Bank and
Borrower dated as of November 9, 1994, as amended from time to time (the
"Agreement").
The maturity date of said credit accommodation is hereby extended until
June 1, 1997. Until such date, all terms and conditions of the Agreement which
pertain to said credit accommodation shall remain in full force and effect,
except as expressly modified hereby. The promissory note dated as of November
9, 1994, as modified and/or amended from time to time, executed by Borrower and
payable to the order of Bank which evidences said credit accommodation, a copy
of which is attached hereto as Exhibit A (the "Note"), shall be deemed modified
as of the date this letter is acknowledged by Borrower to reflect the new
maturity date set forth above and to require that, until said new maturity date,
Borrower continue to make payments of principal. All other terms and conditions
of the Note remain in full force and effect, without waiver or modification.
Borrower acknowledges that Bank has not committed to make any renewal or
further extension of the maturity date of the above-described credit
accommodation beyond the new maturity date specified herein, and that any such
renewal or further extension remains in the sole discretion of Bank. This
letter constitutes the entire agreement between Bank and Borrower with respect
to
<PAGE>
Santa Anita Realty
Enterprises, Inc.
April 1, 1997
Page 2
the maturity date extension for the above-described credit accommodation, and
supersedes all prior negotiations, discussions and correspondence concerning
said extension.
Please acknowledge your acceptance of the terms and conditions contained
herein by dating and signing one copy below and returning it to my attention at
the above address on or before April 15, 1997.
Very truly yours,
WELLS FARGO BANK,
NATIONAL ASSOCIATION
SUCCESSOR-BY-MERGER TO FIRST
INTERSTATE BANK OF CALIFORNIA
By: /s/ Daniel F. Maddox
-----------------------------------
Daniel F. Maddox
Vice President
Acknowledged and accepted as of 3/24/97:
-------
Santa Anita Realty Enterprises, Inc.
By: /s/ Brian L. Fleming
------------------------
Brian L. Fleming
Executive Vice President/
Chief Financial Officer
<PAGE>
EXHIBIT 10.18
Schedule of Omitted Documents
and Material Details Regarding
Severance Agreements of Certain Officers
of Santa Anita Realty Enterprises, Inc.
and Santa Anita Operating Company
The persons listed below have entered into substantially identical forms of
Severance Agreements, effective as of the dates listed opposite their names.
The form of Severance Agreement is incorporated by reference to Exhibit 10.22 to
the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the year ended December 31, 1992.
William C. Baker August 16, 1996
Clifford C. Goodrich October 1, 1992
Thomas S. Robbins October 1, 1992
Mark T. Stephens December 15, 1994
Kathryn J. McMahon November 28, 1994
Brian L. Fleming May 11, 1994
<PAGE>
EXHIBIT 10.44
SANTA ANITA REALTY ENTERPRISES, INC.
RETENTION AGREEMENT
This Retention Agreement ("Agreement") is dated as of December 16,
1996, and is entered into by and between _____________("Employee") and Santa
Anita Realty Enterprises, Inc., a Delaware corporation ("Company"). Employee
and Company hereby agree to the following terms and conditions:
1. Purpose of Agreement. The purpose of this Agreement is to
--------------------
provide that, in the event of a "Change in Control," Employee may become
entitled to receive additional benefits in the event of his or her termination.
It is believed that the existence of these potential benefits will benefit
Company by discouraging turnover among executives with Agreements and causing
such executives to be more able to respond to the possibility of a Change in
Control without being influenced by the potential effect of a Change in Control
on their job security.
2. Change in Control. For the purpose of this Agreement, a "Change
-----------------
in Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (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 (1) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (2) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that the following acquisitions shall not constitute a Change in
Control: (1) any acquisition directly from the Company (except that an
acquisition by virtue of the exercise of a
1
<PAGE>
conversion privilege shall not be considered within this paragraph unless the
converted security was itself acquired directly from the Company), (2) any
acquisition by the Company, (3) any acquisi tion by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (4) any acquisition by any corporation pursuant to
a reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in paragraphs (1) and (2) of
subsection (c) of this Section 2 are satisfied; or
(b) 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 Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incum bent 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
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation (a "transaction"), unless, following such transaction in
each case, (1) 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
Company Common Stock and Outstanding Company Voting
2
<PAGE>
Securities immediately prior to such transaction and (2) no Person (excluding
the Company, any employee benefit plan (or related trust) of the Company 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 Company 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
(d) Approval by the shareholders of the Company of (1) a complete
liquidation or dissolution of the Company or (2) the sale or other disposition
of all or substantially all of the assets of the Company, unless such assets are
sold to a corporation and following such sale or other disposition, the
conditions described in paragraphs (1) and (2) of subsec tion (c) of this
section 2 are satisfied.
3. Rights and Obligations Prior to a Change in Control. Prior to a
---------------------------------------------------
Change in Control the rights and obligations of Employee with respect to his or
her employment by Company shall be whatever rights and obligations are negotiat
ed between Company and Employee from time to time. The existence of this
Agreement, which deals only with such rights and obligations subsequent to a
Change in Control, shall not be treated as raising any inference with respect to
what rights and obligations exist prior to a Change in Control.
4. Effect of a Change in Control. In the event of a Change in
-----------------------------
Control, Sections 6 through 7 of this Agreement shall become applicable to
Employee if his or her Qualifying Termination occurs on or after the date of the
Change in Control and on or prior to the first anniversary of the date of the
Change in Control. If a Qualifying Termination has occurred by that date, then,
notwithstanding
3
<PAGE>
Section 9, this Agreement shall remain in effect until Employee receives the
various benefits to which he or she has become entitled under the terms of this
Agreement; otherwise, upon such date this Agreement shall be of no further force
or effect.
5. Qualifying Termination. If, subsequent to a Change in Control
----------------------
and during the period described in Section 4, Employee's employment with the
Company terminates, such termination shall be considered a Qualifying
-----
Termination if either of the following events occurs:
(a) Employee voluntarily terminates employment with the Company for
Good Reason. For purposes of this Section, "Good Reason" shall mean the
occurrence of one of the following events without Employee's consent:
(1) The assignment to Employee of any duties at Company 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 or any other action by the Company which results in an
aggregate diminution in any material respect in such position,
author ity, duties or responsibilities, provided that (1) an
isolated and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice
thereof given by the Employee shall not be a violation of this
paragraph and (2) a reduc tion in one element of Employee's
position, authority, duties or responsibilities com pensation
shall not be deemed a violation of this paragraph if a
counterbalancing increase in another element of Employee's
position, authority, duties or responsibilities occurs (the
determination of
4
<PAGE>
whether the increase is counterbalancing shall be determined by
Employee in good faith);
(2) Any reduction in Employee's total aggregate compensation from
Company not agreed to by Employee, which reduction shall be
deemed to occur if there is a reduction in (1) Employee's
aggregate 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)
or (2) 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, provided
that, (1) 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 (2) a reduc tion 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
(3) 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 of the Company.
(b) Employee is involuntarily terminated by Company without "Cause."
For purposes of this Section,
5
<PAGE>
"Cause" shall mean (1) an act or acts of dishonesty (including but not
limited to conviction of a felony) taken by Employee which materially
injures or damages the Company or (2) Employee's willful failure to
substantially perform Employee's duties where such willful failure results
in demonstrable material injury and damage to the Company.
Unless the following paragraph applies, this paragraph applies if (1)
the Change in Control is described in Section 2(c) and the resulting
corporation ("Successor") is not the Company or (2) the Change in Control
is described in Section 2(d), substantially all of the assets are sold to a
single entity ("Successor") and the Successor assumes all obligations under
this Retention Agreement. If this paragraph applies, then (1) the
termination of Employee's employment with the Company in connection with
the Change in Control will not, in of itself, constitute a Qualifying
Termination if Employee is employed by the Successor in connection with the
Change in Control and (2) the term "Successor" shall be substituted for
"Company" throughout this Agreement.
This paragraph applies if the Change in Control results in a joint
venture entity in which the Company is a partner. If this paragraph
applies, then (1) the reassignment or transfer of Employee from the Company
to the joint venture entity in connection with the Change in Control will
not, in of itself, constitute a Qualifying Termination and (2) whether a
Qualifying Termination occurs shall be determined by considering the
employment of Employee by the Company and the joint venture entity in the
aggregate.
6. Severance Payment. In the event of a Qualify ing Termination,
-----------------
Company shall pay Employee within 30 days of the Qualifying Termination a cash
lump sum equal to Employee's "Compensation" as a severance payment (the
"Severance Payment"). For this purpose, "Compensation" shall equal
6
<PAGE>
the sum of (1) the Employee's current annual base salary rate plus (2) the sum
of all bonuses paid to the Employee during the three consecutive calendar year
period ending on December 31 coinciding with or immediately preceding the Change
in Control divided by three (provided that, if the Employee was not employed for
three full calendar years, the bonus shall be based on the number of full
calendar years during which the Employee was employed). The Severance Payment
hereunder is in lieu of any severance payments that Employee might otherwise be
entitled to from Company under the terms of any other severance pay arrangement.
7. Limitation on Severance Payments.
--------------------------------
(a) Notwithstanding anything in this Agreement to the contrary, any
"parachute payments" to be made to or for the benefit of the Employee,
whether pursuant to this Agreement or otherwise, shall be modified to the
extent necessary so that the requirements of either paragraph (1) or (2)
below are satisfied:
(1) the aggregate "present value" of all "parachute payments"
payable to or for the benefit of the Employee, whether pursuant to
this Agreement or otherwise, shall be less than three times the
Employee's "base amount"; or
(2) each "parachute payment" payable to or for the benefit of the
Employee, whether pursuant to this Agreement or otherwise, shall be in
an amount which does not exceed the "reasonable compensation"
allocable to such "parachute payment."
(b) Notwithstanding anything in this Agreement to the contrary, no
payment described in Section 280G(b)(2)(B) of the Internal Revenue Code of
1986, as amended (the "Code") shall be made to or for the benefit of the
Employee.
7
<PAGE>
(c) For purposes of this Agreement:
(1) the term "base amount" shall have the meaning ascribed to it
under Section 280G(b)(3) of the Code;
(2) the term "parachute payment" shall have the meaning ascribed
in Section 280G(b)(2)(A) of the Code, without regard to Section
280G(b)(2)(A)(ii) of the Code, excluding any amount not treated as a
parachute payment pursuant to Section 280G(b)(4)(A) or (6) of the
Code;
(3) "present value" shall be determined in accordance with
Section 280G(d)(4) of the Code;
(4) the term "reasonable compensation" shall have the meaning
ascribed to it under Section 280G(b)(4)(B) of the Code (for personal
services actually rendered before the date of the Change in Control);
and
(5) the portion of the "base amount" and the amount of
"reasonable compensation" allocable to any "parachute payment" shall
be determined in accordance with Section 280G(b)(3) of the Code and
Section 280G(b)(4)(B) of the Code, respectively.
(d) In the event the amount of any "parachute payments" which would be
payable to or for the benefit of Employee without regard to this section
must be modified to comply with this section, the first payments to be
modified shall be those owed to the Employee under this Agreement.
(e) Unless the Employee consents in writing, Company cannot delay
payment of any amounts due under this Agreement by claiming that it is
difficult to calculate the precise amount due under this Agreement
8
<PAGE>
because of the reductions that may be required by subsections (a) through
(d).
(f) In the event that Employee requests independent verification of
Company's calculations hereunder, Company shall provide to 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 any decrease in
payments 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 Company.
(g) This section shall be interpreted so as to avoid the imposition of
excise taxes on the Employee under Section 4999 of the Code or the
disallowance of a deduction to Company pursuant to Section 280G(a) of the
Code.
8. Waiver of Invalidity; No Offset.
-------------------------------
(a) Inasmuch as the injury caused to Employee in the event his
employment is terminated after a Change in Control is difficult or
incapable of accurate estimation at the date of this Agreement, the amounts
provided to be paid hereunder are intended to be severance compensation and
not a penalty, and therefore constitute a good faith forecast of the harm
which might be expected to be caused to Employee. Accordingly, the Company
waives any right to assert against Employee the invalidity of any payment
hereunder by reason of Employee's failure to seek other employment or
otherwise, nor shall the amount of any payment hereunder be reduced by
reason of any compensation earned or not earned by Employee as the result
of employment by another employer after the date of termina tion or
otherwise.
9
<PAGE>
(b) The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Employee or others.
The preceding sentence shall not apply to any obligation of Employee if the
Employee agreed in writing that the Employee's obligation may be offset
against payments due hereunder.
9. Term of Agreement. This Agreement 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. The Board of Directors of the Company may, in its sole discretion and
for any reason, provide written notice of termination or amendment, effective as
of the then applicable expiration date, to Employee no later than six months
before the expira tion date of this Agreement. If written notice is not so
provided, this Agreement shall be automatically extended for an additional
period of 60 months past the expiration date. This Agreement 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. Notwithstanding the preceding sentences of
this Agreement, this Agreement shall automatically be extended past an otherwise
applicable expiration date if a Change in Control has occurred prior to that
date. The extension referred to in the preceding sentence shall be for one year
after the Change in Control.
10. Successors. The rights and obligations of Company under this
----------
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of Company.
11. Governing Law. Except to the extent that federal law is
-------------
applicable, this Agreement is made and entered
10
<PAGE>
into in the State of California, and the laws of California shall govern its
validity and interpretation in the performance by the parties hereto of their
respective duties and obligations hereunder.
12. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties respecting the benefits due Employee in the event
of a Change in Control followed by a Qualifying Termination, and there are no
representations, warranties or commitments, other than those set forth herein,
which relate to such benefits. This is an integrated agreement.
13. Arbitration. (a) Because it is agreed that time will be of the
-----------
essence in determining whether any payments are due to Employee under this
Agreement, Employee 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
Employee; Employee may decide whether or not to arbitrate in his or her
discretion. The "right to select arbitration" is not mandatory on Employee and
Employee may choose in lieu thereof to bring an action in an appro priate civil
court. Once an arbitration is commenced, how ever, it may not be discontinued
without the mutual consent of both parties to the arbitration.
(b) Any claim for arbitration may be submitted as follows: if
Employee disagrees with the Company regarding the interpretation of this
Agreement and the claim is finally denied by the Company in whole or in part,
such claim may be filed in writing with an arbitrator of Employee's choice who
is selected by the method described in the next four sentences. The first step
of the selection shall consist of Employee submitting a list of five potential
arbitrators to Company. Each of the five arbitrators must be either (1) a
member of the National Academy of Arbitrators located in the State of California
or (2) a retired California Superior Court or Appellate Court judge. Within one
week after receipt of the list, Company shall select one of the five
11
<PAGE>
arbitrators as the arbitrator for the dispute in question. If Company fails to
select an arbitrator in a timely manner, Employee shall then designate one of
the five arbitrators as the arbitrator for the dispute in question.
(c) 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
Employee and Company. 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.
(d) 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 Company has breached this Agreement, he
or she shall order the Company 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
Company and Employee agree that no appeal shall be taken by either party from
any decision rendered in such action.
(e) Solely for purposes of determining the alloca tion of the costs
described in this subsection, Company will be considered the prevailing party in
a dispute if the arbitrator determines (1) that the Company has not breached
this Agreement and (2) the claim by Employee was frivolous. Otherwise, Employee
will be considered the prevailing party. In the event that the Company is the
prevailing party, the fee of the arbitrator and all necessary expenses of the
hearing (excluding any attorneys' fees incurred by the Company) including
stenographic reporter, if employed, shall
12
<PAGE>
be paid by the other party. In the event that Employee is the prevailing party,
the fee of the arbitrator and all necessary expenses of the hearing (including
---------
all attorneys' fees incurred by Employee in pursuing his or her claim),
including the fees of a stenographic reporter if employed, shall be paid by the
Company.
(f) If the arbitrator determines that (1) the Company has breached
this Agreement and (2) the Company was unjustified in failing to make the
payments required under this Agreement to Employee, Company shall pay to
Employee, 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.
14. Notices. Any notice or communications required or permitted to
-------
be given to the parties hereto shall be delivered personally or be sent by
United States registered or certified mail, postage prepaid and return receipt
requested, and addressed or delivered as follows, or to such other addressees
the party addressed may have substituted by notice pursuant to this section:
(a) If to Company
Santa Anita Realty Enterprises, Inc.
Corporate Secretary
301 West Huntington Drive
Suite 405
Arcadia, CA 91007
13
<PAGE>
(b) If to Employee:
___________________________________
___________________________________
Street Address
___________________________________
City, State, Zip Code
15. Captions. The captions of this Agreement are inserted for
--------
convenience and do not constitute a part hereof.
16. Severability. In case any one or more of the provisions
------------
contained in this Agreement shall for any reason be held to be invalid, illegal
or enforceable in other respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein and there shall be deemed substituted for such other
provision as will most nearly accomplish the intent of the parties to the extent
permitted by the applicable law. In case this Agree ment, or any one or more of
the provisions hereof, shall be held to be invalid, illegal or unenforceable
within any governmental jurisdiction or subdivision thereof, this Agreement or
any such provision thereof shall not as a consequence thereof be deemed to be
invalid, illegal or unenforceable in any other governmental jurisdiction or
subdivision thereof.
17. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
14
<PAGE>
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first written above in
Arcadia, California.
Company
By ___________________________
Title ________________________
Employee
______________________________
15
<PAGE>
Schedule of Omitted Documents
and Material Details Regarding
Retention Agreements of Certain Employees
of Santa Anita Realty Enterprises, Inc.
and Santa Anita Operating Company
The persons listed below have entered into substantially identical forms of
Retention Agreements, effective as of the dates listed opposite their names.
The form of Severance Agreement is filed as a part of this exhibit.
Elizabeth P. Haug December 16, 1996
Tom D. Austin December 16, 1996
Roger C. Allen December 16, 1996
Richard L. McNall December 16, 1996
Cecelia Consiglio February 13, 1997
<PAGE>
EXHIBIT 10.45
RESIGNATION AND GENERAL RELEASE AGREEMENT
-----------------------------------------
This Resignation and General Release Agreement ("Agreement"), made
this 13th day of December, 1996, by and between Michael J. Manning ("Manning"),
an individual and Los Angeles Turf Club, Incorporated (the "Company") is a
resignation agreement which includes a general release of claims.
In consideration of the covenants undertaken and the releases
contained in this Agreement, Manning and the Company agree as follows:
1. Manning shall voluntarily resign from his position as Vice
President and Assistant General Manager of the Company and as an officer of the
Company's subsidiaries by executing Exhibit A attached hereto, such resignation
to be effective December 13, 1996.
2. The Company and Manning agree to the following actions in full
discharge of any and all of its obligations to Manning (except to the extent
such obligations are carried out under this agreement, either directly or by
incorporation by
<PAGE>
reference), including, without limitation, the Severance Agreement dated as of
November 28, 1994.
a. Manning shall remain on the Company's payroll and be paid
semi-monthly, less statutory deductions, until June 15, 1997, provided that
Manning does not revoke this Agreement pursuant to Section 7(d) hereof, and
shall pay him one (1) month of vacation pay, less statutory deductions, within
ten (10) days of execution of this Agreement. The Company will continue
Manning's COBRA benefits at Manning's expense.
b. Under no circumstance shall the Company pay Manning anything
if a Change in Control (as defined in such Severance Agreement) occurs at any
time.
3. Manning shall return to the Company and shall not take or copy in
any form or manner lists of customers, prices, engineering plans, and similar
confidential and proprietary materials or information.
2
<PAGE>
4. The Company expressly denies any violation of any of its
policies, procedures, state or federal laws or regulations. Accordingly, while
this Agreement resolves all issues between the Company and Manning relating to
any alleged violation of the Company policies or procedures or any state or
federal law or regulation, this Agreement does not constitute an adjudication or
finding on the merits and it is not, and shall not be construed as, an admission
by the Company of any violation of its policies, procedures, state or federal
laws or regulations. Moreover, neither this Agreement nor anything in this
Agreement shall be construed to be or shall be admissible in any proceeding as
evidence of or an admission by the Company of any violation of its policies,
procedures, state or federal laws or regulations. This Agreement may be
introduced, however, in any proceeding to enforce the Agreement. Such
introduction shall be pursuant to an order protecting its confidentiality.
5. Except for those obligations created by or arising out of this
Agreement for which receipt or satisfaction has not been acknowledged herein,
Manning on behalf of himself, his descendants, dependents, heirs, executors,
administrators,
3
<PAGE>
assigns, and successors, and each of them, hereby covenants not to sue and fully
releases and discharges the Company and its subsidiaries and affiliates and
Santa Anita Realty Enterprises, Inc., past and present, and each of them, as
well as each of their trustees, 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 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 he has at any time
heretofore owned or held or may in the future hold as against said Releasees,
arising out of or in any way connected with his employment or other
relationships with the Company, or his voluntary resignation from employment or
any other transactions, occurrences, acts or omissions or any loss, damage or
injury whatever, known or unknown, suspected or unsuspected, resulting from any
act or
4
<PAGE>
omission by or on the part of said Releasees, or any of them, committed or
omitted prior to the date of this Agreement including, without limiting the
generality of the foregoing, any claim under Title VII of the Civil Rights Act
of 1964, the Age Discrimination in Employment Act, the Americans with
Disabilities Act, the Family and Medical Leave Act of 1993, the California Fair
Employment and Housing Act, the California Family Rights Act, or any claim for
severance pay, bonus, sick leave, holiday pay, vacation pay, life insurance,
health or medical insurance or any other fringe benefit, workers' compensation
or disability.
6. It is the intention of Manning 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, Manning
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
5
<PAGE>
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 KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
Manning acknowledges that he may hereafter discover claims or facts in addition
to or different from those which he 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, Manning hereby waives any right, claim or cause of action that
might arise as a result of such different or additional claims or facts. Manning
acknowledges that he understands the significance and consequence of such
release and such specific waiver of SECTION 1542.
6
<PAGE>
7. Manning expressly acknowledges and agrees that, by entering into
this Agreement, he is waiving any and all rights or claims that he may have
arising under the Age Discrimination in Employment Act of 1967, as amended,
which have arisen on or before the date of execution of this Agreement. Manning
further expressly acknowledges and agrees that:
a. In return for this Agreement, he will receive compensation
beyond that which he was already entitled to receive before entering into this
Agreement;
b. He was orally advised by the Company and is hereby advised
in writing by this Agreement to consult with an attorney before signing this
Agreement;
c. He was given a copy of this Agreement on December 11, 1996,
and informed that he has twenty-one (21) days within which to consider the
Agreement and by executing this Agreement hereby waives the twenty-one (21) day
period;
7
<PAGE>
d. He was informed that he has seven (7) days following the
date of execution of the Agreement in which to revoke the Agreement; and
8. Manning shall make himself available, upon the request of the
Company to testify or otherwise assist in litigation, arbitration, or other
disputes involving the Company or any of the directors, officers, employees,
subsidiaries, or parent corporation, at no additional cost until June 15, 1997
and thereafter the Company shall pay Manning $800 per day, for the above
services.
9. Manning acknowledges that by reason of his position with the
Company he has been given access to lists of customers, prices, engineering
plans, and similar confidential or proprietary materials or information
respecting the Company's business affairs. Manning represents that he has held
all such information confidential and will continue to do so, and that he will
not use such information and relationships for any business (which term herein
includes a partnership, firm, corporation or
8
<PAGE>
any other entity) without the prior written consent of the Company.
10. Manning agrees that the terms and conditions of this Agreement
shall remain confidential as between the parties and he shall not disclose them
to any other person except for his attorneys and tax advisors and his spouse.
Without limiting the generality of the foregoing, Manning will not respond to or
in any way participate in or contribute to any public discussion, notice or
other publicity concerning, or in any way relating to, execution of this
Agreement or the events (including any negotiations) which led to its execution.
Without limiting the generality of the foregoing, Manning specifically agrees
that he shall not disclose information regarding this Agreement to any current
or former employee of Releasees. It shall not be a violation of this Agreement
for Manning to state that he "resigned for personal reasons and to pursue other
business opportunities." Manning hereby agrees that disclosure by him of any of
the terms and conditions of the Agreement in violation of the foregoing shall
constitute and be treated as a material breach of this Agreement.
9
<PAGE>
The Company agrees that its officers shall keep confidential the terms
and conditions of this Agreement among the officers and directors of the Company
and said officers shall undertake their best efforts to ensure that the
directors keep the terms and conditions of this Agreement confidential, except
to the extent that disclosures are required by federal securities or other laws
or the disclosure of the terms and conditions of this Agreement to consultants
and advisors of the Company and employees of the Company other than the officers
is necessary or appropriate.
11. Manning warrants and represents that Manning has not heretofore
assigned or transferred to any person not a party to this Agreement any released
matter or any part or portion thereof and Manning shall defend, indemnify and
hold harmless the Company from and against any claim (including the payment of
attorneys' fees and costs actually incurred whether or not litigation is
commenced) based on or in connection with or arising out of any such assignment
or transfer made, purported or claimed.
10
<PAGE>
12. Manning and the Company acknowledge that any employment or
contractual relationship between them terminated on December 13, 1996, including
but not limited to the Severance Agreement dated November 28, 1994, and that
they have no further employment or contractual relationship except as may arise
out of this Agreement and that Manning waives any right or claim to
reinstatement as an employee of the Company and will not seek employment in the
future with the Company or any Releasee.
13. All payments hereunder shall be reduced by federal and state
income tax withholding and other applicable withholding taxes.
14. This instrument constitutes and contains the entire agreement and
understanding concerning Manning's employment, voluntary resignation from the
same and the other subject matters addressed herein between the parties, and
supersedes and replaces all prior negotiations and all agreements proposed or
otherwise, whether written or oral, concerning the subject matters hereof. This
is an integrated document. This
11
<PAGE>
agreement may be modified only by a writing signed by the parties.
15. Manning may revoke this Agreement in its entirety during the
seven days following execution of the Agreement by Manning. Any revocation of
the Agreement must be in writing and hand delivered to Kathryn J. McMahon, Esq.
at 285 West Huntington Drive, Arcadia, CA 91007 during the revocation period.
This Agreement will become effective and enforceable seven days following
execution by Manning, unless it is revoked during the seven-day period.
16. 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 end the provisions of this Agreement are declared to be
severable.
12
<PAGE>
17. 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, the laws of the State of California without regard to principles of
conflict of laws.
18. Each party has cooperated in the drafting and preparation of this
Agreement. Hence, in any construction to be made of this Agreement, the same
shall not be construed against any party on the basis that the party was the
drafter.
19. This Agreement may be executed in counterparts, and each
counterpart, when executed, shall have the efficacy of a signed original.
Photographic copies of such signed counterparts may be used in lieu of the
originals for any purpose.
20. Any dispute or controversy between Manning, on the one hand, and
the Company (or any other Releasee), on the other hand, in any way arising out
of, related to, or connected with this Agreement or the subject matter thereof,
or otherwise in any
13
<PAGE>
way arising out of, related to, or connected with Manning's employment with the
Company or the termination of Manning's employment with the Company, shall be
resolved through final and binding arbitration in Los Angeles, California,
pursuant to California Civil Procedure Code (S)(S) 1282-1284.2, before a
mutually agreed upon arbitrator. If there is no Mutual Agreement then by
alternate striking from a panel of nine (9) retired judges submitted by
Endispute/J.A.M.S. or a similar organization. In the event of such arbitration,
the prevailing party shall be entitled to recover all reasonable costs and
expenses incurred by such party in connection therewith, including attorneys'
fees. The nonprevailing party shall also be solely responsible for all costs of
the arbitration, including, but not limited to, the arbitrator's fees, court
reporter fees, and any and all other administrative costs of the arbitration,
and promptly shall reimburse the prevailing party for any portion of such costs
previously paid by the prevailing party. Any dispute as to the reasonableness of
costs and expenses shall be determined by the arbitrator.
14
<PAGE>
Except as may be necessary to enter judgment upon the award or to the
extent required by applicable law, all claims, defenses and proceedings
(including, without limiting the generality of the foregoing, the existence of
the controversy and the fact that there is an arbitration proceeding) shall be
treated in a confidential manner by the arbitrator, the parties and their
counsel, and each of their agents, and employees and all others acting on behalf
of or in concert with them. Without limiting the generality of the foregoing, no
one shall divulge to any third party or person not directly involved in the
arbitration the contents of the pleadings, papers, orders, hearings, trials, or
awards in the arbitration, except as may be necessary to enter judgment upon an
award as required by applicable law. Any court proceedings relating to the
arbitration hereunder, including, without limiting the generality of the
foregoing, to prevent or compel arbitration or to confirm, correct, vacate or
otherwise enforce an arbitration award, shall be filed under seal with the
court, to the extent permitted by law.
21. No waiver of any breach of any term or provision of this
Agreement shall be construed to be, or shall be, a waiver
15
<PAGE>
of any other breach of this Agreement. No waiver shall be binding unless in
writing and signed by the party waiving the breach.
22. In entering this Agreement, the parties represent that they have
relied upon the advice of their attorneys, who are attorneys of their own
choice, and that the terms of this Agreement have been completely read and
explained to them by their attorneys, and that those terms are fully understood
and voluntarily accepted by them.
23. After execution of this Agreement, the Company may, but is not
required to, present for approval to the Workers' Compensation Appeals Board an
appropriate stipulation or compromise and release extinguishing any and all
rights or claims Manning may have under applicable workers' compensation
provisions.
16
<PAGE>
24. All parties agree to cooperate fully and to execute any and all
supplementary documents and to take all additional actions that may be necessary
or appropriate to give full force to the basic terms and intent of this
Agreement and which are not inconsistent with its terms.
I have read the foregoing Agreement and I accept and agree to the
provisions it contains and hereby execute it voluntarily with full
understanding of its consequences.
17
<PAGE>
EXECUTED this _____ day of December, 1996, at Los Angeles County,
California.
__________________________________
Michael J. Manning
18
<PAGE>
EXECUTED this _____ day of December, 1996, at Los Angeles County,
California.
LOS ANGELES TURF CLUB, INCORPORATED
By ___________________________
19
<PAGE>
ENDORSEMENT
-----------
I, Michael J. Manning, hereby acknowledge that I was given 21 days to
consider the foregoing Agreement and voluntarily chose to sign the Agreement
prior to the expiration of the 21-day period.
I declare under penalty of perjury under the laws of the State of
California that the foregoing is true and correct.
EXECUTED this ____ day of December, 1996, at Los Angeles County,
California.
_______________________________
Michael J. Manning
20
<PAGE>
EXHIBIT A
---------
<PAGE>
To CLIFF GOODRICH
This is to advise you that effective December 13, 1996, I hereby
voluntarily resign my position as Vice President and Assistant General Manager
of Los Angeles Turf Club, Incorporated. I agree that I will not seek
reemployment with Los Angeles Turf Club, Incorporated or Oak Tree Racing
Association or their parent corporations, or subsidiaries or affiliates.
Sincerely yours,
____________________________
Michael J. Manning
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference of our report dated April 14, 1997
accompanying the financial statements and schedules of:
(a) Santa Anita Companies
(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, 1996, in the Prospectus contained in Post-Effective Amendment
No. 3 to the Joint Registration Statement on Form S-8 (No. 2-95228), Joint
Registration Statement on Form S-8 (No. 33-51843), and Joint Registration
Statement on Form S-8 (No. 033-58995).
Ernst & Young LLP
Los Angeles, California
April 15, 1997
<PAGE>
Exhibit 23.2
[LOGO OF KPMG PEAT MARWICK LLP APPEARS HERE]
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Santa Anita Realty Enterprises, 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,
the Joint Registration Statement on Form S-8 (No. 33-51843), and the Joint
Registration Statement on Form S-8 (No. 33-58995) of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company of our report dated
February 7, 1997, relating to the balance sheets of Anita Associates as of
December 31, 1996 and 1995, and the related statements of income, partners'
deficit and cash flows for each of the years in the three-year period ended
December 31, 1996, which report appears in the December 31, 1996 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
April 141, 1997
<PAGE>
Exhibit 23.3
[LOGO OF KPMG PEAT MARWICK LLP APPEARS HERE]
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,
the Joint Registration Statement on Form S-8 (No. 33-51843), and the Joint
Registration Statement on Form S-8 (No. 33-58995) of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company of our report dated February
10, 1997, relating to the consolidated balance sheets of H-T Associates and
subsidiary as of December 31, 1996 and 1995, and the related consolidated
statements of operations, partners' capital (deficit) and cash flows for each of
the years in the three-year period ended December 31, 1996, which report appears
in the December 31, 1996 Joint Annual Report on From 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company. Our report dated February
10, 1997, contains an explanatory paragraph that states that the Partnership's
primary subsidiary is in technical default on its notes payable at December 31,
1996. As such, those notes may be callable at the lender's discretion. This
technical default raises substantial doubt about the Partnership's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
San Diego, California
April 14, 1997
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 12,921,000
<SECURITIES> 0
<RECEIVABLES> 233,000
<ALLOWANCES> (143,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 60,702,000
<DEPRECIATION> (30,164,000)
<TOTAL-ASSETS> 61,753,000
<CURRENT-LIABILITIES> 0
<BONDS> 20,407,000
0
21,718,000
<COMMON> 1,159,000
<OTHER-SE> 7,516,000
<TOTAL-LIABILITY-AND-EQUITY> 61,753,000
<SALES> 0
<TOTAL-REVENUES> 19,184,000
<CGS> 0
<TOTAL-COSTS> 2,434,000
<OTHER-EXPENSES> 12,748,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,670,000
<INCOME-PRETAX> 1,332,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,332,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,036,000)
<EPS-PRIMARY> (0.97)
<EPS-DILUTED> 0.0
</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
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,301,000
<SECURITIES> 0
<RECEIVABLES> 2,352,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,132,000
<PP&E> 48,631,000
<DEPRECIATION> (28,059,000)
<TOTAL-ASSETS> 38,807,000
<CURRENT-LIABILITIES> 23,486,000
<BONDS> 867,000
0
1,050,000
<COMMON> 1,148,000
<OTHER-SE> 10,038,000
<TOTAL-LIABILITY-AND-EQUITY> 38,807,000
<SALES> 0
<TOTAL-REVENUES> 69,187,000
<CGS> 0
<TOTAL-COSTS> 59,596,000
<OTHER-EXPENSES> 9,565,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 788,000
<INCOME-PRETAX> (762,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (762,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (814,000)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> 0.0
</TABLE>
