<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996
Commission file number 0-10619
HOLLYWOOD PARK, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-3667491
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1050 South Prairie Avenue, Inglewood, California 90301
(Address of Principal Executive Offices) (Zip Code)
(310) 419-1500
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (a) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
The number of outstanding shares of the registrant's common stock, as of the
date of the close of business on November 13, 1996: 18,282,498.
<PAGE>
Hollywood Park, Inc.
Table of Contents
Part I
<TABLE>
<S> <C> <C>
Item 1. Financial Information
Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995..........1
Consolidated Statements of Operations for the three months ended
September 30, 1996 and 1995.......................................................2
Consolidated Statements of Operations for the nine months ended
September 30, 1996 and 1995.......................................................3
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995.......................................................4
Notes to Consolidated Financial Statements..........................................5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................................13
Part II
Item 4. Submission of Matters to a Vote of Security-Holders...................................17
Item 5. Other Information.....................................................................18
Item 6.a Exhibits..............................................................................18
Other Financial Information...........................................................21
Signatures............................................................................26
</TABLE>
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<TABLE>
<CAPTION>
Hollywood Park, Inc.
Consolidated Balance Sheets
September 30, December 31,
1996 1995
-------------- --------------
(unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 15,683,000 $ 22,406,000
Restricted cash 834,000 3,126,000
Short term investments 3,498,000 6,447,000
Other receivables, net of allowance for doubtful accounts
of $953,000 in 1996 and $1,841,000 in 1995 6,256,000 8,147,000
Prepaid expenses and other assets 5,249,000 3,888,000
Deferred tax assets 4,878,000 4,888,000
Current portion of notes receivable 37,000 34,000
------------ ------------
Total current assets 36,435,000 48,936,000
Notes receivable 829,000 857,000
Property, plant and equipment, net 127,572,000 174,717,000
Lease with TRAK East, net 0 1,195,000
Goodwill, net 20,502,000 26,829,000
Long term gaming assets 5,845,000 19,063,000
Other assets 7,448,000 11,706,000
------------ ------------
$198,631,000 $283,303,000
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 8,598,000 $ 12,518,000
Accrued lawsuit settlement 2,750,000 5,232,000
Accrued liabilities 12,637,000 13,607,000
Accrued workers' compensation 1,906,000 2,277,000
Accrued slip and fall claims 1,652,000 1,543,000
Gaming liabilities 2,806,000 3,998,000
Amounts due to horsemen for purses, stakes and awards 433,000 709,000
Outstanding pari-mutuel tickets 720,000 2,757,000
Current portion of notes payable 28,000 32,310,000
------------ ------------
Total current liabilities 31,530,000 74,951,000
Notes payable 282,000 15,629,000
Gaming liabilities 3,970,000 16,894,000
Deferred tax liabilities 5,022,000 10,083,000
------------ ------------
Total liabilities 40,804,000 117,557,000
Minority interests 3,000,000 0
Commitments and contingencies - -
Stockholders' Equity:
Capital stock --
Preferred - $1.00 par value, authorized 250,000 shares;
27,499 issued and outstanding 28,000 28,000
Common - $.10 par value, authorized 40,000,000 shares;
18,282,498 issued and outstanding in 1996, and 1,829,000 1,850,000
18,504,798 in 1995
Capital in excess of par value 166,540,000 168,479,000
Accumulated deficit (13,570,000) (4,611,000)
------------ ------------
Total stockholders' equity 154,827,000 165,746,000
------------ ------------
$198,631,000 $283,303,000
============ ============
</TABLE>
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See accompanying notes to consolidated financial statements.
<PAGE>
Hollywood Park, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the three months ended September 30,
---------------------------------------
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
REVENUES:
Pari-mutuel commissions $ 8,886,000 $10,066,000
Lease and management fee - Sunflower 0 1,199,000
Gaming - Casino 13,114,000 0
Lease - Casino 0 5,394,000
Admissions, programs, and other racing income 3,674,000 3,754,000
Concession sales 2,766,000 4,554,000
Other income 1,807,000 1,628,000
----------- -----------
30,247,000 26,595,000
----------- -----------
EXPENSES:
Salaries, wages and employee benefits 12,745,000 9,281,000
Operations of facilities 2,031,000 2,535,000
Cost of concession sales 4,558,000 6,038,000
Professional services 1,561,000 1,137,000
Rent 222,000 223,000
Utilities 1,229,000 1,493,000
Marketing 1,303,000 1,044,000
Administrative 2,896,000 2,828,000
----------- -----------
26,545,000 24,579,000
----------- -----------
Income before interest, income taxes, depreciation,
amortization and other non-recurring expenses 3,702,000 2,016,000
Lawsuit settlement 0 5,627,000
Depreciation and amortization 2,498,000 2,824,000
Interest expense 20,000 958,000
----------- -----------
Income (loss) before income taxes 1,184,000 (7,393,000)
Income tax expense (benefit) 581,000 (1,756,000)
----------- -----------
Net income (loss) $ 603,000 ($5,637,000)
=========== ===========
Dividend requirements on convertible preferred stock $ 481,000 $ 481,000
Net income (loss) available to (allocated to) common shareholders $ 122,000 ($6,118,000)
Per common share:
Net income (loss)- primary $ 0.01 ($0.33)
Net income (loss) - fully diluted $ 0.01 ($0.33)
Cash dividend per common share $ 0.00 $0.00
Number of shares - primary 18,534,592 18,369,634
Number of shares - fully diluted 20,826,084 20,661,126
</TABLE>
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See accompanying notes to consolidated financial statements.
2
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Hollywood Park, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the nine months ended September 30,
-----------------------------------------
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
REVENUES:
Pari-mutuel commissions $ 37,593,000 $37,745,000
Lease and management fee - Sunflower 1,071,000 4,344,000
Gaming - Casino 37,917,000 0
Lease - Casino 0 18,064,000
Admissions, programs, and other racing income 12,310,000 13,026,000
Concession sales 10,403,000 15,359,000
Other income 5,233,000 5,341,000
------------ -----------
104,527,000 93,879,000
------------ -----------
EXPENSES:
Salaries, wages and employee benefits 41,359,000 29,718,000
Operations of facilities 6,435,000 7,843,000
Cost of concession sales 15,308,000 19,504,000
Professional services 6,129,000 5,657,000
Rent 923,000 901,000
Utilities 3,202,000 3,642,000
Marketing 4,987,000 3,728,000
Administrative 10,457,000 6,911,000
------------ -----------
88,800,000 77,904,000
------------ -----------
Income before interest, income taxes, depreciation,
amortization and other non-recurring expenses 15,727,000 15,975,000
Write off of investment in Sunflower 11,412,000 0
Lawsuit settlement 0 5,627,000
Depreciation and amortization 7,898,000 8,478,000
Interest expense 918,000 2,886,000
------------ -----------
Loss before income taxes (4,501,000) (1,016,000)
Income tax expense 3,025,000 358,000
------------ -----------
Net loss $ (7,526,000) $(1,374,000)
============ ===========
Dividend requirements on convertible preferred stock $ 1,443,000 $ 1,443,000
Net loss allocated to common shareholders ($8,969,000) ($2,817,000)
Per common share:
Net loss - primary ($0.48) ($0.15)
Net loss - fully diluted ($0.48) ($0.15)
Cash dividend per common share $0.00 $0.00
Number of shares - primary 18,604,755 18,369,634
Number of shares - fully diluted 20,896,247 20,661,126
</TABLE>
- ------
See accompanying notes to consolidated financial statements.
3
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Hollywood Park, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the nine months ended September 30,
--------------------------------------
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,526,000) $ (1,374,000)
Adjustment to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 7,342,000 8,495,000
Changes in accounts due to deconsolidation of subsidiary
in bankruptcy:
Property, plant and equipment 58,380,000 0
Secured notes payable (28,918,000) 0
Unsecured notes payable (15,323,000) 0
Goodwill and lease with TRAK East 6,908,000 0
Unrealized gain on short term bond investing 11,000 4,000
(Gain) loss on sale or disposal of property, plant and equipment (3,000) 64,000
Decrease (increase) in restricted cash 2,292,000 (173,000)
Increase in casino lease and related interest receivable, net 0 (6,945,000)
Decrease in other receivables, net 1,891,000 4,417,000
Decrease (increase) in prepaid expenses and other assets 2,897,000 (4,901,000)
Decrease in deferred tax assets 10,000 467,000
(Decrease) increase in accounts payable (3,920,000) 592,000
(Decrease) increase in accrued lawsuit settlement (2,482,000) 5,200,000
Decrease in gaming liabilities (1,192,000) 0
(Decrease) increase in accrued liabilities (970,000) 1,440,000
(Decrease) increase in accrued workers' compensation (371,000) 94,000
Increase in accrued slip and fall claims 109,000 138,000
Decrease in amounts due to horsemen for purses, stakes
and awards (276,000) (479,000)
Decrease in outstanding pari-mutuel tickets (2,037,000) (525,000)
(Decrease) increase in deferred tax liabilities (5,061,000) 159,000
------------ ------------
Net cash provided by operating activities 11,761,000 6,673,000
------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment (17,969,000) (11,959,000)
Receipts from sale of property, plant and equipment 9,000 108,000
Principal collected on notes receivable 25,000 23,000
Purchase of short term investments (14,009,000) (19,829,000)
Proceeds from short term investments 16,958,000 13,619,000
Long term gaming assets 294,000 0
------------ ------------
Net cash used in investing activities (14,692,000) (18,038,000)
------------ ------------
Cash flows from financing activities:
Proceeds from unsecured notes payable 0 1,681,000
Payment of unsecured notes payable (30,000) (3,820,000)
Payment of secured notes payable (3,358,000) (1,333,000)
Payments from minority interest partners 3,000,000 0
Payments under capital lease obligations 0 (53,000)
Common stock repurchase and retirement (1,961,000) 0
Dividends paid to preferred stockholders (1,443,000) (1,443,000)
------------ ------------
Net cash used for financing activities (3,792,000) (4,968,000)
------------- -------------
Decrease in cash and cash equivalents (6,723,000) (16,333,000)
Cash and cash equivalents at the beginning of the period 22,406,000 37,122,000
------------ ------------
Cash and cash equivalents at the end of the period $ 15,683,000 $ 20,789,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Hollywood Park, Inc.
Notes to Consolidated Financial Statements
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial information included herein has been prepared in conformity with
generally accepted accounting principles as reflected in the financial
statements included in the consolidated annual report on Form 10-K of Hollywood
Park, Inc. (the "Company" or "Hollywood Park") filed with the Securities and
Exchange Commission for the year ended December 31, 1995. This financial
information does not include certain footnotes and financial presentations
normally presented annually, and therefore, should be read in conjunction with
the Company's 1995 Form 10-K.
The information furnished herein is unaudited; however, in the opinion of
management it reflects all recurring adjustments that are necessary to present a
fair statement of the results for the interim periods. All such adjustments are
of a normal and recurring nature. It should be understood that accounting
measurements at the interim dates inherently involve greater reliance on
estimates than at year end. The interim racing results of operations are not
indicative of the results for the full year due to the seasonality of the horse
racing business.
GENERAL The Company owns and operates the Hollywood Park race track, a premier
thoroughbred racing facility located in California, Turf Paradise, Inc. ("Turf
Paradise"), a thoroughbred racing facility located in Arizona, and Sunflower
Racing, Inc. ("Sunflower"), operating as the Woodlands, a greyhound and
thoroughbred racing facility located in Kansas. On May 17, 1996, under pressure
from intense competition from Missouri riverboat gaming, Sunflower filed for
reorganization under Chapter 11 of the Bankruptcy Code. On the same property as
the Hollywood Park race track, the Company owns and operates the Hollywood Park-
Casino (the "Casino"). The Company owns 88% of Crystal Park Hotel and Casino
Development Co., LLC, ("Crystal Park LLC") which built and presently leases, the
Crystal Park Hotel and Casino, ("Crystal Park"), to an unaffiliated third party.
Crystal Park began operations on October 25, 1996.
SUNFLOWER On May 2, 1996, the Kansas Legislature adjourned without passing
legislation that would have allowed additional gaming at Sunflower, thereby
permitting Sunflower to more effectively compete with Missouri riverboat gaming.
As a result of the outcome of the Kansas Legislative session, Hollywood Park
wrote off its approximately $11,412,000 investment in Sunflower. There was no
cash involved with the write off of this investment. On May 17, 1996, Sunflower
filed for reorganization under Chapter 11 of the Bankruptcy Code. Sunflower is
operating during the reorganization, but Sunflower's operating results from
April 1, 1996, forward were not consolidated with Hollywood Park's operating
results.
ACQUISITION OF PACIFIC CASINO MANAGEMENT, INC. The Hollywood Park-Casino was
opened in July 1994 under a third party leasing arrangement with Pacific Casino
Management, Inc. ("PCM"). In 1994 under the California Gaming Registration Act,
it was the position of the California Attorney General that as a publicly traded
company, Hollywood Park was not eligible to register as an operator of a card
club, but could lease the site to a registered operator unaffiliated with the
Company. On August 3, 1995, Senate Bill ("SB") 100 was enacted into law. SB
100 does the following: (i) allows for a publicly traded racing association, or
a subsidiary thereof, (hereafter the "Racing Association") to operate a gaming
club on the premises of its race track; (ii) requires the officers, directors
and shareholders of 5.0% or more of a Racing Association (excluding
institutional investors) to be licensed by the Attorney General; (iii)
provisionally licenses a Racing Association and its officers, directors, and
5.0% shareholders to operate a gaming club on the premises of its race track
pending licenses pursuant to sub-paragraph (ii) above; (iv) allows a Racing
Association and its officers, directors and 5.0% shareholders to have an
interest in gaming activities located outside California that are not legal in
California. The provisions of SB 100 are repealed effective January 1, 1999,
unless prior thereto the California legislature enacts a comprehensive scheme
for the regulation of gaming under the jurisdiction of a gaming control
commission.
5
<PAGE>
Pursuant to the authority provided by SB 100, on November 17, 1995, Hollywood
Park acquired substantially all the assets, property and business of PCM, and
assumed substantially all of PCM's liabilities. Prior to the acquisition, under
a lease with the Company, PCM operated the gaming floor activities of the
Hollywood Park-Casino.
The purchase price of PCM's net assets was an aggregate $2,640,000, payable in
shares of Hollywood Park common stock, in three installments: (i) shares of
Hollywood Park common stock having a value of $1,600,000, or 136,008 common
shares, issued on November 17, 1995; (ii) shares of Hollywood Park common stock
having a value of $540,000 on the first anniversary of the execution of the
acquisition; and (iii) shares of Hollywood Park common stock having a value of
$500,000 on the second anniversary of the execution of the acquisition; provided
that Hollywood Park may accelerate the payments; provided further, the aggregate
number of shares to be paid under clauses (ii) and (iii) may not exceed the
number of shares issued on November 17, 1995. Shares to be issued in the
remaining two installments will be valued at the average market price of
Hollywood Park's common stock for the ten trading days immediately preceding the
payment date.
Virtually all of the approximately $21,568,000 of excess acquisition cost over
the recorded value of the net assets acquired was allocated to goodwill and will
be amortized over 40 years. The amortization of the goodwill is not deductible
for income tax purposes.
BOOMTOWN, INC. On April 23, 1996, the respective Boards of Directors of
Hollywood Park and of Boomtown, Inc. ("Boomtown") approved and signed the
Agreement and Plan of Merger (the "Merger") among Hollywood Park, Inc., HP
Acquisition, Inc. and Boomtown, Inc., where by way of a merger with HP
Acquisition, Inc. (a wholly owned subsidiary of Hollywood Park) Boomtown will
become a wholly owned subsidiary of the Company. The Merger has been approved by
both Hollywood Park's and Boomtown's common shareholders, and is expected to be
finalized in first quarter 1997. The Merger will be accounted for under the
purchase method of accounting, with each issued and outstanding share of
Boomtown common stock converted into 0.625 shares of Hollywood Park common
stock. Approximately 5,774,000 newly issued shares of the Company's common stock
will be issued in the Merger.
The Merger is subject to the following remaining conditions: the consent of the
holders of the majority of the outstanding principal amount of Boomtown's
outstanding bonds, and upon Hollywood Park, its management and Board of
Directors and Boomtown's management acquiring all required regulatory approvals
and gaming permits. The application process for the required regulatory
approvals and gaming permits is in progress. In addition, Boomtown intends to
seek the consent of the holders of a majority in principal amount of the
outstanding Boomtown bonds in connection with the Blue Diamond Swap (as defined
below). As of the effective date of the Merger, a total of eleven persons will
serve on the Board of Directors of the combined companies, four of whom will be
former directors of Boomtown.
Boomtown owns and operates land-based, dockside and riverboat gaming operations
in Verdi, Nevada ("Boomtown Reno"), Las Vegas, Nevada ("Boomtown Las Vegas"),
Biloxi, Mississippi ("Boomtown Biloxi"), and Harvey, Louisiana ("Boomtown New
Orleans"). Boomtown's properties offer full casino gaming, hotel accommodations
(at Boomtown Reno and Boomtown Las Vegas only), and other entertainment
amenities to primarily middle income, value oriented customers.
Boomtown Reno has been operating for over a quarter century and is located
approximately two miles from the California - Nevada border on Interstate 80,
the major highway connecting northern California and Reno. Boomtown Reno is
situated on 569 acres with approximately 61 acres used for current operations.
Boomtown Reno's customer base is primarily drawn from Interstate 80 traffic.
Boomtown Reno offers its guests a 40,000 square foot casino, including 1,433
slot machines and 43 table games, a 122-room hotel, a 16-acre truck stop, a
full-service recreational vehicle park, a service station, a mini-mart and other
related amenities. In addition, Boomtown Reno offers a 35,000 square foot
family entertainment center featuring a dynamic motion theater, an indoor
miniature golf course, a restaurant and a replica of an 1800's Ferris Wheel.
6
<PAGE>
Boomtown Las Vegas began operations in May 1994 on a 56 acre site at the
interchange of Blue Diamond Road and Interstate 15, the principal thoroughfare
connecting Southern California to Las Vegas. Boomtown Las Vegas is four miles
from the exit for Circus Circus, Excalibur, Luxor, and MGM. Boomtown Las Vegas
includes a 30,000 square foot casino with 1,100 slot machines and 28 gaming
tables, 300 hotel rooms, a full-service recreational vehicle park, and two
restaurants.
On August 12, 1996, Boomtown, Blue Diamond Hotel and Casino, Inc. ("Blue
Diamond") (a wholly owned subsidiary of Boomtown, Inc., which leases and
operates Boomtown Las Vegas), Hollywood Park, IVAC (the owner/lessor of Boomtown
Las Vegas), Edward P. Roski, Jr. (a general partner of IVAC), and an affiliate
of Mr. Roski entered into the Blue Diamond Swap Agreement (the "Swap
Agreement"), pursuant to which the parties agreed that, immediately following
consummation of the Merger, Boomtown and Blue Diamond (or any subsidiary thereof
as set forth in the Swap Agreement) would exchange their entire interest in
Boomtown Las Vegas (including Boomtown's note receivable, from IVAC, in the
amount of $27,300,000) in exchange for, among other things, a $5,000,000
unsecured promissory note (the "First Note") and a $3,465,000 unsecured
promissory note (the "Second Note") (the "Blue Diamond Swap"), the termination
of the Boomtown Las Vegas lease, an estimated cash payment of $2,100,000, and
the release from liabilities and note obligations totaling approximately
$3,800,000 and from ongoing expenses of the Boomtown Las Vegas resort. The
First Note has an interest rate equal to the prime rate plus 1.5% per annum and
provides for annual principal payments of $1,000,000 over five years. The
Second Note has an interest rate equal to the prime rate plus 0.5% per annum and
provides for a payment of all principal on the third anniversary of the closing.
On August 12, 1996, Hollywood Park and Mr. Roski further entered into a Stock
Purchase Agreement pursuant to which Hollywood Park will concurrently with the
Blue Diamond Swap and the Merger, purchase 714,386 shares of Boomtown common
stock held by Mr. Roski for a purchase price of approximately $3,465,000 paid in
the form of a Hollywood Park unsecured promissory note having an interest rate
equal to the prime rate plus one percent per annum, and providing for five equal
annual principal payments after the closing.
Boomtown Biloxi, a limited partnership majority owned and controlled by
Boomtown, occupies nine acres on Biloxi, Mississippi's back bay. Boomtown
Biloxi is located one-half mile from Interstate 110, the main highway connecting
Interstate 10 (the main thoroughfare connecting New Orleans and Mobile, Alabama)
and the Gulf of Mexico. Boomtown Biloxi, began operations in July 1994, and
consists of a land-based facility that houses non-gaming operations and a 33,000
square foot casino constructed on a 400 x 100 foot barge permanently moored to
the land-based building. The casino offers 985 slot machines, 42 table games
and other gaming amenities including restaurants, a western dance hall/cabaret
and a 20,000 square foot family entertainment center.
Boomtown New Orleans, a limited partnership majority owned and controlled by
Boomtown, began operations in August 1994 on a 50 acre site in Harvey,
Louisiana, located in Jefferson Parish, approximately ten miles from the French
Quarter of New Orleans. Gaming operations are conducted from a 250 foot replica
of a paddle wheel riverboat, offering 865 slot machines and 51 table games in a
30,000 square foot casino. The land-based facility is composed of an 88,000
square foot entertainment center and a western saloon/dance hall. On November
5, 1996, there was a parish by parish vote regarding the continuation of gaming,
and the voters of Jefferson Parish overwhelmingly approved retaining riverboat
gaming.
Boomtown is actively seeking to expand its operations into jurisdictions that
have legalized casino gaming at sites that are near interstate highways or major
thoroughfares near major population or tourist centers. Boomtown is currently
exploring a project in Switzerland County, Indiana through a joint venture with
Hilton Gaming Corporation. The gaming license application for this project was
heard on August 19 and 20, 1996, and the decision to grant the gaming license
was deferred until a hearing scheduled for January 1997.
CRYSTAL PARK HOTEL AND CASINO Crystal Park, California's first hotel and
casino, opened on October 25, 1996, with 110 gaming tables, with no limit on the
number of gaming tables that can be added, with approximately 282 hotel rooms,
including 41 VIP suites, a restaurant, gift shop, full service health spa with
massage center and outdoor pool, and a lobby sports bar and lounge. The hotel
operates under a Radisson Hotels
7
<PAGE>
International, Inc. ("Radisson") flag, under a 20 year License Agreement the
Company signed with Radisson on June 27, 1996. Hollywood Park can terminate the
License Agreement, at no cost to the Company, at the end of the third, fifth or
tenth year.
On July 14, 1995, the Company and Compton Entertainment, Inc. ("CEI") executed
an Amended and Restated Agreement Respecting Pyramid Casino (the "Crystal Park
Agreement") (Pyramid Casino was subsequently changed to Crystal Park Hotel and
Casino), finalizing the terms concerning the development, ownership and
operation of a card club in the city of Compton (the "City"). CEI entered into
an Amended and Restated Disposition and Development Agreement (the "DDA") with
the City to lease or purchase land located within the City as the card club
site.
Under the terms of the Crystal Park Agreement, on August 3, 1995, the Company
paid CEI $2,000,000 for the real property rights and assignment of the DDA to
Hollywood Park. On August 3, 1995, the Company paid CEI an additional $500,000
to exercise the five year right to purchase CEI's City gaming license. If at
the end of the five year term of the option to purchase the City gaming license,
Hollywood Park is not able to own and operate a card club at the Compton site,
CEI can elect to either negotiate a new lease, or acquire Hollywood Park's
rights to the card club site for a purchase price as determined by the
Agreement. On October 24, 1996, CEI paid Hollywood Park approximately
$1,203,000, as reimbursement for non-construction related pre-opening costs
incurred on CEI's behalf by the Company. Upon the October 25, 1996 opening of
the card club, Hollywood Park paid CEI an additional $2,499,000, as required by
the Crystal Park Agreement.
As required by the DDA, on August 2, 1995, Hollywood Park paid approximately
$2,006,000 to the City to purchase the convention center to house the card club
operations and entered into a 50 year lease with the City for the hotel,
parking, and expansion parcels at the same site. Initial improvements made by
Hollywood Park to construct, install and equip Crystal Park will be credited
against the annual base rent. No cash rent payments are expected to be made
until after the nineteenth year of the lease, or 2014.
Hollywood Park, Redwood Gaming LLC (controlled by the Edward J. DeBartolo
Family) and First Park Investments LLC (controlled by Leo Chu and Ivy Chu)
formed Crystal Park Hotel and Casino Development Co., LLC, an 88%, 8%, 4%
partnership, respectively, which built and now leases the Crystal Park property.
Current California law does not allow publicly traded companies, such as
Hollywood Park, to operate a card club (other than on the same property as the
race track); therefore, the Crystal Park LLC executed a 60 month lease with CEI.
Under the terms of the lease, as the landlord, Crystal Park LLC built and
furnished the card club for CEI to operate. Crystal Park LLC is not responsible
for any segment of the daily operations. Over the 60 month term, the fixed
monthly rent payments are as follows: $200,000 per month for months one through
six; $350,000 per month for months seven through twelve; and approximately
$759,000 per month for the balance of the lease. If there is a change in
California law, allowing the Company to operate card clubs at sites other than
its race track property, Crystal Park LLC would operate the card club in
partnership with CEI, (the "Crystal Park Partnership") with Crystal Park LLC
owning 67% of the business. Under the terms of the Crystal Park Partnership,
Crystal Park LLC would receive 90% of the distributable cash flow until it had
received its approximately $26,000,000 initial investment back, together with an
annualized 20% return on that investment.
OTHER CARD CLUB ACTIVITY The Company is a 50% partner with DeBartolo
Entertainment, in a 30 table Casino and Night Club to be located in Palm
Springs, California. Hollywood Park and DeBartolo Entertainment will be
landlords in a third party leasing arrangement. Any investment required for this
project would be modest and timing has not been finalized for development.
Without legislation to expand the types of gaming which could be offered at the
Palm Springs casino, this site is not expected to generate material income, due
to full casino gaming on nearby Indian Reservations.
The Company continues to have discussions with other card clubs as to possible
business combinations of mutual interest.
8
<PAGE>
PRO FORMA RESULTS OF OPERATIONS The following pro forma results of operations
were prepared under the assumption that the acquisition of PCM had occurred on
July 1, 1994, (PCM's inception). The following pro forma adjustments were made:
the elimination of lease rent revenue due to Hollywood Park from PCM and
concession sales made to PCM at acquisition; lease rent expense recorded by PCM;
other operating expenses including consulting fees; legal and audit services and
other miscellaneous duplicate expenses: and increases for amortization of the
excess purchase price allocated to goodwill, interest expense on the unpaid rent
and income taxes.
Pro forma earnings per share reflect the 136,008 shares of Hollywood Park common
stock issued to the former PCM shareholders and an estimated 134,194 shares of
common stock due to the former PCM shareholders, based on the closing market
price of Hollywood Park's common stock on September 30, 1996.
HOLLYWOOD PARK, INC.
Unaudited Pro Forma Combined Consolidated Results of Operations
<TABLE>
<CAPTION> For the three months ended Sept. 30,
-------------------------------------
1996 (a) 1995
------------ ------------
<S> <C> <C>
Revenues:
Hollywood Park, Inc. and race tracks $ 15,042,000 $ 18,615,000
Hollywood Park, Inc. - Casino Division 15,205,000 14,934,000
------------ ------------
$ 30,247,000 $ 33,549,000
------------ ------------
Income before interest, income taxes, depreciation,
amortization and other non-recurring expenses 3,702,000 1,780,000
Net income (loss) $ 603,000 $ (5,837,000)
============ ============
Dividend requirements on convertible preferred stock $ 481,000 $ 481,000
Net income (loss) available to (allocated to) common shareholders $ 122,000 $ (6,318,000)
Per common share before interest, income taxes, depreciation,
amortization, and other non-recurring expenses:
Income - primary $ 0.17 $ 0.07
Income - fully diluted $ 0.17 $ 0.07
Per common share:
Net income (loss) - primary $ 0.01 ($0.34)
Net income (loss) - fully diluted $ 0.01 ($0.34)
</TABLE>
<TABLE>
<CAPTION>
For the nine months ended Sept. 30,
-------------------------------------
1996 (a) 1995
<S> <C> <C>
Revenues:
Hollywood Park, Inc. and race tracks $ 60,376,000 $ 67,483,000
Hollywood Park, Inc. - Casino Division 44,151,000 41,099,000
------------ ------------
$104,527,000 $108,582,000
------------ ------------
Income before interest, income taxes, depreciation,
amortization and other non-recurring expenses 15,727,000 9,448,000
Net loss $ (7,526,000) $ (7,966,000)
============ ============
Dividend requirements on convertible preferred stock $ 1,443,000 $ 1,443,000
Net loss allocated to common shareholders $ (8,969,000) $ (9,409,000)
Per common share before interest, income taxes, depreciation,
amortization, and other non-recurring expenses:
Income - primary $ 0.77 $ 0.43
Income - fully diluted $ 0.75 $ 0.43
Per common share:
Net loss - primary ($0.48) ($0.50)
Net loss - fully diluted ($0.48) ($0.50)
</TABLE>
_____
(a) The results for these periods are actual.
9
<PAGE>
RESTRICTED CASH Restricted cash as of September 30, 1996, was for amounts due
to horsemen for purses, stakes and awards. The balance as of December 31, 1995,
included approximately $2,482,000 related to the Class Action lawsuits and
approximately $644,000 related to amounts due to horsemen for purses, stakes and
awards. In March 1996, amounts due for the Class Action lawsuits were placed in
an escrow account, according to the settlement agreement, and are no longer
reflected in the Company's accounts.
CASINO REVENUE AND PROMOTIONAL ALLOWANCES Casino gaming revenue consisted of
fees collected from patrons on a per seat or per hand played basis. Revenues in
the accompanying statements of operations exclude the retail value of food and
beverage provided to players on a complimentary basis. The estimated cost of
providing these promotional allowances during the nine months ended September
30, 1996, was $2,583,000. There were no comparable costs for the nine months
ended September 30, 1995.
ESTIMATES Financial statements prepared according to generally accepted
accounting principles require the use of management estimates, including
estimates used to evaluate the recoverability of property, plant and equipment,
to determine the fair value of financial instruments, to account for the
valuation allowance for deferred tax assets, and to determine litigation related
obligations.
EARNINGS PER SHARE Primary earnings per share were computed by dividing net
income (loss) available to (allocated to) common shareholders (net income (loss)
less preferred dividend requirements) by the weighted average number of common
shares outstanding during the period, inclusive of the estimated future shares
of the Company's common stock to be issued to the former PCM shareholders.
Fully diluted per share amounts were similarly computed, but include the effect,
when dilutive, of the conversion of the convertible preferred shares and
exercise of stock options.
CASH FLOWS Cash and cash equivalents consisted of certificates of deposit and
short term investments with maturities of 90 days or less.
STOCK REPURCHASE On July 22, 1996, the Company announced its intention to
repurchase, and retire up to 2,000,000 shares of its common stock on the open
market or in negotiated transactions. As of November 13, 1996, the Company had
repurchased, and retired 222,300 common shares at a cost of approximately
$1,960,000.
RECLASSIFICATIONS Certain reclassifications have been made to the 1995 balances
to be consistent with the 1996 financial statement presentation.
NOTE 2 -- SHORT TERM INVESTMENTS
As of September 30, 1996, short term investments consisted of corporate bonds
valued at $3,498,000. The corporate bond portfolio consisted of bonds rated
from Ba2 to B3 by Moody's, and from BB+ to B- by Standard and Poors, with some
bonds not rated by either agency. Investments in corporate bonds typically
carry a greater amount of principal risk than investments previously made by the
Company, and yield a correspondingly higher return.
As of September 30, 1996, corporate bond investments had a weighted average
maturity of 1.3 years, and because the Company reasonably expects to liquidate
this investment in its normal operating cycle this investment was classified as
short term. This short term investment is held as available for sale, and was
recorded in the accompanying financial statements at fair value, determined by
the quoted market price.
For the nine months ended September 30, 1996, proceeds from the sale of
corporate bonds were approximately $6,785,000, all of which were reinvested,
with gross realized gains and losses of approximately $21,000 and $39,000,
respectively. The net unrealized holding gain, as of September 30, 1996, was
$11,000.
10
<PAGE>
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment held at September 30, 1996, and December 31, 1995,
consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 (a) 1995
------------ ------------
<S> <C> <C>
Land and land improvements $ 30,016,000 $ 42,490,000
Buildings and building improvements 135,085,000 175,960,000
Equipment 25,229,000 36,003,000
Construction in progress 18,662,000 8,394,000
------------ ------------
208,992,000 262,847,000
Less accumulated depreciation 81,420,000 88,130,000
------------ ------------
$127,572,000 $174,717,000
============ ============
</TABLE>
_____
(a) The September 30, 1996 figures do not include Sunflower's property,
plant and equipment.
NOTE 4 -- SECURED AND UNSECURED NOTES PAYABLE
Notes payable as of September 30, 1996, and December 31, 1995, consisted of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 (a) 1995
------------ ------------
<S> <C> <C>
Secured notes payable (b) $ 0 $ 28,667,000
Unsecured notes payable (b) 0 15,574,000
Secured note payable - Texaco 0 3,358,000
Unsecured note payable - Gold Cup 310,000 340,000
------------ ------------
310,000 47,939,000
Less current maturities 28,000 32,310,000
------------ ------------
$ 282,000 $ 15,629,000
============ ============
</TABLE>
_____
(a) The September 30, 1996, balances do not include Sunflower's notes
payable.
(b) These notes relate to Sunflower and are non-recourse to Hollywood
Park. This table does not include the Crystal Park capital lease
obligations discussed in Note 5.
NOTE 5 -- LONG TERM GAMING ASSETS
The Company purchased the convention center parcel at the Crystal Park site,
which was renovated to house the card club, and entered into a capital lease
with the city of Compton covering the adjoining hotel, surrounding parking lot
and expansion parcel. The capital lease was valued at approximately $13,741,000.
The lease was entered into on August 3, 1995, and has a term of up to 50 years.
The annual rent payments start at $600,000 and increase every fifth year until
year 46 when they stabilize at $2,850,000. Hollywood Park will receive a rent
payment credit equal to the costs incurred to renovate the card club and hotel.
No cash rent payments are expected to be made until the nineteenth year of the
lease, or 2014.
The balance of the long term gaming assets was related to the costs incurred for
the operating lease between Hollywood Park and CEI, and will be amortized over
the 60 month term of the lease.
NOTE 6 -- LONG TERM GAMING LIABILITIES
Long term gaming liabilities consisted of the Company's capital lease obligation
associated with the lease of the hotel, surrounding parking lot and the
expansion parcel from the city of Compton for Crystal Park. This
11
<PAGE>
liability was reduced as the construction disbursements were made, and upon
submission of any purchase option payment.
NOTE 7 -- SUPPLEMENTAL BALANCE SHEET INFORMATION
In 1995, Statement of Financial Accounting Standards No. 121 ("SFAS 121")
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, was issued which established accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets. SFAS 121, which became effective for Hollywood Park in
the quarter ended March 31, 1996, addresses when impairment losses should be
recognized and how impairment losses should be measured. Whenever there are
recognized events or changes in circumstances that indicate the carrying amount
of an asset may not be recoverable, management reviews the asset for possible
impairment. In accordance with current accounting standards, management uses
estimated expected future net cash flows (undiscounted and excluding interest
costs, and grouped at the lowest level for which there are identifiable cash
flows that are as independent as possible of the cash flows of other asset
groups) to measure the recoverability of the asset. If the expected future net
cash flows are less than the carrying amount of the asset an impairment loss
would be recognized. An impairment loss would be measured as the amount by which
the carrying amount of the asset exceeded the fair value of the asset, with fair
value measured as the amount at which the asset could be bought or sold in a
current transaction between willing parties, other than in a forced liquidation
sale. The estimation of expected future net cash flows is inherently uncertain
and relies to a considerable extent on assumptions regarding current and future
net cash flows and market conditions, and the availability of capital. If, in
future periods, there are changes in the estimates or assumptions incorporated
into the impairment review analysis, the changes could result in an adjustment
to the carrying amount of the asset, but at no time would previously recognized
impairment losses be restored.
NOTE 8 -- DEVELOPMENT EXPENSES
Included in Administrative expenses were development costs of approximately
$466,000 for the nine months ended September 30, 1996, and for the three months
ended September 30, 1996, there was a credit balance of approximately $197,000.
During the three months ended September 30, 1996, the Company was reimbursed for
development expenses of approximately $250,000, from a potential partner related
to an abandoned project. Expenses incurred year-to-date primarily consisted of
costs related to the Inglewood site master plan and card clubs in California.
Included in Administrative expenses were development costs of approximately
$1,636,000 for the nine months ended September 30, 1995, and approximately
$1,293,000 for the three months ended September 30, 1995. Development expenses
for both the three and the nine months ended September 30, 1995, consisted
primarily of costs related to the environmental impact study for the proposed
stadium at Hollywood Park, and card clubs in California.
NOTE 9 -- ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, ("SFAS 123") Accounting for
Stock-Based Compensation, requires that the Company disclose additional
information about employee stock-based compensation plans. The objective of
SFAS 123 is to estimate the fair value, based on the stock price at the grant
date, of the Company's stock options to which employees become entitled when
they have rendered the requisite service and satisfied any other conditions
necessary to earn the right to benefit from the stock options. The fair market
value of a stock option is to be estimated using an option-pricing model that
takes into account, as of the grant date, the exercise price and expected life
of the option, the current price of the underlying stock and its expected
volatility, expected dividends on the stock and the risk-free interest rate for
the expected term of the options.
The Company has calculated the pro forma financial results as required under
SFAS 123 and noted that the impact on net loss for the nine months ended
September 30, 1996 and 1995 was immaterial.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
- -------------
Except for the historical information contained herein, the matters addressed in
this Item 2 and in Note 1 to the Consolidated Financial Statements, Summary of
Significant Accounting Policies, may constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-
looking statements are subject to a variety of risks and uncertainties,
including those discussed in this Report on Form 10-Q, that could cause actual
results to differ materially from those anticipated by the Company's management,
including the failure to obtain gaming licenses or to complete anticipated
expansion projects, and the failure to obtain adequate financing to meet the
Company's strategic goals. The Private Securities Litigation Reform Act of 1995
(the "Act") provides certain "safe harbor" provisions for forward-looking
statements. All forward-looking statements made in this Quarterly Report on
Form 10-Q are made pursuant to the Act. For more information on the potential
factors which could affect the Company's financial results, please review the
Company's filings with the Securities and Exchange Commission, including the
Company's Annual Report on Form 10-K, and the Company's other filings including
the Joint Proxy Statement/Prospectus dated September 20, 1996.
RESULTS OF OPERATIONS
Three months ended September 30, 1996, compared to the three months ended
- -------------------------------------------------------------------------
September 30, 1995
- ------------------
The results of operations for the three months ended September 30, 1996,
included the results of Hollywood Park operating all aspects of the Casino,
including the gaming floors, whereas, during the three months ended September
30, 1995, the Company leased the gaming floor activities to PCM for a fixed
monthly rent, and directly operated all other aspects of the business. The
results of operations for the three months ended September 30, 1996, excluded
the results of operations for Sunflower, due to Sunflower's May 17, 1996, filing
for reorganization under Chapter 11 of the Bankruptcy code. Sunflower's results
of operations are included for the three months ended September 30, 1995.
Total revenues increased by $3,652,000, or 13.7%, during the three months ended
September 30, 1996, as compared to the three months ended September 30, 1995.
Pari-mutuel commissions decreased by $1,180,000, or 11.7%, primarily due to
three fewer live race days at Hollywood Park during the three months ended
September 30, 1996, as compared to the same period in 1995. Gaming - Casino
revenues of $13,114,000 were generated from the gaming floor activities, which
Hollywood Park acquired from PCM on November 17, 1995. While there are no
comparable gaming floor revenues in the 1995 results of operations, during the
three months ended September 30, 1995, the Company recorded Lease - Casino
revenue of $5,394,000, and concession sales to PCM of approximately $649,000.
Concession sales decreased by $1,788,000, or 39.3%, with $777,000 of the decline
attributable to the exclusion of Sunflower's 1996 concession sales, with the
remainder primarily due to the 1995 sales to the former Casino lessee (as
previously mentioned), with no corresponding sales in the 1996 operating
results.
Total operating expenses increased by $1,966,000, or 8.0%, for the three months
ended September 30, 1996, as compared to the three months ended September 30,
1995. Total operating expenses for the three months ended September 30, 1996,
included the Casino gaming floor expenses, with no corresponding expenses in the
operating results for the three months ended September 30, 1995. Also,
Sunflower's operating expenses for the three months ended September 30, 1996,
are not included in the operating results, though these expenses are included in
the operating results for the three months ended September 30, 1995. Salaries,
wages and employee benefits increased by $3,464,000, or 37.3%, primarily because
of wages and benefits associated with the gaming floor staff, for which there
are no comparable expenses in the 1995 operating results. Operations of
facilities costs decreased by $504,000, or 19.9%, primarily due to the exclusion
of Sunflower's expenses in the 1996 operating results. Cost of concession sales
decreased by $1,480,000, or 24.5%, with $682,000 of the decrease related to the
exclusion of Sunflower's 1996 operating expenses, with the remainder primarily
due to cost saving measures implemented at the Hollywood Park race track and
Casino. Professional services increased by $424,000, or 37.3%, due primarily to
increased legal expenses.
13
<PAGE>
Utilities decreased by $264,000, or 17.7%, primarily due to the exclusion of
Sunflower's 1996 operating expenses. Marketing costs increased by $259,000, or
24.8%, mainly due to Casino marketing costs, offset by the exclusion of
Sunflower's 1996 marketing expenses. Included in the 1995 expenses was
$5,627,000 for the lawsuit settlement, with no corresponding expense in the 1996
results of operations.
Depreciation and amortization decreased by $326,000, or 11.5%, primarily due to
the exclusion of Sunflower's 1996 depreciation and amortization expense, netted
against the amortization of the goodwill associated with the November 17, 1995,
PCM acquisition. Interest expense decreased by $938,000, or 97.9%, due entirely
to the exclusion of Sunflower's 1996 interest expense.
Income tax expense increased by $2,337,000 due to pre-tax income being generated
during the three months ended September 30, 1996, as compared to a pre-tax loss
generated during the three months ended September 30, 1995, and an anticipated
slightly higher effective tax rate in 1996.
Nine months ended September 30, 1996, compared to the nine months ended
- -----------------------------------------------------------------------
September 30, 1995
- ------------------
The results of operations for the nine months ended September 30, 1996, included
the results of Hollywood Park operating all aspects of the Casino, including the
gaming floors whereas, during the nine months ended September 30, 1995, the
Company leased the gaming floor activities to PCM for a fixed monthly rent, and
directly operated all other aspects of the business. The results of operations
for the nine months ended September 30, 1996, included Sunflower's results of
operations for the three months ended March 31, 1996, and due to Sunflower's May
17, 1996, filing for reorganization under Chapter 11 of the Bankruptcy Code,
excluded Sunflower's results of operations for the six months ended September
30, 1996. Sunflower's results of operations are included in the financial
statements for the entire nine months ended September 30, 1995.
Total revenues increased by $10,648,000, or 11.3%, for the nine months ended
September 30, 1996, as compared to the nine months ended September 30, 1995.
Lease and management fee - Sunflower decreased by $3,273,000, or 75.3%, due to
the exclusion of Sunflower's operating results for the six months ended
September 30, 1996. Gaming - Casino revenues of $37,917,000 were generated from
the gaming floor activities, which Hollywood Park acquired from PCM on November
17, 1995. While there are no comparable gaming floor revenues in the 1995
financial results, during the nine months ended September 30, 1995, the Company
recorded Lease - Casino revenues of $18,064,000, and concession sales to PCM of
approximately $2,415,000. Admissions, programs and other racing income declined
by $716,000, or 5.5%, primarily related to the exclusion of Sunflower's
operating results for the six months ended September 30, 1996. Concession sales
decreased by $4,956,000, or 32.3%, with $1,561,000, or 31.5%, of the decline
attributable to the exclusion of Sunflower's concession sales for the six months
ended September 30, 1996, with the remaining decrease primarily related to the
fact that the 1995 results included sales to PCM, the former gaming floor lessee
(as previously mentioned), with no corresponding concession sales in the 1996
revenues.
Total operating expenses, inclusive of Casino gaming floor expenses, (with no
corresponding gaming floor operating expenses in the 1995 results of operations)
and with the 1996 financial results exclusive of Sunflower's operating expense
for the six months ended September 30, 1996, increased by $10,896,000, or 14.0%,
for the nine months ended September 30, 1996, as compared to the nine months
ended September 30, 1995. Salaries wages and employee benefits increased by
$11,641,000, or 39.2%, primarily because of wages and benefits associated with
the gaming floor staff, for which there are no corresponding expenses in the
results of operations for the nine months ended September 30, 1995. Operations
of facilities costs decreased by $1,408,000, or 18.0%, primarily a result of the
exclusion of Sunflower's expenses for the six months ended September 30, 1996.
Cost of concession sales decreased by $4,196,000, or 21.5%, primarily due to the
exclusion of Sunflower's expenses for the six months ended September 30, 1996,
and staff reductions at the Casino. Professional services increased by
$472,000, or 8.3%, primarily due to gaming floor costs at the Casino, for which
there are no corresponding costs in the 1995 operating expenses. Utilities
costs decreased by $440,000, or 12.1%, primarily because of the exclusion of
Sunflower's expenses for the six months ended September 30, 1996. Marketing
costs increased by $1,259,000, or 33.8%, primarily due to
14
<PAGE>
Casino marketing costs. Administrative costs increased by $3,546,000, or 51.3%,
primarily a result of costs associated with the operation of the gaming floors,
including the city of Inglewood monthly gaming license fees. Included in the
1995 results of operations was $5,627,000 of expenses related to the lawsuit
settlement with no corresponding expense in 1996.
Depreciation and amortization costs decreased by $580,000, or 6.8%, primarily
due to the exclusion of Sunflower's expense for the six months ended September
30, 1996, netted against the amortization of the goodwill associated with the
November 17, 1995, PCM acquisition. Interest expense decreased by $1,968,000, or
68.2%, due to the exclusion of Sunflower's interest expense for the six months
ended September 30, 1996.
Income tax expense increased by $2,667,000, due to higher pre-tax income in 1996
(excluding the write-off of the investment in Sunflower) and an anticipated
higher effective tax rate in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Hollywood Park's principal source of liquidity at September 30, 1996, was cash
and cash equivalents of approximately $15,683,000. Cash and cash equivalent
decreased by $6,723,000, during the nine months ended September 30, 1996, as
compared to cash and cash equivalents as of December 31, 1995, primarily a
result of Crystal Park construction disbursements, payment of secured notes
payable, and the payment of the convertible preferred dividends, netted against
cash provided by operating activities, the maturity of short term investments,
the return of the Company's workers' compensation self-insurance cash deposit,
and capital contributions from the Crystal Park LLC minority interest partners.
Cash and cash equivalents decreased by $16,333,000 during the nine months ended
September 30, 1995, as compared to cash and cash equivalents as of December 31,
1994, primarily due to disbursements for land acquisitions, debt service
payments on secured and unsecured loan facilities, and payment of convertible
preferred dividends.
HOLLYWOOD PARK As a condition of the April 23, 1996, Merger Agreement with
Boomtown, Hollywood Park must secure adequate funding to repurchase Boomtown's
First Mortgage notes (if required to be redeemed) and at least $60,000,000 to
fund various gaming projects; the Company has appointed Bank of America National
Trust and Savings Association ("Bank of America") to act as lead bank in
securing a credit facility of up to $225,000,000.
On April 14, 1995, the Company executed an unsecured loan facility of up to
$75,000,000 with Bank of America (the "Business Loan Agreement"). The loan
facility consists of a $60,000,000 line of credit (the "Line of Credit") and a
$15,000,000 revolver (the "Revolver"). The Business Loan agreement has been
amended four times to, among other matters, extend the date for drawing down on
the Line of Credit to November 15, 1996, and to adjust the tangible net worth
covenant requirement at December 31, 1996.
During the nine months ended September 30, 1996, Hollywood Park did not draw any
funds under its credit facilities with Bank of America, except for the May 1,
1996, issuance of a standby letter of credit, in the amount of $2,617,000, as
security for the Company's workers' compensation self-insurance program with the
state of California.
The Line of Credit is an interest only, revolving facility, under which the
Company may borrow, pay and reborrow principal amounts without penalty. Per
Amendment Four to the Business Loan Agreement the Line of Credit terminates as
of November 15, 1996, and the Company must repay amounts then outstanding under
the Line of Credit in eighty-four equal monthly installments starting from
December 15, 1996. The Company is in negotiations with Bank of America to
extend the termination date of the Line of Credit to June 30, 1997. The Line of
Credit bears interest, at the option of the Company, at Bank of America's prime
rate plus 0.25%, or the offshore rate plus 2.0%, and the Company may further
elect an agreed upon fixed rate.
The Revolver, inclusive of a within line facility for standby letters of credit
of up to a maximum of $5,000,000, is available during the two years ending May
1, 1997, during which the Company can borrow, pay and
15
<PAGE>
reborrow principal amounts without penalty. The Revolver bears interest, at the
option of the Company, at Bank of America's prime rate or the offshore rate plus
1.75%, and the Company may further elect an agreed upon fixed rate.
As of March 31, 1996, and September 30, 1996, primarily due to a greater than
anticipated percentage ownership in the Crystal Park LLC (as discussed below),
the Company did not meet the quick assets to current liabilities covenant. Bank
of America has waived compliance with this covenant, for the quarter ended March
31, 1996, and September 30, 1996.
Capital expenditures of $17,969,000, for the nine months ended September 30,
1996, were primarily related to construction of Crystal Park. Hollywood Park
increased its ownership interest in the Crystal Park LLC to 88% from 40%;
therefore; the Company is responsible for a proportionately greater amount of
the construction costs.
On September 3, 1996, the Company paid $3,358,000, on the secured non-interest
bearing promissory note, related to the October 27, 1995, purchase of 37.33
acres of land adjacent to the Inglewood property.
During the nine months ended September 30, 1996, the Company paid dividends of
$1,443,000 on its convertible preferred stock. On August 15, 1996, May 15,
1996, and February 15, 1996, the Company paid dividends of $481,000,
respectively, representing $17.50 per share (or $0.175 per depositary share).
On October 1, 1996, the Company declared its regular quarterly preferred
dividend of $481,000, payable on November 15, 1996. Dividends of $1,443,000
were paid during the nine months ended September 30, 1995.
As of January 1, 1996, shares of the convertible preferred stock can be
converted into common stock at the option of the Company. The Company may
exercise this option, only if, among other requirements, for 20 trading days,
within any period of 30 consecutive trading days, the closing price of the
Company's common stock exceeds $15.00, subject to adjustments in certain
circumstances. The conversion price is equal to 83.33 common shares for each
convertible preferred share. The Company anticipates converting the convertible
preferred stock into common stock at the earliest possible date.
In 1995, the Company began investing in corporate bonds, with approximately
$3,498,000 invested as of September 30, 1996, with Moody's ratings of Ba2 to B3
and Standard and Poors ratings of BB+ to B-, though some of the bonds are not
rated by either agency. Investments in corporate bonds carry a greater amount
of principal risk than investments historically made by the Company, and yield a
correspondingly higher return. The corporate bond investments, as of September
30, 1996, had a weighted average maturity of 1.3 years, and because the Company
reasonably expects to liquidate this investment in its normal operating cycle
this investment was classified as short term. This short term investment is
held as available for sale, and was recorded in the accompanying financial
statements at fair value, determined by the quoted market price.
SUNFLOWER On March 24, 1994, an Amended and Restated Credit and Security
Agreement (the "Senior Credit") was executed between Sunflower and five banks
(the "Banks") in connection with the Company's acquisition of Sunflower. The
Senior Credit is non-recourse to Hollywood Park, except for the Company's
guarantee of the interest payments required under the Standstill Agreement. The
guarantee was terminated without any payments by the Company, by reason of the
termination of the Standstill Agreement. As of September 30, 1996, the Senior
Credit had an outstanding balance of $28,667,000.
In December 1994, Sunflower executed a promissory note to Hollywood Park,
allowing for the advancement of up to $3,000,000, for the payment of its Senior
Credit obligations. In 1995, Hollywood Park advanced $2,500,000 to Sunflower,
which along with accrued interest is subordinated to the Senior Credit
obligations.
In October 1995, Sunflower and the Banks executed a Standstill Agreement, which
among other things, provided for the extension of the Senior Credit maturity.
The Standstill Agreement provided for the deferral of 100% of the principal
payments and 50% of the interest payments due under the Senior Credit from April
1995
16
<PAGE>
through the termination date of the Standstill Agreement. The Standstill
Agreement terminated on May 2, 1996, because the Kansas Legislature concluded
its 1996 session without passing legislation that would have permitted slot
machines or other casino gaming at Kansas race tracks, including Sunflower. On
May 17, 1996, Sunflower filed for reorganization under Chapter 11 of the
Bankruptcy Code.
GENERAL Hollywood Park is continually evaluating future growth opportunities in
the gaming, sports and entertainment industries. The Company expects that
funding for growth opportunities, dividend requirements on the convertible
preferred stock, payments on notes payable or capital expenditure needs will
come from existing cash balances, cash generated from operating activities and
borrowings from the credit facilities. In the opinion of management, these
resources will be sufficient to meet the Company's anticipated cash requirements
for the foreseeable future (and in any event for at least the next twelve
months). In the event that the Merger with Boomtown is consummated, Hollywood
Park believes that the proposed $225,000,000 credit facility will be sufficient
to meet Hollywood Park's and Boomtown's anticipated cash requirements for the
foreseeable future (and in any event, for at least the twelve months following
consummation of the Merger).
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
- ------- ---------------------------------------------------
At the Company's Annual Meeting of Stockholders, held October 30, 1996,
Hollywood Park stockholders approved the following:
Proposal One: Proposal to approve the issuance of shares of the Company's
common stock pursuant to the terms of the Agreement and Plan of Merger dated as
of April 23, 1996, among the Company, HP Acquisition, Inc., a wholly owned
subsidiary of the Company ("Sub"), and Boomtown, Inc. ("Boomtown"), providing
for Sub to merge with and into Boomtown, with Boomtown becoming a wholly owned
subsidiary of the Company.
<TABLE>
<S> <C>
For Votes 12,419,225
Against Votes 1,587,264
Abstain Votes 110,649
Broker Non-Votes 2,566,902
</TABLE>
Proposal Two: Election of seven directors
<TABLE>
<CAPTION>
For Votes Against Votes
---------- -------------
<S> <C> <C>
R.D. Hubbard 15,020,860 1,663,180
J.R. Johnson 15,080,695 1,603,345
Robert T. Manfuso 15,071,349 1,612,691
Harry Ornest 15,071,830 1,612,210
Lynn P. Reitnouer 15,082,540 1,601,500
Herman Sarkowsky 15,069,862 1,614,178
Warren B. Williamson 15,078,981 1,605,059
</TABLE>
Proposal Three: Proposal to approve the adoption of the Hollywood Park
1996 Stock Option Plan.
<TABLE>
<S> <C>
For Votes 13,330,169
Against Votes 2,810,023
Abstain Votes 136,905
Broker Non-Votes 406,943
</TABLE>
17
<PAGE>
ITEM 5. OTHER INFORMATION
- ------- -----------------
On September 30, 1996, SB 2000 was signed into law, and provides for a 1/2 of 1%
reduction in the state tax on pari-mutuel wagers made in California, and for the
distribution of the savings as follows: (i) 55% to the horsemen by way of
purses; (ii) 40% to the race tracks by allowing them to retain higher pari-
mutuel commissions; and (iii) 5% to the official registering agency for
thoroughbreds.
SB 1887, a comprehensive card gaming regulatory bill, was approved by the State
Assembly, but was not considered by the Senate.
ITEM 6.A EXHIBITS
- -------- --------
<TABLE>
<CAPTION>
Exhibit
- -------
Number Description of Exhibit
- ------ ----------------------
<S> <C>
2.1 Agreement and Plan of Reorganization, by and among Hollywood Park,
Inc., and Pacific Casino Management, Inc., dated November 17, 1995, is
hereby incorporated by reference to the Company's Current Report on
Form 8-K, filed November 30, 1995, and to the Company's Current Report
on Form 8-K/A, filed January 25, 1996.
2.2 Agreement and Plan of Merger, by and among Hollywood Park, Inc., HP
Acquisition, Inc. and Boomtown, Inc., dated April 23, 1996, is hereby
incorporated by reference to the Company's Current Report of Form 8-K,
filed May 3, 1996.
3.1 Certificate of Incorporation of Hollywood Park, Inc., is hereby
incorporated by reference to the Company's Registration Statement on
Form S-1 dated January 29, 1993.
3.2 Amended By-laws of Hollywood Park, Inc., are hereby incorporated by
reference to the Company's Registration Statement on Form S-1 dated
January 29, 1993.
4.5 Convertible Preferred Stock Depository Stock Agreement between
Hollywood Park, Inc. and Chemical Trust Company of California, dated
February 9, 1993, is hereby incorporated by reference to the Company's
Registration Statement on Form S-1 dated January 29, 1993.
4.6 Hollywood Park Stock Option Plan is hereby incorporated by reference
to Exhibit D to the Notice of Annual Meeting of Stockholders and Proxy
Statement relating to the Annual Meeting of Stockholders of Hollywood
Park, Inc., held on October 30, 1996.
10.1 Directors Deferred Compensation Plan for Hollywood Park, Inc., is
hereby incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991.
10.2 Lease Agreement dated January 1, 1989, by and between Hollywood Park
Realty Enterprises, Inc. and Hollywood Park Operating Company, as
amended, is hereby incorporated by reference to the Joint Annual
Report on Form 10-K for the fiscal year ended December 31, 1989, of
Hollywood Park Operating Company and Hollywood Park Realty
Enterprises, Inc.
10.3 Aircraft rental agreement dated November 1, 1993, by and between
Hollywood Park, Inc., and R.D. Hubbard Enterprises, Inc., is hereby
incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.
10.4 Amended and Restated Credit Agreement dated March 23, 1994, by and
between Sunflower Racing, Inc. and First Union National Bank of North
Carolina, Bank One Lexington, Texas Commerce Bank, Home State Bank of
Kansas City and Intrust Bank, N.A., is hereby incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994.
10.5 Pledge Agreement dated March 23, 1994, by and between Hollywood Park,
Inc., First Union National Bank of North Carolina, (as agent for the
ratable benefit of itself and the Banks named in the Amended and
Restated Credit Agreement included as Exhibit 10.4) is hereby
incorporated by reference to the Company's Quarterly Report on Form
10-Q for quarter ended June 30, 1994.
10.6 Agreement Respecting Pyramid Casino dated December 3, 1994, by and
between Hollywood Park, Inc. and Compton Entertainment, Inc., is
hereby incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
10.7 Amendment of Oil and Gas Lease dated January 10, 1995, by and among
Hollywood Park, Inc., Casex Co., Nunn Ltd., and Votex Energy & Mineral
is hereby incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.8 Business Loan Agreement dated April 14, 1995, by and between Hollywood
Park, Inc., and Bank of America National Trust and Savings
Association, is hereby incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
10.9 Amendment No. One, dated April 30, 1996, by and between Hollywood
Park, Inc. and Bank of America National Trust and Savings Association,
to the Business Loan Agreement dated April 14, 1995, is hereby
incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996.
10.10 Amendment No. Two, dated July 1, 1996, by and between Hollywood Park,
Inc., and Bank of America National Trust and Savings Association, to
the Business Loan Agreement dated April, 14, 1995, is hereby
incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996.
*10.11 Amendment No. Three, dated August 30, 1996, by and between Hollywood
Park, Inc., and Bank of America National Trust and Savings
Association, to the Business Loan Agreement dated April 30, 1996.
*10.12 Amendment No. Four, dated October 1, 1996, by and between Hollywood
Park, Inc., and Bank of America National Trust and Savings
Association, to the Business Loan Agreement dated April 30, 1996.
10.13 Amendment to Agreement Respecting Pyramid Casino dated April 14, 1995,
by and between Hollywood Park, Inc. and Compton Entertainment, Inc.,
is hereby incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995.
10.14 Amended and Restated Agreement Respecting Pyramid Casino dated July
14, 1995, by and between Hollywood Park, Inc. and Compton
Entertainment, Inc., is hereby incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.
10.15 Amended and Restated Disposition and Development Agreement of Purchase
and Sale, and Lease with Option to Purchase, dated August 2, 1995, by
and between The Community Redevelopment Agency of the City of Compton
and Compton Entertainment, Inc., is hereby incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.
10.16 Guaranty, dated July 31, 1995, by Hollywood Park, Inc. in favor of the
Community Redevelopment Agency of the City of Compton, is hereby
incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995.
10.17 Lease, by and between HP Compton, Inc. and Compton Entertainment,
Inc., dated August 3, 1995, is hereby incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.
*10.18 First Amendment to Lease by and between HP Compton, Inc. and Compton
Entertainment, Inc., dated March 12, 1996.
*10.19 Second Amendment to Lease by and between Crystal Park Hotel and Casino
Development Company, LLC, and Compton Entertainment, Inc., dated
September 13, 1996.
*10.20 Assignment, Assumption and Consent Agreement, by and among HP Compton,
Inc., Crystal Park Hotel and Casino Development Company, LLC,
Hollywood Park, Inc. and The Community Redevelopment Agency of the
City of Compton, dated July 18, 1996.
*10.21 Consent of Compton Entertainment, Inc. and Rouben Kandilian, by and
between Hollywood Park, Inc., and Compton Entertainment, Inc., dated
August 29, 1996.
10.22 Standstill Agreement, dated October 27, 1995, by and between Sunflower
Racing, Inc., and First Union National Bank of Florida, Bank One
Lexington, N.A., Bank Midwest, N.A., Intrust Bank, N.A., and FCLT
Loans, L.P., is hereby incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995.
10.23 License Agreement, dated June 27, 1996, by and between HP Compton,
Inc. and Radisson Hotels International, Inc., is hereby incorporated
by reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996.
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
*10.24 Operating Agreement for Crystal Park Hotel and Casino Development
Company, LLC a California Limited Liability Company, dated July 18,
1996, effective August 28, 1996.
10.25 Blue Diamond Swap Agreement, dated August 12, 1996, by and among
Boomtown, Inc., Blue Diamond Hotel and Casino, Inc., Hollywood Park,
Inc., Edward P. Roski, Jr., Industry Hills Visitor Accommodation
Center, and Majestic Realty, Co., is hereby incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996.
10.26 Stock Purchase Agreement, dated August 12, 1996, by and between
Hollywood Park, Inc. and Edward P. Roski, Jr., is here by incorporated
by reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996.
22.1 Subsidiaries of Hollywood Park, Inc.: Crystal Park Hotel and
Development Company, LLC, a California Limited Liability Company; HP
Compton, Inc., a California corporation; HP Casino, Inc., a California
corporation; Hollywood Park Operating Company, a Delaware corporation
(and its subsidiaries: Hollywood Park Fall Operating Company, a
Delaware corporation and Hollywood Park Food Services, Inc., a
California corporation); Sunflower Racing, Inc., a Kansas corporation
(and its subsidiary SR Food and Beverage, Inc., a Kansas corporation);
and Turf Paradise, Inc., an Arizona corporation.
*27.1 Financial Data Schedule
____
*Filed herewith
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on October 28, 1996, to report
the October 21, 1996, resignation of one of Hollywood Park, Inc.'s
directors.
</TABLE>
20
<PAGE>
Hollywood Park, Inc.
Racing Data
<TABLE>
<CAPTION>
HOLLYWOOD PARK RACE TRACK
1996 1995
------------------------ ------------------------
<S> <C> <C>
LIVE RACING DATES:
Spring/Summer meeting ("S/S") April 26 through July 22 April 28 through July 24
Autumn meeting ("A") Nov. 6 through Dec. 22 Nov. 15 through Dec. 24
LIVE RACE DAYS INCLUDING CHARITY DAYS (A):
Spring/Summer meeting 67 67
Autumn meeting 36 30
--- ---
103 97
=== ===
LIVE RACE DAYS BY QUARTER:
First quarter 0 0
Second quarter (S/S) 51 48
Third quarter (S/S) 16 19
Fourth quarter (A) 36 30
--- ---
103 97
=== ===
</TABLE>
<TABLE>
<CAPTION>
SIMULCAST RACE DAYS BY QUARTER 1996: 1Q 2Q 3Q 4Q TOTAL
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Santa Anita thoroughbred 66 16 0 4 86
Del Mar thoroughbred 0 0 43 0 43
Fairplex Pomona thoroughbred 0 0 19 0 19
Oak Tree from Santa Anita thoroughbred 0 0 0 27 27
Los Alamitos Harness - night races 51 4 0 0 55
Los Alamitos Quarter Horse - night races 0 45 51 48 144
Cal Expo Harness - night races 0 35 9 27 71
Bay Meadows - northern California (b) 40 0 23 26 89
Golden Gate Fields - northern California (b) 5 59 0 39 103
Fairs - northern California (b) 0 15 53 10 78
--- --- --- --- ---
TOTAL 162 174 198 181 715
=== === === === ===
</TABLE>
<TABLE>
<CAPTION>
SIMULCAST RACE DAYS BY QUARTER 1995: 1Q 2Q 3Q 4Q TOTAL
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Santa Anita thoroughbred 65 19 0 5 89
Del Mar thoroughbred 0 0 43 0 43
Fairplex Pomona thoroughbred 0 0 17 2 19
Oak Tree from Santa Anita thoroughbred 0 0 0 32 32
Los Alamitos Harness - night races 36 0 0 5 41
Los Alamitos Quarter Horse - night races 0 45 54 53 152
Cal Expo Harness - night races 1 36 11 16 64
Bay Meadows - northern California (b) 19 11 28 45 103
Golden Gate Fields - northern California (b) 44 55 0 15 114
Fairs - northern California (b) 0 16 60 12 88
--- --- --- --- ---
TOTAL 165 182 213 185 745
=== === === === ===
</TABLE>
______
(a) There are three charity days in both the Spring/Summer and Autumn
meetings, for a total of six charity days per year.
(b) Simulcasting from northern California runs year round and is simulcast
concurrently with either live on-track racing or with southern California
simulcasting.
TURF PARADISE
Turf Paradise has one continuous live thoroughbred race meet that starts in
September and runs through May. During 1996 Turf Paradise raced live for the
period January 1 through May 7 and resumed live racing on September 28 and will
run through December 31. Turf Paradise operates as a simulcast facility for
21
<PAGE>
Arizona's Prescott Downs during the period May 24 through September 2. In 1995,
Turf Paradise raced live from January 1 through May 22, operated as a simulcast
facility for the period May 26 through September 4, and resumed live racing on
September 30 running through December 31. Along with running live thoroughbred
races, Turf Paradise offers two quarter horse races a day during the first three
months of the live meet (September through November) and a limited number of
Arabian races each spring. Turf Paradise also typically accepts simulcast
signals during live racing on Fridays, Saturdays and Sundays, and operates as a
simulcast facility during the two dark days (days without live racing during the
live race meet) of each week during the live on-track racing season.
<TABLE>
<CAPTION>
LIVE ON-TRACK RACE DARK DAY SIMULCASTING -
DAYS SIMULCASTING PRESCOTT
------------------- -------------- ---------------
1996 1995 1996 1995 1996 1995
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
First quarter 71 67 20 23 0 0
Second quarter 27 37 24 14 33 30
Third quarter 2 1 20 18 52 56
Fourth quarter 66 66 24 25 0 0
----- ----- ----- ----- ----- -----
166 171 88 80 85 86
===== ===== ===== ===== ===== =====
</TABLE>
22
<PAGE>
Hollywood Park, Inc.
Calculation of Earnings Per Share
<TABLE>
<CAPTION>
For the three months ended September 30,
---------------------------------------------------------
Primary Assuming full dilution (a)
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Average number of common shares outstanding 18,534,592 18,369,634 18,534,592 18,369,634
Average common shares due to assumed conversion
of convertible preferred shares 0 0 2,291,492 2,291,492
----------- ----------- ----------- -----------
Total shares 18,534,592 18,369,634 20,826,084 20,661,126
=========== =========== =========== ===========
Net income (loss) $603,000 $(5,637,000) $ 603,000 $(5,637,000)
Less dividend requirements on convertible preferred shares 481,000 481,000 0 0
----------- ----------- ----------- -----------
Net income (loss) available to (allocated to) common shareholders $ 122,000 $(6,118,000) $ 603,000 $(5,637,000)
=========== =========== =========== ===========
Net income (loss) per share $ 0.01 $ (0.33) $ 0.03 $ (0.27)
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
For the nine months ended September 30,
---------------------------------------------------------
Primary Assuming full dilution (a)
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Average number of common shares outstanding 18,604,755 18,369,634 18,604,755 18,369,634
Average common shares due to assumed conversion
of convertible preferred shares 0 0 2,291,492 2,291,492
----------- ----------- ----------- -----------
Total shares 18,604,755 18,369,634 20,896,247 20,661,126
=========== =========== =========== ===========
Net loss $(7,526,000) $(1,374,000) $(7,526,000) $(1,374,000)
Less dividend requirements on convertible preferred shares 1,443,000 1,443,000 0 0
----------- ----------- ----------- -----------
Net loss allocated to common shareholders $(8,969,000) $(2,817,000) $(7,526,000) $(1,374,000)
=========== =========== =========== ===========
Net loss per share $ (0.48) $ (0.15) $ (0.36) $ (0.07)
=========== =========== =========== ===========
</TABLE>
(a) The computed values assuming full dilution are anti-dilutive; therefore, the
primary share values are presented on the face of the consolidated statements of
operations.
23
<PAGE>
Hollywood Park, Inc.
Selected Financial Data by Operational Location
<TABLE>
<CAPTION>
For the nine months ended For the three months ended
September 30, September 30,
---------------------------- --------------------------
1996 1995 1996 1995
------------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Hollywood Park, Inc. and Race Track $ 47,232,000 $48,078,000 $13,496,000 $14,750,000
Sunflower Racing, Inc. 1,782,000 7,858,000 0 2,385,000
Turf Paradise, Inc. 11,362,000 11,547,000 1,546,000 1,480,000
Hollywood Park, Inc. - Casino Division 44,151,000 26,396,000 15,205,000 7,980,000
------------- ----------- ----------- -----------
104,527,000 93,879,000 30,247,000 26,595,000
------------- ----------- ----------- -----------
EXPENSES:
Hollywood Park, Inc. and Race Track 40,713,000 41,848,000 11,856,000 13,634,000
Sunflower Racing, Inc. 1,703,000 7,146,000 0 2,544,000
Turf Paradise, Inc. 8,835,000 9,537,000 2,013,000 1,859,000
Hollywood Park, Inc. - Casino Division 37,549,000 19,373,000 12,676,000 6,542,000
------------- ----------- ----------- -----------
88,800,000 77,904,000 26,545,000 24,579,000
------------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INTEREST, INCOME TAXES, DEPRECIATION,
AMORTIZATION AND OTHER NON-RECURRING EXPENSES:
Hollywood Park, Inc. and Race Track 6,519,000 6,230,000 1,640,000 1,116,000
Sunflower Racing, Inc. 79,000 712,000 0 (159,000)
Turf Paradise, Inc. 2,527,000 2,010,000 (467,000) (379,000)
Hollywood Park, Inc. - Casino Division 6,602,000 7,023,000 2,529,000 1,438,000
------------- ----------- ----------- -----------
15,727,000 15,975,000 3,702,000 2,016,000
------------- ----------- ----------- -----------
NON-RECURRING EXPENSES:
Write off of investment in Sunflower Racing, Inc. 11,412,000 0 0 0
Lawsuit settlement 0 5,627,000 0 5,627,000
DEPRECIATION AND AMORTIZATION:
Hollywood Park, Inc. and Race Track 4,300,000 4,097,000 1,457,000 1,378,000
Sunflower Racing, Inc. 536,000 1,853,000 0 616,000
Turf Paradise, Inc. 911,000 1,009,000 301,000 311,000
Hollywood Park, Inc. - Casino Division 2,151,000 1,519,000 740,000 519,000
------------- ----------- ----------- -----------
7,898,000 8,478,000 2,498,000 2,824,000
------------- ----------- ----------- -----------
INTEREST EXPENSE:
Hollywood Park, Inc. and Race Track 137,000 142,000 20,000 44,000
Sunflower Racing, Inc. 781,000 2,723,000 0 913,000
Turf Paradise, Inc. 0 21,000 0 1,000
------------- ----------- ----------- -----------
918,000 2,886,000 20,000 958,000
------------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT):
Hollywood Park, Inc. and Race Track 2,082,000 1,991,000 163,000 (306,000)
Write off of Investment in Sunflower Racing, Inc. (11,412,000) 0 0 0
Lawsuit settlement 0 (5,627,000) 0 (5,627,000)
Sunflower Racing, Inc. (1,238,000) (3,864,000) 0 (1,688,000)
Turf Paradise, Inc. 1,616,000 980,000 (768,000) (691,000)
Hollywood Park, Inc. - Casino Division 4,451,000 5,504,000 1,789,000 919,000
------------- ----------- ----------- -----------
(4,501,000) (1,016,000) 1,184,000 (7,393,000)
Income tax expense (benefit) 3,025,000 358,000 581,000 (1,756,000)
------------- ----------- ----------- -----------
Net income (loss) ($7,526,000) ($1,374,000) $ 603,000 ($5,637,000)
============= =========== =========== ===========
Dividend requirements on convertible preferred stock $ 1,443,000 $ 1,443,000 $ 481,000 $ 481,000
------------- ----------- ----------- -----------
Net income (loss) available to (allocated to) common shareholders ($8,969,000) ($2,817,000) $ 122,000 ($6,118,000)
============= =========== =========== ===========
Per common share:
Net income (loss) - primary ($0.48) ($0.15) $ 0.01 ($0.33)
Net income (loss) - fully diluted ($0.48) ($0.15) $ 0.01 ($0.33)
Number of shares - primary 18,604,755 18,369,634 18,534,592 18,369,634
Number of shares - fully diluted 20,896,247 20,661,126 20,826,084 20,661,126
</TABLE>
24
<PAGE>
Hollywood Park Inc.
Pari-mutuel Wagering Data
<TABLE>
<CAPTION>
For the nine months ended For the three months ended
September 30, September 30,
------------------------------- -------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
HOLLYWOOD PARK
--------------
Pari-mutuel handle:
On-track $120,027,000 $135,461,000 $ 29,311,000 $ 41,110,000
Off-track - shared handle wagering 368,890,000 328,954,000 91,088,000 99,304,000
Simulcast 290,857,000 299,217,000 99,341,000 105,175,000
------------ ------------ ------------ ------------
Total $779,774,000 $763,632,000 $219,740,000 $245,589,000
============ ============ ============ ============
Pari-mutuel commissions:
On-track $ 7,665,000 $ 8,567,000 $ 1,805,000 $ 2,582,000
Off-track - shared handle wagering 10,695,000 10,544,000 2,590,000 3,108,000
Off-track - independent handle 1,575,000 1,524,000 361,000 448,000
Simulcast 8,993,000 8,605,000 2,971,000 2,811,000
------------ ------------ ------------ ------------
Total $ 28,928,000 $ 29,240,000 $ 7,727,000 $ 8,949,000
============ ============ ============ ============
TURF PARADISE
-------------
Pari-mutuel handle:
On-track $ 16,633,000 $ 18,609,000 $ 440,000 $ 341,000
Off-track - shared handle wagering 69,662,000 46,772,000 473,000 280,000
Simulcast 40,739,000 38,152,000 9,536,000 9,028,000
------------ ------------ ------------ ------------
Total $127,034,000 $103,533,000 $ 10,449,000 $ 9,649,000
============ ============ ============ ============
Pari-mutuel commissions:
On-track $ 2,009,000 $ 2,550,000 $ 83,000 $ 67,000
Off-track - shared handle wagering 3,008,000 2,993,000 50,000 37,000
Off-track - independent handle 103,000 507,000 0 0
Simulcast 3,545,000 2,455,000 1,026,000 1,013,000
------------ ------------ ------------ ------------
Total $ 8,665,000 $ 8,505,000 $ 1,159,000 $ 1,117,000
============ ============ ============ ============
COMBINED
--------
Pari-mutuel handle:
On-track $136,660,000 $154,070,000 $ 29,751,000 $ 41,451,000
Off-track - shared handle wagering 438,552,000 375,726,000 91,561,000 99,584,000
Simulcast 331,596,000 337,369,000 108,877,000 114,203,000
------------ ------------ ------------ ------------
Total $906,808,000 $867,165,000 $230,189,000 $255,238,000
============ ============ ============ ============
Pari-mutuel commissions:
On-track $ 9,674,000 $ 11,117,000 $ 1,888,000 $ 2,649,000
Off-track - shared handle wagering 13,703,000 13,537,000 2,640,000 3,145,000
Off-track - independent handle 1,678,000 2,031,000 361,000 448,000
Simulcast 12,538,000 11,060,000 3,997,000 3,824,000
------------ ------------ ------------ ------------
Total $ 37,593,000 $ 37,745,000 $ 8,886,000 $ 10,066,000
============ ============ ============ ============
</TABLE>
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
HOLLYWOOD PARK, INC.
(Registrant)
By: /s/ R.D. Hubbard Dated: November 13, 1996
--------------------------------
R.D. Hubbard
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ G. Michael Finnigan Dated: November 13, 1996
--------------------------------
G. Michael Finnigan
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
26
<PAGE>
Hollywood Park, Inc.
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ----
<S> <C> <C>
10.11 Amendment No. Three, dated August 30, 1996, by and 1
between Hollywood Park, Inc., and Bank of America
National Trust and Savings Association, to the Business
Loan Agreement dated April 30, 1996.
10.12 Amendment No. Four, dated October 1, 1996, by and 2
between Hollywood Park, Inc., and Bank of America
National Trust and Savings Association, to the Business
Loan Agreement dated April 30, 1996.
10.18 First Amendment to Lease by and between HP Compton, Inc. 3
and Compton Entertainment, Inc., dated March 12, 1996.
10.19 Second Amendment to Lease by and between Crystal Park Hotel 7
and Development Company, LLC, and Compton Entertainment,
Inc., dated July 18, 1996.
10.20 Assignment, Assumption and Consent Agreement, by and 14
among HP Compton, Inc., Crystal Park Hotel and
Casino Development Company LLC, Hollywood Park, Inc., and
The Community Redevelopment Agency of the City of Compton,
dated July 18, 1996.
10.21 Consent of Compton Entertainment, Inc. and Rouben Kandilian, 18
by and between Hollywood Park, Inc., and Compton Entertainment,
Inc., dated August 29, 1996.
10.24 Operating Agreement for Crystal Park Hotel and Casino Development 20
Company LLC, a California Limited Liability Company, dated July 18,
1996, effective August 28, 1996.
27.1 Financial Data Schedule 104
</TABLE>
All other exhibits previously submitted.
<PAGE>
===============================================================================
HOLLYWOOD PARK, INC. - FORM 10-Q, SEPTEMBER 1996 - EXHIBIT 10.11
(LOGO OF BANK OF AMERICA) AMENDMENT TO DOCUMENTS
- -------------------------------------------------------------------------------
AMENDMENT NO. THREE TO BUSINESS LOAN AGREEMENT
This Amendment No. Three (the "Amendment") dated as of August 30, 1996, is
between Bank of America National Trust and Savings Association (the "Bank") and
HOLLYWOOD PARK, INC. (the "Borrower").
RECITALS
--------
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of April 14, 1995, as modified by amendments dated as of
April 30, 1996, and July 1, 1996 (as amended, the "Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
---------
1. DEFINITIONS. Capitalized terms used but not defined in this Amendment
-----------
shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
----------
2.1 In Paragraph 2.2, the date "OCTOBER 1, 1996" is substituted for
the date "SEPTEMBER 1, 1996".
2.2 Subparagraph 2.4(b) is amended and restated in its entirety to
read as follows:
"(b) The Borrower will repay the principal amount outstanding
on the Expiration Date Facility No. 2 in eighty-four
successive equal monthly installments starting November 1,
1996. On October 1, 2003, the Borrower will repay the
remaining principal balance plus any interest then due."
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
-------------------
terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
Bank of America
National Trust and Savings Hollywood Park, Inc.
Association
X /s/ Scott Aney X /s/ R.D. Hubbard
-- ----------------- -- -------------------
By: Scott Aney, Vice President By: R.D. Hubbard, Chairman of the
Board and Chief Executive
Officer
X__/s/ G. Michael Finnigan____________
By: G. Michael Finnigan, Executive
Vice President and Chief
Financial Officer
- -------------------------------------------------------------------------------
1
<PAGE>
===============================================================================
Hollywood Park, Inc. - Form 10-Q September 1996 - Exhibit 10.12
[LOGO OF BANK OF AMERICA] AMENDMENT TO DOCUMENTS
_______________________________________________________________________________
AMENDMENT NO. FOUR TO BUSINESS LOAN AGREEMENT
This Amendment No. Four (the "Amendment") dated as of October 1, 1996, is
between Bank of America National Trust and Savings Association (the "Bank") and
HOLLYWOOD PARK, INC. (the "Borrower").
RECITALS
--------
A. The Bank and the Borrower entered into a certain Business Loan Agreement
dated as of April 14, 1995, as modified by amendments dated as of April 30,
1996, July 1, 1996 and August 30, 1996 (as amended, the "Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
---------
1. DEFINITIONS. Capitalized terms used but not defined in this Amendment
-----------
shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
----------
2.1 In Paragraph 2.2, the date "NOVEMBER 15, 1996" is substituted for
the date "OCTOBER 1, 1996".
2.2 Subparagraph 2.4(b) is amended and restated in its entirety to read
as follows:
"(b) The Borrower will repay the principal amount outstanding on
the Expiration Date Facility No. 2 in eighty-four successive
equal monthly installments starting December 15, 1996. On
November 15, 2003, the Borrower will repay the remaining
principal balance plus any interest then due."
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
-------------------
terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION HOLLYWOOD PARK, INC.
X /s/ SCOTT ANEY X /s/ R.D. HUBBARD
- -------------------------------- ------------------------------------
BY: SCOTT ANEY, VICE PRESIDENT BY: R.D. HUBBARD, CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
X /s/ G. MICHAEL FINNIGAN
------------------------------------
BY: G. MICHAEL FINNIGAN, EXECUTIVE VICE
PRESIDENT AND CHIEF FINANCIAL
OFFICER
_______________________________________________________________________________
-1-
<PAGE>
HOLLYWOOD PARK, INC. - FORM 10-Q, SEPTEMBER 1996 - EXHIBIT 10.18
FIRST AMENDMENT TO LEASE
------------------------
This First Amendment to Lease ("Amendment") is hereby entered into by
and between HP/COMPTON, INC., a California corporation ("Landlord") and COMPTON
ENTERTAINMENT, INC., a California corporation ("Tenant") with reference to the
following facts:
A. Landlord and Tenant have entered into that certain Lease by and
between Landlord and Tenant dated August 3, 1995 (the "Lease");
B. The Lease provides for Tenant to operate a gaming facility on the
premises which is the subject of the Lease (the "Premises");
C. In order to obtain governmental approval to operate the gaming
facility on the Premises, the State of California Department of Justice has
required Landlord and Tenant to amend certain provisions of the Lease;
D. Both Landlord and Tenant desire to effectuate the required changes
in the Lease and have therefore agreed to enter into this First Amendment to
Lease.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, Landlord and Tenant hereby agree as follows:
<PAGE>
1. Defined Terms. Unless otherwise specified, all capitalized terms
-------------
set forth herein shall carry the same meaning as proscribed to them in the
Lease.
2. Amendments to Lease. The Lease shall be amended by making the
-------------------
following changes:
2.1 The following new paragraph 2.02(c) shall be added to the
Lease:
"Notwithstanding anything contained in subparagraph 2.02(a)
above, Tenant shall have the right to terminate this Lease upon thirty
(30) days' written notice to Landlord in the event Tenant's use of the
Property produces insufficient funds to pay monthly rent as set forth
in paragraph 3.01 below, after Tenant has made all payments of
operating expenses, including payment of any loans or lines of credit
related to the operation of the Card Club and prior to any
distribution of revenue to Tenant. Tenant's exercise of the foregoing
right of termination shall not be deemed to affect Tenant's right to
participate or enter into the Partnership Agreement at such time as
Landlord or any affiliate become eligible to be licensed to operate a
card club in the State of California."
2.2 The last sentence of paragraph 5.02(a) shall be deleted.
2.3 A new Section 8.07 shall be added to the Lease which will
state the following:
"Limitation on Landlord's Interest as to Transferees.
---------------------------------------------------
Neither Landlord nor any assignee or transferee shall have the right
to in any way
-2-
<PAGE>
participate in the operation or ownership of the Card Club or in any
way receive a financial interest in or exercise influence over the
Card Club until: (i) the laws of the State of California allow the
Card Club to be owned or operated by a public company; or (ii) the
State of California Department of Justice specifically permits such
transferee or assignee to act in such a manner with respect to the
Card Club, whether or not such transferee or assignee is eligible for
gaming registration at the time of such transfer, assignment, or
conveyance. Pursuant to this Section 8.07, Landlord shall expressly
state, in any document which transfers, assigns or conveys any of its
rights, title or interest to this Lease, that no assignee or
transferee shall have the right to participate in the ownership or
operation of the Card Club or in any way obtain a financial interest
and/or exercise any influence over the Card Club until: (i) the laws
of the State of California provide that the Card Club may be owned or
operated by a public company; or (ii) the State of California
Department of Justice specifically permits such transferee or assignee
to act in such a manner with respect to the Card Club, whether or not
such transferee or assignee is eligible for gaming registration at the
time of such transfer, assignment, or conveyance. Nothing in this
Section 8.07 shall be deemed to change or alter any provision of this
Lease or require that any party's rights hereunder be changed or
altered upon Landlord's transfer or conveyance of its right, title or
interest herein except as expressly stated above."
-3-
<PAGE>
3. Other than the foregoing changes, the Lease shall remain in full
force and effect in its entirety and may not be amended or modified except as
provided therein.
IN WITNESS WHEREOF, this First Amendment to Lease is executed this
12th day of March, 1996.
COMPTON ENTERTAINMENT, INC.
a California corporation
By:_/s/Rouben Kandilian________________
Rouben Kandilian, President
HP/COMPTON, INC.
a California corporation
By:_/s/G. Michael Finnigan______________
Its: Vice President___________
-4-
<PAGE>
HOLLYWOOD PARK, INC. - FORM 10-Q, SEPTEMBER 1996 - EXHIBIT 10.19
SECOND AMENDMENT TO LEASE
-------------------------
This Second Amendment to Lease ("Amendment") is hereby entered into by
and between Crystal Park Casino and Hotel Development Company, LLC, a California
Limited Liability Company ("Landlord"), and COMPTON ENTERTAINMENT, INC., a
California corporation ("Tenant"), with reference to the following facts:
A. Landlord and Tenant are parties to that certain Lease by and
between Landlord and Tenant dated August 3, 1995 (the "Lease");
B. Landlord and Tenant subsequently modified the Lease by executed
that certain First Amendment to Lease dated March 12, 1996 (the "First
Amendment");
C. The Lease provides for Tenant to operate a gaming facility on the
premises which is the subject of the Lease (the "Premises");
D. In order to obtain governmental approval to operate the gaming
facility on the Premises, the State of California Department of Justice has
required Landlord and Tenant to amend certain provisions of the Lease and the
First Amendment;
E. Both Landlord and Tenant desire to effectuate the required changes
in the Lease and the First Amendment and have therefore agreed to enter into
this Second Amendment to Lease.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1. Defined Terms. Unless otherwise specified, all capitalized
-------------
terms set forth herein shall carry the same meaning as proscribed to them in the
Lease.
2. Amendments to Lease. The Lease shall be amended by making
-------------------
the following changes:
2.1 Section 3.01 shall be deleted in its entirety and the
following shall be inserted in its place: "3.01 Monthly Rent.
"3.01 Monthly Rent.
------------
(a) Tenant shall pay to Landlord as Monthly Rent the amounts
set forth in the following schedule:
<TABLE>
<S> <C>
Months 1 - 6 $200,000
Months 7 - 12 $350,000
Months 13 - 60 $759,375
</TABLE>
Tenant shall have the right prior to the beginning of Month 13 to
prepay up to $4,650,000 in rent, in which event the Monthly Rent due during
Months 13 through 60 shall be reduced to $662,500. Provided Tenant has
made the above-referenced prepayment, Tenant, at any time during Months 13
through 24, shall have the additional right to make a single lump sum
prepayment of Monthly Rent, which payment shall be equal to an amount set
forth in the following schedule:
-2-
<PAGE>
<TABLE>
<S> <C>
Month 13 $5,428,145
Month 14 $5,353,451
Month 15 $5,227,513
Month 16 $5,200,308
Month 17 $5,121,815
Month 18 $5,042,014
Month 19 $4,960,882
Month 20 $4,878,397
Month 21 $4,794,536
Month 22 $4,709,277
Month 23 $4,622,596
Month 24 $4,534,470
</TABLE>
(b) In the event Tenant exercises the option to make a
prepayment of rent during Months 13 through 24, Tenant's rental obligation,
for the remainder of the Term, including the month in which such prepayment
is made, shall be reduced to $500,000 per month. The Monthly Rent shall be
paid in arrears for the immediately preceding month on or before the last
day of each calendar month during the term hereof, without any deduction or
offset, prior notice or demand. Tenant's obligation to pay Monthly Rent
shall commence on the Commencement Date. If the Commencement Date shall be
a day other than the first day of the calendar month, or, if the Term shall
end on any day other than the last day of the calendar month, then the
Monthly Rent for the first and/or last partial calendar month of the Term,
as the case may be, shall be prorated on a daily basis. This a "Triple Net
Lease," it being understood that Landlord shall receive the Monthly Rent
free and clear of any and all Operating Expenses and any and all other
charges and expenses of any nature whatsoever incurred by Landlord or
Tenant in connection with the ownership and operation of the Premises.
(c) On or before the 90th day following the opening of the Card
Club, Landlord shall provide Tenant a detailed statement indicating the
total investment of Landlord in the Card Club and related facilities (the
"Total Improvement Amount"), including but not limited
-3-
<PAGE>
to all tenant improvements Landlord has made to the Premises on behalf of
Tenant (the "Improvement Statement"). In the event the Total Improvement
Amount does not equal $25,000,000, the Landlord shall include in the
Improvement Statement an adjustment schedule for both the Monthly Rent and
the prepayments set forth in paragraphs (a) and (b) above (collectively,
the "Prepayments") to accurately reflect Tenant's obligation to Landlord
for the tenant improvements which Landlord provided (the "Improvement
Adjustments"). The Improvement Adjustments shall be based upon a factor
.0265 times the difference between the Total Improvement Amount and
$25,000,000. Landlord shall use the resulting number to calculate the
adjustments to the Monthly Rent and the Prepayments based upon the same
formulas that were used to establish the Monthly Rent and Prepayments
currently set forth herein. Upon receipt of the Improvement Statement,
Tenant shall have 20 days (the "Objection Period") to object, in writing
(the "Improvement Objection"), to the amount of the Improvement Adjustment
as well as the costs used to calculate the Total Improvement Amount. Upon
receipt of the Improvement Objection Landlord shall have 10 days to provide
Tenant with any additional information necessary to justify the Total
Improvement Amount and the Improvement Adjustments. In the event Tenant and
Landlord cannot agree as to either the Total Improvement Amount or the
Improvement Adjustments within 15 days of Landlord's receipt of the
Improvement Objection, then such dispute shall be resolved in accordance
with Section 13.2 of the Agreement Respecting Pyramid Casino. In the event
Tenant fails to provide Landlord with the Improvement Objections within the
Objection Period, the Total Improvement Amount and the Improvement
Adjustments shall be deemed accepted by Tenant. The adjustment to Monthly
Rent, if any, shall be effective as of the Commencement Date and any amount
owing shall be either paid by Tenant with or
-4-
<PAGE>
credited by Landlord against the next payment of Monthly Rent due
immediately following the date on which the Improvement Adjustments are
agreed upon by the parties or decided by an arbitration panel.
2.2 Section 3.02 shall be deleted in its entirety, and the
following shall be inserted in its place:
"3.02 Security Deposit.
----------------
Prior to the Commencement Date, Tenant shall provide Landlord
with a cash deposit in an amount equal to one month's rent as security for
Tenant's faithful performance of the provisions of this Lease (the
"Security Deposit"). If Tenant fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this
Lease, Landlord shall unilaterally have the right to use such cash deposit,
or any portion thereof, to cure such default or compensate Landlord for all
damages sustained by Landlord resulting from Tenant's default. Tenant
shall, immediately on demand, pay to Landlord a sum equal to that portion
of the Security Deposit expended or applied by Landlord which was provided
for in this paragraph so as to maintain the Security Deposit in a sum equal
to one month's rent. Landlord shall not be required to keep the Security
Deposit separate from its general account nor shall Landlord be required to
pay any interest on the Security Deposit. If Tenant performs all of
Tenant's obligations
-5-
<PAGE>
under this Lease, the Security Deposit, or that portion thereof which had not
been previously applied by Landlord, shall be returned to Tenant by Landlord,
within fourteen (14) days after the expiration of the term of this Lease or
after Tenant has vacated the Premises, whichever is later. Any time the Monthly
Rent increases during the term of this Lease, Tenant shall, without notice,
deposit additional monies with Landlord in order to maintain the Security
Deposit equal to one month's Monthly Rent. Failure to maintain the Security
Deposit shall be deemed an Event of Default."
2.3 Any reference in the Lease to the "Account," as such term
was defined in Section 3.02 prior to this Second Amendment to Lease, shall
be deleted or disregarded in the interpretation of the Lease.
2.4 Section 8.07 as set forth in the First Amendment shall be
amended by inserting the following at the beginning thereof: "Except as it
may relate to Tenant, or any affiliate or subsidiary of Tenant, as a
transferee of Landlord's interest in accordance with the Agreement
respecting Pyramid Casino,".
-6-
<PAGE>
C3. Other than the foregoing changes which shall supersede the
inconsistent provisions in the Lease, the Lease shall remain in full force and
effect in its entirety and may not be amended or modified except as provided
therein.
IN WITNESS WHEREOF, this Second Amendment to Lease is executed this
____ day of ______________, 1996.
COMPTON ENTERTAINMENT, INC.
a California corporation
By:_/s/Rouben Kandilian_____
Rouben Kandilian, President
CRYSTAL PARK CASINO AND HOTEL DEVELOPMENT COMPANY
a California Limited Liability Company
By: HP/Compton, Inc.,
a California corporation, Manager
By:__/s/G. Michael Finnigan_____________
G. Michael Finnigan, Vice President
-7-
<PAGE>
HOLLYWOOD PARK, INC., SEPTEMBER 30, 1996, FORM 10-Q, EXHIBIT 10.20
ASSIGNMENT, ASSUMPTION AND CONSENT AGREEMENT
THIS ASSIGNMENT, ASSUMPTION AND CONSENT AGREEMENT (this "Agreement"),
is entered into as of the 18th day of July, 1996, by and among HP/COMPTON, INC.,
a California corporation (hereinafter called "Assignor"); CRYSTAL PARK HOTEL AND
DEVELOPMENT COMPANY, LLC, a California limited liability company (hereinafter
called "Assignee"); HOLLYWOOD PARK, INC., a Delaware corporation (hereinafter
called "Guarantor"); and THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF
COMPTON (the "Agency")
W I T N E S S E T H :
- - - - - - - - - -
A. The Agency and Assignor are parties to that certain Amended and
Restated Disposition and Development Agreement, Agreement of Purchase and Sale,
and Lease with Option to Purchase, dated as of April 4, 1995 (the "DDA"),
covering the real property described on Exhibit A hereto. The Agency and
Assignor are also parties to those agreements set forth on Schedule 1 attached
hereto (the "Related Agreements").
B. Assignor is a wholly owned subsidiary of Guarantor. Assignee is a
limited liability company comprised of Assignor, Redwood Gaming LLC and First
Park Investments, LLC.
C. Assignor now desires to assign to Assignee all of its right, title and
interest under said DDA and the Related Agreements, and Agency is willing to
consent to such assignment, provided Assignee executes this Agreement
hereinafter, and provided Guarantor reaffirms that certain Guaranty, dated July
31, 1995, made by Guarantor in favor of Agency.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto do hereby agrees as follows:
1. ASSIGNMENT. For value received, effective as of the date set
----------
forth above, Assignor hereby assigns to Assignee all of its right, title and
interest in and to the DDA and the Related Agreements.
2. ASSUMPTION. Effective as of the date set forth above, Assignee
----------
hereby accepts such assignment; acknowledges that it has read the DDA and the
Related Agreements and understands all of the terms and provisions thereof; and
hereby (a) assumes and agrees to perform all of the obligations of Assignor set
forth in the DDA and the Related Agreements and (b) confirms each and all of the
provisions of the DDA and the Related Agreements, except those rights and
obligations expressly reserved unto CEI thereunder.
3. CONSENT. Agency hereby consents to the aforementioned
-------
assignment, provided, however, that such consent shall not be deemed a consent
to any further or future assignment; nor shall such consent be deemed a waiver
of the provisions of the DDA requiring the written consent of Agency to any
assignment.
<PAGE>
4. REAFFIRMATION OF GUARANTY AND CONSENT. Guarantor hereby
-------------------------------------
consents to the assignment and assumption set forth below. Guarantor hereby
renews, reaffirms, ratifies and confirms the Guaranty and agrees that it shall
remain in full force and effect.
5. SUCCESSORS AND ASSIGNS. This Agreement, and each and all of the
----------------------
provisions hereof, shall inure to the benefit of, or bind, as the case may
require, the parties hereto, and as well, their respective heirs, successors and
assigns.
6. GOVERNING LAW. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
AGENCY: ASSIGNOR:
THE COMMUNITY REDEVELOPMENT HP/COMPTON, INC, a California
AGENCY OF THE CITY OF COMPTON, corporation
a public body, corporate and
politic
By: /s/ G. Michael Finnigan
By: /s/ Howard Caldwell --------------------------
------------------------ G. Michael Finnigan
Title: Excutive Secretary Its: Vice President
ATTEST: ASSIGNEE:
/s/ Charles Davis CRYSTAL PARK HOTEL AND
- --------------------------- DEVELOPMENT COMPANY, LLC,
Secretary a California limited liability company
By: HP/COMPTON, INC., a
California corporation,
Manager
By: /s/ G. Michael Finnigan
---------------------------
G. Michael Finnigan
Its: Vice President
GUARANTOR:
HOLLYWOOD PARK, INC., a
Delaware corporation
By: /s/ G. Michael Finnigan
---------------------------
G. Michael Finnigan
Its: President, Sports &
Entertainment
-2-
<PAGE>
HOLLYWOOD PARK, INC. SEPTEMBER 30, 1996, FORM 10-Q, EXHIBIT 10.21
CONSENT OF COMPTON ENTERTAINMENT, INC.
--------------------------------------
AND ROUBEN KANDILIAN
--------------------
Hollywood Park, Inc., a Delaware corporation ("HPI"), on the one hand, and
Compton Entertainment, Inc., a California corporation ("CEI") and Rouben
Kandilian ("Kandilian"), on the other hand, entered into that certain Amended
and Restated Agreement Respecting Pyramid Casino, dated July 14, 1995 (the
"Amended Agreement"). Effective August 3, 1995, HPI assigned all of its right,
title and interest in the Amended Agreement to HP/Compton, Inc., a California
corporation ("HPC"). HPC and CEI are also parties to the agreements described on
Schedule 1 attached hereto (the "Related Agreements"). Pursuant to Article 10.2
of the Amended Agreement, HPC has the right to assign its interest in the Card
Club (as that term is defined in the Amended Agreement), including, without
limitation, the Amended Agreement and the Related Agreements to a limited
liability company ("LLC"), composed of HPC and the HPI Investors) (as that term
is defined in the Amended Agreement).
HPC has advised CEI and Kandilian that in lieu of the LLC members
previously identified, "Crystal Park Hotel and Casino Development Company, LLC"
will be the LLC, and its members will be:
<TABLE>
<S> <C>
HPC (owned by HPI) 88%
Redwood Gaming LLC 8%
(controlled by Cynthia R. DeBartolo)
First Park Investments LLC 4%
(controlled by Leo Chu and Ivy Chu)
</TABLE>
Subject to agreement by HPI to the paragraph set forth below, CEI and
Kandilian do hereby consent to Redwood Gaming LLC and First Park Investments LLC
as the HPI Investors for all purposes under the Amended Agreement. CEI
acknowledges that HPC is assigning all of its right, title and interest in the
Card Club to the LLC. Other than to identify the HPI Investors, CEI and
Kandilian's consent is not intended to amend the Amended Agreement.
COMPTON ENTERTAINMENT, INC.,
a California Corporation
/s/ Rouben Kandilian By: /s/ Rouben Kandilian
- -------------------------- ------------------------
Rouben Kandilian Rouben Kandilian
Its: President
Date: August 29, 1996 Date: August 29, 1996
--------------- ---------------
<PAGE>
AGREEMENT OF HPI
----------------
HPI acknowledges and agrees that notwithstanding the assignment of the
Amended Agreement and the Related Agreements to the LLC, HPI shall remain
primarily liable to CEI and Kandilian for the full and prompt performance of all
of the terms and provisions thereof.
HOLLYWOOD PARK, INC.,
a Delaware corporation
By: /s/ G. Michael Finnigan
----------------------------
G. Michael Finnigan
Its: President, Sports and
Entertainment Division
-2-
<PAGE>
OPERATING AGREEMENT
FOR
CRYSTAL PARK HOTEL AND CASINO DEVELOPMENT COMPANY, LLC
A CALIFORNIA LIMITED LIABILITY COMPANY
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 NOR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES
LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE,
TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER
APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY, SUCH QUALIFICATION AND REGISTRATION IS NOT
REQUIRED. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS AGREEMENT IS
FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS AND CONDITIONS WHICH ARE SET FORTH
HEREIN.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 ORGANIZATIONAL MATTERS 2
1.1 FORMATION 2
1.2 NAME 2
1.3 TERM 3
1.4 COMPANY PROPERTY 3
1.5 OFFICE AND AGENT 3
1.6 ADDRESSES OF THE MEMBERS 3
1.7 PURPOSE OF COMPANY 3
ARTICLE 2 CAPITAL CONTRIBUTIONS 4
2.1 INITIAL CAPITAL CONTRIBUTIONS 4
2.2 ADDITIONAL CAPITAL CONTRIBUTIONS 5
2.3 CAPITAL ACCOUNTS 5
2.4 NO INTEREST ON OR WITHDRAWAL OF
CAPITAL 6
2.5 THIRD PARTY LOANS. 6
2.6 SHORT-TERM ADVANCES 6
2.7 DILUTION 6
ARTICLE 3 ALLOCATIONS OF NET PROFITS AND NET
LOSSES 7
3.1 ALLOCATIONS OF INCOME AND NET
PROFITS 7
3.2 ALLOCATIONS OF NET LOSSES 7
3.2.1 POSITIVE CAPITAL ACCOUNTS 7
3.2.2 PROFIT PERCENTAGE INTERESTS 7
3.3 SPECIAL ALLOCATIONS 7
3.3.1 MEMBER NONRECOURSE DEDUCTIONS 7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.3.2 NONRECOURSE DEDUCTIONS REFERABLE
TO LIABILITIES OWED TO NON-MEMBERS 8
3.3.3 MEMBER MINIMUM GAIN CHARGEBACK 8
3.3.4 MINIMUM GAIN CHARGEBACK 8
3.3.5 QUALIFIED INCOME OFFSET 9
3.4 CURATIVE ALLOCATIONS 9
3.5 APPLICATION OF SECTION 704(C)
PRINCIPLES 9
3.6 ALLOCATION OF EXCESS NON-RECOURSE
LIABILITIES 9
3.7 INTENTION TO BE TAXED AS A
PARTNERSHIP 9
3.8 ALLOCATION OF NET PROFITS AND
LOSSES IN RESPECT OF A TRANSFERRED
INTEREST 9
3.9 OBLIGATIONS OF MEMBERS TO REPORT
ALLOCATIONS 10
ARTICLE 4 DISTRIBUTIONS 10
4.1 DISTRIBUTION OF ASSETS BY THE
COMPANY 10
4.2 NET CASH FLOW 10
4.3 PERSONS TO RECEIVE DISTRIBUTION 10
4.4 FORM OF DISTRIBUTION 10
4.5 WITHHOLDING ON DISTRIBUTIONS 10
4.6 RETURN OF DISTRIBUTIONS 11
ARTICLE 5 MEMBERS 11
5.1 LIMITED LIABILITY 11
5.2 ADMISSION OF ADDITIONAL MEMBERS 11
5.3 TRANSACTIONS WITH THE COMPANY 11
5.4 MEMBERS ARE NOT AGENTS 12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.5 VOTING RIGHTS 12
5.5.1 GENERAL RULE 12
5.5.2 MEETINGS OF MEMBERS 12
5.5.3 PROXIES 12
5.6 WITHDRAWAL, RESIGNATION AND
RETIREMENT 13
ARTICLE 6 MANAGEMENT AND CONTROL OF THE COMPANY 13
6.1 MANAGEMENT OF THE COMPANY BY THE
MANAGER 13
6.1.1 EXCLUSIVE MANAGEMENT BY THE
MANAGER 13
6.1.2 AGENCY AUTHORITY OF THE
MANAGER 13
6.2 MANAGER 14
6.2.1 INITIAL MANAGER 14
6.2.2 TERM OF OFFICE; SUCCESSOR
MANAGER 14
6.2.3 RESIGNATION 14
6.3 LIMITATIONS ON MANAGER'S AUTHORITY 14
6.4 CARD CLUB OPERATOR; HOTEL OPERATOR;
OTHER OFFICERS 15
6.4.1 CARD CLUB OPERATOR; HOTEL
OPERATOR 15
6.4.2 OTHER OFFICERS 15
6.5 REMUNERATION AND REIMBURSEMENT OF
MEMBERS 15
6.6 BUDGETS 16
6.7 BANK ACCOUNTS 16
6.8 INSURANCE 16
ARTICLE 7 TRANSFER AND ASSIGNMENT OF INTERESTS 16
</TABLE>
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<TABLE>
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7.1 RESTRICTIONS ON TRANSFER;
TRANSFERS OF ECONOMIC
INTERESTS 16
7.2 RIGHTS OF FIRST REFUSAL 17
7.3 TRANSFERS SUBJECT TO LICENSES AND
APPROVALS 18
7.4 EFFECT OF NON-COMPLIANCE 18
7.5 EFFECT OF TRANSFER 18
7.6 RIGHTS OF LEGAL REPRESENTATIVES 18
7.7 OBLIGATION TO COMPLY WITH APPLICABLE
LAW 19
7.8 CHANGES OF CONTROL -- DEBARTOLO AND
CHU 19
7.9 PUT/CALL 20
7.9.1 CHU/HPC 20
7.9.2 DEBARTOLO/HPC 20
7.9.3 DETERMINATION OF FAIR VALUE 21
7.9.4 HPC OPTION 22
7.9.5 CLOSING 23
7.10 TAG-ALONG RIGHTS 23
7.10.1 RIGHT TO PARTICIPATE IN SALE 23
7.10.2 SALE NOTICE 24
7.10.3 TAG-ALONG NOTICE 24
7.10.4 VOID TRANSFERS 24
7.10.5 EXEMPT TRANSFERS 25
ARTICLE 8 ACCOUNTING, RECORDS, REPORTING BY
MEMBERS 25
8.1 FISCAL YEAR 25
8.2 BOOKS AND RECORDS 25
8.3 STATEMENTS 26
</TABLE>
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<TABLE>
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8.3.1 ANNUAL REPORT 26
8.3.2 TAX INFORMATION 26
8.3.3 ANNUAL STATE REPORT 26
8.3.4 MONTHLY REPORTS 26
8.4 FILINGS 27
8.5 BANK ACCOUNTS 27
8.6 TAX MATTERS FOR THE COMPANY HANDLED
BY THE MANAGER AND TAX MATTERS
PARTNER 27
ARTICLE 9 DISSOLUTION AND WINDING UP 27
9.1 EVENTS OF DISSOLUTION 27
9.2 EFFECT OF A DISSOLUTION EVENT (OTHER
THAN DISSOLUTION) 28
9.3 CERTIFICATE OF DISSOLUTION 28
9.4 WINDING UP 28
9.5 DISTRIBUTIONS IN KIND 29
9.6 ORDER OF PAYMENT UPON DISSOLUTION 29
9.7 COMPLIANCE WITH REGULATIONS 29
9.8 LIMITATIONS ON PAYMENTS MADE IN
DISSOLUTION 29
9.9 CERTIFICATE OF CANCELLATION 30
9.10 NO ACTION FOR DISSOLUTION 30
ARTICLE 10 INDEMNIFICATION AND INSURANCE 30
10.1 INDEMNIFICATION OF COMPANY PERSONS 30
10.2 SUCCESSFUL DEFENSE 31
10.3 INDEMNIFICATION OF OTHER AGENTS 31
10.4 RIGHT TO INDEMNIFICATION UPON
APPLICATION 32
10.4.1 TIMING 32
</TABLE>
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<TABLE>
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10.4.2 ENFORCEMENT 32
10.5 PAYMENT OF EXPENSES IN ADVANCE 32
10.6 LIMITATIONS ON INDEMNIFICATION 32
10.7 OTHER TERMS OF INDEMNIFICATION 33
10.7.1 PARTIAL INDEMNIFICATION 33
10.7.2 INDEMNITY NOT EXCLUSIVE 33
10.7.3 INSURANCE 33
10.7.4 HEIRS, EXECUTORS AND
ADMINISTRATORS 34
ARTICLE 11 REGISTRATION RIGHTS 34
11.1 INCIDENTAL REGISTRATION 34
11.1.1 NOTICE 35
11.1.2 INCLUSION OF SHARES 35
11.1A DEMAND REGISTRATION 35
11.1A.1 NOTICE OF DEMAND 35
11.1A.2 HOLDER AND REGISTRATION 36
11.1A.3 HOLDBACK 36
11.2 REGISTRATION PROCEDURES 36
11.2.1 SELLING HOLDER INFORMATION 36
11.2.2 CONSULTATION 36
11.2.3 PROVISION OF PROSPECTUSES 36
11.2.4 BLUE SKY COMPLIANCE 36
11.2.5 AMENDMENTS 37
11.2.6 PROSPECTUS DELIVERY 37
11.2.7 STOP-ORDERS 37
11.2.8 UNDERWRITING AGREEMENT 37
11.2.9 COMPLIANCE WITH LAWS 37
</TABLE>
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11.3 REGISTRATION NOT REQUIRED 38
11.4 DELAY OF REGISTRATION 38
11.5 INDEMNITY 38
11.5.1 HPI'S INDEMNITY 38
11.5.2 THE HOLDER'S INDEMNITY 38
11.6 EXPENSES OF REGISTRATION 39
11.7 TERMINATION 39
ARTICLE 12 MISCELLANEOUS 39
12.1 OTHER VENTURES; COMPETITION 39
12.2 COUNSEL TO THE COMPANY 40
12.3 GENERAL PROVISIONS 40
12.3.1 COMPLETE AGREEMENT 40
12.3.2 DISPUTES 40
12.3.2.1 GOVERNING LAW; JURISDICTION 40
12.3.2.2 ARBITRATION AS EXCLUSIVE REMEDY 40
12.3.3 ADDITIONAL DOCUMENTS 41
12.3.4 NOTICES 41
12.3.5 PARTIES 42
12.3.5.1 NO THIRD-PARTY BENEFITS 42
12.3.5.2 SUCCESSORS AND ASSIGNS 42
12.3.6 GOVERNING LAW; JURISDICTION 42
12.3.7 WAIVER OF JURY 42
12.3.8 WAIVERS STRICTLY CONSTRUED 42
12.3.9 RULES OF CONSTRUCTION 42
12.3.9.1 HEADINGS 42
</TABLE>
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12.3.9.2 TENSE AND CASE 43
12.3.9.3 SEVERABILITY 43
12.3.9.4 AGREEMENT NEGOTIATED 43
12.3.10 COUNTERPARTS 43
12.4 AMENDMENTS 43
12.5 RELIANCE ON AUTHORITY OF PERSON
SIGNING AGREEMENT 43
12.6 INVESTMENT REPRESENTATION 43
12.7 LLC AS CARD CLUB OPERATOR 44
</TABLE>
<PAGE>
OPERATING AGREEMENT
FOR
CRYSTAL PARK HOTEL AND CASINO DEVELOPMENT COMPANY, LLC
A CALIFORNIA LIMITED LIABILITY COMPANY
This Operating Agreement is made as of July 18, 1996, by and among
HP/COMPTON, INC., a California corporation ("HPC"), REDWOOD GAMING LLC, a
California limited liability company ("DeBartolo") and FIRST PARK INVESTMENTS,
LLC, a California limited liability company ("Chu"), with reference to the
following facts:
A. Compton Entertainment, Inc., a California corporation ("CEI") and
each of its officers, directors and shareholders has been licensed (the "City
License") by the City of Compton (the "City") to own and operate a card club
(the "Card Club") located in the area known as Alameda Auto Plaza in the City
(the "Card Club Site").
B. Pursuant to an Amended and Restated Agreement Respecting Pyramid
Casino by and between Hollywood Park, Inc., a Delaware corporation and the
parent corporation of HPC ("HPI"), on the one hand, and CEI and the principal
shareholder of CEI, Rouben Kandilian, on the other hand (the "Purchase
Agreement"), HPC (by assignment of HPI's rights thereunder) acquired CEI's
rights to the Card Club Site, including its rights under that certain Amended
and Restated Disposition and Development Agreement, Agreement of Purchase and
Sale, and Lease with Option to Purchase (the "DDA") with The Community
Redevelopment Agency of the City (the "Real Property Rights"), the plans and
specifications for the construction of the Card Club (the "Plans"), an option
(the "License Rights Option") to acquire the City License and all other assets
held by CEI pertaining to the Card Club.
C. Pursuant to the DDA, HPC has leased certain improvements on the Card
Club Site adjacent to the Card Club which HPC is obligated to remodel, furnish
and operate as a hotel (the "Hotel").
D. HPC and CEI have entered into a Lease of the Card Club, dated as of
August 3, 1995, with HPC as Landlord and CEI as Tenant (the "Lease"). Pursuant
to the Lease, HPC is to construct, develop and furnish the Card Club on the Card
Club Site pursuant to the Plans. Costs of construction, development and
furnishing of the Card Club and the Hotel and related start-up matters
(collectively, "Project Costs") are expected to be approximately $25,000,000,
including an aggregate $5,000,000 paid or to be paid by HPC to CEI for the Real
Property Rights, the Plans, the License Rights Option and the exercise price
-1-
<PAGE>
under the License Rights Option. HPC has expended approximately $9,200,000 to
date on Project Costs and related matters.
E. Section 5.4.1 of the Purchase Agreement provides that at such time
as HPI is licensed as an operator of the Card Club under applicable California
law and City ordinances, the Lease shall terminate and CEI and HPI shall enter
into a partnership agreement (or limited liability company operating agreement)
for the ownership and operation of the Card Club.
F. HPC, DeBartolo and Chu wish to form a limited liability company to
acquire all of HPC's rights to construct and own the Card Club, to acquire HPC's
rights under the Lease, the DDA and the Purchase Agreement and to enter into
this Agreement for the management and operation of the Company (as hereinafter
defined).
G. The Members have executed, and have filed or will cause to be filed
with the California Secretary of State, Articles of Organization ("Articles") of
Crystal Park Hotel and Casino Development Company, LLC, a California limited
liability company (the "Company"), pursuant to the provisions of California
Corporations Code, Title 2.5, also known as the Beverly-Killea Limited Liability
Company Act (the "Act").
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the Members (capitalized terms are generally defined in
Schedule I) by this Agreement set forth the operating agreement for the Company
- ----------
under the laws of the State of California.
ARTICLE 1
ORGANIZATIONAL MATTERS
1.1 FORMATION. Pursuant to the Act, the Members have formed a
---------
California limited liability company under the laws of the State of California
by filing the Articles with the California Secretary of State and entering into
this Agreement. The rights and liabilities of the Members shall be determined
pursuant to the Act and this Agreement. To the extent that the rights or
obligations of any Member are different by reason of any provision of this
Agreement than they would be in the absence of such provision, this Agreement
shall, to the extent permitted by the Act, control.
1.2 NAME. The name of the Company shall be "CRYSTAL PARK HOTEL AND
----
CASINO DEVELOPMENT COMPANY, LLC." The business of the Company may be conducted
under that name or, upon compliance with applicable laws, any other name that
the Manager deems appropriate or advisable. The Manager shall file any
fictitious name certificates and similar filings, and any
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<PAGE>
amendments thereto, that the Manager considers appropriate or advisable.
1.3 TERM. The term of this Agreement shall be co-terminus with the
----
period of duration of the Company provided in the Articles, unless extended or
sooner terminated as hereinafter provided.
1.4 COMPANY PROPERTY. Pursuant to Section 2.1 hereof, the property of
----------------
the Company (the "Company Property") shall consist of all of HPC's interest in
the Card Club Site, including the Real Property Rights, the Card Club, the
License Rights Option, HPC's rights under the Purchase Agreement, the Lease, and
the DDA, and all other assets and properties, tangible and intangible, that are
hereafter acquired or received by the Company. No Member, individually, shall
have any ownership of the Company Property.
1.5 OFFICE AND AGENT. The Company shall continuously maintain an office
----------------
and registered agent in the State of California as required by the Act. The
principal office of the Company shall be as determined by the Manager. The
Company also may have such offices, anywhere within and without the State of
California, as the Manager from time to time may determine. The registered
agent shall be as stated in the Articles or as otherwise determined by the
Manager.
1.6 ADDRESSES OF THE MEMBERS. The respective names and addresses of the
------------------------
Members are set forth on Exhibit A. The Manager shall revise Exhibit A from
--------- ---------
time to time as changes in the information on that Exhibit occur.
1.7 PURPOSE OF COMPANY. The purpose of the Company is to engage in any
------------------
lawful activity for which a limited liability company may be organized under the
Act. Notwithstanding the foregoing, without the written consent of all of the
Members, the Company shall not engage in any business other than the following:
(a) The business of developing and owning the Card Club and, after
such time as applicable law is amended to permit public companies to operate
card clubs or HPI or HPC is otherwise legally permitted to operate the Card
Club, to obtain all necessary licenses and approvals for, and to transfer the
Company Assets to, Newco in accordance with the Purchase Agreement, with Newco
thereafter to own and operate the Card Club and to own, lease or operate or to
provide for the operation by others of the other Company Assets;
(b) The business of remodeling, furnishing and operating or
contracting for the operation of the Hotel;
(c) The business of acquiring the Card Club Site or other property
pursuant to the DDA and developing, constructing,
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<PAGE>
operating, contracting for the operation of and/or leasing other improvements at
the Card Club Site or such other property as may be acquired and/or leased
pursuant to the DDA; and
(d) Such other activities directly related to the foregoing businesses
as may be necessary, advisable or appropriate to further the foregoing business.
In furtherance of this purpose, after such time as applicable law is amended to
permit public companies to operate card clubs or HPI or HPC is otherwise legally
permitted to operate the Card Club, each Member shall, and shall cause each
person or entity that has a direct or indirect interest in such Member and who
is required to apply for a license in order for the Company or Newco to acquire
a license to operate the Card Club to, apply to the appropriate governmental
authorities to obtain such licenses and approvals as are necessary for the
Company or Newco to obtain a license to operate the Card Club.
ARTICLE 2
CAPITAL CONTRIBUTIONS
2.1 INITIAL CAPITAL CONTRIBUTIONS. The Members shall make the following
-----------------------------
contributions to the Company ("Initial Capital Contributions"):
<TABLE>
<S> <C>
Chu $ 1,000,000
HPC $22,000,000
DeBartolo $ 2,000,000
</TABLE>
Chu and DeBartolo shall contribute their Initial Capital Contributions in cash
on the effective date of this Agreement. HPC shall satisfy a portion of its
Initial Capital Contribution by assigning to the Company all of its right, title
and interest in and to the Card Club Site, including without limitation the Real
Property Rights and HPC's rights under the Purchase Agreement, the Lease and the
License Rights Option (together, the "Initial Card Club Assets"), upon approval
of such assignment by the City and CEI. The Company shall assume all of HPC's
obligations under or with respect to the Initial Card Club Assets, including
without limitation obligations under the agreements set forth in Schedule 2.1,
------------
and shall indemnify HPC and HPI and hold each of them harmless from and against
all losses, liabilities, costs and expenses with respect thereto (the "Card Club
Liabilities"). The parties agree that the net fair market value of the non-cash
assets contributed by HPC (i.e., the value of the Initial Card Club Assets minus
----
the value of the Card Club Liabilities) is equal to the amount of HPC's Initial
Expenses which, as of July 8, 1996, were approximately Nine Million Two Hundred
Thousand Dollars ($9,200,000), as shown on Schedule 6.5. HPC shall contribute,
------------
as and when required by
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<PAGE>
the Company, cash of up to the difference between the Initial Expenses on the
date that the Initial Card Club Assets are assigned to the Company and Twenty-
Two Million Dollars ($22,000,000).
2.2 ADDITIONAL CAPITAL CONTRIBUTIONS. Except as may be explicitly
--------------------------------
agreed in writing by the Member and the Company, no Member shall be required to
make any additional Capital Contributions. If the Manager notifies the Members,
from time to time upon at least twenty (20) days' prior written notice, that
additional Capital Contributions are necessary for (i) the acquisition,
development and construction of the Card Club and the remodeling and furnishing
of the Hotel and related activities in accordance with the Budget in effect from
time to time or (ii) the acquisition and/or leasing of the Card Club Site or
other property pursuant to the DDA or (iii) such improvements to the Card Club
Site or other property acquired and/or leased pursuant to the DDA as are agreed
upon by a Super Majority Interest or (iv) the payment of Card Club Liabilities
or (v) such additional expenses as may be incurred after such time as applicable
law is amended to permit public companies to operate card clubs or HPI or HPC is
otherwise legally permitted to operate the Card Club, in connection with the
formation of Newco and in connection with the operation by Newco of the Card
Club or (vi) any other business purpose of the Company (collectively,
"Additional Capital Contributions") each of the Members shall have the right,
but not the obligation, to contribute as Additional Capital an amount equal to
its respective Profit Percentage Interest of such Additional Capital
Contribution. If any Member elects not to make such Additional Capital
Contribution (the "Non-participating Member Contribution"), and HPC contributes
its Profit Percentage Interest of such Additional Capital Contribution, then HPC
shall be entitled to contribute as an Additional Capital Contribution an amount
equal to the Non-participating Member Contribution. To the extent that the
Members do not contribute their respective Profit Percentage Interests of
Additional Capital Contributions, their Profit Percentage Interests shall be
adjusted in accordance with Section 2.7.
2.3 CAPITAL ACCOUNTS. The Company shall establish an individual Capital
----------------
Account for each Member. The Company shall determine and maintain each Capital
Account in accordance with Regulations Section 1.704-1(b)(2)(iv). Upon the
contributions by the Members under Section 2.1 and 2.2, each such Member will
receive a credit to its Capital Account in the amount of cash or the fair market
value of property so contributed. If a Member Transfers all or a part of such
Member's Membership Interest in accordance with this Agreement, such Member's
Capital Account attributable to the Transferred Membership Interest shall carry
over to the new owner of such Membership Interest pursuant to Regulations
Section 1.704-1(b)(2)(iv)(1). Each Capital Account shall consist of a Member's
paid-in Capital Contribution(s) (whether in cash, property, services or
otherwise, including a
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<PAGE>
Member's payment of claims against or liabilities of the Company to the extent
that the payor has no right of indemnification or contribution) (a) increased by
such Member's allocated share of Net Profits in accordance with Article 3
hereof, (b) decreased by such Member's allocated share of Net Losses and
distributions in accordance with Article 3 hereof, and (c) adjusted as
otherwise required in accordance with the Code, Regulations and generally
accepted accounting principles (to the extent consistent with the Code and
Regulations). If the book value of property is adjusted pursuant to Regulations
1.704-1(b)(2)(ix)(f), Capital Accounts shall be adjusted as provided in
Regulations Section 1.704-1(b)(2)(iv)(g).
2.4 NO INTEREST ON OR WITHDRAWAL OF CAPITAL. No Member shall be
---------------------------------------
entitled to receive any interest on such Member's Capital Contributions. Except
as otherwise provided by law, no Member shall be entitled to withdraw or reduce
its Capital Contribution or to demand or receive property other than cash in
return for its Capital Contribution. No Member shall have any obligation, upon
winding up of the Company, to restore any deficit balance in its Capital Account
for the benefit of the other Members.
2.5 THIRD PARTY LOANS. The Company may seek debt financing from banks,
-----------------
savings and loan associations or other financial institutions from time to time
if the Manager determines that the Initial Capital Contributions are
insufficient for the conduct of its business or if the Manager otherwise
determines in good faith that such financing is necessary or desirable ("Third
Party Loans"), provided that no Member shall be required to guarantee any Third
--------
Party Loan unless such Member agrees to do so. Third Party Loans may be secured
by liens on the Company Property and shall have such other terms and conditions
as may be determined by a Super Majority Interest.
2.6 SHORT-TERM ADVANCES. Any Member may, but shall be under no
-------------------
obligation to, advance funds in excess of its obligation to make Initial Capital
Contributions and Additional Capital Contributions ("Advances") in order to pay
operational expenditures on a short-term basis in contemplation of income from
operations or a disbursement of funds from Third Party Loans, if, in the
judgment of the Manager, payment of expenditures cannot or should not be delayed
until such funds are obtained by the Company. Amounts funded by a Member
pursuant to this Section 2.6 shall bear interest at the Rate plus 200 basis
points (but in no event greater than the maximum rate permitted under applicable
law), and shall be repaid immediately upon receipt of funds contemplated to be
received as provided above or from other Company assets as agreed by all of the
Members.
2.7 DILUTION. In the event that HPC contributes its Profit Percentage
--------
Interest of an Additional Capital Contribution
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<PAGE>
and Chu and/or DeBartolo, as applicable, does not contribute its Profit
Percentage Interest of such Additional Capital Contribution, the Profit
Percentage Interests shall be recalculated such that (a) Chu's or DeBartolo's
(as applicable) Profit Percentage Interest shall equal one-hundred (100)
multiplied by a fraction, the numerator of which shall equal Chu's or
DeBartolo's (as applicable) Capital Contributions and the denominator of which
shall equal the total of all Capital Contributions by all Members; and (b) the
Profit Percentage Interest of HPC shall be increased by the reduction in the
Profit Percentage Interest of Chu or DeBartolo (as applicable) determined
pursuant to clause (a) of this Section 2.7 from the Profit Percentage Interest
of Chu or DeBartolo (as applicable) immediately prior to such determination.
ARTICLE 3
ALLOCATIONS OF NET PROFITS AND NET LOSSES
3.1 ALLOCATIONS OF INCOME AND NET PROFITS. After giving effect to the
-------------------------------------
special allocations set forth in Sections 3.3 and 3.4 hereof, Net Profits shall
be allocated in accordance with the Members' Profit Percentage Interests, which
shall initially be as follows:
HPC 88%
DeBartolo 8%
Chu 4%
The foregoing Profit Percentage Interests shall be subject to adjustment from
time to time upon the admission of new Members or in accordance with Section
2.7.
3.2 ALLOCATIONS OF NET LOSSES. After giving effect to the special
-------------------------
allocations set forth in Sections 3.3 and 3.4 hereof, Net Losses shall be
allocated to the Members as follows:
3.2.1 POSITIVE CAPITAL ACCOUNTS. Net Losses shall first be
-------------------------
allocated to the Members in proportion to and to the extent of their positive
Capital Account balances.
3.2.2 PROFIT PERCENTAGE INTERESTS. Except as provided in
---------------------------
Section 3.2.1, Net Losses shall be allocated to the Members in proportion to
their Profit Percentage Interests.
3.3 SPECIAL ALLOCATIONS.
-------------------
3.3.1 MEMBER NONRECOURSE DEDUCTIONS. Any Member Nonrecourse
-----------------------------
Deductions for any Fiscal Year and any other deductions or losses for any Fiscal
Year referable to a liability owed by the Company to (or guaranteed or
indemnified by) a Member for which no other Member bears the economic risk
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<PAGE>
of loss shall be specially allocated to the Member who bears the economic risk
of loss with respect to the Member Nonrecourse Debt or other liability to which
such Member Nonrecourse Deductions or other deductions are attributable in
accordance with Regulations Section 1.704-2(i) and Regulations Section 1.704-
1(b).
3.3.2 NONRECOURSE DEDUCTIONS REFERABLE TO LIABILITIES OWED TO
-------------------------------------------------------
NON-MEMBERS. Any Nonrecourse Deductions for any Fiscal Year and any other
- -----------
deductions or losses for any Fiscal Year referable to a liability owed by the
Company to a Person other than a Member for which no Member bears the economic
risk of loss shall be specially allocated to the Members in proportion to their
Profit Percentage Interests.
3.3.3 MEMBER MINIMUM GAIN CHARGEBACK. Except as otherwise
------------------------------
provided in Regulation Section 1.704-2(i)(4), notwithstanding any other
provision of this Article 3, if there is a net decrease in Member Nonrecourse
Debt Minimum Gain (as defined in Regulations Section 1.704-2(i)(2)) attributable
to a Member Nonrecourse Debt during any Fiscal Year, each Member who has a share
of the Member Nonrecourse Minimum Gain attributable to such Member Nonrecourse
Debt (which share shall be determined in accordance with Regulations Section
1.704-2(i)(5)) shall be specially allocated items of Company income and gain for
such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal
to that portion of such Member's share of the net decrease in Member Nonrecourse
Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the
previous sentence shall be made in proportion to the amounts required to be
allocated to each Member pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(i)(4) and 1.704-
2(j)(2). This Section 3.3.3 is intended to comply with the minimum gain
chargeback requirement contained in Regulations Section 1.704-2(i)(4) and shall
be interpreted consistently therewith.
3.3.4 MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
-----------------------
Regulations Section 1.704-2(f), notwithstanding any other provision of this
Article 3, if there is a net decrease in Company Minimum Gain during any Fiscal
Year, each Member shall be specially allocated items of Company income and gain
for such Fiscal Year (and, if necessary, in subsequent Fiscal Years) in an
amount equal to the portion of such Member's share of the net decrease in
Company Minimum Gain which share of such net decrease shall be determined in
accordance with Regulations Section 1.704-2(g)(2). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Member pursuant thereto. The items to be so allocated
shall be determined in accordance with Regulations Section 1.704-2(f)(6) and
1.704-2(j)(2). This Section 3.3.4 is intended to comply with the minimum gain
chargeback requirement contained in
-8-
<PAGE>
Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
3.3.5 QUALIFIED INCOME OFFSET. In the event a Member
-----------------------
unexpectedly receives any adjustments, allocations, or distributions described
in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) or any other event
creates an Adjusted Capital Account Deficit, items of Company income and gain
shall be specially allocated to such Member in an amount and manner sufficient
to eliminate such excess deficit balance as quickly as possible.
3.4 CURATIVE ALLOCATIONS. The allocations set forth in Section 3.3
--------------------
hereof (the "Regulatory Allocations") are intended to comply with certain
requirements of the Regulations. It is the intent of the Members that, to the
extent possible, all Regulatory Allocations shall be offset either with other
Regulatory Allocations or with special allocations of other items of Company
income, gain, loss, or deduction pursuant to this Section 3.4. Therefore,
notwithstanding any other provision of this Article 3 (other than the
Regulatory Allocations), the Members shall make such offsetting special
allocations of Company income, gain, loss, or deduction in whatever manner they
determine appropriate so that, after such offsetting allocations are made, a
Member's Capital Account balance is, to the extent possible, equal to the
Capital Account balance such Member would have had if the Regulatory Allocations
were not part of this Agreement and all Company items were allocated pursuant to
Sections 3.1 and 3.2.
3.5 APPLICATION OF SECTION 704(C) PRINCIPLES. Notwithstanding the
----------------------------------------
preceding sections of this Article 3:
(a) Section 704(c) of the Code shall apply to the allocation of items
of income, gain, deduction and loss related to contributed property having a tax
basis at the time of contribution that differs from its fair market value; and
(b) Regulations Section 1.704-1(b)(2)(iv)(f) shall apply to the items
of income, gain, deduction and loss related to property the book value of which
is adjusted pursuant to that Regulations Section.
3.6 ALLOCATION OF EXCESS NON-RECOURSE LIABILITIES. For purposes of
---------------------------------------------
Section 752 of the Code and Section 1.752-2(a)(3) of the Regulations, "excess
non-recourse liabilities" shall be allocated among the Members in accordance
with their Profit Percentage Interests.
3.7 INTENTION TO BE TAXED AS A PARTNERSHIP. The Company shall be
--------------------------------------
treated as a partnership for tax purposes.
3.8 ALLOCATION OF NET PROFITS AND LOSSES IN RESPECT OF A TRANSFERRED
----------------------------------------------------------------
INTEREST. If any Membership Interest is
- --------
-9-
<PAGE>
Transferred, or is increased or decreased by reason of the admission of a new
Member, Additional Capital Contributions or otherwise, during any Fiscal Year of
the Company, each item of income, gain, loss, deduction or credit of the Company
for such Fiscal Year shall be allocated among the Members by the Manager in
accordance with any method permitted by Section 706(d) of the Code and the
applicable Regulations in order to take into account the Members' varying
Percentage Interests during the Year.
3.9 OBLIGATIONS OF MEMBERS TO REPORT ALLOCATIONS. The Members are aware
--------------------------------------------
of the income tax consequences of the allocations made by this Article 3 and
hereby agree to be bound by the provisions of this Article 3 in reporting their
shares of Company income and loss for income tax purposes.
ARTICLE 4
DISTRIBUTIONS
4.1 DISTRIBUTION OF ASSETS BY THE COMPANY. Subject to applicable law
-------------------------------------
and any limitations contained elsewhere in this Agreement, no distribution shall
be made if, after giving effect to the distribution, (a) the Company would not
be able to pay its debts as they become due in the usual course of business, or
(b) the Company's total assets would be less than the sum of its total
liabilities.
4.2 NET CASH FLOW. Subject to Section 4.1, Net Cash Flow, if any, shall
-------------
be distributed within thirty (30) days after the end of each calendar quarter to
the Members in accordance with the Members' respective Profit Percentage
Interests on the date of the distribution.
4.3 PERSONS TO RECEIVE DISTRIBUTION. All distributions shall be made to
-------------------------------
the Persons who, according to the books and records of the Company, are the
holders of record of the Economic Interests in respect of which such
distributions are made on the actual date of distribution. Neither the Company
nor any Company Person shall incur any liability for making distributions in
accordance with this Section 4.3.
4.4 FORM OF DISTRIBUTION. A Member, regardless of the nature of the
--------------------
Member's Capital Contribution, has no right to demand and receive any
distribution from the Company in any form other than money. No Member may be
compelled to accept from the Company a distribution of any asset in kind in lieu
of a proportionate distribution of money being made to other Members.
4.5 WITHHOLDING ON DISTRIBUTIONS. Each Member consents and agrees that
----------------------------
the Company may deduct and withhold amounts for tax or other obligations of such
Member on any amount
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<PAGE>
distributed or allocated by the Company to such Member, and to any assignee of a
Member's Membership Interest (or the related Economic Interest), if the Company
believes in good faith that it is required by law to do so. All amounts so
withheld with respect to such Member, substitute Member, or Economic Interest
Owner shall be treated as amounts distributed to such Person pursuant to Section
9.5 or 9.6 for all purposes under this Agreement. In addition, the affected
Member, substitute Member or Economic Interest Owner shall reimburse the Company
for any such amounts so withheld to the extent not deducted from a distribution.
4.6 RETURN OF DISTRIBUTIONS. Except for distributions made in violation
-----------------------
of the Act or this Agreement, no Member or Economic Interest Owner shall be
obligated to return any distribution to the Company or pay the amount of any
distribution for the account of the Company or to any creditor of the Company.
The amount of any distribution returned to the Company by a Member or Economic
Interest Owner or paid by a Member or Economic Interest Owner for the account of
the Company or to a creditor of the Company shall be added to the account or
accounts from which it was subtracted when it was distributed to the Member or
Economic Interest Owner.
ARTICLE 5
MEMBERS
5.1 LIMITED LIABILITY. Except as required under the Act or as expressly
-----------------
set forth in this Agreement, no Member shall be personally liable for any debt,
obligation or liability of the Company, whether that liability or obligation
arises in contract, tort or otherwise.
5.2 ADMISSION OF ADDITIONAL MEMBERS. No additional Members shall be
-------------------------------
admitted unless approved by a Super Majority Interest. No additional Member
shall become a Member until such additional Member has made any required Capital
Contribution and has become a party to this Agreement by executing a signature
page agreeing to the terms and provisions hereof, and substitute Members may
only be admitted in accordance with Article 7.
5.3 TRANSACTIONS WITH THE COMPANY. A Company Person or any Affiliate
-----------------------------
may lend money to and transact other business with the Company only in
accordance with this Agreement or with the prior approval of holders of a
majority of the Profit Percentage Interests held by the disinterested Members
after full disclosure of the Member's involvement. Subject to other applicable
law, such Member has the same rights and obligations with respect thereto as a
person who is not a Member.
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<PAGE>
5.4 MEMBERS ARE NOT AGENTS. Pursuant to Article 6, the management of
----------------------
the Company is vested in the Manager. Unless expressly and duly authorized in
writing to do so by the Manager, no Member, acting solely in the capacity of a
Member, is an agent of the Company nor can any Member in such capacity bind or
execute any instrument on behalf of the Company or render the Company liable for
any purpose.
5.5 VOTING RIGHTS.
-------------
5.5.1 GENERAL RULE. Except as expressly provided in this
------------
Agreement, the Articles or the Act, Members shall have no voting, approval or
consent rights. Except as otherwise expressly provided in this Agreement, in
all instances in which a vote, approval, consent or agreement of the Members is
required, a vote, approval or consent of a Super Majority Interest (or, in
instances in which there are defaulting Members or an assignment of a Membership
Interest, non-defaulting Members or Members who are not assignors of a
Membership Interest, respectively, who hold eighty (80%) of the Profit
Percentage Interests held by all such non-defaulting or non-assigning Members)
shall be required.
5.5.2 MEETINGS OF MEMBERS. No annual or regular meetings of
-------------------
Members are required. A meeting of the Members may be called by any Manager or
by Members with collective Profit Percentage Interests of at least ten percent
(10%). Meetings of Members may be held at such date, time and place within or
without the State of California as the Manager may fix from time to time.
Notice of any meeting shall be given in accordance with Section 17104 of the
Corporations Code. At any Members' meeting, the Manager shall preside at the
meeting and shall designate an officer or representative of a Member to act as
secretary of the meeting. The secretary of the meeting shall prepare minutes of
the meeting, which shall be placed in the minute books of the Company. Any
action that may be taken at a meeting of Members may be taken without a meeting,
if a consent in writing setting forth the action so taken, is signed and
delivered to the Company by Members having not less than the minimum number of
votes that would be necessary to authorize or take that action at a meeting at
which all Members entitled to vote on that action at a meeting were present and
voted. All such consents shall be filed with the Company and shall be
maintained in the Company records. Members may participate in any Members'
meeting through the use of any means of conference telephones or similar
communications equipment as long as all Members participating can hear one
another. A Member so participating is deemed to be present in person at the
meeting.
5.5.3 PROXIES. Every Member entitled to vote at a meeting may
-------
authorize another person or persons to act by proxy with respect to his, her or
its Membership Interest. No proxy shall be valid after the expiration of 11
months from the date thereof unless otherwise provided in the proxy. Every
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<PAGE>
proxy continues in full force and effect until revoked by the Member executing
it prior to the vote pursuant thereto, except as otherwise herein provided.
Such revocation may be effected by a writing delivered to the Company stating
that the proxy is revoked or by a subsequent proxy executed by the Member
executing the prior proxy and presented to the meeting, or as to any meeting by
attendance at such meeting and voting in person by the person executing the
proxy. The dates contained on the forms of proxy presumptively determine the
order of execution, regardless of the postmark dates on the envelopes in which
they are mailed. A proxy is not revoked by the death or incapacity of the
Member unless, before the vote is counted, written notice of such death or
incapacity is received by the Company. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of
Sections 703(e) and 705(f) of the California General Corporation Law.
5.6 WITHDRAWAL, RESIGNATION AND RETIREMENT. Except as required by law,
--------------------------------------
no Member may withdraw, resign or retire from the Company without the express
consent of a Super Majority Interest.
ARTICLE 6
MANAGEMENT AND CONTROL OF THE COMPANY
6.1 MANAGEMENT OF THE COMPANY BY THE MANAGER.
----------------------------------------
6.1.1 EXCLUSIVE MANAGEMENT BY THE MANAGER. Subject to the
-----------------------------------
provisions of the Articles and this Agreement, the business, property and
affairs of the Company shall be managed, and all powers of the Company shall be
exercised, by or under the direction of the Manager. The Manager shall have,
without limitation the authority to exercise all rights and fulfill all
obligations with respect to the Initial Card Club Assets, including without
limitation rights and obligations under the agreements set forth in Schedule
--------
2.1.
6.1.2 AGENCY AUTHORITY OF THE MANAGER. Subject to the rights of
-------------------------------
the Members as set forth in Section 6.3, the Manager shall have signing
authority with respect to all matters on behalf of the Company, including
without limitation the authority to endorse checks, drafts and other evidences
of indebtedness made payable to the order of the Company or to sign checks,
drafts and other instruments obligating the Company to pay money, or sign
agreements or other documents. Subject to the provisions of the Articles and
this Agreement, the Manager may delegate any of its powers hereunder.
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<PAGE>
6.2 MANAGER.
-------
6.2.1 INITIAL MANAGER. HPC shall be the initial Manager.
---------------
6.2.2 TERM OF OFFICE; SUCCESSOR MANAGER. The Manager shall hold
---------------------------------
office for a term commencing on the date of appointment (or in the case of the
initial Manager, commencing on the date hereof) and expiring upon the earlier of
(i) the date on which such Manager resigns, (ii) the date on which the Manager
becomes an Excluded Member pursuant to Section 9.2 hereof or (iii) the date on
which the Manager ceases to be a Member owning at least a 20% interest in the
capital and profits of the Company. Upon the expiration of the term of office
of a Manager, a successor Manager shall be elected by a Super Majority Interest,
including HPC in its capacity as a Member (unless HPC's term as the Manager
expired by reason of clause (ii) above), provided that such successor Manager
--------
must be a Member owning at least a 20% interest in the capital and profits of
the Company unless agreed upon in writing by all of the Members.
6.2.3 RESIGNATION. The Manager may resign at any time by giving
-----------
written notice to the Members without prejudice to the rights, if any, of the
Company under any contract to which the Manager is a party. The resignation of
any Manager shall take effect upon receipt of that notice or at such later time
as shall be specified in the notice; and, unless otherwise specified in the
notice, acceptance of the resignation shall not be necessary to make it
effective. A Manager who has an incapacity shall be deemed to have resigned.
For purposes of this Section 6.2.3, "incapacity" shall mean, as to any Manager,
as applicable, (i) the death or adjudication or incompetence or insanity in the
case of a natural person, (ii) the inability of a Manager to fulfill his
obligations under this Agreement because of injury or physical or mental illness
and such incapacity shall exist for ninety (90) working days in the aggregate
during any consecutive twelve (12) month period, (iii) the termination of a
trust in the case of a trustee of a trust, the dissolution and commencement of
winding up of a partnership in the case of a partnership, the filing of a
certificate of dissolution or its equivalent in the case of a corporation or a
limited liability company and the distribution by a fiduciary of an estate's
entire interest in the Company, or (iv) the Bankruptcy of such Manager. The
resignation of a Manager shall not affect the Manager's rights as a Member and
shall not by itself constitute a withdrawal of a Member.
6.3 LIMITATIONS ON MANAGER'S AUTHORITY. Notwithstanding the foregoing,
----------------------------------
the Manager shall not, without the written consent of all of the Members, which
consent shall not be unreasonably delayed or withheld:
-14-
<PAGE>
(a) do any act in contravention of this Agreement in its present
form or as amended;
(b) confess a judgment against the Company;
(c) cause the Company to enter into any arrangement with itself or
any of its affiliates or other related entities as principal on terms less
favorable to the Company as would be obtained from an unaffiliated third party;
(d) dissolve the Company except in accordance with Article 9
hereof;
(e) change the nature of the business of the Company (provided,
--------
however, that to the extent agreed to by a Super Majority Interest the Company
- -------
may determine to undertake additional businesses at the Card Club Site or other
property leased or acquired by the Company pursuant to the DDA in addition to
the Card Club and the Hotel).
6.4 CARD CLUB OPERATOR; HOTEL OPERATOR; OTHER OFFICERS.
--------------------------------------------------
6.4.1 CARD CLUB OPERATOR; HOTEL OPERATOR. Pursuant to the
----------------------------------
Lease, CEI will act as the operator of the Card Club (the "Card Club Operator")
until such time as the Company may be licensed to act as the Card Club Operator,
at which time the Company and CEI shall form Newco to operate the Card Club, the
Hotel and related businesses, in accordance with the Purchase Agreement. When
the Company and CEI form Newco, subject to the terms of the Purchase Agreement,
the Manager shall select the chief operating officer and manager of the Card
Club (and may enter into employment agreements with such persons as it deems
appropriate). Such chief operating officer and manager, under the supervision
of the Manager, shall be responsible for the day-to-day management of the
operations of the Card Club and shall make all the decisions required to be made
regarding the day-to-day administration, supervision, management and control of
the operations of the Card Club. The chief operating officer (and all other
employees of the Company) shall report directly to and shall be supervised by
the Manager. The Hotel operator shall be selected by the Manager.
6.4.2 OTHER OFFICERS. The Manager may appoint such other
--------------
officers as may be deemed necessary or advisable from time to time by the
Manager. All officers, including the chief operating officer, shall serve at
the pleasure of the Manager, subject to all rights, if any, of an officer under
any contract of employment. Any individual may hold any number of offices with
such duties and powers as designated by the Manager.
6.5 REMUNERATION AND REIMBURSEMENT OF MEMBERS. Except as otherwise
-----------------------------------------
authorized in, or pursuant to, this Agreement, no Member is entitled to
remuneration for acting on behalf of the Company or in connection with the
Company's business. HPC shall
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<PAGE>
receive a credit against its Initial Capital Contribution for all Initial
Expenses paid for by HPC or HPI. A schedule setting forth the Initial Expenses
paid for by HPC or HPI as of July 8, 1996, is attached hereto as Schedule 6.5.
------------
The Manager shall be entitled to full reimbursement of its actual costs incurred
in connection with the Company's ownership and/or operation of the Card Club,
including salaries and other compensation of all employees hired for or assigned
to Card Club operations but excluding any allocation for general and
administrative overhead costs. The Members shall be entitled to reimbursement
of reasonable out-of-pocket expenses incurred or services provided for the
purposes of the Company at the request of the Manager.
6.6 BUDGETS. The Manager shall prepare an initial capital budget and
-------
annual capital and operating budgets and operating plans for the Company for
each fiscal year, which annual budgets and plans shall be delivered to the
Members for informational purposes.
6.7 BANK ACCOUNTS. All funds of every kind and nature received by the
-------------
Company, including capital contributions, loan proceeds, and operating receipts
shall be deposited in such bank accounts in the name of the Company as shall be
determined from time to time by the Manager. Company funds shall not be
commingled with funds of any Member or others.
6.8 INSURANCE. The Company shall procure and maintain in full force and
---------
effect insurance on the Card Club and other Company Property, including
liability, fire, extended property and business interruption insurance, naming
the Company and the Manager as insureds thereunder (the terms and coverage
amounts of which shall be that customary in the industry). The Company shall
procure and maintain any additional insurance coverage required by applicable
City ordinances or written order.
ARTICLE 7
TRANSFER AND ASSIGNMENT OF INTERESTS
7.1 RESTRICTIONS ON TRANSFER; TRANSFERS OF ECONOMIC INTERESTS. No
---------------------------------------------------------
Member may Transfer its Membership Interest or Economic Interest in the Company,
in whole or in part, without the prior written consent of the Manager (or, in
the case of HPC if HPC is then the Manager, holders of a majority of the Profit
Percentage Interests excluding those held by HPC), which consent may be given or
withheld, conditioned or delayed by the Manager or such holders, as applicable,
in its or their sole discretion; provided that any Member may Transfer its
Economic Interest to another Member or to an Affiliate without consent. The
Transfer of an Economic Interest to an Affiliate or another Member shall not
effect a Transfer of the Membership Interest of the transferring Member and the
transferee shall in no event be
-16-
<PAGE>
deemed substituted as a Member of the Company, except to the extent of the
Economic Interest so Transferred unless otherwise agreed by all of the Members.
No Transfer of an Economic Interest permitted by this Agreement shall effect a
novation or release any of the transferor Member's obligations hereunder, and
the Transferring Member shall continue to be obligated under each and every
provision of this Agreement. No Economic Interest Owner of the Company shall
have any right to participate in the management of the business and affairs of
the Company or to become a Member thereof.
7.2 RIGHTS OF FIRST REFUSAL. If a Member has received the prior written
-----------------------
consent of the Manager (or, in the case of HPC if HPC is then the Manager,
holders of a majority of the Profit Percentage Interests excluding those held by
HPC), to a proposed Transfer in accordance with Section 7.1, prior to seeking to
sell all or any portion of its Membership Interest (the "Transferable
Interest"), (i) each Member other than HPC shall first offer HPC and, as long as
HPC is the Manager, the other Members and (ii), HPC subject to the requirements
of the Purchase Agreement regarding the rights of CEI in connection with
Transfers by HPC, shall offer to the other Members (in each case, collectively
with HPC, the "Offerees") the right to purchase the Transferable Interest (or in
the case of HPC, if CEI had the right pursuant to the Purchase Agreement to
exercise a right of first refusal and did so, the remainder, if any, of the
Transferable Interest following such exercise) on the same terms and conditions
as the selling Member intends to sell such interest, or on the same terms and
conditions as the offer received from a prospective purchaser, as the case may
be (herein, the "First Opportunity Offer"). The First Opportunity Offer, once
made, shall constitute an irrevocable binding offer by the selling Member to
sell the Transferable Interest to the Offerees, who shall have thirty (30) days
after receipt of the First Opportunity Offer within which to accept same in
writing. If any of the Offerees timely accepts the First Opportunity Offer, the
selling Member shall sell the Transferable Interest to such accepting Offerees
on a pro rata basis in accordance with their Profit Percentage Interests (or if
only one Offeree accepts in a timely manner, such Offeree may purchase the
entire Transferable Interest), on the same terms and conditions as the First
Opportunity Offer; provided, however, that such sale shall be consummated within
--------
ninety (90) days of the Offerees' acceptance of the First Opportunity Offer. If
the Offerees fail to timely accept the First Opportunity Offer or do not agree
to purchase all of the Transferable Interest, the selling Member (other then
HPC, if it has previously made such offer to CEI) shall offer the still
available portion of the Transferable Interest to CEI in accordance with the
terms and conditions of the Purchase Agreement. If CEI agrees to purchase (x)
all of the still available portion of the Transferable Interest of DeBartelo or
Chu, as applicable, or (y) all or any portion of the Transferable Interest of
HPC, the sale of the Transferable Interest to CEI and the accepting Offerees, if
any, shall be
-17-
<PAGE>
consummated in accordance with the Purchase Agreement. If the accepting
Offerees, if any, and CEI together do not agree to purchase the entire
Transferable Interest, then the selling Member shall be free to sell the
Transferable Interest to any third party, subject to the terms of this Agreement
and of the Purchase Agreement. Each of the Members acknowledges receipt of a
copy of the Purchase Agreement and hereby agrees to be bound by all the
provisions thereof, including without limitation (i) the grant to CEI by each of
them of a right of first refusal with respect to Transfers of their respective
Membership Interests herein, and (ii) the provisions regarding the price below
which Membership Interests may not be sold, all as set forth in Section 10.2 of
the Purchase Agreement.
7.3 TRANSFERS SUBJECT TO LICENSES AND APPROVALS. Notwithstanding any
-------------------------------------------
other provision of this Agreement, at such time as a public company is permitted
under applicable law to own and operate a card club, or HPI or HPC is otherwise
legally permitted to operate the Card Club, no Transfer of a Membership Interest
or an Economic Interest in the Company may be made unless and until the
transferee has obtained all licenses and approvals necessary for the ownership
and operation of the Card Club from the City and any other necessary or
applicable licensing authorities and has executed an agreement to be bound by
all provisions of this Agreement.
7.4 EFFECT OF NON-COMPLIANCE. Any purported Transfer not permitted by
------------------------
this Agreement shall be void ab initio and of no effect against the Company, any
---------
other Member or any creditor of or claimant against the Company.
7.5 EFFECT OF TRANSFER. A transferee of a Membership Interest shall
------------------
have the right to become a substitute Member only if (a) the requirements of
Sections 7.1 and 7.2, and as applicable, Sections 7.3 and 7.8, are met, (b) such
person executes an instrument satisfactory to all of the Members accepting and
adopting the terms and provisions of this Agreement, and (c) such person pays
any reasonable expenses in connection with its admission as a new Member. The
admission of a substitute Member shall not result in the release of the Member
who assigned the Membership Interest from any liability that such Member may
have to the Company or to any Member.
7.6 RIGHTS OF LEGAL REPRESENTATIVES. Subject to the provisions of
-------------------------------
Section 9.2, if a Member who is an individual dies or is adjudged by a court of
competent jurisdiction to be incompetent to manage the Member's person or
property, the Member's executor, administrator, guardian, conservator, or other
legal representative shall have all the rights of a holder of an Economic
Interest, but shall have no right to become a substitute Member without the
consent otherwise required pursuant to this Agreement. If a Member is a
corporation, trust, or other entity and is dissolved or terminated, the
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<PAGE>
powers described in the preceding sentence may be exercised by such Member's
legal representative or successor.
7.7 OBLIGATION TO COMPLY WITH APPLICABLE LAW. At such time as a public
----------------------------------------
company is permitted under applicable law to own and operate a card club, or HPI
or HPC is otherwise legally permitted to operate the Card Club, the Company
shall promptly apply to obtain licensing and the necessary approvals to permit
Newco to acquire the Company Assets and to operate the Card Club, the Hotel and
related businesses and all Members hereby agree to obtain (and to cause each of
their directors, officers, equity owners and other Affiliates, as applicable, to
obtain) all required licenses and approvals as promptly as possible. If any
Member or any director, officer, equity owner or other Affiliate of any Member
(collectively a "Noncomplying Person") is unable, at any time, to obtain or
maintain such licensing or otherwise comply with applicable law, such Member
shall take such action, including without limitation, a corporate restructuring
or the severing of its relationship with the Noncomplying Person, in order to
comply with applicable law within thirty (30) days of the date on which the
Noncomplying Person was unable or ceased to comply with such law. If a Member
is unable to satisfy the requirements of the preceding sentence, then the
Company (or, if the Company is unable to do so, the other Members) shall
purchase such Member's Membership Interest (on a pro rata basis in accordance
with their respective Profit Percentage Interests, if the purchasers are the
other Members). The purchase price of the sale required by the previous
sentence shall equal the Fair Value of such Member's Membership Interest
determined in accordance with the procedures for determining the Fair Value of
Chu's and DeBartolo's Membership Interests as set forth in Section 7.9.3 and
shall be payable in equal quarterly installments over five (5) years with
interest at the Rate. A Member that is removed from the Company pursuant to
this Section shall have no further right to participate, in any way, in the
business of the Company (specifically including the right to receive
distributions from, or to share in the Net Profits, Net Losses or similar items
of, the Company or to approve Company actions).
7.8 CHANGES OF CONTROL -- DEBARTOLO AND CHU. During the term of this
---------------------------------------
Agreement, each of Chu and DeBartolo shall prohibit each of its equity owners
from effecting any Transfer of their ownership interests that would result in a
Change of Control, respectively, of Chu or DeBartolo. Chu represents and
warrants to HPC and DeBartolo that attached hereto as Schedule 7.8A is a true
-------------
and complete list setting forth each of the equity owners of Chu, showing the
percentage interest owned. DeBartolo represents and warrants to HPC and Chu
that attached hereto as Schedule 7.8B is a true and complete list setting forth
-------------
each of the equity owners of DeBartolo, showing the percentage interest owned.
Each of Chu and DeBartolo hereby agrees to provide the Manager (or HPC, if HPC
is no longer the Manager) with prompt notice of any proposed sale by an equity
owner of his, her or
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<PAGE>
its ownership interest. Concurrently with the execution of this Agreement, each
of Chu and DeBartolo shall cause any certificates representing such ownership
interests to bear a legend substantially as follows:
"THE OWNERSHIP INTERESTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN TRANSFER RESTRICTIONS CONTAINED IN THE OPERATING AGREEMENT OF
CRYSTAL PARK HOTEL AND CASINO DEVELOPMENT COMPANY, LLC, A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE ISSUER. ANY TRANSFER
OF SHARES IN VIOLATION OF SUCH PROVISIONS SHALL BE NULL AND VOID AB
--
INITIO."
--------
The Members hereby agree that any Change of Control, merger, sale of assets,
recapitalization or other corporate restructuring of HPI shall not constitute a
Transfer or Change of Control of HPC for purposes of this Agreement.
7.9 PUT/CALL.
--------
7.9.1 CHU/HPC. Within one-hundred twenty (120) days following
-------
each of the following events, subject to CEI's rights pursuant to the Purchase
Agreement, Chu shall have the right to notify HPC of its election to cause HPC
to purchase its Membership Interest, and HPC shall have the right to notify Chu
of its election to purchase Chu's Membership Interest, for a price equal to the
Fair Value of Chu's Membership Interest, which price shall be payable in
accordance with Section 7.9.4. This right and obligation shall be personal to
Chu and may not be assigned or transferred, even if there is a permitted
Transfer of Chu's Membership Interest. The events giving rise to rights of each
of HPC and Chu under this Section 7.9.1 are as follows:
(a) An HPI Change;
(b) The death of Leo Chu;
(c) The death of Ivy Chu; or
(d) The date that is five (5) years after the date hereof.
7.9.2 DEBARTOLO/HPC. Within one-hundred twenty (120) days
-------------
following each of the following events, subject to CEI's rights pursuant to the
Purchase Agreement, DeBartolo shall have the right to notify HPC of its election
to cause HPC to purchase its Membership Interest in the Company, and HPC shall
have the right to notify DeBartolo of its election to purchase DeBartolo's
Membership Interest, for a price equal to the Fair Value of DeBartolo's
Membership Interest, which price shall be payable in accordance with Section
7.9.4. This right and obligation shall be personal to DeBartolo and may not be
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<PAGE>
assigned or transferred, even if there is a permitted Transfer of DeBartolo's
Membership Interest. The events giving rise to the rights of each of DeBartolo
and HPC under this Section 7.9.2 are as follows:
(a) An HPI Change; or
(b) The date that is five (5) years after the date hereof.
7.9.3 DETERMINATION OF FAIR VALUE. The Fair Value of the
---------------------------
Membership Interest of Chu or DeBartolo for purposes hereof shall be determined
as follows.
(a) During the first eighteen (18) months after the date
hereof, the Fair Value shall be determined by multiplying the Profit Percentage
Interest of Chu or DeBartolo as applicable by the total Capital Contributions to
the Company of all of the Members from its inception to the date of the purchase
of such interest.
(b) From and after the date that is eighteen (18) months
after the date hereof, the Fair Value shall mean the price that an unaffiliated
third party would be willing to pay for the Membership Interest of Chu or
DeBartolo, as applicable (the "Acquired Interest"), considering the value of the
Company's business and assets at the time and its liabilities (with no minority
discount applied). HPC and DeBartolo or Chu, as applicable, shall attempt to
agree on the Fair Value during the sixty (60) day period after the notification
by HPC, on the one hand, or Chu or DeBartolo, on the other, of its election to
purchase or sell the Acquired Interest pursuant to Section 7.9.1 or 7.9.2. If
HPC and DeBartolo or Chu, as applicable, cannot agree on the Fair Value during
such sixty (60) day period, then the Fair Value of the Acquired Interest shall
be determined by an appraisal. Either HPC, on the one hand, or DeBartolo or Chu,
on the other hand, may initiate an appraisal by notifying the other in writing
of its designation of a nationally recognized investment banking firm to
determine the Fair Value of the Acquired Interest. Within ten (10) days
following receipt of such designation, the other shall either notify HPC or
DeBartolo or Chu, as the case may be, of its designated appraiser, which shall
also be a nationally recognized investment banking firm, or, in the absence of
notice, shall be deemed to have accepted the investment banking firm designated
by the other. The investment banking firm (or firms) so appointed shall make a
determination of the Fair Value within thirty (30) days after the deemed
acceptance of the first designated investment banking firm or, if applicable,
the appointment of the second investment banking firm, and shall concurrently
exchange and/or deliver such determinations to HPC or DeBartolo or Chu. If only
one investment banking firm has been appointed, the determination by such firm
of the Fair Value shall be final and binding. If two
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firms have been appointed, and the determinations of the two firms are within
ten percent (10%) of each other, the average of the two determinations shall be
the Fair Value. If the two determinations are not within ten percent (10%) of
each other, then the two investment banking firms shall select a third
investment banking firm within fifteen (15) days after the determinations have
been exchanged; and if the two investment banking firms are unable to agree
within that period on a third firm, such appointment will be made by the
American Arbitration Association. If a third investment banking firm is
appointed, the third investment banking firm shall make the determination of the
Fair Value, which shall be within the range of the determinations made by the
first two firms, within fifteen (15) days after the appointment of the third
firm. Each of HPC on the one hand and Chu or DeBartolo on the other shall pay
one-half ( 1/2) of the cost of the investment banking firm, if only one is
appointed; if two firms are appointed, HPC on the one hand, and Chu or
DeBartolo, on the other hand, shall each pay the fees and costs of the
investment banking firm appointed by such Person; and the fees and costs of a
third investment banking firm shall be divided equally between them.
7.9.4 HPC OPTION. HPC shall have the option to pay for the
----------
Acquired Interest either by the issuance of HPI Common Stock (or common stock of
any successor to HPI) in an amount equal to the Fair Value or by payment of the
Fair Value in cash by wire transfer; provided, that HPC may elect to pay for the
--------
Acquired Interest by issuing common stock only if HPI or its successor is a
public company at the time. HPC shall make such election by notice to Chu or
DeBartolo as applicable within thirty (30) days after the determination of the
Fair Value of the Acquired Interest. If HPC elects to pay for the Acquired
Interest by the issuance of HPI Common Stock, Chu or DeBartolo, as applicable,
shall be entitled to exercise piggyback registration rights and demand
registration rights on one occasion each with respect to such common stock, on
the terms and conditions contained in Article 11 hereof. For purposes hereof,
the value of HPI's stock shall be determined by reference to the closing price
on the principal stock exchange on which such shares are then listed or, if such
shares are not then listed on a stock exchange, by reference to the closing
price (if approved for quotation on the Nasdaq National Market) or the mean
between the bid and asked price (if other over-the-counter issue) of a share as
supplied by the National Association of Securities Dealers, Inc. through Nasdaq
(or its successor in function), in each case as reported by The Wall Street
Journal, for the business day immediately following the date of the election
made by HPC, DeBartolo or Chu pursuant to Section 7.9.1 or 7.9.2 (or, if for any
reason no such price is available, in such other manner as the Board of
Directors of HPI may deem appropriate to reflect the then fair market value
thereof). If HPC is no longer the Manager at the time HPC, Chu or DeBartolo
exercises its right hereunder, the parties acknowledge that Chu or DeBartolo
must first offer its
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Membership Interest to CEI in accordance with the terms of the Purchase
Agreement.
7.9.5 CLOSING. The closing (the "Closing") of any sale pursuant
-------
hereto shall be held at a mutually acceptable place, on a date (the "Closing
Date") not more than the later of (i) one-hundred twenty (120) days after the
election made by HPC, DeBartolo or Chu pursuant to Section 7.9.1 or 7.9.2, or
(ii) thirty (30) days after determination of the Fair Value of the Membership
Interest of Chu or DeBartolo as applicable, which date shall be established by
HPC upon not less than ten (10) business days' prior written notice to Chu or
DeBartolo, as applicable. Conveyance shall be made by an appropriate assignment,
duly and validly executed by Chu or DeBartolo, as applicable, conveying the
Acquired Interest, free and clear of all liens, claims, encumbrances and rights
of others and containing customary representations and warranties to HPC,
including without limitation, representations and warranties that (i) there are
no outstanding options, warrants or other rights to purchase such Membership
Interest; and (ii) Chu or DeBartolo, as applicable, has full power and authority
to sell its Membership Interest and such sale is not prohibited by and will not
conflict with the terms of any other understanding, agreement or arrangement to
which Chu or DeBartolo, as applicable, is a party or by which it is bound.
7.10 TAG-ALONG RIGHTS.
----------------
7.10.1 RIGHT TO PARTICIPATE IN SALE. Following compliance with
----------------------------
all applicable requirements of this Agreement governing the Transfer of
Membership Interests, including the requirements of the Purchase Agreement
regarding offering the Membership Interest to CEI, if any Member ("Selling
Member") enters into an agreement to transfer, sell or otherwise dispose of any
portion of its Membership Interest (other than a Transfer of an Economic
Interest to an Affiliate or another Member as permitted by Section 7.1) (such
transfer, sale or other disposition being referred to as a "Tag-Along Sale"),
then each other Member ("Tag-Along Member") shall have the right, but not the
obligation, to participate in such Tag-Along Sale. The portion of its
Membership Interest that each Tag-Along Member will be entitled to include in
such Tag-Along Sale (the "Member's Allotment") shall be determined by
multiplying (i) the Profit Percentage Interest represented by the Membership
Interest proposed to be sold, transferred or otherwise disposed of pursuant to
the Tag-Along Sale, by (ii) such Tag-Along Member's Profit Percentage Interest
on the day immediately preceding the Tag-Along Notice Date (as defined below).
Any sales of any portion of its Membership Interest by a Tag-Along Member as a
result of the foregoing "Tag-Along Rights" shall be on the same terms and
conditions as the proposed Tag-Along Sale by the Selling Member. The "Tag-Along
Notice Date" shall be the date that the Tag-Along Sale Notice (as defined below)
is delivered to Members.
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7.10.2 SALE NOTICE. The Selling Member shall provide the other
-----------
Members with written notice (the "Tag-Along Sale Notice") not more than sixty
(60) nor less than thirty (30) days prior to the proposed date of the Tag-Along
Sale (the "Tag-Along Sale Date"). Each Tag-Along Sale Notice shall set forth:
(i) the name and address of each proposed transferee or purchaser of a
Membership Interest in the Tag-Along Sale; (ii) the Profit Percentage Interest
represented by the Membership Interest proposed to be transferred or sold by the
Selling Member; (iii) the proposed amount and form of consideration to be paid
for such Membership Interest and the terms and conditions of payment offered by
each proposed transferee or purchaser; (iv) confirmation that the proposed
purchaser or transferee has been informed of the "Tag-Along Rights" provided for
herein and has agreed to purchase the Membership Interest in accordance with the
terms hereof; and (v) the Tag-Along Sale Date.
7.10.3 TAG-ALONG NOTICE. If a Member wishes to participate in
----------------
the Tag-Along Sale, such Member shall provide written notice (the "Tag-Along
Notice") to the Selling Member no less than ten (10) business days prior to the
Tag-Along Sale Date. If a Tag-Along Notice is not received by the Selling
Member from a Member prior to the ten (10) day period specified above, the
Selling Member shall have the right to sell or otherwise transfer the Membership
Interest specified in the Tag-Along Sale Notice to the proposed purchaser or
transferee without any participation by such Member. The Tag-Along Notice shall
set forth the Profit Percentage Interest represented by the Membership Interest
that such Member elects to include in the Tag-Along Sale, which shall not exceed
the Member's Allotment. The Tag-Along Notice shall also specify the aggregate
Profit Percentage Interest represented by such Member's Membership Interest as
of the close of business on the day immediately preceding the Tag-Along Notice
Date, which such Member desires also to include in the sale ("Additional
Membership Interests") in the event there is any under-subscription for the
entire amount of all Members' Allotments. In the event there is an under-
subscription in the aggregate of such Members' Allotments, the Selling Member
shall apportion the unsubscribed Members' Allotments to such holders whose Tag-
Along Notices specified an amount of Additional Membership Interests, which
apportionment shall be on a pro rata basis among such Members in accordance with
--- ----
the number of Additional Membership Interests specified by all such Members in
their Tag-Along Notices. The Tag-Along Notice given by the Member shall
constitute such Member's binding agreement to sell such Membership Interest on
the terms and conditions applicable to the Tag-Along Sale, subject to the
provisions of this Section 7.10.
7.10.4 VOID TRANSFERS. If the Selling Member fails to sell or
--------------
otherwise Transfer its Membership Interest or any portion thereof on terms and
conditions which are no more
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favorable in any material respect to the Selling Member than as stated in the
Tag-Along Sale Notice on or prior to the Tag-Along Sale Date, such sale or
Transfer shall be null and void, and any subsequent sale or Transfer of such
Membership Interest must comply with all of the requirements of this Agreement.
7.10.5 EXEMPT TRANSFERS. The provisions of this Section 7.10
----------------
shall not apply to any Transfer, sale or other disposition by any Member to one
of its Affiliates (provided that prior to any such disposition the Member
complies with the requirements of this Agreement regarding Transfers).
ARTICLE 8
ACCOUNTING, RECORDS, REPORTING BY MEMBERS
8.1 FISCAL YEAR. The fiscal year of the Company shall be the calendar
-----------
year. The decision to engage outside accountants for the Company and the
selection of such outside accountants, if any, shall be made by the Manager.
8.2 BOOKS AND RECORDS. Each Member and each Economic Interest Owner,
-----------------
and their duly authorized representatives shall at all times, during regular
business hours, have reasonable access to and may inspect and copy at its own
expense any of the books and records of the Company set forth in this Section,
for purposes reasonably related to such person's interest in the Company. Each
Member shall be entitled at any time to have the Company's books and records
examined or audited at such Member's expense, and HPC shall cooperate fully with
the party or parties making such examination or audit on behalf of such Member.
The books of account of the Company shall be maintained and prepared in
accordance with generally accepted accounting principles, consistently applied.
The Company shall maintain at its principal office in California all of the
following:
(a) A current list of the full name and last known business or
residence address of each Member and Economic Interest Owner set forth in
alphabetical order, together with the Capital Contributions, Capital Account and
Profit Percentage Interest of each Member and Economic Interest Owner;
(b) A current list of the full name and business or residence
address of the Manager and each officer;
(c) A copy of the Articles and any and all amendments thereto
together with executed copies of any powers of attorney pursuant to which the
Articles or any amendments thereto have been executed;
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(d) Copies of the Company's federal, state and local income tax or
information returns and reports, if any, for the six (6) most recent taxable
years;
(e) A copy of this Agreement and any and all amendments thereto
together with executed copies of any powers of attorney pursuant to which this
Agreement or any amendments thereto have been executed;
(f) Copies of the financial statements of the Company, if any, for
the six (6) most recent Fiscal Years;
(g) The Company's books and records as they relate to the internal
affairs of the Company for at least the current and past four (4) Fiscal Years;
(h) Originals or copies of all minutes, actions by written consent,
consents to action and waivers of notice to Members and Member votes, actions
and consent, if any; and
(i) Any other information required to be maintained by the Company
pursuant to the Act.
8.3 STATEMENTS.
----------
8.3.1 ANNUAL REPORT. Within one-hundred twenty (120) days after
-------------
the end of each calendar year, the Manager shall deliver to each of the other
Members audited financial statements of the Company, certified by Arthur
Anderson & Co., Inc. or such other "Big Six" accounting firm selected by the
Manager.
8.3.2 TAX INFORMATION. The Manager shall cause to be prepared
---------------
at least annually, at Company expense, information necessary for the preparation
of the Members' and Economic Interest Owners' federal and state income tax
returns. The Manager shall send or cause to be sent to each Member or Economic
Interest Owner within ninety (90) days after the end of each taxable year such
information as is necessary to complete federal and state income tax or
information returns and a copy of the Company's federal, state, and local income
tax or information returns for that year.
8.3.3 ANNUAL STATE REPORT. The Manager shall cause to be filed
-------------------
at least annually with the California Secretary of State the statement required
under California Corporations Code (S)17060.
8.3.4 MONTHLY REPORTS. As soon as practicable following the end
---------------
of each month, the Manager shall deliver to each of the other Members a copy of
such monthly financial reports of income and expense of the Company as are
prepared by the Manager with respect to the Company.
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<PAGE>
8.4 FILINGS. The Manager, at Company expense, shall cause the income
-------
tax returns for the Company to be prepared and timely filed with the appropriate
authorities. The Manager, at Company expense, shall cause to be prepared and
timely filed, with appropriate federal and state regulatory and administrative
bodies, amendments to, or restatements of, the Articles and all reports required
to be filed by the Company with those entities under the Act or other then
current applicable laws, rules, and regulations. If the Manager or any officer
required by the Act to execute or file any document fails, after demand, to do
so within a reasonable period of time or refuses to do so, any other officer or
Member may prepare, execute and file that document with the California Secretary
of State.
8.5 BANK ACCOUNTS. The Manager shall maintain the funds of the Company
-------------
in one or more separate bank accounts in the name of the Company, and shall not
permit the funds of the Company to be commingled in any fashion with the funds
of any other Person.
8.6 TAX MATTERS FOR THE COMPANY HANDLED BY THE MANAGER AND TAX MATTERS
------------------------------------------------------------------
PARTNER. The Manager shall from time to time cause the Company to make such tax
- -------
elections as the Manager deems to be in the best interests of the Company and
the Members. The Tax Matters Partner, as defined in Code Section 6231, shall
represent the Company (at the Company's expense) in connection with all
examinations of the Company's affairs by tax authorities, including resulting
judicial and administrative proceedings, and shall expend the Company funds for
professional services and costs associated therewith. The Tax Matters Partner
shall oversee the Company tax affairs in the overall best interests of the
Company. If for any reason the Tax Matters Partner resigns or can no longer
serve in that capacity, a Super Majority Interest may designate another Member
to be Tax Matters Partner.
ARTICLE 9
DISSOLUTION AND WINDING UP
9.1 EVENTS OF DISSOLUTION. The Company shall be dissolved, its assets
---------------------
shall be disposed of, and its affairs wound up on the first to occur of the
following:
9.1.1 The happening of any event of dissolution specified in the
Articles;
9.1.2 The entry of a decree of judicial dissolution pursuant to
Section 17351 of the Corporations Code;
9.1.3 The vote of a Super Majority Interest;
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9.1.4 The occurrence of a Dissolution Event unless there are at
least two Remaining Members in addition to the Excluded Member (it being agreed
that, if there are not at that time at least two Remaining Members in addition
to the Excluded Member, the sole Remaining Member shall in its sole and absolute
discretion have the right to admit another Member to the Company) and a Majority
Interest consent within ninety (90) days of the Dissolution Event to the
continuation of the business of the Company; or
9.1.5 The expiration of the period fixed for the duration of the
Company as stated in the Articles.
9.2 EFFECT OF A DISSOLUTION EVENT (OTHER THAN DISSOLUTION). If
------------------------------------------------------
following a Dissolution Event, the Remaining Members vote to continue the
business of the Company, such Remaining Member(s) shall purchase the Excluded
Member's interest in the Company, on a pro rata basis in accordance with their
respective Profit Percentage Interests, for an aggregate purchase price equal to
the amount that the Excluded Member would be entitled to receive for the Fair
Value of the Excluded Member's Membership Interest as determined in accordance
with the procedures for determining the Fair Value of Chu's and DeBartolo's
Membership Interests set forth in Section 7.9.3, payable in equal quarterly
installments over five (5) years with interest at the Rate. Following such
purchase, the Remaining Members shall continue the operation of the Company
independently of the Excluded Member. Upon such vote by the Remaining Members
to continue the business of the Company, the Excluded Member shall have no
further right to participate, in any way, in the business of the Company
(specifically including the right to receive distributions from, or to share in
the Net Profits, Net Losses or similar items of, the Company or to approve
Company actions). Election of the Remaining Member(s) to continue the business
of the Company under this Section 9.2 shall not preclude such Remaining
Member(s) from pursuing any and all other remedies available to it or them under
this Agreement, at law or in equity.
9.3 CERTIFICATE OF DISSOLUTION. As soon as possible after the
--------------------------
occurrence of any of the events specified in Section 9.1 above, any Member shall
execute a Certificate of Dissolution in such form as shall be prescribed by the
California Secretary of State and file the Certificate as required by the Act.
9.4 WINDING UP. Upon the occurrence of any event specified in Section
----------
9.1 above, the Company shall continue solely for the purpose of winding up its
affairs in an orderly manner, liquidating its assets, and satisfying the claims
of its creditors. The Manager shall be responsible for overseeing the winding
up and liquidation of Company, shall take full account of the liabilities of
Company and assets, shall either cause its assets to be sold or distributed, and
if sold as promptly as is
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consistent with obtaining the fair market value thereof, shall cause the
proceeds therefrom, to the extent sufficient therefor, to be applied and
distributed as provided in Section 9.6. The Manager shall give written notice
of the commencement of winding up by mail to all known creditors and claimants
whose addresses appear on the records of the Company. The Manager shall be
entitled to reasonable compensation for its services in winding up the Company's
affairs.
9.5 DISTRIBUTIONS IN KIND. Any non-cash asset distributed to one or
---------------------
more Members shall first be valued at its fair market value to determine the Net
Profit or Net Loss that would have resulted if such asset were sold for such
value, such Net Profit or Net Loss shall then be allocated pursuant to Article
3, and the Members' Capital Accounts shall be adjusted to reflect such
allocations. The amount distributed and charged to the Capital Account of each
Member receiving an interest in such distributed asset shall be the fair market
value of such interest (which shall mean the price that an independent third
party would pay for such asset, net of any liability secured by such asset that
such Member assumes or takes subject to). The fair market value of such asset
shall be determined by the Manager or if there is an objection by any Member,
the fair market value shall be determined by an independent appraiser (which
must be recognized as an expert in valuing the type of asset involved) selected
by the Manager or liquidating trustee and approved by a Super Majority Interest.
9.6 ORDER OF PAYMENT UPON DISSOLUTION. After determining that all known
---------------------------------
debts and liabilities of the Company in the process of winding-up, including,
without limitation, debts and liabilities to Members who are creditors of the
Company, have been paid or adequately provided for, the remaining assets shall
be distributed to the Members in accordance with their positive Capital Account
balances, after taking into account income and loss allocations for the
Company's taxable year during which liquidation occurs. Such liquidating
distributions shall be made by the end of the Company's taxable year in which
the Company is liquidated, or, if later, within ninety (90) days after the date
of such liquidation.
9.7 COMPLIANCE WITH REGULATIONS. All payments to the Members upon the
---------------------------
winding up and dissolution of the Company shall be strictly in accordance with
the positive capital account balance limitation and other requirements of
Regulations Section 1.704-1(b)(2)(ii)(d).
9.8 LIMITATIONS ON PAYMENTS MADE IN DISSOLUTION. Except as otherwise
-------------------------------------------
specifically provided in this Agreement, each Member shall be entitled to look
solely at the assets of the Company for the return of its positive Capital
Account balance and shall have no recourse for such Member's Capital
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Contribution and/or share of Net Profits (upon dissolution or otherwise) against
the Manager, officers, or any other Member.
9.9 CERTIFICATE OF CANCELLATION. The Persons who filed the Certificate
---------------------------
of Dissolution shall cause to be filed in the office of, and on a form
prescribed by, the California Secretary of State, a certificate of cancellation
of the Articles upon the completion of the winding up of the affairs of the
Company.
9.10 NO ACTION FOR DISSOLUTION. No Member or Economic Interest Owner has
-------------------------
any interest in specific property of the Company. Without limiting the
foregoing, each Member and Economic Interest Owner irrevocably waives during the
term of the Company any right that he or it may have to maintain any action for
partition with respect to the property of the Company. Except as expressly
permitted in this Agreement, a Member or Economic Interest Owner shall not take
any voluntary action that directly causes a Dissolution Event. The Members
acknowledge that irreparable damage would be done to the goodwill and reputation
of the Company if any Member should bring an action in court to dissolve the
Company under circumstances where dissolution is not required by Section 9.1.
This Agreement has been drawn carefully to provide fair treatment of all parties
and equitable payment in liquidation of the Economic Interests. Accordingly,
except where the Members have failed to liquidate the Company as required by
this Article 9, each Member hereby waives and renounces such Member's right to
initiate legal action to seek the appointment of a receiver or trustee to
liquidate the Company or to seek a decree of judicial dissolution of the Company
on the ground that (a) it is not reasonably practicable to carry on the business
of the Company in conformity with the Articles or this Agreement, or (b)
dissolution is reasonably necessary for the protection of the rights or
interests of the complaining Member. Damages for breach of this Section 9.10
shall be monetary damages only (and not specific performance), and the damages
may be offset against distributions by the Company to which such Member would
otherwise be entitled.
ARTICLE 10
INDEMNIFICATION AND INSURANCE
10.1 INDEMNIFICATION OF COMPANY PERSONS. The Company shall indemnify any
----------------------------------
Company Person who was or is a party or is threatened to be made a party to, or
otherwise becomes involved in, any Proceeding (including a Proceeding by or in
the right of the Company) by reason of the fact that such Company Person is or
was an agent of the Company against all Expenses, amounts paid in settlement,
judgments, fines, penalties and ERISA excise taxes actually and reasonably
incurred by or levied against such Company Person in connection with such
Proceeding
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if such Company Person acted in good faith and in a manner such Company Person
reasonably believed to be in or not opposed to the best interests of the Company
and, with respect to any criminal Proceeding, had no reasonable cause to believe
such Company Person's conduct was unlawful. The termination of any Proceeding,
whether by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that a
Company Person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company or, with
respect to any criminal Proceeding, that a Company Person had reasonable cause
to believe that such Company Person's conduct was unlawful. To the fullest
extent permitted by applicable law, a Company Person shall be conclusively
presumed to have met the relevant standards of conduct, as defined by the laws
of the State of California or other applicable jurisdictions, for
indemnification pursuant to this Section 101, unless and until a court of
competent jurisdiction, after all appeals, finally determines to the contrary,
and the Company shall bear the burden of proof of establishing by clear and
convincing evidence that such Company Person failed to meet such standards of
conduct. In any event, the Company Person shall be entitled to indemnification
from the Company to the fullest extent permitted by applicable law, including,
without limitation, any amendments thereto subsequent to the date of this
Agreement that increase the protection of Company Persons allowable under such
laws.
10.2 SUCCESSFUL DEFENSE. Notwithstanding any other provision of this
------------------
Agreement, to the extent that a Company Person has been successful on the merits
or otherwise in defense of any Proceeding referred to in Section 10.1, or in
defense of any claim, issue or matter therein, such Company Person shall be
indemnified against Expenses actually and reasonably incurred in connection
therewith to the fullest extent permitted by the laws of California or other
applicable jurisdictions, including, without limitation, any amendments thereto
subsequent to the date of this Agreement that increase the protection of Company
Persons allowable under such laws.
10.3 INDEMNIFICATION OF OTHER AGENTS. The Company may, but shall not be
-------------------------------
obligated to, indemnify any Person (other than a Company Person) who was or is a
party or is threatened to be made a party to, or otherwise becomes involved in,
any Proceeding (including any Proceeding by or in the right of the Company) by
reason of the fact that such Person is or was an agent of the Company, against
all Expenses, amounts paid in settlement, judgments, fines, penalties and ERISA
excise taxes actually and reasonably incurred by such Person in connection with
such Proceeding under the same circumstances and to the same extent as is
provided for or permitted in this Article 10 with respect to a Company Person,
or with respect to such circumstances and on such terms as the Manager may
determine.
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10.4 RIGHT TO INDEMNIFICATION UPON APPLICATION.
-----------------------------------------
10.4.1 TIMING. Any indemnification or advance under Section 10.1
------
or 10.3 shall be made promptly, and in no event later than sixty (60) days,
after the Company's receipt of the written request of a Company Person therefor,
unless, in the case of an indemnification, a determination shall have been made
as provided in Section 10.1 that such Company Person has not met the relevant
standard for indemnification set forth in that Section.
10.4.2 ENFORCEMENT. The right of a Person to indemnification or
-----------
an advance of Expenses as provided by this Article 10 shall be enforceable in
any court of competent jurisdiction. The burden of proving by clear and
convincing evidence that indemnification or advances are not appropriate shall
be on the Company. Neither the failure by the Manager or Members of the Company
or its independent legal counsel to have made a determination that
indemnification or an advance is proper in the circumstances, nor any actual
determination by the Manager or Members of the Company or its independent legal
counsel that indemnification or an advance is not proper, shall be a defense to
the action or create a presumption that the relevant standard of conduct has not
been met. In any such action, the Person seeking indemnification or advancement
of Expenses shall be entitled to recover from the Company any and all expenses
of the types described in the definition of Expenses actually and reasonably
incurred by such Person in such action, but only if such Person prevails
therein. A Person's Expenses incurred in connection with any Proceeding
concerning such Person's right to indemnification or advances in whole or in
part pursuant to this Agreement shall also be indemnified by the Company
regardless of the outcome of such a Proceeding, unless a court of competent
jurisdiction finally determines that each of the material assertions made by
such Person in the Proceeding was not made in good faith or was frivolous.
10.5 PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred by a Company
------------------------------
Person in connection with a Proceeding shall be paid by the Company in advance
of the final disposition of such Proceeding upon receipt of a written
undertaking by or on behalf of such Company Person to repay such amount if it
shall ultimately be determined that such Company Person is not entitled to be
indemnified by the Company as authorized in this Article 10.
10.6 LIMITATIONS ON INDEMNIFICATION. No payments pursuant to this
------------------------------
Agreement shall be made by the Company:
(a) To indemnify or advance funds to any Person with respect to a
Proceeding initiated or brought voluntarily by such Person and not by way of
defense, except as provided in Section 10.42 with respect to a Proceeding
brought to establish or enforce a right to indemnification under this Agreement,
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otherwise than as required under California law, but indemnification or
advancement of Expenses may be provided by the Company in specific cases if a
determination is made that such indemnification or advancement is appropriate.
The determination as to whether any such indemnification or advancement of
Expenses is appropriate shall be made (i) by the Manager or, if there is more
than one Manager (provided the Manager is not a party to such Proceeding)
Managers by a majority vote of a quorum consisting of Managers who were not
parties to such Proceeding, or (ii) if such quorum is not obtainable or, even if
obtainable, a quorum of such disinterested Managers so directs, by independent
legal counsel in a written opinion, or (iii) by the Members by a vote of Members
holding a Super Majority Interest, whether or not constituting a quorum, who
were not parties to such Proceeding;
(b) To indemnify or advance funds to any Person for any Expenses,
judgments, amounts paid in settlement, fines, penalties or ERISA excise taxes
resulting from the such Person's conduct which is finally adjudged to have been
willful misconduct, knowingly fraudulent or deliberately dishonest; or
(c) If a court of competent jurisdiction finally determines that any
indemnification or advance of Expenses hereunder is unlawful.
10.7 OTHER TERMS OF INDEMNIFICATION.
------------------------------
10.7.1 PARTIAL INDEMNIFICATION. If a Person is entitled under
-----------------------
any provision of this Article 10 to indemnification by the Company for a
portion of Expenses, amounts paid in settlement, judgments, fines, penalties or
ERISA excise taxes incurred by such Person in any Proceeding but not, however,
for the total amount thereof, the Company shall nevertheless indemnify such
Person for the portion of such Expenses, amounts paid in settlement, judgments,
fines, penalties or ERISA excise taxes to which such Person is entitled, except
that no indemnification shall be given for Expenses in connection with a
Proceeding brought by the Company if the Person is found liable on any portion
of the claims in such Proceeding.
10.7.2 INDEMNITY NOT EXCLUSIVE. The indemnification and
-----------------------
advancement of Expenses provided by, or granted pursuant to, the provisions of
this Article 10, shall not be deemed exclusive of any rights to which any
Person seeking indemnification or advancement of Expenses may be entitled under
any agreement, vote of Members, determination of the Board, or otherwise, both
as to action in such Person's capacity as an agent of the Company and as to
action in another capacity while serving as an agent.
10.7.3 INSURANCE. The Company shall have the power to purchase
---------
and maintain insurance or other financial arrangement on behalf of any Person
who is or was an agent of
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the Company against any liability asserted against such Person and incurred by
such Person in any such capacity, or arising out of such Person's status as an
agent, whether or not the Company would have the power to indemnify such Person
against such liability under the provisions of this Article 10 or of Section
17155 of the Act. In the event a Person shall receive payment from any
insurance carrier or from the Plaintiff in any action against such Person with
respect to indemnified amounts after payment on account of all or part of such
indemnified amounts having been made by the Company pursuant to this Article
10, such Person shall reimburse the Company for the amount, if any, by which
the sum of such payment by such insurance carrier or such plaintiff and payments
by the Company to such Person exceeds such indemnified amounts; provided,
however, that such portions, if any, of such insurance proceeds that are
required to be reimbursed to the insurance carrier under the terms of its
insurance policy shall not be deemed to be payments to such Person hereunder.
In addition, upon payment of indemnified amounts under the terms and conditions
of this Agreement, the Company shall be subrogated to such Person's rights
against any insurance carrier with respect to such indemnified amounts (to the
extent permitted under such insurance policies). Such right of subrogation
shall be terminated upon receipt by the Company of the amount to be reimbursed
by such Person pursuant to the second sentence of this Section 10.7.3.
10.7.4 HEIRS, EXECUTORS AND ADMINISTRATORS. The indemnification
-----------------------------------
and advancement of Expenses provided by, or granted pursuant to, this Article
10 shall, unless otherwise provided when authorized or ratified, continue as to
a Person who has ceased to be an agent of the Company and shall inure to the
benefit of such Person's heirs, executors and administrators.
ARTICLE 11
REGISTRATION RIGHTS
In the event that, following the exercise of a right to cause a Membership
Interest to be purchased or sold pursuant to Section 7.9, HPC exercises its
right pursuant to Section 7.9.4 to pay for the Acquired Interest with HPI Common
Stock, then the provisions of this Article 11 shall apply. The rights set
forth in this Article 11 shall be personal to Chu and DeBartolo and may not be
assigned or transferred.
11.1 INCIDENTAL REGISTRATION. Each time HPI proposes to file a
-----------------------
Registration Statement, if Chu or DeBartolo, as applicable, has not theretofore
exercised its rights pursuant to Section 11.1A hereof, HPI shall
take the following steps:
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TAX INFORMATION
ANNUAL STATE REPORT
MONTHLY REPORTS
FILINGS
11.1.1 NOTICE. Mail a written notice of the offering and the name
------
of the managing underwriter (if any) to each Holder at the address shown on the
books and records of HPI at least thirty (BANK ACCOUNTS 30) days prior to the
filing of any such Registration Statement; and
11.1.2 INCLUSION OF SHARES. Include in such Registration
-------------------
Statement any and all Registrable Securities specified in a notice by the Holder
which is received by the Company not less than fifteen (15) days following the
mailing of the notice specified in Section 11.1.1 above. In connection with any
registration, the Selling Holder must: (i) sell such Registrable Securities in
the manner and on the terms adopted by or through the underwriter(s) acting on
behalf of HPI in connection with such registration, if such underwriter(s) so
requests; and (ii) accept a reduction (including a total elimination) in the
number of shares to be included in such registration on a pro rata basis (based
on the number of shares held by each) with any other selling shareholders
holding contractual registration rights (except that HPI and any shareholder who
has exercised demand registration rights with respect to such Registration
Statement shall not be affected by such reduction) if the underwriter(s)
reasonably deem that without such reduction (or elimination) HPI might be
substantially hindered in the terms or number of securities which it could sell
in such registration. Nothing in this Section 11.1.2 shall limit the ability of
HPI to withdraw a Registration Statement it has filed either before or after
effectiveness thereof. In the case of an underwritten offering, a Selling
Holder may withdraw his, her or its included shares after the filing of the
Registration Statement only (i) with the consent of the underwriter; (ii) if the
final price is less than the range of prices given in the preliminary
prospectus; (iii) if HPI breaches its obligations; or (iv) as provided in
Section 11.2.2.
11.1A DEMAND REGISTRATION.
-------------------
11.1A.1 NOTICE OF DEMAND. At any time after Chu or DeBartolo
----------------
receives Registrable Securities, each of Chu or DeBartolo shall have the right
to request by written notice to HPI that HPI register the Registrable Securities
under the 1933 Act. Each of Chu and DeBartolo shall have the right to make one
such demand (except that if such demand is withdrawn pursuant to Section
11.1A.3, such demand shall not be deemed to have been made for purposes of this
limitation); and each such demand must include all Registrable Securities held
by Chu or DeBartolo, as applicable. Each notice shall set forth (i) the number
of shares to be included; (ii) the names of the Selling Holder; and (iii) the
proposed manner of sale. Within ten (10) days after receipt of such notice, the
Company shall notify the other Holder (if any) and offer to such Holder the
opportunity to include its shares in such registration.
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11.1A.2 HOLDER AND REGISTRATION. Promptly after receipt of any
-----------------------
notice pursuant to Section 11.1A.1, HPI shall prepare and file with the SEC, a
Registration Statement on any applicable form, with respect to all the
Registrable Securities held by such Selling Holder.
11.1A.3 HOLDBACK. In the event that registration is demanded
--------
pursuant to Section 11.1A.1, and HPI determines that the shares for which
registration is requested cannot be sold without serious injury to HPI or its
existing shareholders, HPI shall have the option to require the Selling Holders
to withdraw such registration demand and not make any other demand for a period
of up to one-hundred eighty (180) days (which may be extended if such facts
continue to be in effect).
11.2 REGISTRATION PROCEDURES. Whenever HPI shall register any
-----------------------
securities pursuant to this Article 11, the parties agree as follows:
11.2.1 SELLING HOLDER INFORMATION. Each Selling Holder shall
--------------------------
provide HPI with such information about such Holder and his, her or its intended
manner of distributing the Registrable Securities, and shall otherwise cooperate
with HPI and the underwriter(s) as may be needed or helpful in the reasonable
opinion of HPI to complete any obligation of HPI hereunder. Failure to comply
with this requirement shall excuse HPI from any further obligation to a Selling
Holder to include his, her or its shares in that Registration Statement;
11.2.2 CONSULTATION. HPI shall supply copies of any Registration
------------
Statement, any amendment thereto and any communications of the SEC
related thereto to each Selling Holder and Seller's Underwriter and shall
provide each Selling Holder and Seller's Underwriter with a reasonable
opportunity, prior to filing such document with the SEC, to provide comments
with respect to any matters in such documents that describe such Selling Holder,
the Seller's Underwriter or the distribution of securities held by such Selling
Holder ("Selling Holder Matters"). HPI will immediately amend such Registration
Statement to include such reasonable changes relating to Selling Holder Matters
as the Selling Holders and the Seller's Underwriter reasonably agree should be
included therein. Any Selling Holder requesting a change refused by HPI may
withdraw his, her or its shares from the Registration Statement;
11.2.3 PROVISION OF PROSPECTUSES. HPI shall furnish each Selling
-------------------------
Holder such number of copies of preliminary and final prospectuses, each in
conformity with the requirements of the 1933 Act, and such other documents as
such Selling Holder may reasonably request in order to facilitate the public
sale or other disposition of such securities;
11.2.4 BLUE SKY COMPLIANCE. HPI shall use its reasonable efforts
-------------------
to register or qualify the securities covered
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<PAGE>
by such Registration Statement under the securities or "blue sky" laws of such
jurisdictions as each Selling Holder shall reasonably request (provided,
however, that HPI shall not be required (i) to consent to, or take any action
which would subject it to, general service of process for all purposes or (ii)
to qualify to do business in any jurisdiction where it is not then subject or
qualified);
11.2.5 AMENDMENTS. HPI shall use its reasonable efforts to
----------
prepare and file promptly with the SEC such amendments and supplements to such
Registration Statement and the prospectus used in connection therewith, as may
be necessary to keep such Registration Statement continuously effective and in
compliance with the 1933 Act for up to four (4) months, or until all Registrable
Securities registered in that Registration Statement are sold, whichever is
earlier;
11.2.6 PROSPECTUS DELIVERY. At any time when a sale or other
-------------------
public disposition pursuant to a Registration Statement is subject to a
prospectus delivery requirement, HPI shall immediately notify each Selling
Holder and Sellers' Underwriter of the occurrence of any event as a result of
which the prospectus included in such Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing. Upon receipt of
such a notice, each Selling Holder shall immediately discontinue sales or other
dispositions of Registrable Securities pursuant to the Registration Statement.
The Selling Holders may resume sales only upon receipt of amended prospectuses
or after such Selling Holders have been advised by HPI that the use of the
previous prospectus may be legally resumed;
11.2.7 STOP-ORDERS. HPI agrees to immediately notify each
-----------
Selling Holder (i) of the issuance by the SEC of any stop order or order
suspending the effectiveness of any Registration Statement or the initiation of
any proceedings for that purpose, or (ii) of the receipt by HPI of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction, or the initiation of any
proceedings for such purpose. HPI, with the reasonable cooperation of the
Selling Holders, shall make every reasonable effort to contest any such
proceedings and to obtain the withdrawal of any such order at the earliest
possible moment;
11.2.8 UNDERWRITING AGREEMENT. At the request of HPI or any
----------------------
underwriter of the offering, each Selling Holder shall enter into an
underwriting agreement in a form reasonably agreed upon by HPI and such
underwriter(s); and
11.2.9 COMPLIANCE WITH LAWS. In all actions taken under this
--------------------
Agreement, each Selling Holder agrees to use
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<PAGE>
his, her or its best efforts to comply with all provisions of the 1933 Act as
well as any other applicable law.
11.3 REGISTRATION NOT REQUIRED. HPI shall have no obligation to any
-------------------------
Holder under this Article 11 with respect to whom HPI has obtained an opinion
of counsel, in form reasonably satisfactory to such Holder, to the effect that
the Registrable Securities involved may be immediately sold to the public
without registration thereof, whether pursuant to Rule 144 or otherwise.
11.4 DELAY OF REGISTRATION. No Holder shall have any right to take any
---------------------
action to restrain, enjoin or otherwise delay the filing or effectiveness of any
Registration Statement on the basis of any controversy which might arise with
respect to the interpretation or implementation of this Article 11.
11.5 INDEMNITY.
---------
11.5.1 HPI'S INDEMNITY. HPI will indemnify each Selling Holder
---------------
and any Sellers' Underwriter (and any of their officers and directors and
persons who control such Holder or Underwriter within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act) against all claims, losses,
damages, liabilities and expenses resulting from any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
from any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as the same is based on (i) information furnished in writing to
the Company by such Holder, an underwriter, or any Selling Holder expressly for
use therein, or (ii) the circumstances set forth in Section 11.5.2(y) hereof.
11.5.2 THE HOLDER'S INDEMNITY. Each Selling Holder will
----------------------
indemnify (i) HPI, any underwriter, and any other person selling under a
Registration Statement (and any of their officers and directors and persons who
control HPI, such underwriter or such other persons within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act) against all claims,
losses, damages, liabilities and expenses resulting from (x) any untrue
statement or alleged untrue statement of a material fact contained in that
Registration Statement or from any omission or alleged omission to state a
material fact required to be stated or necessary to make the statements therein
not misleading, but only to the extent based upon information furnished in
writing to the Company by such Holder expressly for inclusion in that
Registration Statement or other document or (y) any untrue statement or alleged
untrue statement of a material fact contained in, or any omission or alleged
omission of a material fact from, a prospectus if (i) a later prospectus
corrected the untrue statement or alleged untrue statement, or omission or
alleged omission, (ii) at such time the Company had advised the Holder of the
availability of
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<PAGE>
the revised prospectus, and (iii) there would have been no such liability had
such later prospectus actually been delivered to the purchaser at or prior to
confirmation of sale.
11.6 EXPENSES OF REGISTRATION. The Selling Holder shall bear all
------------------------
expenses incurred in any Registration undertaken pursuant to Section 11.1A,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the National Association of Securities Dealers,
Inc.), legal fees, brokerage or underwriting fees, expenses or commissions, fees
and expenses of complying with securities and blue sky laws and regulations,
printing expenses and fees and disbursements of the independent certified public
accountants and of HPI's counsel. With respect to any Registration undertaken
pursuant to Section 11.1, HPI shall bear all expenses other than Selling Holder
Expenses (defined below). Each Selling Holder shall bear his, her or its
equitable share of any Selling Holder Expenses. "Selling Holder Expenses" shall
consist of (i) Selling Holder's legal costs, (ii) any proportionate share of
brokerage or underwriting fees, expenses or commissions, (iii) any fees and
expenses of complying with blue sky laws to the extent registration in the
applicable state is requested by a Selling Holder pursuant to Section 11.24
hereof, and (iv) any other costs required to be paid by Selling Holders in order
to comply with state securities laws and regulations.
11.7 TERMINATION. Each Holder shall have no further rights under this
-----------
Article at any time (i) after such time as no further Registrable Securities of
such Holder remain outstanding or (ii) such Holder has exercised his, her or its
registration rights under Section 11.1A on one occasion, whichever comes first.
Further, each Holder shall have the right to participate in any Registration
undertaken pursuant to Section 11.1 only once.
ARTICLE 12
MISCELLANEOUS
12.1 OTHER VENTURES; COMPETITION.
---------------------------
(a) Nothing contained in this Agreement or in law shall be construed
to limit or restrict in any way the freedom of any Member, or any shareholders
or affiliates of a Member, to conduct any other business venture or activity
whatsoever, including the ownership, development, leasing, sale, financing,
operation and management of other card clubs or casinos nor to require any
accountability to the Company or to any other Member, whether or not such other
business ventures are in direct or indirect competition with the business of the
Company.
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<PAGE>
(b) No Member need afford the Company or any other Member or any
affiliate of a Member the opportunity to acquire or invest in any other
property, project or enterprise, regardless of whether such property, project or
enterprise would, but for this sentence, be deemed an opportunity of the
Company.
12.2 COUNSEL TO THE COMPANY. Counsel to the Company may also be counsel
----------------------
to any Member or any Affiliate of a Member. The officers of the Company may
execute on behalf of the Company and the Members any consent to the
representation of the Company that counsel may request pursuant to the
California Rules of Professional Conduct or similar rules in any other
jurisdiction.
12.3 GENERAL PROVISIONS.
------------------
12.3.1 COMPLETE AGREEMENT. This Agreement and any documents
------------------
referred to herein or executed contemporaneously herewith constitute the
parties' entire agreement with respect to the subject matter hereof and
supersede all prior or contemporaneous agreements, representations, warranties,
statements, promises and understandings, whether oral or written, with respect
to the subject matter hereof.
12.3.2 DISPUTES.
--------
12.3.2.1 GOVERNING LAW; JURISDICTION. This Agreement has been
---------------------------
negotiated and entered into in the State of California, concerns a California
business and all questions with respect to the Agreement and the rights and
liabilities of the parties will be governed by the laws of that state,
regardless of the choice of law provisions of California or any other
jurisdiction. Any and all disputes between the parties which may arise pursuant
to this Agreement not covered by arbitration will be heard and determined before
an appropriate federal or state court located in Los Angeles, California. The
parties hereto acknowledge that such court has the jurisdiction to interpret and
enforce the provisions of this Agreement and the parties waive any and all
objections that they may have as to personal jurisdiction or venue in any of the
above courts.
12.3.2.2 ARBITRATION AS EXCLUSIVE REMEDY. Except for actions
-------------------------------
seeking injunctive relief and for actions pursuant to Sections 10.1 and 10.4.2,
which may be brought before any court having jurisdiction, any claim arising out
of or relating to (i) this Agreement, including without limitation its validity,
interpretation, enforceability or breach, or (ii) the relationship between the
parties (including without limitation its commencement and termination) whether
based on breach of covenant, breach of an implied covenant or intentional
infliction of emotional distress or other tort or contract theories, which are
not settled by agreement between the parties, shall be settled by arbitration in
Los Angeles County, California, before a sole arbitrator who shall be a retired
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<PAGE>
judge of the Los Angeles Superior Court or retired justice of the California
Court of Appeal or Supreme Court. The sole arbitrator shall be selected by
mutual agreement of the parties within fifteen (15) days after service of a
notice of intent to arbitrate by any party. If the parties are unable to select
a mutually agreeable arbitrator, then a retired judge or justice of the
California state courts shall be selected by order of the court pursuant to the
provisions of Code of Civil Procedure (S)1281.6. The parties hereby (i) consent
to the in personam jurisdiction of the Superior Court of the State of California
for purposes of the enforcement of this arbitration provision and confirming any
such award and entering judgment thereof; (ii) agree to use their best efforts
to keep all matters relating to any arbitration hereunder confidential; and
(iii) agree that the arbitrators may not assess any remedy other than the
awarding of actual out-of-pocket damages suffered and/or punitive damages when
appropriate. In any arbitration proceedings hereunder (a) all testimony of
witnesses shall be taken under oath; (b) discovery will be allowed under the
provisions of Section 1283.05 of the Code of Civil Procedure, as presently in
force, which are incorporated herein; (c) production of documents will be
allowed as provided for by Section 2031 of the Code of Civil Procedure; and (d)
upon conclusion of any arbitration, the arbitrator shall render findings of fact
and conclusions of law in a written opinion setting forth the basis and reasons
for any decision reached and deliver such documents to each party to this
Agreement along with a signed copy of the award in accordance with Section
1283.6 of the California Code of Civil Procedure. Each party agrees that,
except as expressly provided above, the arbitration provisions of this Agreement
are its exclusive remedy and expressly waives any right to seek redress in
another forum. Each party shall share equally the fees of the arbitrator during
the arbitration, but the fees of the arbitrator shall be borne by the losing
party. Any arbitration shall be commenced within forty-five (45) days, and
completed within ninety (90) days, of the appointment of the arbitrator.
12.3.3 ADDITIONAL DOCUMENTS. Each party hereto agrees to execute
--------------------
any and all further documents and writings and to perform such other actions
which may be or become necessary or expedient to effectuate and carry out this
Agreement.
12.3.4 NOTICES. Unless otherwise specifically permitted by this
-------
Agreement, all notices under this Agreement shall be in writing and shall be
delivered by personal service, telecopy, federal express or comparable overnight
service or certified mail (if such service is not available, then by first class
mail), postage prepaid, to such address as may be designated from time to time
by the relevant party, and which shall initially be as set forth on Exhibit A.
---------
All other notices shall be deemed given when received. No objection may be made
to the manner of delivery of any notice actually received in writing by an
authorized agent of a party.
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<PAGE>
12.3.5 PARTIES.
-------
12.3.5.1 NO THIRD-PARTY BENEFITS. None of the provisions of this
-----------------------
Agreement shall be for the benefit of, or enforceable by, any third party.
12.3.5.2 SUCCESSORS AND ASSIGNS. Except as provided herein to the
----------------------
contrary, this Agreement shall be binding upon and inure to the benefit of the
parties, their respective successors and permitted assigns.
12.3.6 GOVERNING LAW; JURISDICTION. This Agreement has been
---------------------------
negotiated and entered into in the State of California, concerns a California
business and all questions with respect to the Agreement and the rights and
liabilities of the parties will be governed by the laws of that state,
regardless of the choice of law provisions of California or any other
jurisdiction.
12.3.7 WAIVER OF JURY. WITH RESPECT TO ANY DISPUTE ARISING UNDER
--------------
OR IN CONNECTION WITH THIS AGREEMENT OR ANY RELATED AGREEMENT, AS TO WHICH NO
MEMBER INVOKES THE RIGHT TO ARBITRATION HEREINABOVE PROVIDED, OR AS TO WHICH
LEGAL ACTION NEVERTHELESS OCCURS, EACH MEMBER HEREBY IRREVOCABLY WAIVES ALL
RIGHTS IT MAY HAVE TO DEMAND A JURY TRIAL, INCLUDING ITS CONSTITUTIONAL RIGHTS.
THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY THE MEMBERS AND
EACH MEMBER ACKNOWLEDGES THAT NONE OF THE OTHER MEMBERS NOR ANY PERSON ACTING ON
BEHALF OF THE OTHER PARTIES HAS MADE ANY REPRESENTATION OF FACT TO INDUCE THIS
WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. THE
MEMBERS EACH FURTHER ACKNOWLEDGE THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE
OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND IN THE
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE
WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
THE MEMBERS EACH FURTHER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTAND THE
MEANING AND RAMIFICATIONS OF THIS WAIVER PROVISION.
12.3.8 WAIVERS STRICTLY CONSTRUED. With regard to any power,
--------------------------
remedy or right provided herein or otherwise available to any party hereunder
(i) no waiver or extension of time shall be effective unless expressly contained
in a writing signed by the waiving party; and (ii) no alteration, modification
or impairment shall be implied by reason of any previous waiver, extension of
time, delay or omission in exercise, or by any other indulgence.
12.3.9 RULES OF CONSTRUCTION.
---------------------
12.3.9.1 HEADINGS. The Article and Section headings in this
--------
Agreement are inserted only as a matter of convenience, and in no way define,
limit, or interpret the scope of this Agreement or of any particular Article or
Section.
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<PAGE>
12.3.9.2 TENSE AND CASE. Throughout this Agreement, as the context
--------------
may require, references to any word used in one tense or case shall include all
other appropriate tenses or cases.
12.3.9.3 SEVERABILITY. The validity, legality or enforceability of
------------
the remainder of this Agreement will not be affected even if one or more of the
provisions of this Agreement will be held to be invalid, illegal or
unenforceable in any respect.
12.3.9.4 AGREEMENT NEGOTIATED. The parties hereto are
--------------------
sophisticated and have been represented by lawyers throughout this transaction
who have carefully negotiated the provisions hereof. As a consequence, the
parties do not believe that the presumptions of Civil Code Section 1654 and
similar laws or rules relating to the interpretation of contracts against the
drafter of any particular clause should be applied in this case and therefore
waive their effects. Only the final executed version of this Agreement may be
admitted into evidence or used for any purpose, and drafts of this Agreement
shall be disregarded for all purposes.
12.3.10 COUNTERPARTS. This Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
12.4 AMENDMENTS. Except as set forth in the next sentence, all
----------
amendments to this Agreement shall be in writing and approved by all of the
Members. The Manager may amend Exhibit A hereto at any time and from time to
---------
time to reflect the admission or withdrawal of any Member, or the change in any
Member's Capital Contributions, Profit Percentage Interests, or any changes in
the Member's addresses, all as contemplated by this Agreement.
12.5 RELIANCE ON AUTHORITY OF PERSON SIGNING AGREEMENT. If a Member is
-------------------------------------------------
not a natural person, neither the Company nor any Member will be required to
determine the authority of the individual signing this Agreement to make any
commitment or undertaking on behalf of such entity or to determine any fact or
circumstance bearing upon the existence of the authority of such individual.
12.6 INVESTMENT REPRESENTATION. Each Member hereby represents and
-------------------------
warrants to, and agrees with, the other Members and the Company that he or it is
acquiring the Membership Interest for investment purposes for his or its own
account only and not with a view to or for sale in connection with any
distribution of all or any part of the Membership Interest. No other person
will have any direct or indirect beneficial interest in or right to the
Membership Interest.
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<PAGE>
12.7 LLC AS CARD CLUB OPERATOR. At such time as HPI or HPC may be
-------------------------
licensed as an owner and operator of a card club under applicable California law
and the City ordinance, if applicable law then prohibits a card club operator
from being organized as a limited liability company or the Company as a limited
liability company from being the manager or the managing general partner of
Newco, the Company shall be reorganized as a California limited partnership,
with HPC as the managing general partner, and the Members shall enter into a
Limited Partnership Agreement containing substantially the same terms and
provisions hereof, modified as necessary to reflect the fact that the entity is
a California limited partnership.
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<PAGE>
IN WITNESS WHEREOF, this Agreement is executed as of the day and year set
forth above.
HP/COMPTON, INC.
By: /s/ G. Michael Finnigan
___________________________
G. Michael Finnigan
Its: Vice President
REDWOOD GAMING LLC
DeMur, Inc.
By: /s/ Mark Rivers
___________________________
Mark Rivers
Its: Vice President
__________________________
FIRST PARK INVESTMENTS, LLC
By: /s/ Leo Chu
___________________________
Leo Chu
Its: __________________________
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SCHEDULE I
----------
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
set forth below (all terms used in this Agreement that are not defined in this
Schedule I shall have the meanings set forth elsewhere in this Agreement):
- ----------
"1933 ACT" shall mean the Securities Act of 1933, as amended, or any
--------
future comparable law.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended, or
--------
any future comparable law.
"ACQUIRED INTEREST" is defined in Section 7.9.3.
-----------------
"ACT" means the Beverly-Killea Limited Liability Company Act, codified in
---
the California Corporations Code, Section 17000 et seq., as the same may be
-- ---
amended from time to time.
"ADDITIONAL CAPITAL CONTRIBUTIONS" has the meaning set forth in Section
--------------------------------
2.2.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Member, the
--------------------------------
deficit balance, if any, in such Member's Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following adjustments:
(a) Credit to such Capital Account any amounts that such Member is
obligated to restore pursuant to any provision of this Agreement or is deemed to
be obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5);
(b) Credit to such Capital Account the amount of the deductions and
losses referable to any outstanding recourse liabilities owed by the Company to
such Member for which no other Member bears any economic risk of loss and the
amount of the deductions and losses referable to such Member's share (determined
in accordance with the Member's Profit Percentage Interest) of outstanding
recourse liabilities owed by the Company to non-Members for which no Member
bears any economic risk of loss; and
(c) Debit to such Capital Account the items described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-
- - - -
1(b)(2)(ii)(d)(6).
- -
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Regulations Section 1.704-
1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
-
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"ADVANCES" has the meaning set forth in Section 2.6.
--------
"AFFILIATE" means any individual, partnership, corporation, trust or
---------
other entity or association, directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control with, a
Member. The term "control," as used in the immediately preceding sentence,
means, with respect to a corporation or limited liability company, the right to
exercise, directly or indirectly, fifty percent (50%) of the voting rights
attributable to the controlled corporation or limited liability company and,
with respect to any individual, partnership, trust, other entity or association,
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of the controlled entity.
"AGREEMENT" means this Operating Agreement, as originally executed and as
---------
amended and/or restated from time to time.
"ARTICLES" means the Articles of Organization for the Company originally
--------
filed with the California Secretary of State, as amended and/or restated from
time to time.
"BANKRUPTCY" means: (i) being adjudicated bankrupt or insolvent in
----------
proceedings filed against a Person or its ultimate "parent" entity under any
section or chapter of the United States Bankruptcy Code, as amended from time to
time, or any similar law or statute of any state thereof (collectively
"Bankruptcy Laws"); (ii) any petition for reorganization or arrangement under
any Bankruptcy Laws; (iii) proceedings under any Bankruptcy Laws to have a
Person adjudicated a bankrupt or insolvent, which proceedings are not dismissed
within ninety (90) days of commencement; (iv) the general assignment by any
Person for the benefit of creditors; (v) the appointment of a receiver for all
or substantially all of the assets of any Person and the failure to have such
receiver discharged within ninety (90) days after appointment; (vi) the
suffering by any Member of any assignment by operation of law, or any
attachment, sequestration, garnishment or lien against, or the occurrence of a
levy on, such Person's interest in the Company, or any portion thereof, with the
same not being discharged of record by bonding or otherwise within ninety (90)
days after notice to such Member of such event.
"CAPITAL ACCOUNT" means with respect to any Member the capital account
---------------
that the Company establishes and maintains for such Member pursuant to Section
2.3.
"CAPITAL CONTRIBUTION" means the total value of cash and the fair market
--------------------
value (as determined by the Managers or as agreed upon by the Members under this
Agreement) of property (including promissory notes or other obligations to
contribute cash or property) or services contributed by Members.
-47-
<PAGE>
"CAPITAL INTERESTS" means the ratio of each Member's Capital Account to
-----------------
the total of all Member's Capital Accounts at any time.
"CARD CLUB" has the meaning set forth in Recital A of this Agreement.
---------
"CARD CLUB OPERATOR" has the meaning set forth in Section 6.4.1.
------------------
"CARD CLUB SITE" has the meaning set forth in Recital A of this
--------------
Agreement.
"CHANGE OF CONTROL" means that, with respect to a Person, more than 50%
-----------------
of the beneficial ownership (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, whether or not such provision is
applicable to such Person) of its securities, as of the date of this Agreement,
is Transferred to another Person or group of Persons that is not an Affiliate of
the current owners. In the case of Chu, a Change of Control shall occur if Leo
and Ivy Chu together do not own more than 50% of the beneficial ownership of
Chu; and in the case of DeBartolo, a Change of Control shall occur if Edward J.
DeBartolo or Cynthia R. DeBartolo do not own more than 50% of the beneficial
ownership of DeBartolo.
"CHU" means FIRST PARK INVESTMENTS, LLC, a California limited liability
---
company.
"CITY" has the meaning set forth in Recital A of this Agreement.
----
"CODE" means the Internal Revenue Code of 1986, as amended from time to
----
time, the provisions of succeeding law and to the extent applicable, the
Regulations.
"COMPANY" means CRYSTAL PARK HOTEL AND CASINO DEVELOPMENT COMPANY, LLC, a
-------
California limited liability company.
"COMPANY MINIMUM GAIN" has the meaning ascribed to the term "Partnership
--------------------
Minimum Gain" in the Regulations Section 1.704-2(d).
"COMPANY PERSON" means a Member, Manager or officer of the Company.
--------------
"COMPANY PROPERTY" has the meaning set forth in Section 14.
----------------
"CORPORATIONS CODE" means the California Corporations Code, as amended
-----------------
from time to time, and the provisions of succeeding law.
-48-
<PAGE>
"DDA" has the meaning set forth in Recital B of this Agreement.
---
"DEBARTOLO" means REDWOOD GAMING LLC, a California limited liability
---------
company.
"DEFAULTING MEMBER" means any Member that has committed a material breach
-----------------
of this Agreement, including without limitation a breach pursuant to Section 2.7
hereof.
"DISSOLUTION EVENT" means (i) the death, insanity, expulsion, Bankruptcy
-----------------
or dissolution of any Member or the commission by a Member of a material default
under this Agreement which is incapable of cure or (ii) the withdrawal,
resignation or retirement of a Member without the prior consent of all of the
other Members.
"ECONOMIC INTEREST" means a Member's or Economic Interest Owner's share
-----------------
of one or more of the Company's Net Profits, Net Losses and distributions of the
Company's assets pursuant to this Agreement and the Act, but shall not include
any other rights of a Member including, without limitation, the right to vote or
participate in the management or, except as provided in Section 17106 of the
Corporations Code, any right to information concerning the business and affairs
of Company.
"ECONOMIC INTEREST OWNER" means the owner of an Economic Interest who is
-----------------------
not a Member.
"EXCLUDED MEMBER" means a Member that caused a Dissolution Event.
---------------
"EXPENSES" shall include, without limitation, attorneys' fees,
--------
disbursements and retainers, court costs, transcript costs, fees of accountants,
experts and witnesses, travel expenses, duplicating costs, printing and binding
costs, telephone charges, postage, delivery service fees, and all other expenses
of the types customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, or being or preparing to be a
witness or other participant in a Proceeding.
"FAIR VALUE" shall be determined in accordance with Section 7.9.3.
----------
"FIRST OPPORTUNITY OFFER" has the meaning set forth in Section 7.2.
-----------------------
"FISCAL YEAR" means (i) the period commencing upon the formation of the
-----------
Company and ending on December 31, 1996, (ii) any subsequent twelve (12) month
period commencing on January 1 and ending on December 31, or (iii) any portion
of the period described in Clause (ii) of this sentence for which the Company is
required to allocate Profits, Losses, and other items
-49-
<PAGE>
of Company income, gain, loss, or deduction pursuant to Article 3 hereof.
"HOLDER" means either Chu or DeBartolo, who at that time, is the holder
------
of any Registrable Securities based on the records of HPI.
"HOTEL" is defined in Recital C.
-----
"HPC" means HP/Compton, Inc., a California corporation.
---
"HPI" means Hollywood Park, Inc., a Delaware corporation.
---
"HPI CHANGE" means that either R. D. Hubbard or G. Michael Finnigan
----------
("Finnigan") no longer serves in either (i) his current capacity or (ii) a
capacity that is senior to his current capacity with HPI or a successor (as long
as, in the case of Finnigan, the individual at HPI or its successor who is
primarily responsible for the Company reports directly or indirectly to
Finnigan).
"INITIAL CAPITAL CONTRIBUTIONS" has the meaning set forth in Section 2.1.
-----------------------------
"INITIAL CARD CLUB ASSETS" has the meaning set forth in Section 2.1.
------------------------
"INITIAL EXPENSES" means all monies expended or committed by HPC or HPI
----------------
with respect to the Card Club, the Hotel and related businesses prior to the
assignment of the Initial Card Club Assets to the Company, including without
limitation the costs of acquiring the Card Club Site.
"LEASE" has the meaning set forth in Recital D of this Agreement.
-----
"LICENSE RIGHTS OPTION" has the meaning set forth in Recital B of this
---------------------
Agreement.
"MAJORITY INTEREST" means Members holding in the aggregate over fifty
-----------------
percent (50%) of the aggregate of all Profit Percentage Interests; provided,
--------
however, that for purposes of Section 9.1, "Majority Interest" means more than
- -------
fifty percent (50%) of both the capital and profit interests in the Company
(within the meaning of such terms in Revenue Procedure 94-46, 1994-28 IRB 1)
held by the Remaining Members.
"MANAGER" shall mean the manager who is designated from time to time as
-------
provided in Section 6.2.
"MEMBER" means each Person who (a) is an Original Member, has been
------
admitted to the Company as a Member in accordance with the Articles and this
Agreement or is an assignee who has become a Member in accordance with Article
7 and (b) has not resigned,
-50-
<PAGE>
withdrawn, been expelled or, if other than an individual, dissolved.
"MEMBER-MANAGER" means a Manager who is a Member.
--------------
"MEMBER NONRECOURSE DEBT" has the meaning ascribed to the term "Partner
-----------------------
Nonrecourse Debt" in Regulations Section 1.704-2(b)(4).
"MEMBER NONRECOURSE DEDUCTIONS" means items of Company loss, deduction or
-----------------------------
Code Section 705(a)(2)(B) expenditures that are attributable to Member
Nonrecourse Debt or to other loans by a Member to the Company for which no other
Member bears the economic risk of loss.
"MEMBERSHIP INTEREST" means a Member's entire interest in the Company or
-------------------
any portion thereof, including without limitation the Member's Economic
Interest, the right to vote on or participate in the management and the right to
receive information concerning the business and affairs of the Company.
"NET CASH FLOW" means the sum of Net Cash From Operations and Net Cash
-------------
From Sales or Refinancings, where:
(a) "NET CASH FROM OPERATIONS" means the gross cash proceeds from
------------------------
Company operations (including sales and dispositions of property in the ordinary
course of business) less the portion thereof used to pay or establish reserves
for all Company expenses, debt payments, capital improvements, replacements, and
contingencies, all as determined by the Manager, subject to the reasonable
approval of all of the Members. Net Cash From Operations shall not be reduced
by depreciation, amortization, cost recovery deductions, or similar allowances,
but shall be increased by any reductions of reserves previously established
pursuant to the first sentence of this clause (a) and pursuant to the definition
below of Net Cash From Sales or Refinancings.
(b) "NET CASH FROM SALES OR REFINANCINGS" means the net cash proceeds
-----------------------------------
from all sales and other dispositions (other than in the ordinary course of
business) and all refinancings of property, less any portion thereof used to
establish reserves, all as determined by the Manager, subject to the reasonable
approval of all of the Members. Net Cash From Sales or Refinancings shall
include all principal and interest payments with respect to any note or other
obligation received by the Company in connection with sales and other
dispositions (other than in the ordinary course of business) of property.
"NET PROFITS" and "NET LOSSES" means the income, gain, loss, deductions
----------- ----------
and credits of the Company in the aggregate or separately stated, as
appropriate, determined in accordance with the method of accounting used on the
Company's information tax return filed for federal income tax purposes.
Notwithstanding
-51-
<PAGE>
the foregoing, any items of income, gain, loss or deduction that are specially
allocated pursuant to Section 3.3 or 3.4 shall not be taken into account in
computing Net Profits or Net Losses.
"NEWCO" means the limited liability company, general partnership or other
-----
entity formed by the Company and CEI to which the Company Assets will be
transferred in accordance with the Purchase Agreement after such time as
applicable law is amended to permit public companies to operate card clubs or
HPI or HPC is otherwise legally permitted to operate the Card Club.
"NONCOMPLYING PERSON" has the meaning set forth in Section 7.7.
-------------------
"NONRECOURSE LIABILITY" has the meaning set forth in Regulations Section
---------------------
1.752-1(a)(2).
"OFFEREES" has the meaning set forth in Section 7.2.
--------
"ORIGINAL MEMBERS" means HPC, DeBartolo and Chu.
----------------
"PERSON" means an individual, general partnership, limited partnership,
------
limited liability company, corporation, trust, estate, real estate investment
trust association or any other entity.
"PROCEEDING" means any action, suit, arbitration, alternative dispute
----------
resolution mechanism, investigation, administrative hearing or other proceeding,
whether civil, criminal, administrative or investigative in nature.
"PROFIT PERCENTAGE INTEREST" means the percentage interest of a Member in
--------------------------
Net Profits, as set forth in Section 31 and as adjusted from time to time in
accordance with Section 2.7.
"PURCHASE AGREEMENT" has the meaning set forth in Recital B of this
------------------
Agreement.
"RATE" means interest at an annual rate equal to the Bank of America's
----
prime interest rate in effect from time to time (but in no event greater than
the maximum rate permitted under applicable law).
"REAL PROPERTY RIGHTS" has the meaning set forth in Recital B of this
--------------------
Agreement.
"REGISTRABLE SECURITIES" means those shares of HPI Common Stock received
----------------------
or receivable by either Chu or DeBartolo under Section 7.9 of this Agreement
(including shares received from HPI with respect to or in replacement of such
shares by reason of splits, dividends and recapitalizations) but excluding any
shares which may be then sold to the public without registration
-52-
<PAGE>
pursuant to Rule 144 or other comparable provision under the 1933 Act ("Rule
144").
"REGISTRATION STATEMENT" means any registration statement or comparable
----------------------
document under the 1933 Act through which a public sale or disposition of HPI's
Common Stock may be registered or exempted from registration (except a form
exclusively for the sale or distribution of securities by HPI or to employees of
HPI or its subsidiaries or for use exclusively in connection with a business
combination).
"REGULATIONS" means, unless the context clearly indicates otherwise, the
-----------
regulations currently in force from time to time as final or temporary that have
been issued by the U.S. Department of Treasury pursuant to its authority under
the Code.
"REMAINING MEMBERS" means the Members other than the Excluded Member.
-----------------
"SEC" means the Securities and Exchange Commission.
---
"SELLING HOLDER" means with respect to any Registration Statement, any
--------------
Holder whose securities are included therein.
"SELLERS' UNDERWRITER" means with respect to any Registration Statement
--------------------
and only to the extent that HPI has not retained an underwriter for such
offering, the underwriter designated in writing by the Selling Holders, subject
to the prior approval of HPI, which may be withheld for any reason.
"SUPER MAJORITY INTEREST" means Members holding in the aggregate at least
-----------------------
eighty percent (80%) of all Profit Percentage Interests.
"TAX MATTERS PARTNER" shall be HPC or its successor as designated
-------------------
pursuant to Section 8.6.
"THIRD PARTY LOANS" has the meaning set forth in Section 25.
-----------------
"TRANSFER" means any sale, transfer, assignment, hypothecation or other
--------
voluntary disposition, whether by gift, bequest or otherwise. In the case of a
hypothecation, the Transfer shall be deemed to occur both at the time of the
initial pledge and at any pledgee's sale or a sale by any secured creditor.
"TRANSFERABLE INTEREST" has the meaning set forth in Section 7.2.
---------------------
-53-
<PAGE>
SCHEDULE 2.1
------------
INITIAL CARD CLUB ASSETS
------------------------
A. AGREEMENTS WITH COMPTON ENTERTAINMENT, INC. ("CEI")
1. Agreement In Principle, dated April 29, 1994, by and among Hollywood
Park, Inc., a Delaware corporation ("HPI") and CEI.
2. Amended and Restated Agreement Respecting Pyramid Casino, dated July
14, 1995, by and among HPI as Buyer, CEI as Seller and Shareholder,
together with (i) Exhibit A: Form of Lease, by and among HP/Compton
---------
as Landlord and CEI as Tenant; (ii) Exhibit B-1: Form of
-----------
Partnership Agreement Of Pyramid Casino Partners, a California
general partnership, by and among HPI and CEI; and Exhibit B-2:
-----------
Form of Limited Liability Company Operating Agreement Of Pyramid
Casino Company, LLC, by and among HPI and CEI.
3. Lease, dated August 3, 1995, by and among HPC as Landlord and CEI as
Tenant, as amended by that certain First Amendment to Lease.
4. Assignment, Acceptance and Assumption and Consent, dated August 2,
1995, to transfer and assign to HPC, all of its right, title and
interest in that certain Amended and Restated Agreement Respecting
Pyramid Casino, dated as of July 14, 1995, by and between HPI and
CEI and Shareholder.
5. License Rights Option Agreement, dated August 3, 1995, by and among
CEI as Optionor and HPC as Optionee.
B. AGREEMENTS WITH THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF COMPTON
("the Agency")
1. Amended and Restated Disposition and Development Agreement,
Agreement of Purchase and Sale, and Lease with Option to Purchase,
dated April 4, 1995 (the "DDA"), by and among the Agency and CEI.
2. Assignment, Assumption & Consent Agreement, dated July 31, 1995, by
and among CEI as Assignor, HPC as Assignee, HPI as Guarantor and the
Agency.
3. Guaranty, dated July 31, 1995, by HPI as Guarantor, in favor of the
Agency.
-54-
<PAGE>
4. Memorandum of Lease and Option to Purchase, dated July 31, 1995, by
and among the Agency as Landlord and HPC as Tenant, recorded August
3, 1995, as Instrument No. 95-1265412, in the Official Records, Los
Angeles County, California.
5. Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing, dated July 31, 1995, by HPC as Trustor, Chicago Title
Company, a California corporation, as Trustee and the Agency as
Beneficiary, recorded August 3, 1995, as Instrument No. 95-1265414,
in the Official Records, Los Angeles County, California.
6. UCC-1 Financing Statement dated July 31, 1995, executed by HPC as
Debtor, in favor of the Agency as Secured Creditor, recorded August
3, 1995, as Instrument No. 95-1265415, in the Official Records of
Los Angeles County, California.
7. UCC-1 Financing Statement, dated July 31, 1995, executed by HPC as
Debtor, in favor of the Agency as Secured Creditor, filed with the
Secretary of State-California.
8. Offset Agreement, dated as of July 31, 1995, by and among the
Agency, the City of Compton, HPC and CEI.
9. Representations and Warranties Agreement, dated August 2, 1995, by
and among CEI, HPC and the
Agency.
10. Slope Maintenance Agreement, dated August 2, 1995, by HPC in
favor of the City of Compton, recorded August 3, 1995, as Instrument No.
95-1265419, in the Official Records of Los Angeles County, California.
-55-
<PAGE>
SCHEDULE 6.5
------------
-56-
<PAGE>
SCHEDULE 7.8A
-------------
Interests in FIRST PARK INVESTMENTS, LLC
Member Profit Percentage Interest
- ------ --------------------------
Leo Chu 50%
Ivy Chu 50%
-57-
<PAGE>
SCHEDULE 7.8B
-------------
Interests in REDWOOD GAMING LLC
Member Profit Percentage Interest
- ------ --------------------------
Cynthia R. DeBartolo 90%
Christine Catherine Muranski 10%
-58-
<PAGE>
Exhibit A
---------
<TABLE>
<CAPTION>
- ---------------- -------------------------- ------------ --------------
Initial
Profit Initial
Percentage Capital
Member's Name Member's Address Interests Contributions
- ---------------- -------------------------- ------------ --------------
<S> <C> <C> <C>
HPC 1050 South Prairie Avenue 88% $22,000,000
Inglewood, CA 90301
DeBartolo Attn: G. Michael Finnigan 8% $ 2,000,000
999 Baker Way, Suite 420
San Mateo, CA 94404
Chu Attn: Mark Rivers 4% $ 1,000,000
515 North Camden Drive
Beverly Hills, CA 90210
Attn: Leo Chu
</TABLE>
-59-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 15,683,000
<SECURITIES> 3,498,000
<RECEIVABLES> 8,075,000
<ALLOWANCES> 953,000
<INVENTORY> 0
<CURRENT-ASSETS> 36,435,000
<PP&E> 208,992,000
<DEPRECIATION> 81,420,000
<TOTAL-ASSETS> 198,631,000
<CURRENT-LIABILITIES> 31,530,000
<BONDS> 310,000
0
28,000
<COMMON> 1,829,000
<OTHER-SE> 152,970,000
<TOTAL-LIABILITY-AND-EQUITY> 198,631,000
<SALES> 10,403,000
<TOTAL-REVENUES> 104,527,000
<CGS> 15,308,000
<TOTAL-COSTS> 88,800,000
<OTHER-EXPENSES> 19,310,000
<LOSS-PROVISION> 417,000
<INTEREST-EXPENSE> 918,000
<INCOME-PRETAX> (4,501,000)
<INCOME-TAX> 3,025,000
<INCOME-CONTINUING> (7,526,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,526,000)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
