EXHIBIT 17.1
[LETTERHEAD OF HIALEAH, INC.]
October 17, 1996
Mr. R. D. Hubbard, Chairman, and
Members of the Board of Directors
Hollywood Park, Inc.
P.O. Box 369
Inglewood, California 90306-0369
Gentlemen:
Please accept this as my official resignation from the Board of Directors
of Hollywood Park, Inc., effective immediately. As such, I wish that this
communication be entered into the books and records of the Company and forwarded
to the Securities and Exchange Commission and all other agencies and governing
bodies. I will expect copies of your transmissions and, if not received, I will
do so, myself. I further reserve the right to make public and distribute this
communication in any manner, I see fit.
I wish to state that I find it disturbing that Hollywood Park does not have
regular Board of Directors meetings. During the three years I served on the
Board, I recall only approximately ten meetings, which were called by Mr.
Hubbard to address only matters of concern to him. Additionally, during the past
year nothing has been presented to the Board other than the settlement of
litigation and the proposed Boomtown acquisition. I will now recount my further
concerns regarding Hollywood Park, Inc.
The Woodlands, from the beginning, has been a serious problem. While
misleading press releases are issued, the total cost of the acquisition of the
Woodlands was, in reality, $65,000,000; and not the lesser figures previously
stated. This price was far and above the asking price for other pari-mutuel
facilities, which had potential gambling opportunities. I stated this and
indicated that Pompano Park Racetrack, in Florida, was available; subject to
passage of pari-mutuel gambling. The price for that facility; which is in a much
better market than the Woodlands, was, $20,000,000. However; Mr. Hubbard had
already selected a special committee to review and evaluate the Woodlands. A
committee, which had little or no experience in thoroughbred racing, real estate
evaluation or gambling. Yet, he had three members on the Board, including
myself, who had the experience and expertise in these fields. This resulted in
(a) paying too much for the Woodlands; on the brink of financial collapse, and
(b)
relieving Mr. Hubbard and Mr. Boushka; owners of the Woodlands, of further
financial responsibility. Hollywood Park paid Mr. Hubbard and Mr. Boushka
$15,000,000 in Hollywood Park stock and Mr. Hubbard $5,000,000 (mostly past due
interest) toward his second mortgage. In addition, Hollywood Park assumed a
$30,000,000 institutional/first mortgage and a $15,000,000 second mortgage,
owned by Mr. Hubbard. Other concerns were presented in my letter of November 22,
1993 to Mr. Alvin G. Segel, attorney for the corporation, with copies to the
Board of Directors, (attachment #1), which was ignored.
Subsequently, on August 4, 1995, I obtained from the Kansas Racing
Commission (from a Ms. Karen Giltiland) a copy of a commission report
(attachment #2). This report, prepared by a Mr. Bruce Rimbo, President of the
Woodlands, in December of 1993, shows the devastating effect casino gambling,
already approved in Kansas, would have on the Woodlands. This information was
never given to the Board of Directors. I do not know whether this information
was ever given to Oppenheimer & Co., Inc., who represented Hollywood Park and
provided the "fairness" letter as to this matter. At this time, I am curious why
there have been no communications or discussions concerning the reorganization
of the Woodlands under Chapter 11 of the Bankruptcy Act. Could the problems
include the fact that Mr. Hubbard acted as seller, buyer (through Hollywood
Park, Inc.) and the owner of the second mortgage on the property. As predicted
the Woodlands has suffered operating losses of approximately $15,000,000 since
its acquisition in 1994. Therefore, the total cost of acquisition and operating
losses exceed $35,000,000 to date.
With the Hollywood Park Casino, Mr. Hubbard engaged Messrs. Donald C.
Klosterman and Edward W. LeBaron as operators of the Casino (Pacific Casino
Management); two individuals who had no experience in operating a card club
casino. During the time Klosterman/LeBaron operated the card casino, they were
each paid $500,000, per year, as a management fee. In addition, they were paid
$2,500,000 to terminate the agreement even though there developed a shortfall in
the rental fee to be paid to Hollywood Park, Inc.
As to the Turf Paradise acquisition; Mr. Hubbard, again, dispatched
three members of the Board of Directors, of his choice. The subsequent
misstatement of earnings of Hollywood Park resulted in the precipitous drop in
the price of the stock from approximately $22 a share to $14 a share; and led to
litigation by the sellers of Turf Paradise and a Class Action Suit against the
officers and directors of Hollywood Park. While the insurance companies for
Hollywood Park paid approximately $5,000,000 toward the settlement of this
litigation, Hollywood Park had to pay $5,000,000 in cash to settle these claims.
I would now like to address the proposed acquisition of Boomtown,
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Inc. I might add that on a recent business trip to Las Vegas, Nevada, I learned
that Boomtown, Inc. had previously been submitted to a multitude of gambling
entities. All parties contacted determined that Boomtown, Inc. was not a good
candidate for acquisition or merger. These facts not withstanding, I will recall
the sequence of events concerning this proposition being presented to the Board
of Hollywood Park; first during a conference call in mid-March, followed by
another conference call two weeks later and, then, a hastily called Board of
Director's meeting on April 23, 1996 to give final approval to this acquisition.
At the meeting on April 23, I raised questions concerning Boomtown, Inc.
including the financial soundness and value of Boomtown, its potential in the
industry and its management. We were assured by Mr. Hubbard that all matters of
concern could be overcome and that this was a good opportunity for Hollywood
Park. We were further assured by Oppenheimer & Co., Inc. that the combination of
Boomtown and Hollywood Park would reflect a $13.00 to $16.00, per share, value
of Hollywood Park shares, with the combined entities. Surprisingly, Boomtown
will seat four members of the Board of Directors of Hollywood Park, Inc. to be
reformed after this proposed acquisition.
On November 17, 1995, a special meeting of the Board of Directors was
called at my request. At that time, I presented an initiative (attachment #3)
showing the corporate and financial benefits of exploring the acquisition of or
merger with Santa Anita by Hollywood Park. At that time, led by Mr. Hubbard, the
Board showed little interest in undertaking such an initiative. The comments
being that Santa Anita was over priced at $12.50, per share, (today it is $20.00
per share) and Hollywood Park stock was under priced at $10.00, per share,
obviously my observations and evaluation of this initiative were accurate and
perceptive.
Sadly, even with the money raised from the $120,000,000 secondary stock
offering, the cash flow operating the Thoroughbred racing program; of
approximately $10,000,000, per year, and purported profitability of the
Hollywood Park Card Casino; the stockholders of Hollywood Park have been denied
cash dividends since control of the corporation was taken over by Mr. Hubbard.
More tragically, the net worth of the company has devalued approximately
$400,000,000 (66 2/3% of its value) since December 1993 to date; under Mr.
Hubbard's leadership.
Finally, I would like to comment on Mr. Hubbard's letter to me of July
1, 1996 (attached #4) in which he states reasons for my not being considered to
remain as a member of the Board of Hollywood Park. I have held stock in Santa
Anita long before my acquisition of stock in Hollywood Park and I have been
licensed by all governmental agencies to which I have applied. I, as the third
largest individual stockholder in Hollywood Park, owner of the successful
Hialeah Park in
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Miami, Florida, and a real estate developer of considerable success for over 35
years, feel that I am more qualified than most of those who will remain on the
Board of Directors.
It is clear that Mr. Hubbard completely dominates the Board of Directors
and he will allow no differences of his opinions or initiatives. Only when the
members of the Board accept their responsibilities and remain independent, will
they truly serve the interests of the stockholders.
Yours very truly,
/s/ John J. Brunetti
John J. Brunetti
Chairman of the Board
JJB:cc
Enclosures
Attachment #1
[LETTERHEAD OF JOSEPH J. BRUNETTI CONSTRUCTION COMPANY]
November 22, 1993
Alvin G. Segel, Esq.
Irell & Manella
1800 Avenue of the Stars - Suite 900
Los Angeles, Calif. 90067-9818
Re: Woodlands
Dear Mr. Segel:
I want to thank you for the professional advice rendered to the Board of
Directors at our recent meeting on November 17th. I would like to remind you
that it was agreed the minutes for that meeting should be carefully prepared and
I believe should be distributed among the members of the Board before they are
finalized.
Since the meeting of the 17th, I am more concerned regarding (a) the lack of a
demographic report (b) a verifiable source of statistical information (c)
industry or comparable method of projections and (c) an independent evaluation
and conclusion regarding this matter. I still do not believe that Oppenheimer &
Co. can be considered a disinterested party.
Because of the profound impact this transaction will have on the Corporation I
am more convinced, than ever, that this transaction will be (a) subject to
public scrutiny (b) reviewed most carefully by the stockholders and (c) be
subject to regulatory review. The recent decline in the price of our stock
reflects concern on the part of the public. Therefore, I think it is most
incumbent upon us to give further review and scrutiny to this matter.
In view of the above, and I have reason to believe others on the Board share
this opinion, I suggest you consider remanding this matter back to the Special
Committee for a continuation of their investigation, review and recommendation.
All of the information, exhibits and projections given to us, at a later date
must be independent, accurate and substantiated; nothing else will suffice.
Thank you for your time and consideration.
Very truly yours,
/s/ John J. Brunetti
John J. Brunetti
JJB:hb
cc: All members of the Board of Directors
ATTACHMENT #2
STATE OF KANSAS
[SEAL]
KANSAS RACING COMMISSION
3400 Van Buren
Topeka, Kansas 66611-2228
(913) 296-5800
FAX (913) 296-0900
KANSAS RACING COMMISSION TOPEKA ADMINISTRATIVE OFFICES
FACSIMILE TRANSMITTAL SHEET
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DATE: August 4, 1995
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TO: Cherie
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FIRM: Hialeah Race Track
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FAX: 305-887-8006
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FROM: Karen - KRC Secretary
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NUMBER OF PAGES INCLUDING THIS PAGE: 4
--------- ----
( ) For your comments ( X ) As you requested
( ) Please call me about this ( ) As we discussed
( ) Information only ( ) Review and forward
( ) Other message: _______________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
If you do not receive all pages, please call me at (913) 296-5800.
THE WOODLANDS
1992 RESULTS OF OPERATION ADJUSTED FOR ESTIMATED RIVERBOAT IMPACT
COMBINED DOG & HORSE 1992 RIVERBOAT 1992 ADJUSTED
ACTUAL FACTOR FOR RIVERBOATS
HANDLE-LIVE 145,592,956 -30% 101,915,069
HANDLE-SIMULCAST 23,678,190 -30% 16,574,733
ATTENDANCE-LIVE 1,359,290 -30% 951,503
ATTENDANCE-SIMULCAST 13,013 -30% 9,109
NR OF RACE DAYS/PERFORMANCES-LIVE 302/420 302/420
NR OF DAYS-SIMULCAST 175 175
REVENUES
COMMISSION-LIVE 29,702,437 -30% 20,791,706
SIMULCAST (NET) 1,148,909 -30% 802,836
CONCESSIONS 6,640,661 -30% 4,648,463
ENTRY FEES 15,850 -30% 11,095
ADMISSIONS/PARKING 2,284,851 -30% 1,599,396
GROUP SALES 169,704 -30% 118,793
PROGRAM & TIP SHEET SALES 1,041,624 -30% 729,137
COMCHECK COMMISSIONS 47,200 -30% 33,040
INTEREST 79,422 -30% 55,596
MISCELLANEOUS/ADVERTISING SALES 173,971 -30% 121,780
GIFT SHOP 15,439 -30% 10,807
SEASON TABLES 213,377 -30% 149,364
----------- -----------
TOTAL OPERATING REVENUES 41,531,445 -30% 29,072,012
----------- -----------
STATUTORY EXPENSES
PURSES 6,860,508 -30% 4,802,356
PURSE SUPPLEMENT 13,000 13,000
STATE PARIMUTUEL TAXES 4,967,442 -30% 3,477,209
DAILY LICENSE FEES 60,400 60,400
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TOTAL STATUTORY EXPENSES 11,901,350 -30% 8,352,965
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OPERATING EXPENSES
RACING DEPARTMENT 1,957,146 1,957,146
MUTUELS DEPARTMENT 2,473,469 -30% 1,731,428
CONCESSIONS 4,834,997 -22% 3,771,298
ADMINISTRATION 2,440,162 2,440,162
MARKETING 1,656,046 1,656,046
GROUP SALES 231,986 -7% 215,747
OPERATIONS 455,917 -3% 442,239
PRINTING 379,568 -10% 341,611
MAINTENANCE 1,775,949 1,775,949
UTILITIES 910,238 910,238
SECURITY 539,958 539,958
TRAK EAST-ADMIN 101,962 101,982
INSURANCE 349,875 349,875
TAXES-REAL & PROPERTY 2,864,271 2,864,271
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TOTAL OPERATING EXPENSES 20,971,564 -9% 19,097,951
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TOTAL STATUTORY & OPERATING EXPENSES 32,872,914 -16% 27,450,916
----------- -----------
NET BEFORE DEPR, INT, & CHARITY 8,658,531 -81% 1,621,096
AMOUNT FOR CHARITY 350,000 350,000
DEPRECIATION/AMORTIZATION 2,464,205 2,464,205
INTEREST 4,554,773 4,554,773
----------- -----------
CONSOLIDATED NET INCOME 1,289,553 -546% (5,747,882)
=========== ===========
Sub. for SCR 1608--Am. by SCW
on or adjacent to a racetrack facility where parimutuel wagering is
authorized and approved and where a minimum of 20 days of live racing is
conducted annually, if: (1) A majority of the voters of the state approve
this amendment; (2) the casino is approved and licensed by the applicable
state agency; (3) a majority of the voters of the county where the facility
is located approve this amendment; and (4) the casino is approved by the
governing body of the city where located or the governing body of the
county where located, in the event the facility is not located within the
corporate boundaries of a city. A vote for this proposition would authorize
the legislature to enact laws providing for the licensure and regulation of
such a casino gaming establishment and for imposition of a tax on the
gaming revenues of the establishment. A vote for this proposition would
also approve the conduct of casino gaming by Indian tribes on Indian
reservations].
"A vote against this proposition would continue the current
prohibitions applying to casino gaming."
Sec. 3. This resolution, if approved by two-thirds of the members elected
(or appointed) and qualified to the Senate and two-thirds of the members elected
(or appointed) and qualified to the House of Representatives, shall be entered
on the Journals, together with the yeas and nays. The secretary of state shall
cause this resolution to be published as provided by law and shall cause the
proposed amendment to be submitted to the electors of the state at a [the
primary election in the year 1994 unless a special election is called at a
sooner date by concurrent resolution of the legislature, in which case it shall
be submitted to the electors of the state at the special election].
((Hand written notation on original)
Chris,
I hope this will help. It was presented at a December 1993 meeting. There
was a slide show presentation done on casino gambling. This was presented by Mr.
Bruce Rimbo of the Woodlands. I find nothing else in our records in regards to
an impact study.
Hope this helps.
KRC Secretary
Karen Gilliland)
ATTACHMENT #3
November 17, 1995
SUMMARY
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The Santa Anita Companies are a real estate investment trust (REIT)
having 19,000,000 shares of common stock authorized and 11,270,500 issued. The
stock presently trades, on the New York Stock Exchange, between 12-1/4 and
12-3/4. The average turnover of shares, during the past six months, has been
approximately 15,000 shares per day.
The Company's assets, as of June 30, 1995, totalled $211,023,000 and its
liabilities totalled $143,540,000. The assets, aside from the Santa Anita
Racetrack, consist of a 50% interest in a joint venture known as the Fashion
Mall, a regional shopping center, located on the property of Santa Anita
Racetrack; approximately 790,000 shares of Pacific Gulf Properties, Inc. (REIT)
(approximately 16.3% of the outstanding shares); a 33-1/3% interest in Joppa
Associates; a regional mall in Towson, Maryland and various other properties.
The Company previously owned 2,654 apartment units located in southern
California, the Pacific northwest and Texas and other industrial properties.
These apartments and other properties were sold to Pacific Gulf Properties
during the last half of 1993 and the first half of 1994. The Company presently
pays $0.80 per year dividend on its common stock.
During the past year, in addition to the transactions described above
with Pacific Gulf Properties, Inc., which resulted in a book loss of
approximately $11,000,000; the Company wrote off (a) $750,000 relating to an
unsuccessful second offering of its stock; (b) $2,000,000 in connection with its
option to purchase a 50% interest
in the failed Bell Jackpot Casino; (c) now plans to write off $34,500,000 in its
proposed program for disposition of non-core real estate assets. These
transactions are projected to result in a net loss for the nine month period
ending September 30, 1995 in the amount of $30,273,000. This contrasted with
the nine month period ending September 30, 1994, which amounted to a profit of
$6,690,000. For the year ending December 31, 1994, the Company reported a
profit in the amount of $2,314,000, which included a depreciation charge of
$10,087,000.
The pari-mutuel operations of Santa Anita Racetrack are among the highest
in the nation. In addition, there is a lease between Oak Tree Racing
Association and Santa Anita whereby Oak Tree conducts its racing meet,
consisting of approximately 30 days, from the beginning of October to the
beginning of November at Santa Anita, and pays to Santa Anita approximately
$2,000,000 per year annual rental.
The Ownership of the shares of the corporation appear to indicate, by way
of the proxy issued in connection with the Annual Meeting of May 2, 1995, that
the officers and directors of the Company own or control approximately 500,000
(less that 5%) shares of common stock. This includes a reported 342,910 shares
owned by Mr. Arthur Lee Crowe, age 71. It has been the policy, authorized by
Chairman Stephen F. Keller, to implement the retirement of all directors over 70
years of age. There are several blocks of shares owned by a small number of
entities which total approximately 3,300,000 shares (approximately 30% of the
shares outstanding). The entities holding these large blocks of shares have
expressed their displeasure with management; its lack of performance and
strategic planning, and are seeking other alternatives.
-3-
The acquisition of or a merger with Santa Anita would indicate the
following possibilities and opportunities:
(1) A consolidated saving of approximately $2,000,000 per year; while
conducting the operations of both Hollywood Park and Santa Anita.
(2) Consideration of a more favorable distribution of racing dates between
Hollywood Park and Santa Anita.
(3) Possible acquisition and/or operation of the Pomona Fair race meet at
either of the facilities.
(4) Added political ability to affect favorable legislation.
(5) Creation of a dominant force in southern California relating to
thoroughbred racing and other gambling and entertaining possibilities.
(6) 150 acres of vacant, developable land at Santa Anita Racetrack.
(7) Other matters to be discussed.
All of the above information can be obtained and verified by review of the
published financial statements of the Santa Anita Companies.
ATTACHMENT #4
[LETTERHEAD OF HOLLYWOOD PARK]
July 1, 1996 By Fax 305-887-8006
Mr. John J. Brunetti
Hialeah, Inc.
P.O. Box 158
Hialeah, Florida 33011
Dear John:
I tried to call you today but was unable to reach you.
The Nominating Committee held its meeting late last week to nominate the seven
directors for the board for the coming year and the following seven were
nominated:
R.D. Hubbard J.R. Johnson
Harry Ornest Robert T. Manfuso
Warren Williamson Lynn Reitnouer
Herman Sarkowski
It was felt by the Nominating Committee that there were conflicts of interest on
your part with your interest in Santa Anita and with the possibility of gaming
interests in Las Vegas. It was therefore their decision that you should not
stand for re-election to the Board this year.
I want to personally thank you for your service to the Company and your
contribution to the Board in past years and to wish you well in all of your
future endeavors. I sincerely appreciate your past support and I fully expect
your investment in the Company to appreciate substantially in the years ahead.
If you wish to discuss this further with me you can reach me on my cellular
phone [number redacted], or call my office and they will know how to hook us up.
Sincerely,
[SIGNATURE]
R.D. Hubbard
Chairman