Hollywood Park, Inc.
Exhibit 10.40
PROFIT PARTICIPATION AGREEMENT
THIS PROFIT PARTICIPATION AGREEMENT (the "AGREEMENT") dated as of July 14,
1997, is made and entered into by and between Hollywood Park, Inc., a Delaware
corporation ("HP"), and North American Sports Management, Inc., a Florida
corporation ("NORAM"), with reference to the following facts:
A. NORAM and the Confederated Tribes and Bands of the Yakama Indian
Nation (the "NATION") have entered into that certain Memorandum of Understanding
dated August 16, 1996, as extended by the parties (the "MOU"), pursuant to which
NORAM agreed to provide (i) financial, development, construction and consulting
services to the Nation in connection with the construction of a bingo hall and
casino (the "FACILITY"), together with all related infrastructure, parking,
landscaping, interior design, engineering, architectural and other services, on
the Nation's lands in Toppenish, Washington, and (ii) consulting services in
connection with the Nation's operation, management and maintenance of the gaming
operations and ancillary business activities conducted at the Facility
(collectively, the "CONSULTING SERVICES"). Capitalized terms used but not
defined herein shall have the same meanings given to them in the MOU.
B. Subject to the terms and conditions described herein, NORAM and HP
have determined that in order to most efficiently finance and obtain the
necessary licensing to finance the Facility, and provide the Consulting
Services, (i) HP will fully finance the Facility, (ii) NORAM will relinquish all
its rights to pursue the construction of the Facility and render Consulting
Services, whether under the MOU or otherwise, except for those items identified
herein as NORAM Services, (iii) HP will obtain all of NORAM's rights under the
MOU, including, without limitation, the right to 100% of the profit
participation interest granted in the MOU, and HP will be responsible for
obtaining the financier's license, and (iv) HP and NORAM shall provide the
Consulting Services in the manner described herein; all as contemplated by the
MOU as the same may be subsequently modified by HP and the Nation.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereby agree as follows:
1. Relinquishment of Rights. In consideration of the agreements made by HP
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herein, NORAM and all of its affiliates hereby relinquish any and all rights and
interest with respect to the provision of Consulting Services to, and the
establishment of a Facility for, the Nation, including, without limitation, any
and all rights and interests pursuant to the MOU. Concurrently with the
execution of this Agreement, NORAM shall provide HP with copies of all
documentation and information relating to the Facility and NORAM's actual and
contemplated relationship with the Nation.
NORAM acknowledges that HP intends to enter into an agreement with the Nation to
provide Consulting Services to the Nation with respect to the development,
construction and operation of the Facility, and HP intends to fund or cause to
be funded a loan to the Nation to fund the construction and development of the
Facility (the "LOAN") and otherwise succeed to the rights and responsibilities
of NORAM under the MOU. NORAM further acknowledges and agrees that HP or its
affiliates shall be entitled to receive 100% of the Consulting Fee or profit
participation interest, however structured, other than principal or interest
payments on loans to the Nation (the "PROFIT PARTICIPATION INTEREST") and any
other remuneration payable by the Nation in respect of the development,
construction or operation of the Facility; and except as provided by Sections 3
and 4 herein, neither NORAM nor any of its affiliates shall be entitled to
receive any portion of the Profit Participation Interest or such other
remuneration nor to receive any payments of any kind whatsoever with respect to
the Facility or the Consulting Services, whether from HP, the Nation or
otherwise. If HP or its affiliates determine not to provide the Consulting
Services to the Nation as contemplated by the MOU, NORAM may, upon prior notice
to HP, seek to negotiate and enter into an arrangement with the Nation regarding
the development, construction and operation of the Facility.
2. Activities of HP Yakama, Inc. HP and NORAM acknowledge that HP Yakama,
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Inc., a wholly-owned subsidiary of HP (the "SUBSIDIARY"), will enter into such
agreements and contracts as the parties may deem necessary to establish the
relationship with the Nation and consummate the transactions contemplated by the
MOU. HP shall be primarily responsible for, and NORAM shall participate in, the
drafting and negotiation of such agreements and contracts. In addition, NORAM
shall provide Consulting Services with respect to the construction of the
Facility and regulatory issues ("NORAM SERVICES"). NORAM hereby covenants that
the construction costs of the Facility, which costs shall include those items
listed on the budget dated July 8, 1997 and approved by HP and NORAM prior to
the execution of this Agreement, shall not exceed $9 million. (A copy of such
budget dated July 8, 1997 is attached hereto as Exhibit A.) Notwithstanding the
foregoing covenant, NORAM shall not be responsible for any cost increases due to
changes in the plans or specifications for construction made by the Nation, HP,
HP's affiliates or the Subsidiary without the approval of NORAM, which approval
shall not be a prerequisite to making any such changes. HP shall be wholly
responsible for financing the Facility and for providing all Consulting Services
(other than NORAM Services) and any other services to be provided pursuant to
the MOU. Subject to its obligations pursuant to Sections 3 and 4 hereof, HP
shall receive from the Nation all payments required by the MOU, including,
without limitation, payments of principal and interest related to the Loan and
payment of the Profit Participation Interest.
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3. Repayment of Expenses. The parties acknowledge that prior to entering into
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this Agreement, NORAM advanced eight hundred and ninety two thousand, eight
hundred eighty-five dollars and eight cents ($892,885.08) to the Nation in
connection with the development and construction of the Facility (the "Pre-
Development Amount"). In addition, prior to the execution of this Agreement,
NORAM has provided HP with appropriate documentation to establish the Pre-
Development Amount and the amount of actual, out-of-pocket expenses (excluding
any overhead costs or charges) in excess of the Pre-Development Amount that
NORAM has incurred as of the date of this Agreement with respect to negotiating
its business relationship with the Nation and advancing funds for the benefit of
the Nation (such excess amount, "NORAM'S VERIFIABLE EXPENSES"). Prior to or at
the execution of this Agreement, HP shall have the right to request additional
information and/or documentation as is reasonably necessary to verify the Pre-
Development Amount and NORAM's Verifiable Expenses. Within three (3) days of
the receipt and verification of such additional information and/or
documentation, or within five (5) days of the execution of this Agreement if no
such request is made, HP shall pay, or cause NORAM to be paid, NORAM's
Verifiable Expenses. Promptly following the initial advance of funds made to
the Nation under the Loan, HP shall pay, or cause NORAM to be paid, fifty
percent (50%) of the Pre-Development Amount. Promptly following the date on
which the Facility is first open to the general public, HP shall pay, or cause
NORAM to be paid, the remaining fifty percent (50%) of the Pre-Development
Amount, provided that the aggregate amount paid by HP pursuant to this Section
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shall not exceed $1,000,000, and provided, further, that (i) if the construction
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costs of the Facility exceed $9 million and NORAM is responsible for such excess
costs in accordance with Section 2 hereof, the payment to be made by HP pursuant
to this sentence shall be reduced by the amount of such excess costs, and (ii)
the payment to be made by HP pursuant to this sentence shall be reduced by the
Forgiven Amount (as defined herein).
For purposes of the foregoing paragraph, NORAM hereby acknowledges that a
portion of the principal amount of the Loan shall be forgiven under the
following circumstances: thirty thousand dollars ($30,000) of the principal
amount of the Loan shall be forgiven on the eighth day of each month, commencing
on September 8, 1997, if the Facility has not opened to the public for business,
until a maximum amount of one hundred fifty thousand dollars ($150,000) is
forgiven. The aggregate amount of the Loan that is actually forgiven is
referred to above as the "FORGIVEN AMOUNT."
4. Profit Participation. During the term of any agreement between the
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Subsidiary and the Nation which gives rise to any portion of the Profit
Participation Interest, NORAM shall be entitled to receive from the Subsidiary
twenty-two percent (22%) of the Profit Participation Interest actually received
by HP or its affiliates (the "NORAM PROFIT PARTICIPATION")
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pursuant to the terms of such agreements. Such amounts shall be paid by HP to
NORAM within fifteen (15) days of the Subsidiary's receipt of such payments.
5. Modifications to Agreements. NORAM acknowledges and agrees that HP or its
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affiliates in their sole discretion, without any notice to or approval from
NORAM, may (i) amend or modify the Consulting Agreement or any other agreement
HP or the Subsidiary enters into with the Nation, including, without limitation,
any amendment or modification to the amount or timing of payments to be received
thereunder, or (ii) settle, compromise or otherwise resolve any disputes with
the Nation relating to the Facility; provided, however, that HP or its
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affiliates shall provide NORAM with notice of any such amendment, modification,
settlement, compromise or resolution and, if such amendment, modification,
settlement, compromise or resolution materially increases NORAM's
responsibilities hereunder, NORAM must approve such action, which approval shall
not be unreasonably withheld. Notwithstanding the foregoing, if HP or
Subsidiary sells or transfers to a third party, or otherwise liquidates, its
interest in the relationship with the Nation, NORAM shall be entitled to receive
twenty-two percent (22%) of the consideration received by HP or Subsidiary for
such disposition.
6. Additional Projects. Should the Nation determine to establish any
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additional gaming facilities, including, without limitation, a facility in the
State of Oregon, and desire to enter into a relationship with any of HP, NORAM,
the Subsidiary, or any affiliate thereof, HP and NORAM agree that they shall
establish a new entity to jointly develop and operate such facilities, with both
HP and NORAM each owning fifty percent (50%) of such entity and both HP and
NORAM receiving fifty percent (50%) of any profit participation of such
facilities, provided that both HP and NORAM make financial contributions to such
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entity in an amount equal to fifty percent (50%) of the total development and
construction costs of such additional facilities.
7. Licensing Requirements. It is the intent of the parties that this
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Agreement be structured such that NORAM is not required to be licensed by the
Nation or the State of Washington with respect to the Facility. However, to the
extent that NORAM or any of its affiliates is required to comply with or be
licensed under applicable gaming laws in order to receive the NORAM Profit
Participation or reimbursement of the Pre-Development Amount or NORAM's
Verifiable Expenses, NORAM hereby acknowledges and agrees that its rights
hereunder are expressly subject to compliance with such laws on or before the
date on which the Facility is first open to the general public. As soon as
practicable, NORAM shall apply, at its sole expense, to obtain licensing and all
necessary approvals required with respect to the NORAM Profit Participation or
reimbursement of the Pre-Development Amount or NORAM's Verifiable Expenses, and
NORAM hereby agrees to use its best efforts to obtain (and to cause each of its
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directors, officers, equity owners and other affiliates, as applicable, to
obtain) all required licenses and approvals as promptly as possible. If NORAM
or any of its directors, officers, equity owners or other affiliates is unable,
at any time, to obtain or maintain such licensing or otherwise comply with
applicable law (such person or entity, a "NONCOMPLYING PERSON"), NORAM shall
take such action, including without limitation, a corporate restructuring, the
severing of its relationship with the Noncomplying Person or the assignment of
the NORAM Profit Participation in accordance with paragraph 0 hereof, in order
to comply with applicable law within thirty (30) days of the date on which the
Noncomplying Person was unable or ceased to comply with such law. If NORAM is
unable or unwilling to comply with the requirements of the preceding sentence,
the parties will use their best efforts to restructure the NORAM Profit
Participation so that the payment thereof will not violate any licensing
requirements, provided, however that if such a restructuring cannot be
accomplished, to HP's reasonable satisfaction, within a reasonable time, HP may
terminate the NORAM Profit Participation in order to avoid any adverse effect on
the Consulting Agreement, any other agreement between HP and the Nation or the
regulatory status of HP or any of its affiliates.
8. Assignment. NORAM may not assign any of its rights hereunder without the
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prior written consent of HP in its sole discretion. NORAM acknowledges that HP
may refuse to grant its consent to an assignment if, in HP or its counsel's
judgment, the assignee or its affiliates (i) would be a Noncomplying Person,
(ii) would otherwise be unsuitable for licensing in the State of Nevada or any
other jurisdiction which would require such entity to be licensed for purposes
of this Agreement, (iii) would otherwise adversely affect the license or
regulatory status of HP or any of its subsidiaries, or (iv) would not fulfill
all of NORAM'S obligations hereunder.
9. Further Assurances. Each party hereto agrees to execute any and all
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further documents and writings and to perform such other actions which may be or
become necessary or expedient to effectuate and carry out this Agreement.
Without limiting the generality of the foregoing, each party agrees to execute,
deliver and if necessary record any and all additional instruments,
certifications, amendments, modifications and other documents as may be required
by the Secretary of the Interior, the Bureau of Indian Affairs, the National
Indian Gaming Commission, the State of Washington, the State of Nevada or any
applicable statute, rule or regulation in order to effectuate, complete,
perfect, continue or preserve the respective rights, obligations, liens and
interests of the parties hereto to the fullest extent permitted by law;
provided, that any such additional instrument, certification, amendment,
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modification or other document shall not materially change the respective
rights, remedies or obligations of the parties under this Agreement or any other
agreement or document related hereto.
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10. Governing Law; Jurisdiction. All questions with respect to this Agreement
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and the rights and liabilities of the parties will be governed by the laws of
the State of Washington, regardless of the choice of law provisions of
Washington or any other jurisdiction. Except for any actions seeking injunctive
relief, all disputes relating to this Agreement shall be settled by arbitration
conducted in Seattle, Washington pursuant to the rules of the American
Arbitration Association. Any and all disputes between the parties which may
arise pursuant to this Agreement not covered by arbitration will be heard and
determined before an appropriate federal or state court located in Seattle,
Washington. The parties hereto acknowledge that such court has the jurisdiction
to interpret and enforce the provisions of this Agreement and the parties waive
any and all objections that they may have as to personal jurisdiction or venue
in any of the above courts.
11. Miscellaneous. The validity, legality or enforceability of the remainder
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of this Agreement will not be affected even if one or more of the provisions of
this Agreement will be held to be invalid, illegal or unenforceable in any
respect. All amendments to this Agreement shall be in writing signed by all of
the parties hereto. None of the provisions of this Agreement shall be for the
benefit of, or enforceable by, any third party. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, this Agreement is executed as of the day and year set
forth above.
Hollywood Park, Inc.
By: /s/ Bruce Rimbo
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Bruce Rimbo
Its: Executive Vice President/Race Track
Development
North American Sports
Management, Inc.
By: /s/ Alan Ginsburg
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Alan Ginsburg
Its: President
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EXHIBIT A
BUDGET DATED JULY 8, 1997
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