UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
---------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File Number 33-67738
SAM HOUSTON RACE PARK, LTD.
(Exact name of Registrant as Specified in its Charter)
TEXAS 76-0313877
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
ONE SAM HOUSTON PLACE 77064
7575 NORTH SAM HOUSTON PARKWAY (Zip Code)
WEST
HOUSTON, TEXAS
(Address of Principal
Executive Offices)
Registrant's telephone number, including area code: (281) 807-
8700
---------------
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
None.
---------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months<PAGE>
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
---------------<PAGE>
SAM HOUSTON RACE PARK, LTD.
PART I
ITEM 1. BUSINESS
GENERAL
Sam Houston Race Park, Ltd., a Texas limited
partnership (the "Partnership"), owns and operates Sam Houston
Race Park, a Class 1 horse racing facility located within the
greater Houston metropolitan area (the "Race Park"). The Race
Park offers pari-mutuel wagering on live thoroughbred and quarter
horse racing and on horse races simulcast from other race tracks.
The managing general partner of the Partnership is SHRP General
Partner, Inc. (the "Managing General Partner"), a wholly owned
subsidiary of MAXXAM Inc. ("MAXXAM"). The Partnership is also
comprised of an additional general partner, SHRP Equity, Inc.
(the "Additional General Partner") and limited partner interests.
The Race Park began operations on April 29, 1994 and
sustained substantial operating losses during 1994 and 1995. On
April 17, 1995, the Partnership and two affiliated entities, SHRP
Capital Corp. ("Capital") and SHRP Acquisition, Inc. ("SHRP
Acquisition"), filed voluntary petitions in the United States
Bankruptcy Court (the "Bankruptcy Court"), each seeking to
reorganize under the provisions of Chapter 11 of the United
States Bankruptcy Code. The Partnership, Capital and SHRP
Acquisition (collectively, "the Debtors") subsequently filed a
sixth amended consolidated plan of reorganization (the "Plan")
and disclosure statement with the Bankruptcy Court. On September
22, 1995, the Bankruptcy Court entered an order confirming the
Plan. The transactions called for by the Plan, which included
the reduction in the Partnership's long-term debt from $75.0
million to $37.5 million (through the issuance of the
Partnership's 11% Senior Secured Extendible Notes; the
"Extendible Notes") and a significant cash infusion, were
completed on October 6, 1995 (the "Effective Date"). The
bankruptcy case was closed by the Bankruptcy Court on December
19, 1996. See the Partnership's Consolidated Financial
Statements appearing in Item 8 for further information concerning
the bankruptcy proceedings.
Immediately after the Effective Date, wholly owned
subsidiaries of MAXXAM held approximately 65.8% of the equity in
the Partnership. During 1995, a wholly owned subsidiary of
MAXXAM purchased the Extendible Notes and the corresponding
shares of common stock of the Additional General Partner owned by
one noteholder. Such shares of common stock represented
approximately 39.0% of the shares of common stock of the
Additional General Partner. After giving effect to this
transaction, wholly owned subsidiaries of MAXXAM held, directly
and indirectly, approximately 78.8% of the equity in the
Partnership. In February 1997, MAXXAM purchased additional<PAGE>
SAM HOUSTON RACE PARK, LTD.
Extendible Notes and the corresponding shares of common stock of
the Additional General Partner from other noteholders thereby
increasing its interest to 88.5% of the equity in the
Partnership.
This Annual Report on Form 10-K contains statements
which constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. These
statements appear in a number of places (see Item 3. "Legal
Proceedings" and Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and
Capital Resources"). Such statements can be identified by the
use of forward-looking terminology such as "believes," "expects,"
"may," "estimates," "will," "should," "plans" or "anticipates" or
the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. Readers are
cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks
and uncertainties, and that actual results may vary materially
from those in the forward-looking statements as a result of
various factors. These factors include the effectiveness of
management's strategies and decisions, general economic and
business conditions, new or modified statutory or regulatory
requirements, and changing prices and market conditions. This
Report identifies other factors that could cause such
differences. No assurance can be given that these are all of the
factors that could cause actual results to vary materially from
the forward-looking statements.
DESCRIPTION OF THE RACE PARK
General
The Race Park is located on approximately 300 acres of
land (the "Site") owned by the Partnership in the greater Houston
metropolitan area. The Race Park's buildings and grounds have an
aggregate capacity of approximately 18,000 patrons. The Race
Park's design allows patrons to move throughout the facility
during the course of a race day.
Location; Accessibility; Parking
The Site is located in Harris County approximately 18
miles from downtown Houston and approximately 15 miles from
Houston Intercontinental Airport. The Race Park fronts Sam
Houston Parkway, a major tollway, providing ready access to
residents of the greater Houston metropolitan area. Access is
also available by other major thoroughfares. The parking area
can accommodate approximately 10,000 cars.
Racing Ovals
The Race Park has two racing ovals a one and one-
quarter mile dirt track and a one and one-eighth mile turf
course. Each racing oval features straightaways or "chutes" to<PAGE>
SAM HOUSTON RACE PARK, LTD.
accommodate varying race lengths. The surface of the tracks and
the rails have been designed to lessen the risk of injuries to
horses and jockeys and are generally considered to be of high
quality.
Grandstand
The Grandstand building at the Race Park is a modern,
air-conditioned, fully-enclosed structure of approximately
196,700 square-feet with a variety of viewing and simulcasting
facilities on three levels. The Grandstand has seating for 6,000
patrons and is designed to accommodate approximately 10,000 total
patrons. There are numerous video monitors, an electronic
message board, video walls, video replay libraries and odds
information boards throughout the Grandstand to increase the flow
of information to bettors. Simulcast races are shown on
designated video monitors. Each patron level has numerous
pari-mutuel betting windows, automated betting machines and
concession areas.
The first level of the Grandstand building is the
paddock level, which allows free access to the landscaped
saddling paddock area, where patrons can observe the jockey
mounting and pre-race walk of the horses. The design of the
Grandstand does not permit patrons to view live racing from
inside the paddock level of the Grandstand; viewing at this level
is limited to video monitors. The next level is the clubhouse
level. The clubhouse level includes a dining area which has a
view of the track, a video monitor on each table and seats over
600 people. The clubhouse level also has box seats, counter
seats and theater seats available at extra cost. This level also
contains a terrace for viewing the saddling paddock, meeting
rooms and the "members only" Jockey Club. The third level of the
Grandstand consists of 19 suites available for annual lease or
party use and three designated party rooms. All of the suites
and party rooms overlook the track. Catering and separate pari-
mutuel facilities are provided for the suite level. The press,
judges and racing officials are also located on this level.
Other Viewing Areas
In addition to the Grandstand, there are three
additional areas from which patrons can watch the races: the
standee ramp or apron between the Grandstand and the racing
ovals; the 30,000 square foot enclosed, air- conditioned pavilion
which is located immediately north of the Grandstand; and the
infield area of the racetrack. The pavilion has a separate non-
smoking room and a video arcade gallery. The pavilion is
typically the only portion of the Race Park that is open to the
public on days that only simulcasting is being conducted. These
other areas have concession stands and pari-mutuel facilities
nearby. A tunnel provides access to the infield.
Animal Facilities<PAGE>
SAM HOUSTON RACE PARK, LTD.
The backside contains 16 barns capable of housing a
total of approximately 1,200 horses. Each barn contains stalls
for onsite stabling, tack rooms, hay and feed storage areas,
grooms' quarters, wash racks and four outdoor walkers. The Race
Park also has a stakes barn for visiting horses, a receiving
barn, a holding barn and an isolation facility. An equine
veterinary facility is also located at the Race Park.
WAGERING OPERATIONS AND SCHEDULES
The Race Park offers pari-mutuel wagering on live
thoroughbred or quarter horse racing during meets and simulcast
racing throughout the year. The Race Park currently holds live
racing three, four or five days a week during meets and
simulcasting seven days a week. Simulcasting is the process by
which live races held at one racing facility are broadcast
simultaneously to other locations at which additional wagers may
be placed on the race being broadcast.
The Texas Racing Commission (the "Racing Commission")
must approve the number of live race days that may be offered at
the Race Park each year. The number and scheduling of race days
at the Race Park will depend upon a number of factors, including
scheduling of live race days at other Texas Class 1 horse racing
facilities. Under the Texas Racing Act (the "Racing Act"), Class
1 racetracks may not have overlapping live race schedules for the
same breed of horse with other Class 1 racetracks unless each
track with overlapping schedules consents. The Racing Commission
has licensed two additional Class 1 horse racetracks. One is
Retama Park ("Retama") near San Antonio, which opened on April 7,
1995. The other is Lone Star Park at Grand Prairie ("Lone Star")
currently under construction near Dallas. When all of the Class
1 racetracks in Texas are open and operating, the live race
schedule may be equally divided among the three tracks and each
track would be allocated a maximum of 17 weeks of live racing for
each breed of horse unless two or more tracks consented to an
overlap of dates.
In Texas, simulcast broadcasts may only be sent to
licensed racetracks as the Racing Act does not currently provide
for off-track betting. Class 1 and Class 2 racetracks in Texas
must take simulcast signals from Texas Class 1 tracks when such
signals are made available to them, in preference to signals from
other tracks. Class 1 racetracks are not required to take
simulcast signals from Class 2 racetracks.
Once the Race Park accepts signals made available from
other Texas Class 1 racetracks or when no such signals are
available, the Race Park may simulcast out-of-state horse races
with the approval of the Racing Commission. The Racing
Commission must approve all simulcasting agreements. In
addition, under the Race Park's agreement with the Texas<PAGE>
SAM HOUSTON RACE PARK, LTD.
Horsemen's Benevolent and Protective Association (the "HBPA
Agreement" and the "HBPA," respectively) in effect through
December 31, 1996, the Race Park was required to obtain
permission from the HBPA for certain simulcasting agreements.
Subsequent to December 31, 1996, under a new agreement with the
Texas Horsemen's Partnership, L.L.P. (the "THP"), simulcasting
agreements no longer require the specific approval of the
horsemen. The Partnership has entered into revenue-sharing
arrangements both with racetracks that send simulcast signals to
the Race Park and with racetracks that receive simulcast signals
of races held at the Race Park. Simulcasting has become an
increasingly important component of the Race Park's revenues.
See "--Sources of Revenue--Simulcasting" below.
The Race Park conducted 146 days of live racing
during 1996, including 108 days of thoroughbred racing and 38
days of quarter horse racing. For the 1997 calendar year, the
Race Park has obtained approval to conduct live racing on 134
days consisting of (i) 78 days of thoroughbred racing beginning
on January 8, 1997 and concluding on May 4, 1997, (ii) 37 days of
quarter horse racing beginning on July 4, 1997 and concluding on
September 21, 1997 and (iii) 19 days of thoroughbred racing
beginning on November 27, 1997 and concluding on December 28,
1997. The Race Park has not yet determined what race dates it
will request in 1998 and years thereafter. The Race Park also
expects to offer simulcast wagering virtually year round, both
during live racing and on those days on which no live racing is
offered. See "--Sources of Revenue--Simulcasting" below.
SOURCES OF REVENUE
General
The only form of wagering permitted at horse races in
Texas is pari-mutuel wagering, under which bettors wager against
each other, not the racetrack. For every dollar wagered on live
races, a minimum percentage specified by the Racing Act is
returned to the winning bettors, and the remaining percentage,
referred to as the "takeout," is withheld by the racetrack. As
discussed in more detail below, a percentage of the takeout is
distributed as purses to owners of horses, as fees and taxes to
the state of Texas and as contributions to organizations whose
purpose is the furtherance of horse breeding in Texas. The
portion of the takeout remaining after these deductions is
retained by the racetrack and constitutes the racetrack's primary
source of revenue. The Partnership's Consolidated Financial
Statements and Notes thereto appearing in Item 8 contain
additional information regarding the Partnership's revenues and
cost of revenues.
Wagering on Live Races
The takeout percentage on live races depends on the
type of wager. The total takeouts are approximately 18%, 21% and<PAGE>
SAM HOUSTON RACE PARK, LTD.
25% from regular wagering pools, multiple two wagering pools and
multiple three or more wagering pools, respectively. Examples of
regular wagers include win (a wager on a specific horse to finish
first), place (a wager on a specific horse to finish first or
second) and show (a wager on a specific horse to finish first,
second or third). Examples of multiple two wagers include daily
double (a wager in which the bettor selects the horses that will
win two separate races), quinella (a wager in which the bettor
selects the horses that will finish first and second, in any
order) and exacta (a wager in which the bettor selects the horses
that will finish first and second, in the correct order).
Examples of multiple three or more wagers include trifecta (a
wager in which the bettor selects the horses that will finish
first, second and third, in order), superfecta (a wager in which
the bettor selects the horses that will finish first, second,
third and fourth, in order), and the pick three (a wager in which
the bettor selects the winner of three consecutive races). The
betting patterns experienced by the Race Park during its
operating history have averaged approximately 40%, 35% and 25% of
dollars wagered in the regular, multiple two and multiple three
or more waging pools, respectively.
The Racing Act provides that a minimum of 7% of
all live regular wagering pools and live multiple two wagering
pools and a minimum of 8.5% of all live multiple three wagering
pools be paid out as purses to winning horsemen. Furthermore,
the state of Texas receives 1% of the first $100 million wagered
on live racing at each racetrack each year (plus higher
percentages for wagering over $100 million). Finally, 1% of live
multiple wagering pools is required to be set aside for Texas
horse breeding programs. After giving effect to the foregoing
takeouts, the Race Park retains, on the first $100 million
wagered on live horse racing each year, 10% of regular wagers,
12% of multiple wagers involving two horses and 14.5% of wagers
involving three or more horses.
Simulcasting
The Race Park currently offers simulcast wagering seven
days a week throughout the year and intends to continue doing so.
Sending and receiving tracks contractually apportion revenue from
simulcasts among themselves in various negotiated proportions.
The Partnership has negotiated simulcast revenue-sharing
agreements with numerous tracks.
Guest simulcasting is the process whereby the Race Park
receives broadcasts from other racetracks. The maximum takeout
percentages on guest simulcast racing broadcasts from Texas
racetracks are the same as those for live racing 18%, 21% and
25% from regular wagering pools, multiple two wagering pools and<PAGE>
SAM HOUSTON RACE PARK, LTD.
multiple three or more wagering pools, respectively. The takeout
percentages on guest simulcast racing broadcasts from out-of-
state tracks are in the same range. The HBPA Agreement in effect
through December 31, 1996 provided that certain percentages of
all simulcast wagering pools be paid as purses to the owners of
horses in live races during the twelve month period following the
simulcast date. The percentages in effect for the year ended
1996 were approximately 5% of all simulcast regular and multiple
two wagering pools and approximately 6% of all simulcast multiple
three or more wagering pools on all out-of-state racetracks. The
percentages in effect for all in-state racetracks for the year
ended December 31, 1996 were equal to the percentages used for
live racing. As of January 1, 1997 the Partnership has entered
into a new agreement with the Texas Thoroughbred HBPA, Inc. (the
"TTHBPA") and is currently negotiating a new agreement with the
Texas Quarter Horse HBPA, Inc. (the "TQHHBPA"). The TTHBPA and
the TQHHBPA are the sole partners of the Texas Horsemen's
Partnership, L.L.P., (the "THP"), the horsemen's organization
currently recognized by the Racing Commission. Under the terms
of this agreement, 30% of the takeout from all simulcast wagering
pools are allocated to be paid as purses to the owners of horses
in live races. Furthermore, the Racing Act requires that 1% of
all simulcast wagering pools be set aside for the state of Texas,
that 0.25% be set aside for the Texas Commission on Alcohol and
Drug Abuse, and that 1% of all simulcast multiple wagering pools
be set aside for Texas horse breeding programs. The Race Park
also pays broadcasting racetracks a commission normally ranging
from 2.5% to 4.5% of the amount wagered by its patrons on the
broadcast races. After giving effect to the foregoing, the Race
Park receives net commissions normally ranging from 6% to 10% on
guest simulcast betting at the Race Park. As of March 1, 1997,
the Race Park had agreements with approximately 40 racetracks
pursuant to which it, at various times, receives simulcast
signals.
Host simulcasting is the process whereby other
racetracks receive a broadcast signal from the Race Park. The
Race Park receives commissions normally ranging from 1% to 3% of
the amount wagered at the receiving track on the Race Park's
races. Host simulcasting is a much less significant source of
revenue to the Partnership than guest simulcasting. As of March
1, 1997, the Race Park had agreements with approximately 180
racetracks and off-track wagering outlets pursuant to which the
Race Park, at various times, broadcasts its races.
Simulcasting has become an increasingly important
component of the Race Park's revenues. Guest simulcasting and
host simulcasting accounted for approximately 63% and 13%,
respectively, of the Race Park's net commission revenues during
the year ended December 31, 1996.
Purses<PAGE>
SAM HOUSTON RACE PARK, LTD.
In accordance with industry practice, the Race Park
establishes purses nearly one month in advance of a race, based
on the expected wagering pool. These established purses are
published in a condition book which generally covers fifteen days
of racing. Horsemen then enter their horses in the proposed
races based on the conditions of the race, including the purse
offered. When purses paid exceed purses generated within a
certain period of time, as specified in the HBPA Agreement, this
excess becomes an additional expense to be paid by the
Partnership. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of
Operations" appearing in Item 7 and Notes 2 and 5 to the
Consolidated Financial Statements appearing in Item 8 for
additional information regarding purse payments.
Food Services
Food and drink sales are another major component of
revenue. A broad selection of food is available to the patrons
of the Race Park, from table dining at the clubhouse level to
food court fare at various concession stands throughout the Race
Park. The selection and quality of food provided is continuously
monitored by the Race Park.
Admission; Program Sales; Parking Fees
Another major component of revenue is admission,
program and parking fees. An admission fee is charged for entry
to the Race Park. Free parking is available at the Race Park and
preferred and valet parking are available for a fee. Programs
and "tip" sheets are sold separately. The Race Park often uses
coupons and reduced price admissions, parking or program sales in
its marketing promotions.
Club Memberships, Reserved Boxes and Luxury Suites
The Jockey Club, located at the clubhouse level, has a
capacity of approximately 300 people and features separate pari-
mutuel windows, a bar, dining spaces and tiered box seats. The
Jockey Club dining room accommodates approximately 200 people
(including the balcony area) and the box seats accommodate
approximately 120 members and their guests. Individual and
corporate memberships are available to the Jockey Club. The
clubhouse level also contains finish line boxes (accommodating 4
to 6 people) and eighteen finish line reserved tables
(accommodating 4 to 6 people) available for sale. Luxury suites
are also available for rental on a long-term or daily basis.
MARKETING
Management believes that the majority of the patrons
for the Race Park reside within a 50-mile radius of the Race
Park, which includes the greater Houston metropolitan area, and
that a secondary market of occasional patrons can be developed
outside the 50-mile radius but within a 100-mile radius of the<PAGE>
SAM HOUSTON RACE PARK, LTD.
Race Park. Management recognizes the challenge of introducing
pari-mutuel wagering to customers in the greater Houston
metropolitan area and has established the following marketing
goals to increase attendance and the wagering handle: (i) promote
the excitement of horse racing and wagering, (ii) support and
expand the existing group of core bettors, (iii) attract new fans
currently unfamiliar with horse racing, and (iv) pursue a program
of fan education to teach these new fans how to wager.
Management uses a number of marketing strategies to have
potential customers consider the Race Park as an entertainment
alternative. These strategies are designed to bring people out
to the Race Park for specific sporting and promotional events
with a view of turning infrequent visitors into occasional
visitors and more frequent visitors into regulars. The marketing
strategies are also designed to appeal to simulcasting customers
and the more serious horseplayers.
Management utilizes a variety of marketing techniques
in support of these objectives during the year and plans to
enhance these programs including, among other things: (i) a
public relations program to distribute news, information,
features, tips and results in local and national broadcast and
print media, (ii) increased advertising efforts, primarily
through television and radio campaigns, increased promotional
efforts in cooperation with sponsors, suppliers and vendors,
(iii) group sales, to appeal to large corporate, civic and
affinity groups, (iv) specialized promotions and on-going
programs that are designed to attract unique demographic and/or
cultural groups, (v) support for Houston area community events,
(vi) improved attention to customer service and refinements to
the Race Park's facilities, (vii) handicapping seminars and
tournaments both to educate fans and promote the excitement of
wagering, and (viii) direct mail both to introduce the track to
new groups and communicate with existing customers (experienced
bettors, suiteholders, Jockey Club members, etc.).
COMPETITION
Management does not believe that the Race Park will
compete for patrons with other Class 1 racetracks as these race
tracks will not be in the same market area as the Race Park.
However, the Race Park does compete with them for live race days
and, to the extent there are overlapping live race schedules, for
horses.
The Racing Act does not limit the number of Class 2
racetracks that may be licensed and operated in Texas or where
those racetracks may be located. As of March 1, 1997, one Class
2 racetrack was operating. The Class 2 racetrack is located over
100 miles away. Although it is possible that the Racing
Commission could grant a Class 2 license for a racetrack in the
greater Houston metropolitan area, management believes it is<PAGE>
SAM HOUSTON RACE PARK, LTD.
unlikely that the Racing Commission would do so. Furthermore,
there is nothing to prevent the Racing Commission from allocating
live race days to a Class 2 licensee so as to cause such Class 2
licensee to be competitive with a Class 1 licensee as to horses
and live race days. The Racing Commission may also license Class
3 race tracks to operate for brief periods, primarily in
connection with county fairs. No Class 3 licensees or applicants
are located in or near the greater Houston metropolitan area.
Management does not believe that any Class 3 track is likely to
impact operations at the Race Park. The Race Park does face
competition for horses from other racing facilities in states
adjacent to Texas.
The Race Park competes for customers with other forms
of entertainment, including casinos located approximately 125 to
150 miles from Houston, a greyhound race track located 60 miles
from the Race Park and a wide range of live and televised
professional, collegiate and high school sporting events that are
available in the Houston area. The Race Park could, in the
future, also compete with other forms of gambling in Texas,
including casino gambling on Indian reservations or otherwise.
Management believes that the location of the Race Park, within a
one hour drive of the majority of the population of Houston, is a
competitive advantage for the Race Park over the other gaming
venues mentioned above. The challenge for the Race Park is to
develop and educate new racing fans in a market where pari-mutuel
wagering had not previously existed since the 1930's.
Handicapping and wagering on horse racing can be difficult to
learn for new fans, which places the Race Park at a disadvantage
to other forms of gaming, such as casino games and the lottery,
which are easier to learn.
Other competitive factors faced by the Race Park
include the allocation of a sufficient number of live race days
by the Racing Commission and the need to attract an adequate
number of race horses to run at the Race Park. While the Class 1
racetracks in Texas are each entitled to 17 weeks of live racing
per breed (thoroughbred and quarter horse), many factors are
considered in the actual granting of race days. Input is
solicited by the Racing Commission from the racetracks, racehorse
owners and trainers, and horse breeding organizations.
Management works closely with all of the individuals and groups
involved in order to try to obtain the number of live race days
that best impacts the Race Park financially. The factors
associated with attracting race horses to the racetrack include
location, quality of the racing surface and purses paid to the
horsemen. The location of the Race Park in Texas, which is one
of the leading horse breeding states in the country, is an
advantage for the Race Park. The high quality of the racing
surfaces have been mentioned in industry publications and are
believed to be among the best in the country. The level of
purses paid to horsemen is a significant factor in determining<PAGE>
SAM HOUSTON RACE PARK, LTD.
the quality and quantity of the race horses that run at
racetracks. While the level of purses currently being paid is
below the national average, management believes that it is
adequate to attract a sufficient quantity of horses to fill
races.
EMPLOYEES
As of March 1, 1997, the Race Park had approximately
110 year-round full-time employees, approximately 60 year-round
part-time employees and, due to the seasonal nature of the
business, up to approximately 400 seasonal employees. The number
of seasonal employees utilized depends principally on whether or
not the Race Park is conducting live racing and varies based upon
attendance levels.
In addition, the Race Park utilizes various employees
of MAXXAM and its wholly owned subsidiaries to perform services
for the Race Park. The Race Park continuously monitors its
staffing levels and the assignment of MAXXAM employees to the
Race Park.
RACING REGULATIONS
Ownership and operation of horse racetracks in Texas
are subject to significant regulation by the Racing Commission.
The Racing Act provides, among other things, for the allocation
of each wagering pool among betting participants, the state of
Texas, purses, special equine programs and racetracks. The
Racing Act also empowers the Racing Commission to license and
regulate substantially all aspects of horse racing in the state.
The Racing Commission, among other things, licenses all employees
and workers at a racetrack (including jockeys, trainers and
veterinarians); regulates the transfer of ownership interests;
allocates live race days; approves race programs; regulates the
conduct of races; oversees the administration of drugs to horses;
sets specifications for the racing surfaces, animal facilities,
employee quarters and public areas of racetracks; regulates the
types of wagers on horse races and approves all material
contracts with racetracks, including management agreements,
simulcast agreements, totalisator contracts and concessionaire
agreements.
The Partnership obtained its license (the "License") to
operate the Race Park in August 1991. The License is perpetual,
but is subject to revocation if, among other things, the
Partnership or an officer or director of the Managing General
Partner, Additional General Partner or a holder of a partnership
interest in the Partnership violates or aids another person in
violating the Racing Act or the rules thereunder, is convicted of
certain crimes, fails to pay certain fees or taxes, or if the
Racing Commission determines that the Partnership or any such<PAGE>
SAM HOUSTON RACE PARK, LTD.
person is engaged in activities or practices that are detrimental
to the best interests of the public or the racing industry.
The Racing Act requires that a majority of the
ownership interests of a license holder be held at all times by
persons who are United States citizens and who have been
continuous residents of the state of Texas for the preceding ten
years. Failure to maintain this residency requirement is grounds
for the revocation of the License by the Racing Commission.
Additionally, it is illegal under the Racing Act for any person
to own a 5% or greater interest in more than two racetrack
licenses in the state of Texas (both horse tracks and greyhound
tracks are grouped together for this purpose). The License is
not transferable but is subject to a negative pledge (as security
for the Partnership's Extendible Notes). In the event of a
foreclosure by the Trustee for the Extendible Notes (the
"Trustee") or the holders of Extendible Notes (the "Noteholders")
following an event of default, a number of restrictions and
procedural requirements apply to any proposed or subsequent
transfer or use of the License. The Racing Act generally
requires pre-approval by the Racing Commission of all transfers
or issuances of "pecuniary interests" in the holder of a
racetrack license. Interests in the Partnership constitute
"pecuniary interests" and generally any transfer of an interest
in the Partnership would require the prior approval of the Racing
Commission.
Although the lottery, pari-mutuel horse and dog racing,
and bingo are legal in Texas, other forms of gaming are not
currently permitted. The various segments of the industry,
including the Class 1 horse racetracks, Class 2 horse racetracks,
dog tracks, the Texas Thoroughbred Breeders' Association, the
Texas Quarter Horse Association, and other industry groups have
tried to reach a consensus on legalizing one or more alternative
forms of gaming or amendments to the Racing Act. Consensus has
not been reached with all segments of the industry in regards to
any single proposal. Legislation has been introduced in both the
Texas House and Senate which would allow voters in each county
where a greyhound or horse track is now operating to approve the
conduct of "games of skill," including poker and black jack, at
the pari-mutuel facility located in the county. Games of chance
such as slot machines or dice games would not be allowed under
the measure. Managements of each of the pari-mutuel facilities
have indicated their support for the measure. Other industry
groups have indicated that they may seek to have other proposals
considered including pilot programs for off-track wagering and
pari-mutuel wagering through home cable television.
On March 24, 1997 the Committee on Licensing and
Administrative Procedure of the Texas House of Representatives<PAGE>
SAM HOUSTON RACE PARK, LTD.
approved a bill for consideration by the House which would amend
the Texas Racing Act to, among other things, permit "cross-
species" simulcasting at Texas pari-mutuel facilities. Under the
bill, the greyhound track in the Partnership's market could
display and accept wagers on races broadcast by horse tracks in
Texas and around the country and could obtain such broadcasts
from sources other than the Race Park. The Race Park would be
able to display and accept wagers on broadcasts from greyhound
tracks. While the impact of the bill cannot be determined with
any certainty, the Partnership believes this bill, if enacted in
its present form, would have a negative overall impact on the
Partnership's share of pari-mutuel wagering and commissions, its
largest source of revenues. The bill would require approval by
the House, a Senate sub-committee, the full Senate and the
Governor before it could become law. The Partnership expects to
oppose the bill in its present form or seek changes to the bill
before such bodies, but it is impossible to determine whether the
measure will become law and, if so, its final content. It is
also unclear whether any of the other initiatives mentioned above
will be considered by the legislature or become law.
In addition, the Texas Racing Commission, in common
with most administrative agencies, is subject to the Texas Sunset
Act and will be abolished in 1997 unless the Texas legislature
continues its existence or extends its Sunset review (as it did
in 1995). Even if the Racing Commission is abolished, the Racing
Act authorizes the holder of a racetrack license to continue to
operate for up to one year after all of the license holder's
long-term liabilities are satisfied. It is possible that the
legislation being submitted to extend the Racing Commission will
include other legislative changes affecting the Race Park.
OTHER REGULATIONS
The Race Park is required to file certain reports with
the Commissioner of the Internal Revenue Service regarding
certain cash transactions and certain wagering winnings by
patrons. The Race Park is also subject to a variety of
environmental and other laws and regulations, including laws and
regulations dealing with animal waste management and wetlands.
The Race Park is subject to other federal, state and local
regulations and, on a periodic basis, must obtain various
licenses and permits, including those required to sell alcoholic
beverages.
ITEM 2. PROPERTIES
A description of the Partnership's properties is
included under "Item 1. Business." Under the indenture governing
the Partnership's Extendible Notes (the "Indenture"),
substantially all of the Partnership's assets, including the
Partnership's properties, are pledged as collateral on the<PAGE>
SAM HOUSTON RACE PARK, LTD.
Extendible Notes. The racing license held by the Partnership is
also subject to a negative pledge for the benefit of the holders
of the Extendible Notes.
ITEM 3. LEGAL PROCEEDINGS
This section contains statements which constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. See Item 1.
"Business--General" for cautionary information with respect to
such forward-looking statements.
On April 17, 1995, the Debtors filed voluntary
petitions in the Bankruptcy Court to reorganize under the
provisions of Chapter 11 of the United States Bankruptcy Code.
On September 22, 1995, the Bankruptcy Court entered an order
confirming the Plan. All transactions called for by the Plan
were completed on the Effective Date and the case was closed on
December 19, 1996. The Plan called for, among other things, a
reduction in the Partnership's long-term debt, a significant cash
infusion, contribution of additional property and a
reorganization of the Partnership.
Under the terms of the Plan, the Extendible Notes were
issued in exchange for the Original Notes. The Original Notes
had an aggregate principal amount of $75.0 million, would have
matured on July 15, 1999 and bore interest at the rate of 11 %
per annum. The Extendible Notes had an initial aggregate
principal amount
of $37.5 million, mature on September 1, 2001 and bear interest
at the rate of 11% per annum. The maturity date of the
Extendible Notes may be extended to September 1, 2003 (with an
increase in the rate of interest to 13% per annum) if the Texas
legislature passes significant gaming legislation (as defined)
between January 1, 2001 and August 15, 2001. Interest on the
Extendible Notes accrues in-kind and is not payable in cash until
a certain level of cash flow from operations has been achieved.
Once cash interest payments commence, interest payments may not
thereafter be paid in-kind. The Indenture limits the
Partnership's ability to incur additional indebtedness and liens,
to engage in transactions with affiliates, to make investments
and to make distributions, although the Indenture does allow the
Partnership to become involved in certain gaming, entertainment
and other ventures.
On the Effective Date, a new investor group (the "New
Investor Group") made a capital contribution of cash in the
aggregate amount of $5.9 million. Additionally, a wholly owned
subsidiary of MAXXAM contributed an approximately 87 acre tract
of adjoining land having a fair market value of $2.3 million. <PAGE>
SAM HOUSTON RACE PARK, LTD.
Each member of the New Investor Group also provided its pro rata
share of a $1.7 million line of credit. This line of credit
would be used to fund future cash flow requirements should the
cash proceeds contributed be insufficient. Each member of the
New Investor Group has secured such investor's portion of the
line of credit with cash held in an escrow account (other than
MAXXAM's wholly owned subsidiaries, whose portion of the line of
credit is secured by the guaranty of MAXXAM). Borrowings on the
line of credit would bear interest at 11% per annum and would be
subordinate to the Extendible Notes. Also, a wholly owned
subsidiary of MAXXAM provided the holders of the Extendible Notes
with Instruments of Adherence ("Instruments of Adherence") having
an agreed value of $0.5 million. The Instruments of Adherence
were executed by MAXXAM and Mr. Charles Hurwitz, Chairman of the
Board and Chief Executive Officer of MAXXAM and provide that
MAXXAM and Mr. Hurwitz will not, in certain circumstances, make
certain investments in specified gaming ventures in the Houston
area unless certain holders of the Extendible Notes are afforded
a specified opportunity to make an investment in such ventures in
an amount at least equal to 19.9% (reduces pro rata as Extendible
Notes are retired) of the aggregate investment made in such
ventures by MAXXAM, Mr. Hurwitz and such holders.
The Plan provided for the elimination of all existing
partnership interests. The Partnership has issued 33.3% of the
equity in the Partnership to certain holders of allowed unsecured
bankruptcy claims (the "Creditor Equity"), a majority of which
relates to the unsecured deficiency claims attributable to the
Original Notes. The Creditor Equity is held in the form of
common stock in the Additional General Partner. On the Effective
Date, the New Investor Group received 66.7% of the equity in the
Partnership. The Managing General Partner was issued a 1%
interest in the Partnership in exchange for contributing its pro
rata share of the investment made by the New Investor Group. See
Note 3 to the Partnership's Consolidated Financial Statements
appearing in Item 8 for further information concerning the
bankruptcy proceedings.
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
The Partnership is involved in various other claims,
lawsuits and other proceedings relating to a wide variety of
matters. While uncertainties are inherent in the final outcome
of such matters and it is presently impossible to determine the
actual costs that ultimately may be incurred, management believes
that the resolution of such uncertainties and the incurrence of
such costs should not have a material adverse effect on the
Partnership's consolidated financial position, results of
operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS<PAGE>
SAM HOUSTON RACE PARK, LTD.
Not applicable.
ITEM 5. STOCKHOLDER MATTERS
There is no established public trading market for the
Partnership's ownership interests. The Partnership has eight
limited partners in addition to the two general partners. The
Partnership interests are not transferable without the consent of
the Managing General Partner. Under the Indenture, distributions
are restricted except for amounts necessary to pay taxes on
income of the Partnership allocated to a partner. The
Partnership has not made distributions to its partners since the
commencement of operations and it is doubtful that the
Partnership
will be able to make any distributions to its partners for at
least the next two years. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations"
and "Item 8. Financial Statements and Supplementary Data".<PAGE>
SAM HOUSTON RACE PARK, LTD.
PART II
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data of the Partnership for each of
the years in the five-year period ended December
31, 1996 presented below, should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations" and with the Partnership's
Consolidated Financial Statements and Notes thereto
appearing in Item 8.
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Revenues (a) $ 20,752 $ 19,679 $ 20,565 $ - $ -
Loss before reorganization items
and other income (expense)
(a) (2,590) (4,465) (11,898) (2,736) (1,964)
Reorganization items (b) (83) (48,915) - - -
Loss from operations (a), (b) (2,673) (53,380) (11,898) (2,736) (1,964)
Extraordinary item (c) - 63,780 - - -
Net income (loss) (7,622) 5,608 (20,154) (6,165) (2,466)
Balance Sheet Data (at end of period):
Total assets 33,937 34,956 77,640 92,744 2,909
Long-term Obligations:
Notes payable (including notes to
affiliates), less current
portion 27,162 22,171 73,244 72,753 879
Partner's equity (deficit) (659) 6,963 (11,901) 2,015 (1,943)
Distributions paid to partners - - - - - <PAGE>
SAM HOUSTON RACE PARK, LTD.
---------------
<FN>
(a) The Race Park began operations on April 29, 1994. Amounts
for 1996 and 1995 represent twelve months of operations and
amounts for 1994 represent eight months of operations.
(b) Reorganization items recorded to implement the Plan.
Adjustment of assets to fair value represents the reduction
of property and equipment and other assets to their
estimated recoverable amounts and reorganization expenses
represent the professional fees and expenses necessary to
implement the Plan.
(c) Extraordinary gain on discharge of liabilities recorded in
connection with the Plan represents the gain recognized due
to the discharge of current liabilities and long-term debt.
</FN>
</TABLE>
SAM HOUSTON RACE PARK, LTD.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the
Partnership's Consolidated Financial Statements and Notes thereto
appearing in Item 8.
This section contains statements which constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. See Item 1.
"Business--General" for cautionary information with respect to
such forward-looking statements.
LOSS FROM OPERATIONS
Loss from operations for the year ended December 31,
1996 is not comparable to those of prior years as it reflects the
impact of the restructuring of indebtedness and adjustments to
reduce the carrying value of assets for the full year. The loss
from operations for the year ended December 31, 1995 includes the
effect of the bankruptcy proceedings, the resulting restructuring
of indebtedness and adjustments to reduce the carrying value of
assets. Further, the loss from operations for the year ended
December 31, 1994 includes activity for four months prior to the
Race Park opening on April 29, 1994.
The following table presents selected operational
information for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Number of live race days 146 150 158
Simulcast only days 219 214 77
Average daily attendance live 3,624 3,362 4,848
Average daily attendance
simulcast days 708 755 397
Average live and guest per capita
wager live race days $ 139 $ 132 $ 90
Average guest per capita wager
simulcast days 263 266 274
(Amounts in millions)
Live handle $ 25.6 $ 28.0 $ 50.0
Guest simulcasting handle 88.6 82.4 30.5
Host simulcasting handle 109.6 51.5 35.9
Net pari-mutuel commissions 12.9 10.6 8.9
</TABLE>
SAM HOUSTON RACE PARK, LTD.
Revenues. The principal source of revenues is pari-
mutuel commissions earned on live thoroughbred and quarter horse
racing and net pari-mutuel commissions earned on simulcasting
races as both a guest and host track. During periods between the
live racing dates, the Partnership's principal source of revenues
was from wagering by Race Park patrons on simulcasted
thoroughbred meets being conducted at other tracks. Other
sources of revenue were food and beverage sales, admission and
parking fees, corporate sponsorships and advertising, club
memberships, suite rentals and other miscellaneous items.
Total revenues for the years ended December 31, 1996,
1995, and 1994 were $20.8, $19.7 and $20.6 million, respectively.
Handle and commissions generated from both guest and host
simulcasting have continued to increase over the three year
period. Management expects these trends to continue during 1997.
The increase in net pari-mutuel commissions of $2.3 million from
1995 levels was primarily due to the effects of the new guest
simulcasting fee arrangement which became effective January 1,
1996 along with the significant increase in host simulcasting
handle due to an increase in the number of host simulcasting
outlets taking the Race Park's signal. The increase in net pari-
mutuel commissions of $1.7 million from 1995 to 1994 was due to
operations of twelve months in 1995 versus eight months in 1994
along with the growth in guest and host simulcasting.
Average daily attendance on live days during the year
ended December 31, 1996 increased 8% from 1996 to 1995 levels,
however, attendance on live days remains below 1994 levels. The
combined live and guest per capita wager has continued to
increase over the three year period due to the continued growth
in guest simulcasting. Per capita wagering on guest simulcasting
is typically higher than per capita wagering on live racing.
Average live and guest per capita wager has shown a 5% increase
from 1996 to 1995 and a 47% increase from 1995 to 1994. During
the three year period, average guest per capita wager on
simulcast days has decreased, however, this decrease has been
offset by the continued increase in guest simulcasting on live
racing days.
Revenues generated from food and beverage sales during
the year ended December 31, 1996 increased slightly from 1995
levels primarily due to the increase in average daily attendance
on live days. Revenues generated from admission and parking
fees, program sales and other miscellaneous sources have declined
over the three year period primarily due to the decrease in
sponsorship revenue and a decrease in the sales of luxury suites
and boxes from those agreements signed prior to or during the
initial thoroughbred meeting in 1994.
Loss Before Reorganization Items and Other Income
SAM HOUSTON RACE PARK, LTD.
(Expense). Operating losses have continued to decrease over the
three year period. The $1.9 million improvement in 1996
operating losses from 1995 levels is due to the increase in
revenues along with a continued decrease in operating costs and
expenses, especially depreciation and amortization and general
and administrative expenses. Depreciation and amortization
declined by $1.4 million in 1996 due to the write down of assets
to estimated fair value associated with implementing the Plan
during 1995. General and administrative expenses declined by
$1.1 million primarily due to the elimination of several non-
recurring items included in the 1995 results. General and
administration expenses for 1995, excluding the effects of the
non-recurring charges, decreased from 1994 levels as all
operating expenses incurred prior to opening the Race Park are
included in general and administrative expenses during 1994.
These decreases were partially offset by increases in other
operating expenses, including management and other professional
fees and salaries and wages. Management and other professional
fees increased due to the inclusion of twelve months of
management fees during 1996 versus approximately five months of
management fees during 1995 and an increase in the fees paid to
consultants in preparation for the 1997 Texas legislative
session. Salaries and wages increased in 1996 over 1995
primarily due to expanded hours of operation for guest
simulcasting and additions to the Race Park's management team in
late 1995.
The decrease in 1995 operating losses from 1994 levels
is primarily due to the $8.3 million decrease in operating costs
and expenses, including the elimination of $4.0 million in purse
overpayments. Cost of food and beverage operations declined by
$0.9 primarily due to a corresponding decrease in food and
beverage sales. Salaries and wages decreased by $1.9 million due
to the impact of an aggressive program to reduce staffing at all
levels of the Partnership. Management and other professional
fees declined by $1.9 million due to a combination of factors
including the suspension of management fees during the bankruptcy
proceedings and lower overhead. The $0.4 million increase in the
cost of pari-mutuel operations related to costs associated with
the increase in guest simulcasting.
Reorganization items. Reorganization items in 1995 in
the amount of $48.9 million represent the expense related to the
adjustment of long-term assets to estimated fair value and
professional fees and expenses necessary to develop and implement
the Plan.
Extraordinary gain on discharge of liabilities. The
extraordinary item in 1995 in the amount of $63.8 million
represents the gain from the discharge of liabilities pursuant to
the implementation of the Plan, net of the expense related to the<PAGE>
SAM HOUSTON RACE PARK, LTD.
write off of the deferred financing costs. See Note 3 to the
Consolidated Financial Statements appearing in Item 8.
Net Income (Loss). Net income (loss) reflects the loss
before reorganization items and other income (expense),
reorganization items and the extraordinary gain of discharge of
liabilities as described above, together with interest expense,
including amortization of deferred financing costs and the
original issue and the re-issue discounts on the Original Notes
and Extendible Notes, less interest earned on unexpended funds.
LIQUIDITY AND CAPITAL RESOURCES
Although the Partnership has sustained substantial
operating losses since it began operations in April 1994, the
reorganization of the Partnership's principal indebtedness
resulting in the issuance of the Extendible Notes in exchange for
the Original Notes significantly improved the Partnership's
liquidity by providing for the deferral of cash interest payments
until certain conditions are met. Additionally, the Amended
Partnership Agreement defers the payment of management fees until
two consecutive interest payments on the Extendible Notes have
been paid in cash. The Partnership continues to project a loss
from operations for the next two years. Management believes the
proceeds contributed on the Effective Date (together with the
$1.7 million line of credit) will be adequate to fund the
operating activities of the Partnership for at least that period
of time.
At December 31, 1996, the Partnership had cash and cash
equivalents of $2.6 million and the $1.7 million line of credit
available to fund these projected operating losses. Management
is continuing to undertake marketing efforts to increase
attendance and pari-mutuel handle at the Race Park in order to
generate operating income. Management has also undertaken
certain legislative efforts to attempt to legalize additional
forms of gaming at the Race Park in order to increase revenues.
To the extent the remaining cash and line of credit are not
sufficient to support the cash flow requirements of the
Partnership, alternative sources of funding will be necessary.
Although 68.2% of the Extendible Notes are owned by MAXXAM, the
Partnership is still required to retire the Extendible Notes,
together with the accrued interest thereon, in September 2001,
unless the applicable extension provisions apply. To the extent
the Partnership is unable to generate sufficient cash flows from
operations to meet these additional obligations or the
Partnership is unable to refinance the Extendible Notes,
alternative sources of funding will be necessary. There can be
no assurance that the Partnership will be able to refinance the
Extendible Notes or that alternative sources of funding will be
available to the Partnership, if needed.<PAGE>
SAM HOUSTON RACE PARK, LTD.<PAGE>
SAM HOUSTON RACE PARK, LTD.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
Partners of Sam Houston
Race Park, Ltd.,
We have audited the accompanying consolidated balance
sheets of Sam Houston Race Park, Ltd. (a Texas limited
partnership referred to herein as the "Partnership") as of
December 31, 1996 and 1995 and the related consolidated
statements of operations, partners' capital (deficit) and cash
flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of the Partnership as of December 31, 1996 and
1995, and the results of its operations and cash flows for each
of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
February 10, 1997
Houston, Texas<PAGE>
SAM HOUSTON RACE PARK, LTD.
<TABLE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<CAPTION>
December 31,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,634 $ 4,434
Restricted cash 3,559 3,004
Accounts receivable, net of allowance for
doubtful accounts
of $276 and $388, respectively 1,031 675
Prepaid expenses and other current assets 573 271
--------- ---------
Total current assets 7,797 8,384
--------- ---------
Property and equipment, net 26,140 26,572
--------- ---------
$ 33,937 $ 34,956
========= =========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Accounts payable $ 1,545 $ 1,308
Property taxes payable 1,194 1,185
Accrued reorganization costs - 526
Other liabilities 1,363 707
Amounts due to horsemen 2,273 1,828 <PAGE>
SAM HOUSTON RACE PARK, LTD.
Current portion of notes payable 81 91
--------- ---------
Total current liabilities 6,456 5,645
--------- ---------
Long term liabilities:
Notes payable 27,162 22,171
Deferred management fees 978 177
--------- ---------
Total liabilities 34,596 27,993
--------- ---------
Commitments and contingencies (Notes 1 and 7)
Partners' capital (deficit) (659) 6,963
--------- ---------
$ 33,937 $ 34,956
========= =========
</TABLE>
SAM HOUSTON RACE PARK, LTD.
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<CAPTION>
Years Ended
December 31,
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Pari-mutuel commissions, net $ 12,917 $ 10,566 $ 8,910
Food and beverage sales 3,577 3,541 5,794
Non-statutory purse recoveries - 1,042 -
Admissions, parking and other 4,258 4,530 5,861
--------- --------- ---------
20,752 19,679 20,565
--------- --------- ---------
Costs and expenses:
Cost of pari-mutuel operations 1,811 1,725 1,373
Cost of food and beverage
operations 1,544 1,445 2,353
Other operating 2,565 2,531 2,748
Salaries and wages 8,624 8,072 9,930
Management and other professional
fees 2,019 1,580 3,508
Marketing and advertising 2,457 2,129 1,911
Utilities 1,307 1,241 1,407
Property taxes 1,185 1,135 849
Depreciation and amortization 886 2,272 2,023
General and administrative 944 2,014 2,319
Non-statutory purses - - 4,042
--------- --------- ---------
23,342 24,144 32,463
--------- --------- ---------<PAGE>
SAM HOUSTON RACE PARK, LTD.
Loss before reorganization items and
other income (expense) (2,590) (4,465) (11,898)
Reorganization items:
Reorganization expenses (83) (2,957) -
Adjustment of assets to fair value - (45,958) -
--------- --------- ---------
(83) (48,915) -
--------- --------- ---------
Loss from operations (2,673) (53,380) (11,898)
Other income (expense):
Interest income 203 201 662
Interest expense (5,152) (4,993) (8,918)
(4,949) (4,792) (8,256)
--------- --------- ---------
Loss before extraordinary item (7,622) (58,172) (20,154)
Extraordinary gain on discharge of
liabilities - 63,780 -
--------- --------- ---------
Net income (loss) $ (7,622) $ 5,608 $(20,154)
========= ========= =========
/TABLE
<PAGE>
SAM HOUSTON RACE PARK, LTD.
<TABLE>
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(IN THOUSANDS OF DOLLARS)
<CAPTION>
Restructured Prior Partnership
Partnership
Managing Additional
General General Limited General Limited
Partner Partner Partners Partner Partners Total
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ - $ - $ - $ 399 $ 1,616 $ 2,015
Capital contributions - - - - 6,238 6,238
Net loss - - - (12,300) (7,854) (20,154)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1994 - - - (11,901) - (11,901)
Capital Contributions 133 4,415 8,708 - - 13,256
Loss before extraordinary
item (63) (2,097) (4,133) (51,879) - (58,172)
Extraordinary gain on
discharge of - - - 63,780 - 63,780
liabilities ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 70 2,318 4,575 - - 6,963
Net loss (729) (2,318) (4,575) - - (7,622)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 $ (659) $ - $ - $ - $ - $ (659)
========== ========== ========== ========== ========== ==========
/TABLE
<PAGE>
SAM HOUSTON RACE PARK, LTD.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<CAPTION>
Years Ended
December 31,
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (7,622) $ 5,608 $(20,154)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 886 2,272 2,023
Amortization of deferred financing costs
and discounts on long-term debt 682 739 1123
(Increase) decrease in restricted cash (555) (1,614) 10,949
(Increase) decrease in accounts
receivable (356) 338 (1,013)
(Increase) decrease in prepaid expenses
and other (302) 350 (520)
Increase (decrease) in accounts payable 309 (903) (2,352)
Increase (decrease) in due to affiliates 729 226 (2,663)
Increase (decrease) in accrued interest 4,391 4,177 (40)
Increase (decrease) in other liabilities 665 (478) 2,095
Increase in amounts due to horsemen 445 1,092 736
Reorganization items:
Increase (decrease) in accrued
reorganization costs (526) 326 200
Adjustment of assets to fair value - 45,958 -
Extraordinary gain on discharge of - (63,780) -
liabilities --------- --------- ---------<PAGE>
SAM HOUSTON RACE PARK, LTD.
Net cash used in operating
activities (1,254) (5,689) (9,616)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash designated for construction - - 34,370
Additions to land, buildings and equipment (455) (216) (28,542)
--------- --------- ---------
Net cash provided by (used in) (455) (216) 5,828
investing activities --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partner contributions - 5,928 6,235
Proceeds from issuance of notes payable - 23 86
Payments on notes payable
(91) (33) (14)
--------- --------- ---------
Net cash provided by (used in)
financing activities (91) 5,918 6,307
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,800) 13 2,519
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,434 4,421 1,902
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,634 $ 4,434 $ 4,421
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 19 $ 18 $ 7,778
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
See Notes 3, 5, 6 and 9
/TABLE
<PAGE>
SAM HOUSTON RACE PARK, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
1. BASIS OF PRESENTATION AND ORGANIZATION AND FUTURE CASH
REQUIREMENTS
BASIS OF PRESENTATION AND ORGANIZATION
The accompanying consolidated financial statements
include the accounts of Sam Houston Race Park, Ltd. (the
"Partnership"), a Texas limited partnership, and its wholly-owned
subsidiary, New SHRP Capital Corp. ("New Capital"). The
Partnership was formed on June 17, 1990 to apply to the Texas
Racing Commission (the "Racing Commission") for a license to
acquire, construct and operate a pari-mutuel horse racing
facility in Harris County, Texas (the "Race Park"), in accordance
with the Texas Racing Act (the "Racing Act").
The Partnership was organized under the laws of the
state of Texas and will terminate on December 31, 2090 unless it
is earlier dissolved pursuant to the Texas Revised Limited
Partnership Act or any provision of its Third Amended and
Restated Limited Partnership Agreement (the "Amended Partnership
Agreement"). The managing general partner of the Partnership is
SHRP General Partner, Inc. (the "Managing General Partner"), a
wholly owned subsidiary of MAXXAM Inc. ("MAXXAM"). The
Partnership is also comprised of an additional general partner,
SHRP Equity, Inc. (the "Additional General Partner") and limited
partner interests. As of December 31, 1996, wholly owned
subsidiaries of MAXXAM held, directly or indirectly, a 14%
general partner interest (including a 13% interest by virtue of
its ownership of 39% of the common stock of the Additional
General Partner) and a 64.8% limited partner interest. In
February 1997, MAXXAM purchased additional 11% Senior Secured
Extendible Notes ("Extendible Notes") and the corresponding
shares of common stock of the Additional General Partner from
other noteholders, thereby increasing its interest from 78.8% to
88.5% of the equity in the Partnership and 68.2% of the
Extendible Notes.
On August 12, 1991, the Racing Commission voted to
award a Class 1 license for the Race Park to the Partnership.
The Partnership was in the development stage through April 28,
1994. Operations began on April 29, 1994 and, accordingly as of
that date, the Partnership ceased to be a development stage
enterprise. New Capital was formed in April 1995 in connection
with the reorganization described in Note 3.
The preparation of financial statements in accordance
with generally accepted accounting principles requires the use of
estimates and assumptions that affect (i) the reported amounts of<PAGE>
SAM HOUSTON RACE PARK, LTD.
assets and liabilities, (ii) disclosure of contingent assets and
liabilities known to exist as of the date the financial
statements are published, and (iii) the reported amount of
revenues and expenses recognized during each period presented.
The Partnership reviews all significant estimates affecting its
consolidated financial statements on a recurring basis and
records the effect of any necessary adjustments prior to their
publication. Adjustments made with respect to the use of
estimates often relate to improved information that was not
previously available. Uncertainties with respect to such
estimates and assumptions are inherent in the preparation of the
Partnership's consolidated financial statements; accordingly, it
is possible that the subsequent resolution of the liquidity
issues, described in "Future Cash Requirements" below, could
differ in material respects from current estimates. The results
of an adverse resolution of such uncertainty could have a
material effect on the reported amounts of the Partnership's
consolidated assets and liabilities.
FUTURE CASH REQUIREMENTS
Although the Partnership has sustained substantial
operating losses since it began operations in April 1994, the
reorganization of the Partnership's principal indebtedness
resulting in the issuance of the Extendible Notes in exchange for
the 11 3/4 % Senior Secured Notes (the "Original Notes")
significantly improved the Partnership's liquidity by providing
for the deferral of cash interest payments until certain
conditions are met. Additionally, the payment of management fees
is deferred until two consecutive interest payments on the
Extendible Notes have been paid in cash. The Partnership
continues to project a loss from operations for the next two
years. At December 31, 1996, the Partnership had cash and cash
equivalents of $2,634 and the $1,700 line of credit which
management believes will be adequate to fund the operating
activities of the Partnership for that period of time.
Management is continuing to undertake marketing efforts
to increase attendance and pari-mutuel handle at the Race Park in
order to generate operating income. Management has also
undertaken certain legislative efforts to attempt to legalize
additional forms of gaming at the Race Park in order to increase
revenues. To the extent the remaining cash and line of credit
are not sufficient to support the cash flow requirements of the
Partnership, alternative sources of funding will be necessary.
Although 68.2% of the Extendible Notes are owned by MAXXAM, the
Partnership is still required to retire the Extendible Notes,
together with the accrued interest thereon, in September 2001,
unless the applicable extension provisions apply. See Note 6 for
further information concerning the terms of the Extendible Notes.
To the extent the Partnership is unable to generate sufficient
cash flows from operations to meet these additional obligations<PAGE>
SAM HOUSTON RACE PARK, LTD.
or the Partnership is unable to refinance the Extendible Notes,
alternative sources of funding will be necessary. There can be
no assurance that the Partnership will be able to refinance the
Extendible Notes or that alternative sources of funding will be
available to the Partnership, if needed.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Restricted Cash
The Partnership's restricted cash, as shown on the
accompanying consolidated balance sheets at December 31, 1996 and
1995, includes amounts designated for the payment of the items
listed in the following table:
December 31,
------------
1996 1995
------- -------
Deposits held for the benefit of horsemen $2,258 $1,833
Property taxes and other 1,301 1,171
------- -------
$3,559 $3,004
======= =======
Cash Equivalents and Concentration of Credit Risk
Cash equivalents consist of highly liquid money market
instruments with original maturities of three months or less. A
substantial portion of the Partnership's cash equivalents
($1,965) at December 31, 1996 is invested in various short-term
investment grade marketable securities. The Partnership also
holds other amounts in banks and other financial institutions
wherein some of the balances exceed federally insured deposit
levels. In the event of nonperformance by such financial
institutions, the Partnership's exposure to credit loss is
represented by the amounts deposited plus any unpaid accrued
interest thereon. The Partnership mitigates its concentration of
credit risk with respect to the funds in such accounts by
maintaining them at high credit quality financial institutions
and monitoring the credit ratings of such institutions.
Property and Equipment
Property and equipment were written down to estimated
fair value as reflected in the sixth amended consolidated plan of
reorganization ("the Plan") as of October 6, 1995 ("the Effective
Date"). Additions to property and equipment subsequent to the
Effective Date are stated at cost. Prior to the Effective Date,
property and equipment were stated at cost. Depreciation is
computed principally utilizing the straight-line method at rates
based upon the estimated useful lives of the various classes of
assets.<PAGE>
SAM HOUSTON RACE PARK, LTD.
Notes Payable
Notes payable includes accrued interest on the
Extendible Notes which is allowed to be paid in-kind until a
certain level of cash flow from operations has been achieved.
Other Liabilities
Other liabilities include net liabilities for unclaimed
winning pari-mutuel tickets. Unclaimed winning tickets are valid
for ninety days after the end of the year in which they are
generated. Once the tickets are no longer valid, the remaining
amounts held to pay unclaimed winning tickets, net of allowable
reimbursements, are transferred to the Texas Racing Commission.
The Partnership receives advance payments with respect
to private suite and box rentals, Jockey Club memberships and
corporate sponsorship agreements. The payments are recorded as
deferred revenue and are recognized as income over the term of
the respective agreements.
Purses and Awards
The Racing Act, certain other agreements, and the rules
promulgated by the Racing Commission stipulate percentages of the
pari-mutuel handle which must be used for the payment of purses
and awards depending upon the type of wagers placed. The term
"pari-mutuel handle" means the aggregate amounts wagered with
respect to the live racing conducted at the Race Park and amounts
wagered at the Race Park on simulcast races conducted at other
tracks. Purses are established nearly one month in advance,
based on expected pari-mutuel handle and published in a condition
book which generally covers fifteen days of live racing.
Horsemen then enter their horses in proposed races based upon the
conditions of the race being entered, including the purses being
offered. Purse overpayments occur when amounts paid to horsemen
exceed the percentage of the pari-mutuel handle designated for
the payment of purses during a specified period of time. The
Partnership had an agreement with the Texas Horsemen's
Benevolevent and Protective Association (the "HBPA Agreement" and
the "HBPA," respectively) effective through December 31, 1996,
which as amended, provided for among other things, the
Partnership to periodically adjust purses during a meet in order
to avoid purse overpayments. See Note 5 for additional
information regarding the HBPA Agreement. In certain
circumstances, the Partnership may pay purses and awards in
excess of the amounts provided by the pari-mutuel handle. The
Partnership may adjust the amounts to be paid for future races
during the course of a given meet in order to minimize or
eliminate any differences between the amounts provided by the
pari-mutuel handle and the actual amounts of purses and awards
paid. The HBPA Agreement, as amended, also allows the
Partnership to recoup various amounts of the previous
overpayments from certain future meets. The Partnership expenses<PAGE>
SAM HOUSTON RACE PARK, LTD.
all purse overpayments when they occur. Recoveries of these
amounts are recorded as revenue as they are earned.
Income Taxes
The Partnership has not made any provisions for income
taxes in its Consolidated Statement of Operations as they are the
responsibility of its partners. The carrying value of the
Partnership's net assets for financial statement purposes was
less than the carrying value for income tax reporting purposes by
approximately $12,500 at December 31, 1996. The difference
primarily results from (i) the adjustment of long-term assets to
estimated fair value for financial statement purposes but not for
income tax purposes and (ii) the capitalization of costs for
income tax purposes that were expensed for financial reporting
purposes, a substantial portion of which relates to costs
incurred during the start-up period and the reorganization
pursuant to the Plan described in Note 3.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents
approximate fair value. Market prices for the Extendible Notes
at December 31, 1996 were estimated based on the trade discussed
in Note 1. Market prices for the Extendible Notes at December
31, 1995 were based on the value established in the Plan after
considering the effects of the trade subsequent to the Effective
Date.
The carrying amounts of the Partnership's cash and cash
equivalents (including restricted and designated cash) and other
notes payable approximate their fair value. The Extendible Notes
had a carrying amount of $25,770 and $20,870 and an estimated
fair value of $20,405 and $20,870 as of December 31, 1996 and
1995, respectively.
3. 1995 PLAN OF REORGANIZATION
Plan of Reorganization
On April 17, 1995, the Partnership, SHRP Capital Corp.
("Capital") and SHRP Acquisition, Inc., the Partnership's largest
limited partner, filed for reorganization under Chapter 11 of the
United States Bankruptcy Code. On September 22, 1995, the United
States Bankruptcy Court for the Southern District of Texas,
Houston Division entered an order confirming the Plan. The
transactions called for by the Plan were completed on the
Effective Date and the case was closed on December 19, 1996.
Under the terms of the Plan, the Extendible Notes were
issued in exchange for the Original Notes. The Original Notes
had an aggregate principal amount of $75,000, would have matured<PAGE>
SAM HOUSTON RACE PARK, LTD.
on July 15, 1999 and bore interest at the rate of 11 3/4 % per annum.
The Extendible Notes had an initial aggregate principal amount of
$37,500, mature on September 1, 2001 and bear interest at the
rate of 11% per annum. Interest on the Extendible Notes accrues
in-kind and is not payable in cash until a certain level of cash
flow from operations has been achieved. See Note 6 for further
information concerning the terms of the Extendible Notes.
On the Effective Date, a new investor group (the "New
Investor Group") made a capital contribution of cash and other
consideration described below. Each member of the New Investor
Group also provided its pro rata share of the $1,700 line of
credit. This line of credit would be used to fund future cash
flow requirements should the proceeds contributed be
insufficient. Each member of the New Investor Group has secured
such investor's portion of the line of credit with cash held in
an escrow account (other than MAXXAM's wholly owned subsidiaries,
whose portion of the line of credit is secured by the guaranty of
MAXXAM). Borrowings on the line of credit would bear interest at
11% per annum and would be subordinate to the Extendible Notes.
Also, a wholly owned subsidiary of MAXXAM provided the holders of
the Extendible Notes with Instruments of Adherence ("Instruments
of Adherence") having an agreed value of $500. The Instruments
of Adherence were executed by MAXXAM and Mr. Charles Hurwitz,
Chairman of the Board and Chief Executive Officer of MAXXAM and
provide that MAXXAM and Mr. Hurwitz will not, in certain
circumstances, make certain investments in specified gaming
ventures in the Houston area unless certain holders of the
Extendible Notes are afforded a specified opportunity to make an
investment in such ventures in an amount at least equal to 19.9%
(reduces pro rata as Extendible Notes are retired) of the
aggregate investment made in such ventures by MAXXAM, Mr. Hurwitz
and such holders.
The Plan provided for the elimination of all existing
partnership interests. The Partnership has issued 33.3% of the
equity in the Partnership to certain holders of allowed unsecured
bankruptcy claims (the "Creditor Equity"), a majority of which
relates to the unsecured deficiency claims attributable to the
Original Notes. The Creditor Equity is held in the form of
common stock in SHRP Equity, Inc., a Delaware corporation which
is also an additional general partner of the partnership (the
"Additional General Partner"). On the Effective Date, the New
Investor Group received 66.7% of the equity in the Partnership.
The new managing general partner of the partnership (the
"Managing General Partner") is SHRP General Partner, Inc., a
wholly owned subsidiary of MAXXAM. The Managing General Partner
was issued a 1% interest in the Partnership in exchange for
contributing its pro rata share of the investment made by the New
Investor Group.<PAGE>
SAM HOUSTON RACE PARK, LTD.
Changes to Consolidated Financial Statements due to
Implementation of the Plan
On the Effective Date, all transactions called for in
the Plan were completed. These transactions have resulted in
significant changes to the Partnership's consolidated financial
statements. A summary of the major effects on the Partnership's
consolidated financial statements is described below.
Cash and Cash Equivalents
On the Effective Date, the New Investor Group
contributed cash of $5,928 to the Partnership in return for a
portion of their equity investment. The Partnership also paid
bankruptcy related claims and fees of $2,775 on the Effective
Date.
Property and Equipment, Net
Property and equipment was reduced by approximately
$40,390 in order to adjust long-term assets to the estimated fair
value as reflected in the Plan. Additionally, the Partnership
received an approximately 87 acre tract of land valued at $2,300
as part of the contribution of the New Investor Group.
Other Assets
All long-term assets related to the financing of the
Original Notes or the formation of the Partnership were expensed
on the Effective Date. On the Effective Date, the New Investor
Group contributed the Instrument of Adherence, valued at $500, to
the Partnership. An intangible asset in the amount of $4,415 was
recorded on the Effective Date for the estimated value of the
Creditor Equity as determined by the Amended Partnership
Agreement. Due to the significant uncertainty associated with
the recoverability of these intangible assets, they were expensed
and included as a component of the adjustment of assets to fair
value.
Current Liabilities
Current liabilities were decreased by approximately
$11,377, primarily due to the discharge of interest accrued on
the Original Notes. Also, management fees and interest due to
Race Track Management Enterprises ("RTME"), the former manager of
the Race Park, were discharged. On the Effective Date,
approximately $1,091 of current liabilities related to payments
necessary to cure contract deficiencies and priority claims were
settled.
Notes Payable
Notes payable were reduced by approximately $53,077 in
order to adjust the balance of the Original Notes to the
estimated fair value of the Extendible Notes. The Partnership
also issued Extendible Notes in the amount
of $355 as payment in-kind of interest on the Extendible Notes<PAGE>
SAM HOUSTON RACE PARK, LTD.
from September 5, 1995 through the Effective Date.
Partners' Capital
Partners' capital was adjusted to reflect the
contributions made to the Partnership on the Effective Date. The
New Investor Group contributed cash, land and other assets valued
at approximately $8,841. The Creditor Equity was also created on
the Effective Date and had an estimated value of $4,415.
Partners' capital at December 31, 1995 also includes the fourth
quarter adjustment of assets to fair value and extraordinary gain
reflecting the effects of implementing the Plan.
Consolidated Statement of Operations
The 1995 Consolidated Statement of Operations reflects
the aggregate net impact of the above transactions.
Reorganization expenses of $2,957 represent the professional fees
and expenses necessary to implement the Plan including $439 of
expenses paid to an affiliate. See Note 9 for additional
information. Adjustment of assets to fair value in the amount of
$45,958 represents the reduction of property and equipment and
other assets to their estimated recoverable amounts.
Extraordinary gain on discharge of liabilities in the amount of
$63,780 represents the gain recognized due to the discharge of
current liabilities and long-term debt during the bankruptcy
proceedings, net of the expenses related to the write off of
capitalized costs for the financing of the Original Notes.
The adjustments resulting from the implementation of
the Plan effect the comparability of the Partnership's
consolidated financial statements with those of other periods.
The write down of long-term assets has significantly decreased
the depreciable value of the Partnership's assets, thereby
reducing depreciation expense. Also, the discharge of a
significant portion of the Partnership's debt in accordance with
the Plan has significantly reduced the amount of annual interest
expense.
4. PROPERTY AND EQUIPMENT
The major classes of property and equipment are as
follows:
<TABLE>
<CAPTION>
Estimated December 31
------------
Useful 1996 1995
Lives --------- ---------
S> <C> <C> <C
<PAGE>
SAM HOUSTON RACE PARK, LTD.
Buildings 5 30
years $ 14,368 $ 14,189
Equipment, furniture and 3 15
fixtures years 1,865 1,748
Race track and other land 5 30
improvements years 3,045 2,887
Land 7,958 7,958
--------- ---------
27,236 26,782
Less accumulated depreciation (1,096) (210)
--------- ---------
$ 26,140 $ 26,572
========= =========
</TABLE>
Depreciation expense for the years ended December 31, 1996,
1995 and 1994 was $886, $2,110 and $1,770, respectively. As
discussed in Note 3, the Partnership reduced the net carrying value
of property and equipment by $40,390 as of the Effective Date,
in accordance with the asset values described in the Plan.
5. RACING OPERATIONS
The Partnership conducted 146, 150 and 158 days of live
racing during 1996, 1995 and 1994, respectively. Under the Racing
Act, the Partnership's commission revenue is a designated portion
of the pari-mutuel handle. During May 1994, the Race Park began
operating as a satellite wagering site for thoroughbred and quarter
horse meets conducted at other tracks. The Race Park receives
broadcasts of live racing from other racetracks under various guest
simulcasting agreements. The Race Park also provides broadcasts of
live racing conducted at the Race Park to other racetracks under
various host simulcasting agreements. Under these contracts, the
Partnership receives pari-mutuel commissions of varying percentages of
simulcast pari-mutuel handles. As described in Note 1, the
Partnership was in the development stage prior to April 29, 1994 and
accordingly, had no operations prior to that date.
A summary of the pari-mutuel handle, commissions and
deductions for the years ended December 31, 1996, 1995
and 1994 is as follows:
<TABLE>
<CAPTION>
SAM HOUSTON RACE PARK, LTD.
1996 1995 1994
--------------------- ------------------- ------------------
Pari-Mutuel Pari-Mutuel Pari-Mutuel
Wagering Wagering Wagering
--------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Handle Commission Handle Commission Handle Commission
During live race
meet periods:
Live $ 25,620 $ 5,507 $ 27,983 $ 6,006 $ 49,961 $ 10,589
Guest 68,280 13,820 55,513 11,160 25,595 4,938
Host 109,648 3,761 51,451 1,592 35,945 1,158
During simulcast
only periods:
Guest 20,299 4,109 26,868 5,445 4,860 1,172
---------- ---------- ----------
27,197 24,203 17,857
---------- ---------- ----------
Less:
Statutory 8,396 8,068 5,919
purses and awards
Guest 2,836 2,735 1,074
simulcasting fees
State pari- 1,142 1,104 802
mutuel tax
Breakage 720 779 573
Breeders' 965 739 400
awards and other
Other expenses 221 212 179
---------- ---------- ----------
Total 14,280 13,637 8,947
deductions ---------- ---------- ----------
Net pari-mutuel $ 12,917 $ 10,566 $ 8,910
commissions ========== ========== ==========
</TABLE>
Non-statutory Purse Funding
In accordance with the HBPA Agreement in effect during
1994, the Partnership paid purses in excess of statutory amounts
aggregating approximately $4,042. The HBPA Agreement was amended
three times in order to address purse payment issues. Pursuant
to these amendments, the Partnership had the ability to manage
the level of purses paid so that significant purse overpayments
could be avoided. The amendments also allowed the Partnership to
recover a portion of the purses paid in excess of statutory
amounts. During 1995, the Partnership recovered $1,042 of purses
previously paid in excess of statutory amounts. On November 26,
1996, the Race Park entered into a new agreement with the Texas
Thoroughbred HBPA, Inc. (the "TTHBPA"). The TTHBPA is a partner
of the Texas Horsemen's Partnership, L.L.P., (the "THP") the<PAGE>
SAM HOUSTON RACE PARK, LTD.
official horsemen's organization currently recognized by the
Racing Commission. This new agreement provides for the recovery
of purse overpayments of $660 and $631 during the years ended
December 31, 1999 and 2000, respectively. The Partnership will
record any future recoveries only as they are earned.
6. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
------- -------
<S> <C> <C>
11% Senior Secured Extendible Notes due
September 1, 2001 (net of
unamortized discount of $16,302 and
$16,985 as of December 31, 1996 and
1995, respectively) $ 25,770 $ 20,870
Accrued interest to be paid in-kind 1,157 983
--------- ----------
26,927 21,853
Unsecured promissory notes 240 279
Equipment leases 53 107
Payable to Limited Partners 23 23
--------- ----------
Total 27,243 22,262
Less current portion (81) (91)
--------- ----------
$ 27,162 $ 22,171
========= ==========
The Extendible Notes had an initial aggregate principal
amount of $37,500, mature on September 1, 2001, bear interest at
the rate of 11% per annum and are secured by substantially all
the assets of the Partnership. The maturity date of the
Extendible Notes may be extended to September 1, 2003 (with an
increase in the rate of interest to 13% per annum) if the Texas
legislature passes significant gaming legislation (as defined)
between January 1, 2001 and August 15, 2001. The indenture
governing the Extendible Notes (the "Indenture") limits the
Partnership's ability to incur indebtedness and liens, to engage
in transactions with affiliates, to make investments and to make
distributions, although the Indenture does allow the Partnership
to become involved in certain gaming, entertainment and other
ventures.
The Partnership is amortizing the difference between<PAGE>
SAM HOUSTON RACE PARK, LTD.
the aggregate principal amount of the Extendible Notes and their
estimated fair value as additional interest expense using the
effective interest method.
Interest on the Extendible Notes accrues in-kind and is
not payable in cash until a certain level of cash flow from
operations has been achieved. Once cash interest payments
commence, interest payments may not thereafter be paid in-kind.
The Partnership issued $4,217 and $355 of Extendible Notes during
the years ended December 31, 1996 and 1995, respectively, as
payment in-kind for accrued interest. Interest payments are due
on the Extendible Notes on April 1 and October 1 of each year
until the Extendible Notes mature.
The Partnership has entered into two unsecured
promissory notes. The first note earns interest at 6 1/2% per annum
and is due and payable in thirty equal annual installments to the
Harris County Toll Road Authority, operator of the Sam Houston
Parkway. This note represents one-half of the costs incurred to
construct the entrance and exit ramps adjacent to the Race Park.
Payments of approximately $8 plus accrued interest are due
annually on April 30 through the year 2024. The second note
earns interest at 8% per annum and is due and payable in twenty-
four installments to a contractor for the construction of
improvements located at the Race Park. The note specifies
monthly payments of approximately $3 including accrued interest
and matures October 25, 1997.<PAGE>
SAM HOUSTON RACE PARK, LTD.
6. NOTES PAYABLE (CONTINUED)
The New Investor Group has provided the Partnership
with a $1,700 line of credit. This line of credit would be used
to fund future cash flow requirements should the Partnership
require it. Each member of the New Investor Group, other than
MAXXAM wholly owned subsidiaries, has secured their portion of
the line of credit with cash in the amount of $23, which is held
in an escrow account. The portion of the line of credit provided
by wholly owned subsidiaries of MAXXAM is secured by the
guarantee of MAXXAM. Borrowings on the line of credit would bear
interest at 11% per annum and would be subordinate to the
Extendible Notes. The cash collateral for the line of credit is
reflected as restricted cash in the balance sheet.
The scheduled maturities for the Partnership's notes
payable outstanding at December 31, 1996 are as follows: December
31, 1997 $81; 1998 $12; 1999 $8; 2000 $8; 2001 $43,264;
thereafter $172. In the event the Partnership continues to
issue additional Extendible Notes as payment in-kind for accrued
interest, the total amount due on the Extendible Notes at
maturity will be $71,242.
7. PARTNERS' CAPITAL (DEFICIT)
The Partnership is currently comprised of the Managing
General Partner, the Additional General Partner and eight limited
partners.
The profits and losses of the Partnership are
allocated to the partners in accordance with their percentage
interests, after giving effect to certain special allocations.
However, all net losses (other than nonrecourse deductions) in
excess of the positive capital account balance of any limited
partner or the Additional General Partner are to be allocated to
the Managing General Partner. Income is to be specially
allocated to restore a partner's deficit capital account prior to
allocating net profits based on the partner's percentage
interest.
In the event of a capital call by the Partnership to
fund operating losses, holders of the Extendible Notes
may contribute Extendible Notes in lieu of cash in order to
maintain their equity position in the Partnership. So long as
the Extendible Notes are outstanding, the Board of Directors of
the Additional General Partner are entitled to designate at least
one-third of the directors of the Managing General Partner (the
"Creditor Directors"), subject to the reasonable approval of the
owner of the Managing General Partner. Certain significant
events (e.g. mergers, consolidations, the sale of all or the
substantial portion of the Partnership's assets, reorganizations,<PAGE>
SAM HOUSTON RACE PARK, LTD.
incurrence of debt in excess of $5,000 and voluntary acts of
insolvency) require the approval of a majority of all of the
directors, including a majority of the Creditor Directors voting
as a separate class.
Prior to the consummation of the Plan, the Partnership
consisted of a general partner and several classes of limited
partnership interests, some of which were entitled to preferred
returns. The Amended Partnership Agreement provides that profits
and losses of the Partnership for all periods through and
including the Effective Date are allocated to the persons who
were partners immediately prior to the consummation of the Plan
(the "Original Partners") using the "closing of the books"
method. In particular, any cancellation of indebtedness income
recognized by the Partnership pursuant to the Plan through and
including the Effective Date is allocated solely to the Original
Partners. Due to the balances in the Original Partners' capital
accounts when the Plan was implemented, net income as of the
Effective Date, including the extraordinary gain on the discharge
of liabilities, was allocated to the General Partner. Under the
terms of the Plan, all former partnership interests were
extinguished during the bankruptcy proceedings.
8. MANAGEMENT AGREEMENTS
As of the Effective Date, the Managing General Partner
began managing the Partnership and the Race Park in accordance
with the Amended Partnership Agreement. Annual management fees
will be the greater of (a) $750 or (b) an incentive fee equal to
.65% of all gross revenues (as defined). Management fees are
deferred until two consecutive semi-annual cash interest payments
have been made to the holders of the Extendible Notes. Unpaid
management fees accrue interest at the rate of 11% per annum.
All such management fees are subordinated to the Extendible
Notes. As of December 31, 1996 and 1995, the Partnership has
accrued $978 and $177 of management fees including interest due
to the Managing General Partner.
Management and other professional fees for the years
ended December 31, 1995 and 1994 include $364 and $1,260,
respectively, in management fees for RTME. The management
agreement with RTME was rejected by the Partnership during the
bankruptcy proceedings. Management fees were not accrued by the
Partnership during the bankruptcy proceeding. All unpaid
management fees due to RTME as of April 17, 1995 were discharged
when the Plan was confirmed.
9. RELATED PARTY TRANSACTIONS<PAGE>
SAM HOUSTON RACE PARK, LTD.
Management and other professional fees for the years
ended December 31, 1996, 1995 and 1994 include $511, $494 and
$937 related to costs incurred for services provided by MAXXAM
and certain of its subsidiaries. In addition, reorganization
costs for the year ended December 31, 1995 includes $439 of such
costs incurred by
the Partnership. Additionally, during 1994 the Partnership
incurred approximately $197 of such costs associated with the
deficit notice issued by the original general partner on
September 1, 1994. Included in accounts payable at December 31,
1996 and 1995, were obligations to MAXXAM for such costs of $22
and $94, respectively. Additionally, from January 1, 1994
through March 31, 1995, the Partnership leased approximately
twenty acres of land, immediately west of the Race Park for
overflow parking purposes, from a wholly owned subsidiary of
MAXXAM. Under the terms of the Plan, the acreage previously
leased was included in the approximately 87 acres contributed to
the Partnership in 1995.
Management and other professional fees for the year
ended December 31, 1994 also include $125 of costs incurred by
Federated Development Company ("Federated") for the time
employees of Federated spent in the performance of services for
the benefit of the Partnership. Prior to the Filing Date, the
Partnership paid $102 in full satisfaction of this obligation.
Federated is an affiliate of MAXXAM, both of which are controlled
by Mr. Charles E. Hurwitz.
Management and other professional fees for the year
ended December 31, 1996 include $120 of cost incurred by an
affiliate to coordinate legislative efforts of the Partnership.
Additionally, the Partnership engages affiliates for legal and
other consulting services in the normal course of business.
During the years ended December 31, 1996, 1995 and 1994, the
Partnership incurred fees of $41, $97, and $830, respectively,
with respect to these services.
10. COMMITMENTS AND CONTINGENCIES
The Partnership has entered into noncancellable service
and operating lease agreements with several vendors to provide
services in addition to agreements for the use of equipment.
Certain of these agreements call for contingent rentals based
upon a variety of factors, the most significant of which are the
number of live racing days and specified percentages of amounts
wagered. Future minimum lease and commitment payments under such
noncancelable service and lease agreements, having a remaining
term in excess of one year at December 31, 1996, are as follows:
years ending December 31, 1997 $352; 1998 $316; 1999 $34;
thereafter $nil.
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)<PAGE>
SAM HOUSTON RACE PARK, LTD.
The Partnership incurred approximately $1,409, $1,700 and $1,325, including contingent fees and rentals, for the years
ended December 31, 1996, 1995 and 1994 for such services and operating lease obligations.
The Partnership is contingently liable for liquidating damages to one vendor with respect to a lease for
services for approximately $233 at December 31, 1996. The amount of the contingency decreases by approximately $8 for
each month the Partnership conducts live or simulcast racing operations. Pursuant to the terms of the agreement, the
Partnership is required to pay such liquidating damages upon demand should certain specified events occur. Those events
include, among other things, the appointment of a receiver, discontinuation of racing operations or the Partnership
ceasing to do business as a going concern.
The Partnership is involved in claims and litigation arising in the ordinary course of business. While there
are uncertainties inherent in the ultimate outcome of such matters and it is impossible to presently determine the
ultimate costs that may be incurred, management believes that the outcome of such matters should not have a material
adverse effect upon the Partnership's consolidated financial position, results of operation or liquidity.
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summary quarterly financial information for the years ended December 31, 1996, 1995 and 1994 is as follows:
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31 June 30 September 30 December 31
---------- -------- ------------ -----------
<S> <C> <C> <C> <C>
1996:
Revenues $ 4,598 $ 5,670 $ 4,818 $ 5,666
Loss before
reorganization
items and other
income (expense) (733) (313) (1,016) (528)
Reorganization items (29) (15) (41) 2
Net income (loss) (1,865) (1,559) (2,282) (1,916)<PAGE>
SAM HOUSTON RACE PARK, LTD.
1995:
Revenues $ 5,666 $ 3,592 $ 4,789 $ 5,632
Loss before
reorganization
items and other
income (expense) (810) (876) (1,112) (1,667)
Reorganization items (499) (875) (1,472) (46,069)
Extraordinary item - - - 63,780
Net income (loss) (4,059) (2,306) (2,951) 14,924
1994:
Revenues: $ - $ 7,798 $ 6,293 $ 6,474
Loss before
reorganization
items and other
income (expense) (1,613) (5,281) (2,223) (2,781)
Net income (loss) (3,126) (6,703) (4,567) (5,758)
/TABLE
<PAGE>
SAM HOUSTON RACE PARK, LTD.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information, as of
March 1, 1997, with respect to the executive officers of the
Partnership and the directors of the Managing General Partner.
PARTNERSHIP
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
James D. Noteware 44 President (1)
Robert L. Bork 58 Senior Vice President and General
Manager (2)
Ann M. McGovern 36 Vice President of Operations
James H. Paulin, Jr. 53 Vice President
Michael J. Vitek 34 Vice President of Accounting
</TABLE>
THE MANAGING GENERAL PARTNER
<TABLE>
<CAPTION>
Name Age Position
----------------- ------- ----------------------------------
<S> <C> <C>
Charles E. Hurwitz 56 Chairman of the Board
D. Kent Anderson 55 Director (3)
J. Kent Friedman 53 Director
James D. Noteware 44 Director
Paul N. Schwartz 50 Director
---------------
<FN>
(1) Mr. Noteware is not an employee of the Partnership, the Race Park or the Managing General Partner.
(2) Principal Executive Officer of the Partnership
(3) Until such time as the Extendible Notes are repaid, the Additional General Partner is entitled to
designate at least one-third of the directors of the Managing General Partner (the "AGP Directors"). D.
Kent Anderson currently serves as an AGP Director. John L. Hill, Jr. served as the second AGP Director
through December 31, 1996. As of March 1, 1997, the second AGP designated directorship is vacant. A
majority vote of the AGP Directors is required with respect to certain significant events (e.g. mergers,
consolidations, the sale of all or the substantial portion of the Partnership's assets, reorganizations,
incurrence of debt in excess of $5 million, and voluntary acts of insolvency).<PAGE>
</FN>
</TABLE>
SAM HOUSTON RACE PARK, LTD.
James D. Noteware has served as President of the
Partnership since August 1994. Mr. Noteware is also President
and a Director of the Managing General Partner. Mr. Noteware
previously served as interim General Manager of the Partnership
from November 1994 through October 1995. Mr. Noteware has served
as President and Chief Executive Officer of MAXXAM Property
Company ("MPC"), a wholly owned subsidiary of MAXXAM, since
January 1993. From November 1990 through December 1992, Mr.
Noteware was Chairman, President and Chief Executive Officer of
Phoenix Consulting, Inc., a real estate management and consulting
company. Mr. Noteware served as a national director in the Real
Estate Advisory Services Department of Price Waterhouse from
April 1991 through January 1993. Prior to November 1990, Mr.
Noteware served as National Director in the Real Estate Advisory
Services Department at Laventhol & Horwath.
Robert L. Bork has served as Senior Vice President and
General Manager of the Partnership since October 1995. Mr. Bork
previously served four years as Vice President General Manager
and Chief Operating Officer of Arlington International
Racecourse, Inc. in Arlington Heights, Illinois. Prior to such
time, Mr. Bork served as Vice President General Manager of
Philadelphia Park in Benslem, Pennsylvania and Garden State Park
in Cherry Hill, New Jersey. Mr. Bork is a director of the
Thoroughbred Racing Association of America, the Thoroughbred
Racing Protective Bureau and serves as Chairman of the
Thoroughbred Racing Association Technology Committee.
Ann M. McGovern has served as Vice President of
Operations of the Partnership since September 1994. Ms. McGovern
previously served for 11 years with the Racing Division of the
Edward J. De Bartolo Corporation, most recently as Director of
Operations at Remington Park in Oklahoma City, Oklahoma from
April 1991 to October 1994 and prior to that as the Assistant
Director of Operations since 1988.
James H. Paulin, Jr. has served as Vice President of
the Partnership since November 1993. Mr. Paulin has been the
Secretary Treasurer of Federated Development Company
("Federated") since May 1983, and Secretary of Federated since
March 1977. Federated is a New York business trust primarily
engaged in the management of real estate investments and, through
its position as a significant stockholder of MAXXAM, in the
businesses conducted by MAXXAM.
Michael J. Vitek has served as Vice President of
Accounting of the Partnership since November 1994. Mr. Vitek
previously served from April 1994 to November 1994 as Vice
President, Finance and Chief Financial Officer of Hysan<PAGE>
SAM HOUSTON RACE PARK, LTD.
Corporation, a chemical manufacturing and distribution company
and a subsidiary of Wedge Group, Inc., a private investment
company. Mr. Vitek previously served as Corporate Controller of
Wedge Group, Inc. from October 1991 to March 1994. He previously
served for six years with the public accounting firm of KPMG Peat
Marwick, most recently as a Senior Manager.
Charles E. Hurwitz is a Director and the Chairman of
the Board and President of the Managing General Partner. Mr.
Hurwitz has served as a member of the Board of Directors and the
Executive Committee of MAXXAM since August 1978 and was elected
as Chairman of the Board and Chief Executive Officer of MAXXAM in
March 1980. Since January 1993, Mr. Hurwitz has also served
MAXXAM as President. Mr. Hurwitz has served as a director of
Kaiser Aluminum Corporation ("Kaiser"), a majority-owned
subsidiary of MAXXAM, since October 1988, and as a director of
Kaiser Aluminum & Chemical Corporation ("KACC"), a fully
integrated aluminum producer that is a subsidiary of Kaiser,
since November 1988. Mr. Hurwitz is Chairman of the Board, Chief
Executive Officer and President of MAXXAM Group Inc. ("MGI"), a
wholly owned subsidiary of MAXXAM which is engaged in forest
products operations, and MGI's parent, MAXXAM Group Holdings Inc.
("MGHI"). Mr. Hurwitz has been, since January 1974, Chairman of
the Board and Chief Executive Officer of Federated.
D. Kent Anderson is a Director of the Managing General
Partner per the designation of the Additional General Partner.
Mr. Anderson has been the Executive Banking Officer of Compass
Bank since its April 1996 merger with Post Oak Bank. From 1991
until the merger, Mr. Anderson was Chairman of the Board and
Chief Executive Officer of Post Oak Bank. From 1988 through
October 1991, Mr. Anderson held several executive positions,
including Chairman of the Board, with First Interstate Bank of
Texas, N.A. Mr. Anderson is currently a Trustee and member of
the Board of Governors of Rice University. He has served on
several State of Texas committees and on the Board of of the
Greater Houston Partnership, the Texas Chamber of Commerce, and
the Texas Research League.
J. Kent Friedman is a Director of the Managing General
Partner. Mr. Friedman has been a partner of Mayor, Day, Caldwell
& Keeton, L.L.P., a Houston law firm, since 1982. Prior to such
time Mr. Friedman was a partner at Butler & Binion, a Houston law
firm. Mr. Friedman is a member of the Executive Committee of the
Board of Directors of the Houston Symphony, President of the
Friends of Hermann Park and Co-President of the Foundation for
Jones Hall.
Paul N. Schwartz is a Director and Vice President of
the Managing General Partner. Mr. Schwartz has served
as Executive Vice President and Chief Financial Officer of MAXXAM
since January 1995. Prior to that he served as Senior<PAGE>
SAM HOUSTON RACE PARK, LTD.
Vice President-Corporate Development of MAXXAM from June 1987 to
January 1995, as Vice President-Corporate Development from
July 1985 to June 1987 and as Vice President since 1982. Mr.
Schwartz also serves as a director and a Vice President and Chief
Financial Officer of MGHI, MGI, The Pacific Lumber Company
("Pacific Lumber"), a subsidiary of MGI engaged in forest products
operations, and Scotia Pacific Holding Company ("Scotia Pacific"),
a subsidiary of Pacific Lumber. Mr. Schwartz is a director of SLM
Funding Corporation, which is a subsidiary of the Student Loan
Marketing Association. Mr.Schwartz also serves as a director and
as President of United Financial Group, Inc., a Delaware public
corporation.
Directors of the Managing General Partner are elected
annually to serve for one year and until their successors are duly
elected, qualified, and approved by the Racing Commission. Each
director of the Managing General Partner is required to be approved
by the Racing Commission. The current directors of the Managing
General Partner have received the approval of the Racing Commission.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation information,
cash and non-cash, for each of the Partnership's last three
completed fiscal years with respect to (a) all individuals serving
as the Partnership's chief executive officer during the last fiscal
year, and (b) the other most highly compensated executive officers of
the Partnership (other than the current chief executive officer) who
were serving as executive officers of the Partnership at the end of
1996 and who received over $100,000 in aggregate salary and bonus in
respect of 1996.
<TABLE>
<CAPTION>
Annual Compensation
------------
(a) (b) (c) (d) (e) (f)
<S> <C> <C> <C> <C> <C>
Other Annual
Compensation All Other
Salary Bonus (1) Compensation
Name and Principal Year ($) ($) ($) ($)
Position --------- ------------ --------- ------------ -------------
Robert L. Bork (2) 1996 200,000 41,250 - 4,806(3)<PAGE>
SAM HOUSTON RACE PARK, LTD.
Senior Vice 1995 36,923 -0- - -0-
President and
General Manager
Ann McGovern 1996 110,000 15,000 - -0-
Vice President of 1995 110,000 25,000 - 12,210(3)
Operations 1994 29,608(4) -0- - 5,838(3)
Michael J. Vitek 1996 90,000 15,000 - -0-
Vice President of 1995 90,000 25,000 - -0-
Accounting 1994 11,250(5) -0- - -0-
---------------
<FN>
(1) Excludes perquisites and other personal benefits because the aggregate amount of such compensation is the
lesser of either $50,000 or 10% of the total of annual salary and bonus reported for the named executive
officer. Mr. Bork served as chief executive officer of the Partnership during 1996.
(2) Mr. Bork commenced his employment with the Partnership on October 25, 1995.
(3) Reflects reimbursement of moving related expenses.
(4) Ms. McGovern commenced her employment on September 23, 1994.
(5) Mr. Vitek commenced his employment on November 16, 1994.
</FN>
/TABLE
<PAGE>
SAM HOUSTON RACE PARK, LTD.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
Agreements have been entered into with each of Messrs.
Bork and Vitek and Ms. McGovern regarding their employment. Mr.
Bork's agreement provides for a base annual salary of $200,000
and a bonus of $25,000 on the first anniversary date of his
employment. The agreement further provides that commencing the
second year of employment he will participate in an executive
compensation plan of the Partnership. Mr. Bork's agreement also
provided for payment of certain relocation expenses. The
incentive compensation plan referred to above was provided for in
general terms pursuant to the bankruptcy reorganization plan;
however, no specific details have been proposed or formulated to
date with respect to such an incentive plan. Ms. McGovern's
agreement provides for a base annual salary of $110,000 per year,
a discretionary bonus of $10,000 in the first year of employment
and the payment of certain relocation expenses. The agreement
also indicated that Ms. McGovern would be considered for
inclusion in the prior employee incentive program of the
Partnership. Mr. Vitek's agreement provides for a base annual
salary of $90,000 and a discretionary bonus of $15,000 after the
first year of employment.
COMPENSATION OF DIRECTORS AND POLICY COMMITTEE MEMBERS
Messrs. Anderson and Friedman receive $25,000 per year,
plus reimbursement of expenses, as compensation for their
services. The other directors of the Managing General Partner
are reimbursed for their expenses but are not otherwise
compensated by the Partnership for their services as such.<PAGE>
SAM HOUSTON RACE PARK, LTD.
COMPENSATION COMMITTEE REPORT
SHRP General Partner, Inc. has been the managing
general partner of the Partnership since the consummation of the
Partnership's bankruptcy reorganization plan in October 1995.
The names appearing below are all of the directors of SHRP
General Partner, Inc. The entire Board of Directors of SHRP
General Partner, Inc. acts with respect to compensation matters
as no compensation committee has been appointed.
Given the exigent circumstances under which the
Partnership operated beginning shortly after the opening of Sam
Houston Race Park, and the need to replace its initial on-site
management team, the Boards of SHRP General Partner, Inc. and its
predecessor were required to address needs for executive
leadership on an individual basis without the benefit of being
able to fully develop a complete policy for executive
compensation. Accordingly, each of the executive officers named
in the Summary Compensation Table was retained and are
compensated in accordance with their respective individual
employment letter agreements. In reaching those agreements, the
customary levels and types of pay prevalent for such positions in
the horse racing industry were considered and served as
guidelines. The individual salary histories and previous
experience of the executives were also considered as was the
timing within which the Partnership needed to replace previously
discharged executives. Other than participation in a group
health insurance program which is partially employer-provided,
the only non-salary direct compensation being provided to such
executives are incentive bonuses. Executives may be considered
for a bonus on an annual basis. Although discretionary, bonuses
granted in the past have been generally in the range of 5% to 15%
of annual salary. The President of the Partnership outlines
functions and goals for each executive officer and may recommend
a proposed bonus level to the Board. The Board considers a
variety of factors in determining whether to accept the
President's recommendations. Due to the financial condition of
the Partnership it is the current policy of the Board to consider
salary increases for executives on a promotion or exception basis
only, subject to approval of the Board.
D. Kent Anderson
J. Kent Friedman
Charles E. Hurwitz
James D. Noteware
Paul N. Schwartz<PAGE>
SAM HOUSTON RACE PARK, LTD.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
THE PARTNERSHIP
The following table sets forth the beneficial ownership
of partnership interests in the Partnership as of March 15, 1997
of (i) each person known by the Partnership to beneficially own
five percent or more of the outstanding partnership interests,
(ii) each director of the Managing General Partner who owns a
partnership interest, and (iii) all directors and officers of the
Managing General Partner and the Partnership as a group. Except
as otherwise indicated below, each of the persons named in the
table has sole voting and investment power with respect to the
partnership interest shown as beneficially owned by him.
<TABLE>
<CAPTION>
Aggregate
Name and Address of Partnership
Beneficial Owner Type of Interest Interest
<S> <C> <C>
New SHRP Acquisition, Limited Partner 64.8%
Inc. (1)
SHRP Equity, Inc. (2) Additional General 33.3%
Partner
---------------
<FN>
(1) MAXXAM owns all of the issued and outstanding
shares of common stock of New SHRP Acquisition,
Inc. Mr. Charles E. Hurwitz and a wholly owned
subsidiary of Federated Development Company
("Federated") collectively own 99.1% and 31.3% of
MAXXAM's Class A preferred stock and common stock,
respectively (resulting in a combined voting
control of 61.1%). Mr. Hurwitz is the Chairman of
the Board, President and Chief Executive Officer
of MAXXAM and Chairman and Chief Executive Officer
of Federated. Federated is wholly owned by Mr.
Hurwitz, members of his immediate family and
trusts for the benefit thereof.
(2) The outstanding shares of stock of SHRP Equity,
Inc. were issued to the holders of allowed
unsecured claims in connection with the bankruptcy
proceedings of the Partnership. Sam Houston
Entertainment Corp., a wholly owned subsidiary of
MAXXAM, beneficially owns 68.2% of the issued and
outstanding stock of SHRP Equity, Inc. which
equates to a 22.7% interest in the Partnership.
/FN
<PAGE>
SAM HOUSTON RACE PARK, LTD.
</TABLE>
THE MANAGING GENERAL PARTNER
Sam Houston Entertainment Corp., a wholly owned
subsidiary of MAXXAM, owns all of the Common Stock of the
Managing General Partner of which 3,000 shares are currently
issued and outstanding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain of the respective affiliates of the Partnership
and the Managing General Partner provide legal, financial,
corporate development and other services to the Partnership and
the Managing General Partner from time to time. Compensation
paid for the services of such affiliates are on terms as
favorable to the Partnership or the Managing General Partner, as
the case may be, as are available in an arms-length transaction
with a non-affiliated third party. As of March 1, 1997, MAXXAM
and its subsidiaries have received an aggregate of $510,931 in
respect of such services performed in 1996.
J. Kent Friedman, Independent Director, is a partner of
a law firm that has provided services to the Partnership. In
addition, such law firm has represented MAXXAM in various matters
not related to the Race Park. The Partnership has an agreement
with Mr. Friedman's law firm to coordinate legislative efforts.
As of March 1, 1997, Mr. Friedman's law firm has received an
aggregate of $120,000 in respect of such services performed in
1996.
See also Notes 8 and 9 to the Consolidated Financial
Statements appearing in Item 8.<PAGE>
SAM HOUSTON RACE PARK, LTD.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(A) INDEX TO FINANCIAL STATEMENTS PAGE
1. FINANCIAL STATEMENTS (APPEARING IN ITEM 8):
Report of Independent Auditors 17
Consolidated balance sheets at
December 31, 1996 and 1995 18
Consolidated statements of operations for the
three years ended December 31, 1996 19
Consolidated statements of partners' capital
(deficit) for the three years ended
December 31, 1996 20
Consolidated statements of cash flows for
the three years ended December 31, 1996 21
Notes to consolidated financial statements 22
2. FINANCIAL STATEMENT SCHEDULES:
All schedules are inapplicable or the required information
is included in the financial statements or the notes thereto.
(B) REPORTS ON FORM 8-K
None.
(C) EXHIBITS
Reference is made to the Index of Exhibits immediately
preceding the exhibits hereto (beginning on page 41) which index
is incorporated herein by reference.<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.
SAM HOUSTON RACE PARK, LTD.
Date: March 28, 1997 By: /S/ MICHAEL J. VITEK
--------------------------------
Michael J. Vitek, Vice President
of Accounting
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Date: March 28, 1997 By: /S/ ROBERT L. BORK
--------------------------------
Robert L. Bork, General Manager
(Principal Executive Officer)
Date: March 28, 1997 By: /S/ MICHAEL J. VITEK
--------------------------------
Michael J. Vitek, Vice President
of Accounting
(Principal Financial and
Accounting Officer)
SAM HOUSTON RACE PARK, LTD.
By: SHRP General Partner, Inc.
its Managing General Partner
Date: March 28, 1997 By: /S/ CHARLES E. HURWITZ
--------------------------------
Charles E. Hurwitz, Chairman of
the Board
Date: March 28, 1997 By: /S/ PAUL N. SCHWARTZ
--------------------------------
Paul N. Schwartz, Director<PAGE>
Date: March 28, 1997 By: /S/ JAMES D. NOTEWARE
--------------------------------
James D. Noteware, Director
Date: March 28, 1997 By: /S/ D. KENT ANDERSON
--------------------------------
D. Kent Anderson, Director
Date: March 28, 1997 By: /S/ J. KENT FRIEDMAN
--------------------------------
J. Kent Friedman, Director<PAGE>
INDEX OF EXHIBITS
Exhibit
Number Description
3.1 Third Amended and Restated Limited Partnership
Agreement of Sam Houston Race Park, Ltd. dated October
6, 1995 (incorporated herein by reference to Exhibit
3.1 to the Partnership's Form 10-Q dated September 30,
1995)
4.1 Amended and Restated Indenture dated October 6, 1995
by and among the Partnership, New SHRP Capital Corp.,
SHRP General Partner, Inc. and First Bank National
Association, Trustee ("Trustee"), including the
related form of Note (incorporated herein by reference
to Exhibit 4.1 to the Partnership's Form 10-Q dated
September 30, 1995)
4.2 Amended and Restated Deed of Trust, Assignment,
Security Agreement and Financing Statement dated
October 6, 1995 among the Partnership, Richard
Prokosch, as Trustee, and First Bank National
Association, as Mortgagee (incorporated herein by
reference to Exhibit 4.2 to the Partnership's Form 10-
Q dated September 30, 1995)
4.3 Deed of Trust, Assignment, Security Agreement and
Financing Statement dated October 6, 1995 among the
Partnership, Richard Prokosch, as Trustee, and First
Bank National Association, as Mortgagee (incorporated
herein by reference to Exhibit 4.3 to the
Partnership's Form 10-Q dated September 30, 1995)
4.4 Amended and Restated License Negative Pledge dated
October 6, 1995 executed by the Partnership in favor
of Trustee (incorporated herein by reference to
Exhibit 4.4 to the Partnership's Form 10-Q dated
September 30, 1995)
4.5 Amended and Restated Real Estate Tax Escrow and
Security Agreement dated October 6, 1995 among the
Partnership, Trustee and Charter Bank-National
Association ("Charter Bank") (incorporated herein by
reference to Exhibit 4.5 to the Partnership's Form 10-
Q dated September 30, 1995)
9 Voting Agreement dated October 6, 1995 among SHRP
General Partner, Inc., Sam Houston Entertainment
Corp., SHRP Equity, Inc. and MAXXAM Inc. (incorporated
herein by reference to Exhibit 9 to the Partnership's
Form 10-Q dated September 30, 1995)<PAGE>
10.1 Form of Line of Credit Agreement dated October 6, 1995
between the Partnership and certain lenders (the "Line
of Credit Agreement") (incorporated herein by
reference to Exhibit 10.1 to the Partnership's Form
10-Q dated September 30, 1995)
10.2 Form of Cash Escrow Agreement with respect to the Line
of Credit Agreement (incorporated herein by reference
to Exhibit 10.2 to the Partnership's Form 10-Q dated
September 30, 1995)
10.3 Guaranty of MAXXAM Inc. dated October 6, 1995 in favor
of the Partnership with respect to the obligations of
SHRP General Partner, Inc. under the Line of Credit
Agreement (incorporated herein by reference to Exhibit
10.3 to the Partnership's Form 10-Q dated September
30, 1995)
10.4 Registration Rights Agreement dated October 6, 1995
among the Partnership, SHRP Equity, Inc. and First
Bank National Association (incorporated herein by
reference to Exhibit 10.5 to the Partnership's Form
10-Q dated September 30, 1995)
10.5 Exchange Agreement dated October 6, 1995 among the
Partnership, SHRP Capital Corp., New SHRP Capital
Corp., SHRPAcquisition, Inc., SHRP Equity, Inc. and
First Bank National Association, as Exchange Agent
(incorporated herein by reference to Exhibit 10.6 to
the Partnership's Form 10-Q dated September 30, 1995)
10.6 Instrument of Adherence of MAXXAM Inc. dated October
6, 1995 (incorporated herein by reference to Exhibit
10.7 to the Partnership's Form 10-Q dated September
30, 1995)
10.7 Instrument of Adherence of Charles E. Hurwitz dated
October 6, 1995 (incorporated herein by reference to
Exhibit 10.8 to the Partnership's Form 10-Q dated
September 30, 1995)
10.8 Escrow Agreement dated October 6, 1995 among the
Partnership, SHRP Acquisition, Inc., SHRP Capital
Corp., SHRP Equity, Inc., SHRP General Partner, Inc.
and First Bank National Association, as Escrow Agent
(incorporated herein by reference to Exhibit 10.9 to
the Partnership's Form 10-Q dated September 30, 1995)
10.9 Horsemen's Agreement dated April 29, 1994 between the
Texas HBPA and the Partnership (incorporated herein by
reference to Exhibit 10.26 to the Partnership's Form
10-Q for the quarter ended June 30, 1994)<PAGE>
10.10 Memorandum of Agreement, dated July 22, 1994 between
the Texas HBPA and the Partnership (incorporated
herein by reference to Exhibit 10.27 to the
Partnership's Form 10-Q for the quarter ended June 30,
1994)
10.11 Second Amendment to Horsemen's Agreement between the
Texas HBPA and the Partnership (incorporated herein by
reference to Exhibit 10.29 to the Partnership's Form
10-Q for the quarter ended September 30, 1994)
10.12 Third Amendment to Horsemen's Agreement between the
Texas HBPA and the Partnership (incorporated herein by
reference to Exhibit 10.16 to the Partnership's Form
10-K dated December 31, 1996)
*10.13 Horsemen's Agreement dated November 26, 1996 between
Texas Thoroughbred HBPA, Inc. and the Partnership
10.14 Totalisator Services Agreement dated October 8, 1992
between Autotote Systems, Inc. and the Partnership
(incorporated herein by reference to Exhibit 4.2 to
Amendment No 1 to the SHRP Registration Statement)
10.15 Promissory Note dated December 13, 1994 by the
Partnership in favor of Harris County, Texas
(incorporated herein by reference to Exhibit 10.41 to
the Partnership's Form 10-K for the year ended
December 31, 1994)
10.16 Satellite Transmission Agreement dated May 20, 1994
between the Partnership and Autotote Systems, Inc.
(incorporated herein by reference to Exhibit 10.43 to
the Partnership's Form 10-K for the year ended
December 31, 1994)
10.17 Agreement dated December 3, 1993 between the
Partnership and International Sound Corporation
(incorporated herein by reference to Exibit 10.45 to
the Partnership's Form 10-K for the year ended
December 31, 1994)
10.18 Lease Agreement dated November 23, 1993 by and between
the Partnership and Sports Data Systems, Inc.
(incorporated herein by reference to Exibit 10.46 to
the Partnership's Form 10-K for the year ended
December 31, 1994)
10.19 Project Proposal dated January 6, 1994 among the
Partnership, TSNS and Daily Racing Form (incorporated
herein by reference to Exibit 10.47 to the
Partnership's Form 10-K for the year ended December
31, 1994)<PAGE>
10.20 Equipment Lease dated January 21, 1994 by and between
the Partnership and True Center Gate Leasing, Inc.
(incorporated herein by reference to Exibit 10.48 to
the Partnership's Form 10-K for the year ended
December 31, 1994)
*10.21 Letter Agreement dated February 23, 1996 between Mayor
Day, Caldwell & Keeton, L.L.P. and the Partnership
* 10.22 Amendment to letter agreement dated Janurary 31, 1997
between Mayor Day, Caldwell & Keeton, L.L.P. and the
Partnership
*10.23 Consulting Agreement dated January 1, 1997 between
Stan Schlueter and the Partnership
*10.24 Alcoholic Beverage Concession Agreement dated
September 19, 1996 between 97, Inc. and the
Partnership
Executive Compensation Plans and Arrangements
10.25 Employment Agreement, dated November 24, 1992 between
MAXXAM Property Company and James D. Noteware
(incorporated herein by reference to Exhibit 10.33 to
the Partnership's Form 10-K for the year ended
December 31, 1994)
10.26 Letter Agreement, dated August 19, 1994 between the
Partnership and Ann M. McGovern (incorporated herein
by reference to Exhibit 10.34 to the Partnership's
Form 10-K for the year ended December 31, 1994)
10.27 Letter Agreement, dated November 11, 1994 between the
Partnership and Michael J. Vitek (incorporated herein
by reference to Exhibit 10.35 to the Partnership's
Form 10-K for the year ended December 31, 1994)
10.28 Agreement between the Partnership and Robert L. Bork.
(incorporated herein by reference to Exhibit 10.10 to
the Partnership's Form 10-Q dated September 30, 1995)
---------------
* Included with this filing.<PAGE>
HORSEMEN'S AGREEMENT
BETWEEN TEXAS THOROUGHBRED HBPA, INC.
AND SAM HOUSTON RACE PARK, LTD.
This contract made as of January 1, 1997, the "Effective Date,"
represents the understandings and agreements by and
between Sam Houston Race Park, Ltd. a racing association (hereinafter
"SHRP") which holds the license to operate a horse racetrack Sam Houston Race
Park (the "Racetrack"), and the Texas Thoroughbred HBPA, Inc. (hereinafter
"TTHBPA").
SHRP and the TTHBPA agree that they are each interested in: (1) the
advancement, maintenance, promotion and improvement of thoroughbred racing,
in particular, and horse racing in general in the State of Texas; (2) the
generation and retention of good will of the public toward horse racing; (3)
the conduct of horse racing in the State of Texas and at SHRP on the highest
possible plane of integrity through the establishment and maintenance of high
standards of fairness, honesty and accountability, and (4) the orderly
commencement and conduct of horse racing at SHRP without disruption,
interference or distraction.
The parties further agree to the following terms and conditions:
1. TERM OF CONTRACT
A. This contract shall be in effect and binding upon the parties
for all of the thoroughbred race meetings conducted by SHRP commencing from and
after the Effective Date of this agreement and extending through December 31,
1999 unless earlier terminated by agreement of the parties. The agreement
also may be extended pursuant to Section 2B contained herein and except that
this agreement shall be extended and hereby is extended through December 31,
2000, solely for the purposes set forth in Section 11.
B. A live thoroughbred race meeting or meet shall mean those
consecutive weeks approved for live racing by the Texas Racing commission
during which SHRP is authorized to conduct a live racing program on specified
days during those weeks, together with simulcasting conducted during that
period, and shall include a reasonable period of time not to exceed 30 days
before the commencement of such meet and after the ending of such meet to
effectuate the purposes of this agreement.
C. A dark day simulcast meeting or meet shall be defined as the
period of time during which no live racing is being conducted, and SHRP is
not authorized by the Texas Racing Commission to conduct live racing.
D. TTHBPA is a partner in Texas Horsemen's Partnership, L.L.P.,
which is the officially recognized horsemen's organization in the State of
Texas.
2. EXCLUSIVE REPRESENTATIVE
A. The parties further agree that the TTHBPA, Inc. is the
representative group for owners and trainers ("Horsemen") running
thoroughbreds in the State of Texas. SHRP agrees to recognize the TTHBPA as
the exclusive and sole representative of the owners and trainers starting
thoroughbreds in races at SHRP during the term of this agreement, and
further agrees that with respect to all matters pertaining to thoroughbred
racing at SHRP, as the same shall affect owners and trainers, TTHBPA shall be
deemed by SHRP to be the appropriate party in interest to represent the
interests of thoroughbred horsemen. TTHBPA acknowledges that SHRP grants
said exclusive and sole representation based on TTHBPA's assertion that it
does in fact represent a majority of the owners and trainers starting horses
in races at SHRP during the term of this agreement.
B. Prior to the conclusion of this agreement, SHRP and TTHBPA
will meet to attempt in good faith to negotiate a successor agreement.
Absent a successor agreement, this agreement shall continue to govern the
relationship between the parties unless terminated by any party hereto,
provided that such termination shall be upon thirty (30) days written notice.
C. TTHBPA agrees that during the term of this agreement TTHBPA
will not utilize nor counsel or encourage its members to strike, embargo,
boycott or employ similar tactics in dealing with SHRP on matters concerning
or affecting Horsemen and their relationship to SHRP.
D. SHRP agrees to provide the TTHBPA with adequate office space
near the racing office accessible to the Horsemen. (All TTHBPA furniture,
telephone and other office expenses shall be the sole responsibility of
TTHBPA.) TTHBPA shall have the right to control access to this space during
the term of this agreement, subject to the rules and regulations of the Texas
Racing Commission, other governmental entities, and rules and security
procedures of SHRP in effect from time to time.
E. TTHBPA agrees that it will encourage its members and employees
to abide by rules enacted by SHRP with respect to conduct and appearance on
the SHRP premises.
F. TTHBPA agrees that it will encourage its own personnel and
others at the barns, dorms and on other premises of SHRP to properly care for
the premises and the improvements thereon and to comply with applicable laws
and SHRP's "pollution prevention program" including the removal of manure and
trash and the placement of the same in assigned containers, and the
compliance of all horse owners, trainers, and their employees with the rules
and regulations of the Texas Racing Commission, including rules with respect
to drug and alcohol use.
G. TTHBPA has reviewed SHRP's form of stall application and will
act consistent with the terms thereof and will encourage all horse owners and
trainers assigned stalls at SHRP to honor and abide by the terms of such
stall application.
H. TTHBPA hereby consents to SHRP televising, broadcasting,
preserving on film, replaying or rebroadcasting races to the public for
promotional purposes and using the images of its members, employees and
staff, provided such consent is not deemed an agreement for simulcasting or
for any use involving any form of wagering. SHRP will disclose upon request
to TTHBPA the direct revenue SHRP receives from any broadcast, rights, or
distribution fees generated from live or taped races.
3. DISTRIBUTION OF PURSE MONIES
A. The purse funds from each race meeting shall be distributed as
set forth in Section 3 and Section 4 of this agreement.
B. The "Horsemen's Purse Allocation" includes (1) all funds
generated from the percentage of the daily live handle payable to owners of
horses under the Texas Racing Act, (2) all funds attributed to purses
resulting from distribution under provisions of the Texas Racing Act as a
result of simulcasting, and (3) simulcasting revenue directed to purses from
fees collected from export of SHRP's live racing signal and shall be paid as
herein provided subject only to the overpayment/underpayment provisions of
this section.
C. The "Horsemen's Purse Allocation" and the Horsemen's Purse
Account are recognized as trust funds held in a fiduciary capacity for
benefit of persons who may become entitled to receive purses or who may
otherwise become entitled thereto under this agreement or by operation of law.
The "Horsemen's Purse Allocation" shall be deposited to the
Horsemen's Purse Account or other separate trust accounts designated for the
escrow of funds not required to be distributed during the current live
meeting within three (3) business days after the end of the week's racing
program in which the funds are accrued.
Funds accrued during the term of this agreement, which are to be
distributed to the owners of any breed of horse not participating during a
particular live race meeting, shall be maintained in the appropriate trust
funds for race meetings which include the appropriate breed of horses.
Purse funds may be used only in accordance with the written
agreement of the parties, if different from the provision herein set forth.
Any such agreement, when executed, is incorporated herein by reference as if
fully set forth.
No part of any funds allocated to any races from the purse fund
shall be subject to any surcharge, expense, charge or deduction by SHRP for
any reason whatsoever except the payments set forth in Sections 4, 5 and 10
hereinafter.
SHRP shall account to TTHBPA for purse funds, and the books of
account for purse funds shall be open to inspection by TTHBPA at reasonable
times and upon reasonable notice. Reasonable notice is defined as not less
than 72 hours prior to inspection, unless the 72-hour period falls on a
weekend or holiday in which case reasonable notice would include not less
than two full business days. TTHBPA shall have the right to audit such books
and records upon reasonable notice at the expense of the TTHBPA.
In the event a discrepancy is discovered by audit, which requires
an increase in the amount paid by SHRP to the Horsemen's Purse Account of at
least seven and one-half percent (7.5%), SHRP shall reimburse TTHBPA for the
actual expense of such audit. It is further agreed that the maximum
liability for reimbursement of audit expense shall not be more than Five
Thousand Dollars ($5,000.00).
D. In addition to the funds representing the Horsemen's Purse
Allocation that shall be deposited to the Horsemen's Purse Account as set
forth above, SHRP shall, at the same time, deposit such funds as are
necessary to the Horsemen's Purse Account to fulfill its contractual
commitment to the Horsemen for the races conducted in the prior week.
In the case of a sponsored stakes race or other prepayment race
administered by a person or organization other than SHRP, the funds provided
from a source outside SHRP shall be deposited in the Horsemen's Purse Account
prior to the running of the race. In the event such race/races have either
eliminations or trials, the total amount due from sources other than SHRP
shall be deposited prior to the running of any eliminations or trials in
connection with the race event. In the event sponsor money is not deposited
prior to the running of the race, SHRP shall notify the TTHBPA. SHRP shall
assume no liability with respect to sponsorship contributed purse money.
E. SHRP shall make available purse monies earned in individual
races within 24 hours after a race is completed for all owners of horses that
were not subjected to blood or urine testing, or that the stewards have not
placed an official hold, by order, upon the purses involved in a specific
race. Purse monies shall be made available to owners immediately after
stewards have released and declared that the race is "Official" and/or the
blood and urine tests are completed and cleared. Funds may not be deducted
from a horsemen's account to pay pending purse expenses until the race is
"Official."
F. Prior to the start of each live meet, SHRP shall estimate
the projected handle and other sources of horsemen's purse allocation
utilizing the best information available that is deemed by SHRP and TTHBPA
to be reliable. Such information shall be provided to the TTHBPA and SHRP
agrees to consult with TTHBPA in determining the daily allocation for
distribution of purse funds projected to be available during the live meet.
G. The parties agree that during any race meeting during the
term of this agreement the racing secretary shall submit to the TTHBPA a
purse distribution schedule detailing the purse level for each class and
category of races to be conducted during each race meeting not less than 60
days prior to the beginning of the live race meeting accompanied by a
proof of the proposed first condition book.
Prior to the publication of the first condition book and each successor
condition book for each race meet, the TTHBPA shall be in receipt of a proof
at least 72 hours prior to publication in order to have an opportunity to
recommend any changes for consideration. Any recommendations shall be
presented to the racing secretary within 72 hours of receipt of the proof.
H. During the term of this agreement, the parties agree that of
the total monies allocated annually to purses pursuant to Section 3 for each
breed participating in a live race meeting, not more than twenty-five percent
(25%) shall be allocated for payment in stakes races provided, however, that
any race which is denominated as a stakes race with a purse allocation above
the highest published overnight race and is the minimum requirement for black
type for thoroughbreds shall not be charged against the stakes allocation as
set forth herein. Not more than fifteen percent (15%) of the total stakes
allocation shall be used to supplement any single race without the consent of
the TTHBPA.
SHRP shall provide to TTHBPA its projected stakes program at least 30
days prior to the publication of the (stakes) condition book for each live
race meeting during the term of this agreement and consistent with the above
defined formula.
The stakes schedule shall represent the total amount of guaranteed
and/or added money to be distributed from the Horsemen's Purse Allocation for
stakes races.
It is further understood that all money generated from nomination and
entry fees for races sponsored and conducted by SHRP with guaranteed purses
will be used first to cover the guaranteed purse amount. In the event the
fees collected are insufficient to meet the guaranteed purse requirement, the
balance shall be debited against the Horsemen's Purse Allocation.
I. In the event the amount generated for the Horsemen's Purse
Allocation is significantly higher or lower than amounts projected, SHRP may
adjust the purse schedule in an attempt to bring the amount generated for
purses in line with the amount paid to horsemen. In the event a decrease in
purses is necessary, SHRP shall adjust overnight purses on a pro-rata
basis of the original purse distribution schedule and still maintain the
proportionate allocation of overnight purses to stakes purses as set forth in
paragraph H after consultation with TTHBPA.
J. SHRP shall maintain an account for thoroughbred purses funds
during the term of the agreement on an annual basis. At such annual
accounting, SHRP shall not have overpaid thoroughbred purses by more than
$300,000 for that year's meetings. To the extent the overpayment exceeds the
above calculation, such shortage over $300,000 shall be paid by SHRP,
except in the event the overpayment is in excess of $300,000 as a result of
SHRP being unable to conduct live racing or an approved simulcasting program
as a result of an act of "force majeure'. Force majeure shall be defined as
acts beyond the reasonable control of SHRP that prevent the conduct of live
racing or an approved simulcasting program at, including, by way of
illustration and not in limitation, destruction of the premises, civil
strife, hurricane or other such event.
The amount under $300,000 represented by the overpayment shall be
carried forward to the next live race meeting conducted by SHRP for the
particular breed.
Should an underpayment exist for any breed's purse account in excess of
$300,000 at the end of any meet, such underpayment shall be paid as
hereinafter provided, unless SHRP and TTHBPA reach an agreement to carry
forward an amount greater than $300,000.
If paid retroactively, the underpayment shall be paid to the Horsemen
having horses that ran in the meet that earned overnight money finishing
first through fifth, inclusively (60%-20%-11%-6%-3%).
To the extent that the underpayment is less than $300,000 such sums
shall be carried forward to the next meet at SHRP.
K. All money held and carried over shall be deposited in an
insured, interest-bearing account until it is needed for the payment of
purses in the next meet of the particular breed. All interest earned on
such account, less reasonable and customary bank charges, shall be paid
monthly to the Texas Horsemen's Partnership, L.L.P.
L. SHRP will provide complete weekly information to the TTHBPA
regarding daily pari-mutuel handle, average daily handle to date, stakes
percentages, purse percentages, etc. (Complete daily payout sheet), as
requested by the TTHBPA.
4. TTHBPA EXPENSES AND BENEVOLENCE
A. SHRP shall deduct from the total gross interstate guest handle
derived from simulcasting an amount equal to .0015 (.15%) to be paid monthly to
the Texas Horsemen's Partnership, L.L.P. for operational expenses and
benevolence within 10 days for the preceding month. Such amount shall come
from the purse allocation set forth in Section 10(B). By mutual consent, the
.0015 may be adjusted.
B. Further, through this contractual arrangement, and within 10
days following the end of each month, TTHBPA shall receive two percent (2%)
of monthly earnings credited for the preceding month to member owner's
accounts for expenses and benevolence.
TTHBPA further agrees to indemnify SHRP from any claim of liability
made by any such owner who shall have opted out of membership in TTHBPA as
set forth above and shall have won a purse.
5. HORSEMEN'S PURSE ACCOUNT
As designated by the TTHBPA, all Horsemen's monies inclusive of the
Horsemen's Purse Allocation, simulcasting purse allocation, and monies owed
by SHRP shall be deposited or invested in an interest-bearing account and in
accordance with Section 3C hereof and Section 309.199 of the Texas Rules of
Racing, or in other investments, which the TTHBPA and SHRP consider
reasonable in light of available interest rates and needed liquidity of the
account. Monies derived as interest from these investments, less reasonable
and customary bank charges, will be paid to the Texas Horsemen's Partnership,
L.L.P. In addition to the .0015 (.15%) provided for in Paragraph 4 of this
agreement, said interest will be paid monthly to the Texas Horsemen's
Partnership, L.L.P. no later than the 10th day of each month.
6. OPENING OF FACILITIES
A. SHRP will open its facilities at least twenty (20) days prior
to the first meet of the year for use by Horsemen. From the time backside
facilities (kitchen, barns, main track, horse walkers, etc.) are opened, the
track will be maintained six (6) days a week so that it is in racing
condition for use by the Horsemen. The barn area will remain open for
use by Horsemen five (5) days after each race meeting is concluded.
B. SHRP agrees to provide bathrooms and a track kitchen in the
stable area or the area immediately adjacent. The track kitchen will maintain
hours of operation consistent with race day schedules and backside training
hours.
7. UNIFORM SCRATCH RULE
The scratch rules will be in each condition book. Scratch rules will
not be changed with less than seven (7) days advance notice to Horsemen
without the agreement of the TTHBPA.
8. INVESTIGATIONS AND SEARCHES
SHRP agrees that SHRP personnel will not conduct any searches of any
Horsemen, their employees, servants and/or agents or their property without
the attendance of a Horsemen's representative and/or supervision of officials
of the Texas Racing Commission or other governmental agencies having
jurisdiction, except in an emergency situation which constitutes a threat to
the security of the premises, a threat to life or limb of a person or animal,
or a threat to the integrity of racing.
9. RACE CANCELLATION
A. SHRP shall use the conditions published in the condition book
prior to using any races written as substitutes or extras whenever there are
sufficient entries, according to Texas Racing Commission rules, in setting
the card for each day's racing program.
B. Upon cancellation of any race in the condition book, the number
of horses which were entered in such race shall be posted, or announced in the
SHRP Race office before each day's draw following the cancellation.
C. Cancellation of a race other than an overnight race, if any,
shall be accomplished with as much notice by SHRP to the entrants and the
TTHBPA as reasonably possible.
10. SIMULCASTS
A. All simulcasting shall be governed by the rules of the Texas
Racing Commission, the Interstate Horse Racing Act, and the provisions of
this agreement. The TTHBPA hereby approves interstate and intrastate
simulcasting, both import and export, subject to withdrawal of approval only
for matters involving the integrity or the best interests of racing providing
SHRP conducts at least 60 live racing programs during a calendar year.
B. SHRP shall allocate for purses the following percentage of the
total commissions from any simulcast:
a. for a simulcast race conducted in 1997, 30.0%
b. for a simulcast race conducted in 1998, 31.0%
c. for a simulcast race conducted in 1999, 32.5%
The parties to this agreement acknowledge that there was some
discussion of a possible 5-year arrangement at the meeting of the Texas
Racing Commission held on Friday, November 1, 1996. The parties intend this
agreement to cover only the periods herein specified and each disclaims any
agreement concerning simulcasting beyond the periods herein stated.
C. No rebroadcasting of a signal received by SHRP shall be allowed
without the express written agreement of the TTHBPA nor shall SHRP permit any
location receiving its signal to rebroadcast or distribute that signal as it
relates to wagering without the consent of the TTHBPA.
11. THOROUGHBRED PURSE OVERPAYMENT
Notwithstanding any prior understandings to this contract, it is hereby
agreed that SHRP shall be and is hereby entitled to recover from the
thoroughbred horsemen's purse funds, previous overpayment amounts according
to the following schedule:
December 31, 1999 $660,000.00
December 31, 2000 $631,000.00
Balance due $1,291,000.00
Recovered to date $309,000.00
Total Recoupment $1,600,000.00
12. HORSEMEN'S SEATING AREA
SHRP shall provide free of charge to Horsemen not less than 27 seats
located in reasonable proximity to the Winner's Circle for use by Horsemen
and their employees. Said seats shall be clearly designated and policed by SHRP
for Horsemen only.
13. GUEST PASSES
SHRP shall provide, free of charge, six (6) daily guest passes to the
grandstand for guests of those owners or trainers who are licensed and
currently have horses running at SHRP. Owners or trainers will sign for
these passes and accept responsibility for those guests, subject to the rules
and regulations of the Texas Racing Commission and SHRP.
14. CHAPLAIN SERVICES
SHRP and TTHBPA agree to pay equal amounts to help support the
Chaplain's services at SHRP. This contribution shall be in addition to any
special events or "Charity Days" scheduled to benefit the Chaplaincy program.
All sums due pursuant to this provision shall be paid to the Race Track
Chaplaincy of Texas monthly by the parties.
15. FIRST AID STATION
SHRP agrees to provide emergency first aid to all backstretch personnel
and ambulance service in accordance with Texas Racing Commission regulations.
(Such treatment shall be subject to a release and waiver of liability from the
treated party and without any liability to either SHRP or the TTHBPA.
16. ADDRESSING OF PROBLEMS
The TTHBPA and SHRP shall address all material concerns of the
Horsemen. Any problem or alleged breach of this agreement shall be brought
to the attention of the other party in writing as soon as practicable and the
parties shall make a reasonable effort to amicably and equitably adjust and
resolve problems which may arise.
17. AMENDMENTS
A. The terms and conditions of this contract may be modified or
amended only by mutual consent of the parties in writing, signed by the
appropriate authority of SHRP, and the President of the TTHBPA, together with
the Chairman of the Horsemen's Committee at SHRP.
B. Should additional forms of gaming be legalized by the State of
Texas during the term of this contract, both parties agree that a portion of
the incremental revenue derived from the gaming proceeds of any such venture
conducted at SHRP will go to thoroughbred purses to be paid at SHRP. The
division of such proceeds shall be subject to negotiation between TTHBPA and
SHRP. Should TTHBPA and SHRP fail to reach agreement on the division of such
proceeds prior to the effective date of the legislation which legalizes the
additional forms of gaming, then the parties agree that this contract shall
become null and void the day prior to the effective date of the legislation.
However, if legislation permitting additional forms of gaming becomes
effective in less than 90 days from its enactment, this contract shall
continue in full force and effectiveness until the 90th day following such
enactment.
18. COMMISSION APPROVAL
The terms and conditions of this contract shall be subject to approval
in accordance with the appropriate procedures of the Texas Racing commission.
If the terms and conditions of this agreement are inconsistent with the Texas
Racing Act or the Texas Racing Commission's rules governing pari-mutuel racing,
either current or as amended, the Act or Rules will control unless both
parties to this agreement agree to renegotiate any provisions which are
determined to be inconsistent.
19. INSURANCE
There is presently in existence a Fire and Disaster Insurance Plan
under the auspices of the National HBPA, whereby insurance is provided by a
reputable insurance company selected by the National HBPA, which, with
certain limitations, protects the owners of horses against the loss of their
race horses, tack, etc., due to fire or disaster. Racing associations assist
in providing financing for this program, and for the purpose of determining
the amount of contribution, are grouped into categories on the basis of
volume or handle SHRP, as signatory to this agreement, agrees to participate
in a proportionate share of the annual premium for the National HBPA Fire and
Disaster Program in effect during the term of this agreement.
20. NON-DISCRIMINATION
SHRP and TTHBPA expressly agree that neither of them will
discriminate for or against any person because of such person's race, color,
creed, origin, sex, religious preference or affiliation. The parties expressly
agree that there shall be no acts, direct, indirect or subtle, that in any
manner can be interpreted as retaliation or retribution against any person
for any affiliation, statement, position or action, other than as may be
expressly permitted by law.
21. GENDER REFERENCES
The parties agree that any reference herein to "horsemen" includes
horsewoman as well and all masculine references and pronouns used herein
include the female equivalent. The masculine references are used merely in
order to reflect language used in the industry and currently incorporated
into the governing document of the TTHBPA and the Texas Racing Act and Rules
of Racing.
22. BINDING
This agreement shall be binding on and inure to the benefit of the
parties and their successors and assigns.
IN WITNESS WHEREOF, the parties have caused this agreement to be executed by
their duly authorized officers.
TEXAS THOROUGHBRED HBPA, INC.
Dated: 11/26/96
/S/ L. WILLIAM HEILIGBRODT
L. William Heiligbrodt
President
Dated: 11/26/96
/S/ ROBERT YOUNG
Robert Young
Horsemen's Committee Chairman
SAM HOUSTON RACE PARK, LTD.
by SHRP, General Partner, Inc.
Dated:11/26/96
/S/ JAMES D. NOTEWARE
James D. Noteware
President
This action was approved by the Management Committee of the Texas Horsemen's
Partnership, L.L.P. on , 1996.
Dated:11/26/96
/S/ MARSHA ROUNTREE
Marsha Rountree, Secretary/Treasurer
MAYOR DAY CALDWELL & KEETON, L.L.P.
700 LOUISIANA, SUITE 1900
HOUSTON, TEXAS 77002-2778
February 23, 1996
Mr. James D. Noteware
President
Sam Houston Race Park, Ltd.
5847 San Felipe, Suite 2600
Houston, Texas 77057
Re: Legislative Matters
Dear Jim:
Pursuant to our discussions, this letter sets forth the terms of our engagement
by Sam Houston Race Park, Ltd. (the "Race Park") to coordinate its legal,
political and legislative efforts relating to gaming and other matters which
might impact the Race Park. The scope of our engagement is as follows:
1. Undertake to coordinate the efforts of the various people,
groups, lobbyists, consultants, organizations and others who will be working
on this project;
2. Communicate and coordinate with representatives of (i) other
horse tracks, (ii) dog tracks, (iii) horsemen's associations and (iv) any
others who would be potential allies in our efforts;
3. Oversee the efforts of the Austin lobbyists and the team
assembled to assist with their efforts;
4. Communicate and coordinate with key members of the
Legislature, particularly the members of the Harris County delegation;
5. Interact regularly with your in-house counsel and others to
(i) stay abreast of any potential legislation which could affect the Race
Park's goals, and (ii) assist in drafting specific pieces of legislation;
6. Communicate and coordinate with representatives of the City of
Houston and the Harris County Commissioner's Court, regarding their efforts on
these issues;
7. Monitor broad political developments in Texas as they relate to
these issues, and maximize the efforts of the Race Park in the context of
such developments; and
8. Determine when and where to utilize your personal time and
that of other officers or directors of the Race Park, in order to maximize
everyone's effectiveness.
We will undertake such representation for a fee of $10,000 per month, beginning
in February of 1996, and ending at the conclusion of the Texas Legislature in
the spring of 1997. Such monthly fee will be without regard to the amount of
time actually spent on this matter, but any out of pocket expenses incurred
would be in addition to that amount, and will be billed monthly along with
our invoice.
Although the fee arrangement will not be affected by the amount of time spent by
our lawyers, we will keep time records reflecting the work done on behalf of
the Race Park in this engagement, and such records will be available for your
review should you so desire. We will be monitoring those records on a
quarterly basis, and should they reveal information which leads us to
conclude that the monthly fee is not adequate for the work being performed,
we have both agreed that we will discuss that situation at that time and make
adjustments we mutually agree are appropriate.
This is an extremely important project to us, and we are willing to undertake it
for a fixed monthly fee because we believe it to be in our own best interest, as
well as the best interests of this community, that appropriate legislation is
adopted. We are eager to play a major role in this matter, and are pleased
that you have asked us to do that. Should you have any questions regarding
this letter, or if you do not believe it accurately reflects our
understanding, please let me know.
Sincerely,
/S/ J. KENT FRIEDMAN
J. Kent Friedman
MAYOR, DAY, CALDWELL & KEETON, L.L.P.
700 LOUISIANA, SUITE 1900
HOUSTON, TEXAS 77002-2778
January 31, 1997
Mr. James D. Noteware
President
Sam Houston Race Park, Ltd.
5847 San Felipe, Suite 2600
Houston, Texas 77057
Re: Legislative Matters
Dear Jim:
Pursuant to our discussions, this letter amends our previous letter of February
23, 1996, setting forth the terms of our engagement by Sam Houston Race Park,
Ltd. (the "Race Park") to coordinate its legal, political and legislative
efforts relating to gaming and related matters which might impact the Race
Park. The fee of $10,000 per month which was set out in such letter is
hereby amended to $25,000 per month for the months of January through May,
1997.
In all other respects, the terms and conditions of the February 23, 1996 letter
shall remain in full force. If this letter accurately reflects your
understanding of the change in fees which we discussed, please so indicate by
signing and returning the enclosed copy of this letter.
Jim, thank you again for your confidence. We are pleased at the significant
progress we have all made since the inception of this project, and are
anxious to tackle the monumental problems remaining to achieve our goal.
Sincerely,
/S/ J. KENT FRIEDMAN
J. Kent Friedman
Accepted and agreed to:
/S/ JAMES D. NOTEWARE
James D. Noteware
President, Sam Houston Race Park, Ltd.
January 7, 1997
To: Byron Wade
From: Stan
Re: Sam Houston Contract
I have signed the contract with the two following changes.
First, I am awaiting a copy of the checks, front and back, for Sam Houston from
1996. My accountants records show one is missing.
Secondly, we discussed this before, but the contract needs to reflect that
travel at your request is not part of the $500 monthly expense allowed, and
that the $500 is cumulative over the term of the contract. i.e. $12,000 for
the two-year contract of which none has been expended to date. As you
recall, our major expenses occurred the last two months of 1996 and will
continue through the end of the summer of 1997.
Please sign below if this is acceptable.
Accepted:
/S/ BYRON WADE
Byron Wade
Sam Houston Race Park, Ltd.
Date: 1/10/97
AGREEMENT
This is an agreement (the "Agreement") between Sam Houston Race Park, Ltd.
("Client"), and Stan Schleuter ("Consultant"), regarding the representation
of Client before the Texas Legislature, and relevant Texas agencies as
legislative and regulatory advocate for Client.
SCOPE OF REPRESENTATION
Consultant agrees to represent Client before the Texas Legislature and agencies
on matters related to games of skill, taxation of pari-mutuel activities, and
other issues relevant to horseracing and the pari-mutuel industry.
TIME PERIOD
This Agreement shall commence on January 1, 1997, and shall terminate on
December 31, 1997.
CONSULTANT'S ASSOCIATE
Consultant represents that he is associated with Mark Harkrider and that, as
appropriate and reasonably requested by Client, the services of Mr. Harkrider
shall also be available to Client without additional charge.
CONSIDERATION
Client agrees to pay Consultant the sum of $180,000 for services during 1997
pursuant to this Agreement, plus approved expenses. Compensation shall be
payable in monthly installments of $15,000 per month, plus approved expenses.
Expenses also include travel to client's offices and/or travel outside the
Austin area as requested by client.
DEFINITION OF EXPENSES
Expenses incurred shall be reimbursable to Consultant only when approved prior
to the expenditure, except that Consultant will have the authority to incur
up to $500 per month without prior approval. All expenses, including those
within the $500 per month limit, must be properly documented.
METHOD OF BILLING AND PAYMENT
Client agrees to pay Consultant on the first of each month for that month's
representation (except for the month of January which shall be paid promptly
following execution and return of this Agreement). Consultant will bill all
expenses for any given month within approximately one month after such
expenses are incurred.
REPORTS
Consultant agrees to be responsible for preparation and filing of all
applicable activity reports with the Texas Ethics Commission and any other
reports required by reason of the relationship evidenced by this Agreement or
by Consultant's activities.
RESPONSIBILITY FOR PAYMENT
By the signing of this Agreement by all parties, Client hereby agrees to full
payment of compensation under this Agreement plus all expenses incurred by
Consultant as defined by this letter.
PRIOR PERIOD AGREEMENT SUPERCEDED
Consultant acknowledges that he represented Client since February 1995, and
that he has been paid in full for services rendered through December 31, 1996.
The Client and the Consultant agree that this Agreement replaces and supercedes
the 1997 portion of their prior two year agreement.
SUBCONTRACTS AND ASSIGNMENTS
Consultant's rights and obligations hereunder are deemed to be personal and
may not be transferred or assigned. Any assignment shall be void and of no
effect.
The person executing this agreement on behalf of Client represents that he
has the full authority of the Client and is signing on their behalf.
Sam Houston Race Park, Ltd.
By: /S/ JAMES D. NOTEWARE By: /S/ STAN SCHLEUTER
James D. Noteware Stan Schleuter
President P.O. Box 162224
Austin, Texas 78716-2224
ALCOHOLIC BEVERAGE CONCESSION AND OPERATING AGREEMENT
This Agreement dated and effective as of September 19, 1996 (the
"Effective Date"), is between 97, Inc., a Texas corporation (the "Permittee"),
and Sam Houston Race Park, Ltd., a Texas limited partnership (the "Manager").
Manager is the owner of a racetrack facility that conducts thoroughbred
racing, quarter horse racing, simulcasting and other activities in Houston,
Texas, known as the Sam Houston Race Park (the "Racetrack"), located at 7575
N. Sam Houston Parkway West, Houston, Texas 77064.
Manager and Permittee desire to enter into this Agreement to grant
Permittee the exclusive right to sell and dispense alcoholic beverages at the
Racetrack.
THEREFORE, for valuable consideration the receipt and sufficiency of
which are hereby acknowledged, Manager and Permittee hereby agree as follows:
AGREEMENTS:
1. Grant of Concession. Manager hereby grants to Permittee (i) the
right to provide alcoholic beverage services at the Racetrack, including the
right to serve beer, wine and mixed alcoholic beverages in all of the
restaurants, concession stands, bars and other locations where alcoholic
beverages will be served at the Racetrack (collectively the "Service
Locations"), and (ii) the right to serve beer, wine and mixed alcoholic
beverages at banquets, receptions and other events at the Racetrack. All of
Permittee's rights as provided above and the exercise of those rights by
Permittee are referred to as the "Beverage Business."
2. Term. The term of this Agreement ("Term") shall commence upon the
Effective Date and continue for a term ending on the date one year thereafter
and thereafter shall be automatically renewed for successive periods of one
year unless terminated by either party by providing written notice of
termination to the other at least 30 days prior to the applicable renewal date.
3. Consideration.
(a) In consideration of Manager granting to Permittee the
exclusive concession to conduct the Beverage Business at the Racetrack, the
Permittee agrees to pay to Manager an amount equal to 15% of the Beverage
Receipts (defined below) generated by the Beverage Business (the "Beverage
Receipts Fee"). "Beverage Receipts" for any period shall mean all revenues,
receipts and income of every kind, during the applicable period, from the
Beverage Business, as finally determined on an accrual basis in accordance
with generally accepted accounting principles consistently applied, including
but not limited to the sales price to the customer of all beer, wine, and mixed
alcoholic beverages.
(b) In consideration of Manager providing to Permittee the
employees, services, equipment, and supplies described in sections 5 and 6
below, the Permittee agrees to pay to Manager an amount equal to the sum of
the expenses incurred by Manager in providing Permittee with those employees,
services, equipment and supplies, provided, however, in no event shall the
sum of those expenses exceed the Beverage Receipts for any applicable period.
The amounts reimbursable to Manager, as provided above, are the "Expense
Reimbursement."
(c) Manager and Permittee have agreed upon the amount of the
Beverage Receipt Fee and Expense Reimbursement, after considering, among
other factors, the unique exclusive marketing opportunity afforded to
Permittee to sell alcoholic beverages at the Racetrack to customers attracted
by the restaurant and bar facilities at the Racetrack and the sales promotion
activities relating thereto, the limited capital needed by the Permittee to
commence and operate the business of selling alcoholic beverages at the
Racetrack and the revenues and other benefits to be derived by the Permittee
from the sale of alcoholic beverages at the Racetrack.
4. Calculation and Payment of Revenues and Expenses.
(a) On or before the 15th day of each calendar month, the sum of
the Beverage Receipts which are attributable solely to the Beverage Business for
the previous calendar month shall be calculated, in accordance with generally
accepted accounting principles, as follows:
(i) each receipt provided to a customer of the Racetrack
shall contain an itemization of those charges which are allocable solely to
alcoholic beverages and those charges allocable solely to food and
non-alcoholic beverages; and
(ii) a permanent written or computer record shall be made of
each such receipt and the itemization of charges thereon.
Absent manifest error the calculation of the total Beverage Receipts which are
attributable solely to the Beverage Business conducted by Permittee at the
Racetrack, which is determined by Manager according to the receipts generated at
the point of sale and recorded either in writing or by computer shall be
controlling in all respects and shall be the sum which is utilized to
calculate the Beverage Receipts Fee. At all times, but not more than once
in any 12-month period, Permittee shall have the right to audit the
books and records of Manager in order to determine whether the calculation of
the Beverage Receipts attributable to the Beverage Business is accurate in all
material respects.
(b) The Beverage Receipts Fee shall be payable monthly in arrears,
with the first payment being due and payable on the 15th day of the month after
the first month in which there are Beverage Receipts and the 15th day each and
every succeeding month thereafter during the Term. The amount of the Beverage
Receipts Fee may be adjusted from time to time during the Term as Permittee and
Manager may mutually agree in writing. Permittee and Manager agree that the
TABC will be notified of any such adjustment.
(c) On a monthly basis, Manager shall provide to Permittee an
invoice setting forth the amount of the Expense Reimbursement together with a
detailed listing of the types and items of expenses to be paid by Permittee
under this Agreement. Permittee shall pay to Manager the full amount of such
invoices within 30 days after receipt thereof.
(d) Any portion of the Beverage Receipts Fee, the Expense
Reimbursement or any other sums due and payable by Permittee hereunder which
remain unpaid on the date which is 30 days after such sums are due and payable
shall bear interest at a rate equal to the lesser of 15% or the highest rate
permitted by applicable law.
(e) Any sale of alcoholic beverages and mixes may be paid in cash
or by check, credit card, charge account, exchange or otherwise. Each charge
or sale upon credit shall be treated as a sale for the full price in the month
during which the charge or sale is made, irrespective of the time payment is
received, in full or in part, less customary established credit card
commissions and a reasonable deduction for bad debts as established from time
to time by Manager.
(f) The Beverage Receipts from the operation of the Beverage
Business shall be deposited by Manager into the general operating account or
accounts of the Racetrack maintained by the Manager. No less frequently than
once every calendar month during the Term, Manager shall issue a check payable
to Permittee, drawn on the operating account into which the Beverage Receipts
from the operation of the Beverage Business have been deposited, in an amount
equal to 100% of the accumulated Beverage Receipts attributable to the
operation of the Beverage Business. The Permittee shall open a separate account
into which such amounts shall be deposited. At the election of Permittee,
Permittee may authorize Manager to electronically transfer the accumulated
Beverage Receipts from the operating account of the Racetrack to the
Permittee's separate account.
(g) The Permittee shall pay the Expense Reimbursement and the
Beverage Receipts Fee to Manager by issuing a check drawn on Permittee's
separate account into which the Beverage Receipts from the operation of the
Beverage Business have been deposited or transferred. Manager shall be
responsible for preparing and forwarding to Permittee a statement setting forth
itemization of the Expense Reimbursement showing the sum of each category of
expenses to be reimbursed by Permittee to Manager. Such statements shall be
forwarded to Permittee no less frequently than monthly and shall pertain to
the calendar month or portion thereof immediately preceding the month in which
such statement is delivered.
5. Operation of Beverage Business.
(a) Manager shall furnish to Permittee all fixtures, equipment,
furnishings, and furniture necessary to operate the Service Locations.
Permittee shall have the non-exclusive right to use all of such fixtures and
equipment which are necessary or convenient to the sale of alcoholic
beverages and mixes at the Racetrack. Permittee and Manager shall agree
jointly on the types and amounts of glassware, paperware and other supplies
which Permittee will require in order to conduct the Beverage Business.
Manager shall have the right to approve the design and quality of those items
for the sole purpose of insuring that such items are consistent with the
operation of a first-class Racetrack.
(b) The Permittee shall control all activities carried out at the
Racetrack relating to the purchase, storage, distribution, possession,
transportation and sale of the alcoholic beverages.
(c) Manager shall provide employees to Permittee as reasonably
requested by Permittee, to prepare and serve all of the alcoholic beverages,
bar supplies, and other items to be served to customers in accordance with
this Agreement, provided that all of such preparations and service shall at all
times be under Permittee's sole supervision and direction. Further,
notwithstanding the fact that such employees will be the employees of
Manager, Permittee shall have the ultimate control, authority with respect to
hiring and terminating those employees, and shall have sole control and
authority with respect to the pricing and selling of alcoholic beverages.
All personnel provided by Manager for use by Permittee in the Beverage
Business shall be of legal age and meet all other laws and regulations
pertaining to individuals who sell and dispense alcoholic beverages in the
State of Texas.
(d) The Permittee shall be solely responsible at its own cost to
acquire and maintain adequate inventories of alcoholic beverages, beer and wine
necessary for the operation of the Beverage Business. The Permittee shall pay
all fees required for the original issuance of the required permits and
licenses from the TABC and any other permits or licenses deemed necessary for
the sale of alcoholic beverage and all fees for any renewal thereof. Manager
acknowledges and agrees that the Permittee shall have the right to determine
the price of all alcoholic beverages sold at the Racetrack, consistent,
however, with the terms and provisions of this Agreement.
6. Maintenance, Management and Accounting Services Provided by Manager.
Manager shall maintain or cause to be maintained the building in which the
Beverage Business is conducted, including the heating and air conditioning
equipment and plumbing and electrical systems of such building, in good
repair and condition, subject to reasonable wear and tear. From time to time
as Manager deems appropriate, after consulting with Permittee, it shall cause
the equipment, furniture and furnishings of the Racetrack to be repaired,
maintained and/or replaced. The Permittee agrees to reimburse Manager for a
portion of the costs of such repair, maintenance and replacement. Such portion
shall be determined taking into account Permittee's use of the premises and
facilities which are repaired or replaced and the wear and tear attributable
to the Permittee's operation of the Beverage Business conducted therein and
thereon. During the Term, Manager shall provide the following accounting,
administrative and operational services to and for the benefit of the
Permittee for the Permittee's Beverage Business:
(a) full payroll services;
(b) general accounting and bookkeeping services;
(c) maintenance and preparation of records and reports required by
the TABC and the Texas Department of Labor and Standards,
if applicable, or any other applicable regulatory agency;
(d) computer services as needed;
(e) other administrative services as might reasonably be required
by Permittee;
(f) cleaning services;
(g) maintenance of equipment;
(h) utilities;
(i) uniforms;
(j) signage;
(k) credit card processing; and
(l) liquor liability insurance
Permittee agrees to make available to Manager the following information:
(1) all invoices, statements, bills, checks, cash register tapes,
receipts and other evidence or indicia of expense for the purpose of tabulating
income from the sale of alcoholic beverages;
(2) all other business records acquired, received, or maintained by
Permittee and which are reasonably requested by Manager; and
(3) all notices, correspondence or communications between Permittee and
the TABC or any other governmental agency having jurisdiction over the business
operations of Permittee.
In addition, Permittee shall pay promptly upon receipt of an invoice
therefor, a fee based upon the costs incurred by Manager for actual breakage,
loss by theft, and replacement of the glassware, paperware and other supplies,
equipment and services required to sell and dispense alcoholic beverages.
7. Insurance. Manager shall arrange for insurance protecting
Permittee's inventory of merchandise and other property on the premises of
the Race Track from loss by fire or other casualty covered by an extended
coverage endorsement to a fire insurance policy, such insurance to be for the
benefit of, and to name as insureds, both Manager and Permittee as their
respective interests may appear. Likewise, Manager shall carry at
Permittee's cost commercial general liability insurance, including liquor
liability insurance, in an amount not less than $10,000,000.00 naming
Permittee and its officers and directors as an additional insured, public
liability and property damage insurance and employers liability and workmen's
compensation insurance for the benefit of both Manager and Permittee, in such
coverages and amounts as Manager deems reasonable.
8. Default and Termination.
(a) Manager shall have the right to terminate this Agreement at
any time by providing 30 days written notice to Permittee. Notwithstanding the
foregoing, the parties may terminate this Agreement at any time by mutual
consent.
(b) This Agreement may also be terminated for cause by the non-
defaulting party hereunder upon 10 days prior written notice to the
defaulting party if the defaulting party fails to cure any such default
during such 10 day period.
(c) This Agreement shall terminate immediately should the
Permittee fail to acquire and maintain the requisite permits from the TABC or
other consents or approvals from any governmental authority which are required
to enable Permittee to continue, without interruption, the Beverage Business.
9. No Partnership Intended. Nothing herein contained shall be deemed
or construed by the Parties hereto, nor by any third party, as creating the
relationship of principal and agent or of partnership or of joint venture
between any of the parties hereto.
10. No Assignment. This Agreement may be assigned by the Manager with
30 days written notice to Permittee.
11. Notices. Any notices shall be deemed given by one party to the
other parties hereto three (3) business days after deposited in the United
States Mail, Postage Prepaid and addressed to the receiving parties provided
below, or such other address as any party may from time to time designate to
the other in writing.
Permittee: 97, Inc.
c/o Sam Houston Race Park, Ltd.
7575 N. Sam Houston Parkway West
Houston, TX 77064
Attn: Nicholas P. Fava
Manager: Sam Houston Race Park, Ltd.
7575 N. Sam Houston Parkway West
Houston, Texas 77064
with copy to: MAXXAM Inc.
5847 San Felipe, Suite 2600
Houston, Texas 77057
Attn: Byron L. Wade
12. Licenses and Permits. By its execution of this Agreement, Permittee
covenants that on or before the date it begins selling alcoholic beverages, it
will have obtained all necessary permits or licenses from the Texas Alcoholic
Beverage Commission (the "TABC") and any other permits or licenses from the
Texas Alcoholic Beverage Commission (the "TABC") and any other applicable
governmental authorities, including, without limitation, a Mixed Beverage
Permit and Late Hours Permit.
13. Prior Agreements Superseded. This Agreement supersedes any other
oral or written agreements between the parties relating to matters covered by
this Agreement.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
15. No Infringement on Manager's Authority. Nothing in this Agreement
is intended to limit or otherwise affect Manager's authority to manage and
operate the Racetrack.
"MANAGER" "PERMITTEE"
Sam Houston Race Park Ltd. 97, Inc.
/S/ ROBERT L. BORK /S/ NICHOLAS P. FAVA
Name: Robert L. Bork Name: Nicholas P. Fava
As Its:Vice President and General As Its: President
Manager
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet and consolidated statement of operations
and is qualified in its entirety by reference to such consolidated financial
statements together with the related footnotes thereto.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 2634
<SECURITIES> 0
<RECEIVABLES> 1307
<ALLOWANCES> 276
<INVENTORY> 0
<CURRENT-ASSETS> 7797
<PP&E> 27236
<DEPRECIATION> 1096
<TOTAL-ASSETS> 33937
<CURRENT-LIABILITIES> 6456
<BONDS> 27162
0
0
<COMMON> 0
<OTHER-SE> (659)
<TOTAL-LIABILITY-AND-EQUITY> 33937
<SALES> 0
<TOTAL-REVENUES> 20752
<CGS> 0
<TOTAL-COSTS> 23342
<OTHER-EXPENSES> 83
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5152
<INCOME-PRETAX> (7622)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7622)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7622)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
