Byron Pepper

Kit Goldman

To Kit Goldman’s way of thinking, a new era has dawned for the Gaslamp Quarter Theatres, and all the rancor of the past three years is erased. She may be right. Then again, she may just be practicing the kind of wishful thinking that brought the two downtown theaters, the Hahn Cosmopolitan and the Elizabeth North, to the brink of financial collapse this summer. “I thank God everyday that we went into this crisis,” declares Goldman, the former managing director and current chief executive of the two theaters. “It forced us to sever the past and come up with solutions. Everybody is being released to go on to where they need to be”

Byron Pepper

It’s not hard to understand the impulse to block out the past. Events over the last three years have resulted in the theaters’ carrying more than $900,000 in debts, including $70,000 in unpaid payroll taxes, $78,000 in bad checks, and at least $85,000 in unrecovered cash expenses from a disastrous fundraising gala at the convention center, which took place in January. Two major benefactors, Charles Deane and Elizabeth North, have backed out of large financial pledges, after raising questions of fiscal mismanagement of the theaters. Two of the company’s founders, designer Robert Earl and artistic director Will Simpson, were fired by Goldman earlier this year and may soon file a lawsuit against the theaters.

The Gaslamp theaters’ board of directors, which has experienced heavy turnover and carries no insurance protecting its members from potential personal liability for the company’s debts, is now trying to refinance a $400,000 loan from the Bank of San Diego, which came due in the spring. That loan has four guarantors: Ernie Hahn and his son Ron, former theater president Ed Plant, and board member Dirk Broekema. Some have questioned whether the guarantors are trying to refinance the loan in order to reopen the theaters as an operating company or simply to get themselves off the financial hook (each has guaranteed about $100,000). Certain board members have suggested that the theaters declare bankruptcy, but for the moment, others have prevailed. Bankruptcy would require the guarantors to pay off the loan. All this, combined with the Gaslamp theaters' reputation for lightweight productions, make up a recent history that cannot be wished away.

First, there's the painful matter of the dismissal of Will Simpson and Bob Earl. The two are now living in a Del Mar condo, waiting for answers to the demand letters their attorney has been sending to the theater company. Their lawyer has asked for $150,000 to settle the matter, representing five years' salary for the two men. The offer has been rejected by C. David Herring, the Gaslamp’s lawyer, who argues that the two did not have a lifetime contract for employment.

Will Simpson

Byron Pepper

Talking to Simpson, who is 66, and Earl, 61, it becomes clear that money is not their central concern. Rather, something very personal between them and Kit Goldman has broken down; all three of them use the term "divorce” to describe their situation. And all the bitterness associated with a divorce is evident in their separate versions of what went wrong. "If a project is successful, she’s responsible," Simpson observes, "but if it’s unsuccessful, you’re responsible She points her finger everywhere but at herself. I’ll not be held responsible for this debacle. After giving ten years to this enterprise, to see it explode this way is terribly disappointing. It’s almost like being raped. I feel violated.”

Conversely, Goldman remarks, “I’ve experienced some growth and have my own artistic expression I want to see manifested on our stage I don’t negate what we did together. I honor and pay tribute to them. But I protected them for two years. The board wanted to make a change, and I protected them. But we were dying, and something had to be done." Later in the conversation, Goldman acknowledged that producing January’s fundraising gala ate up so much of her time last year that she neglected the operation of the theater, then commented, "My colleagues ran aground, and I wasn’t there to put it back on course” Goldman, Simpson, and Earl go back to another epoch of downtown San Diego, to the late 1970s, when a group called Community Arts was putting on one-act plays at the now-defunct Second Avenue Theatre. The three of them worked together on these small efforts, and their success afforded them the opportunity to look for a small stage of their own. They searched in the Gaslamp Quarter, where rents were cheap, and they came across an old dance hall on lower Fourth Avenue that they turned into the 90-seat Gaslamp Quarter Theatre in 1980. The Gaslamp district was where Goldman crossed paths with her future husband, Dan Pearson, who was intent on putting together some real estate deals in the neighborhood.

Bob Earl

Byron Pepper

The small theater was organized as a non-profit corporation, taking over the existing nonprofit status of the New Heritage Theater, Inc., which was then run by, among others, San Diego Union theater critic Welton Jones, a close friend of Goldman’s. Simpson, Earl, Goldman, and Diane Schade were written into the theater company’s by-laws as "designators," who would have the task of selecting board members. That section of the by-laws stated that any additions to or dele- tions from the list of designators would be at the discretion of the designators themselves. Thus, Simpson and Earl felt that they were partners in the theaters, not employees.

In 1988 the board of the Gaslamp Quarter Theatres changed the by-laws, and the section on how board members were selected was rewritten. Goldman claims this by-law change and the board's decision last fall to make her the company's chief executive gave her the authority to fire Simpson and Earl. But the two artists don’t see it that way. They claim they were not a part of the effort to change the by-laws, and therefore, the change is not legal.

"How can the board undesignate the designators?" asks their attorney. Carlo Coppo. “I don’t see how these two individuals could be given the bum’s rush without knowing the by-laws had been changed.”

Legal technicalities aside, the beginnings of the breakdown among the original partners can be traced back to 1986, to the opening of the company’s second theater, the 250-seat venue now called the Hahn Cosmopolitan. Originally, all parties had agreed that the 90-seat Gaslamp Quarter Theatre was too small for their ambitions and that the key to future success was a larger space "I can't say I wasn't in favor of the new theater,” Simpson reflects, "but in hindsight, now I can see that the only way it could go was the way that it did, in fact, go.” That is. downward into debt. "There was an unreality about it. It started out as a theater and suddenly became a real estate deal.”

Ernie and Jean Hahn chaired a $1.25 million fundraising dnve for the proposed second theater and personally guaranteed they would raise $400,000. Later, Dan Pearson formed a limited partnership to raise money to construct an office building behind the Horton Grand Hotel that would house the second theater on its ground floor. Pearson was the lead partner in the hotel.

Dan Pearson, c. 1987

Paul Stachelek

But to make this project one that could attract solid financing, the anchor tenant, in this case the theater, had to be assessed a sizeable amount of rent. The figure started out at about $8700 a month but soon ballooned to just over $10,000. A theater-management expert brought in by Pearson and his partners to oversee the deal claimed the rent was a bargain. But the payments became an anchor around the Gaslamp theaters’ neck. The figure had nothing to do with what the Gaslamp could generate in ticket sales and donations and everything to do with what Pearson and the partnership needed to make a workable real estate deal. “The extremely unrealistic budget of the theater put Kit, as the money-raiser, into the unrealistic position of having to run very fast,’’ says Simpson.

When the theater opened in December 1986, it was named the Deane Theater, after benefactor Charles Deane, who made a $250,000 pledge Deane had invested in the Horton Grand Hotel as well as the new theater building and was closely involved in construction of the new theater. He stated in 1987 that he came to realize early on that he believed the theater’s board of directors—of which he was a member—was simply a rubber-stamp operation controlled by Goldman. The more questions he asked about the project and the fewer satisfactory answers he received, the more suspicious he became Eventually. Deane withdrew his pledge and forced the board to audit the building projects’ financial operations. Not surprisingly, the board found no irregularities, prompting Deane to remark, "It was like having the fox do an audit of the chicken coop." In newspaper stories about the dispute with Deane, Goldman, always a darling of the Copley Press, where she used to work as a classified ad representative, was portrayed as the aggrieved party. In the end, Deane asked that his name be removed from the theater, and in 1988 it was renamed the Hahn Cosmopolitan Theatre.

Hahn’s name went up because of his fund-raising help both before the theater was built and in the wake of the Deane episode. Sources say that Hahn had already sunk $177,500 into the original fundraising effort, and he had approached people like Doug Manchester and Danah Fayman for large contributions. In the summer of 1987, Hahn went to Sol Price and asked for a loan for the undercapitalized theater so the company could pay off $150,000 in construction costs. Price made the loan, marking the beginning of the theater’s debt spiral. That loan hasn't yet been paid back.

Ernie Hahn, c. 1987

Paul Stachelek

Hahn’s name has probably been the single biggest reason the theater company was able to continue operations until May of this year, when both theaters ceased production of their own plays. According to board member Ron Hahn, the Deane pledge had been used as collateral on a $200,000 loan from the Bank of San Diego. When Deane pulled out, it became a revolving loan, with four guarantors, including the two Hahns. Since 1987, the loan has grown to $400,000, and the bank has even agreed to cover an additional $78,000 in bad checks written by the theater company. One former board member says the bank agreed to this because of the Hahn name.

As the theater company’s debts mounted, shows were still being produced at the Gaslamp Quarter Theatre and the Hahn, but audiences weren’t wearing out the sidewalks on the way to the box office Goldman points out that the Hahn was built in “the private sector," without public money, and therefore needed to produce eight or nine plays a year, year round, in order to stay afloat. But it quickly became obvious that in theater-rich San Diego, the Gaslamp’s taste for old-fashioned period pieces was not shared by the public. "We were getting raped by the critics a lot," Goldman explains. “They talked about a sameness of production, using words like stale, stuffy, and stagnant.” Play selection, combined with the theaters’ location in a part of downtown that many people are afraid to enter, often meant that houses were only 50 percent full. Still, according to Will Simpson. Goldman began talking about building yet a third theater.

Goldman and Simpson discussed the half-empty houses in 1988, "And Will thought it was a marketing problem." says Goldman. “I thought we needed an infusion of new energy, new ideas, new play selection." Simpson and Earl maintain that the plays they selected did make money, but the “glitzy" plays favored by Goldman were the losers. Simpson says he often asked Goldman what it would cost just to leave the theaters dark rather than put on plays they knew would bomb but she could never give him a figure "Kit, the hotel, Pearson, and the theater were all such a gray area, I don’t think she could have known that figure even if she had wanted to," says Simpson.

Byron Pepper

Finally in 1989, Goldman informed Simpson. the artistic director, that she would have final say over play selection, previously Simpson’s prerogative Simpson talks of "this eroding, behind your back, by rumor and innuendo. of what were originally my tasks. Kit isn’t capable of making theatrical decisions. Her instincts aren’t correct. It’s an ego trip for her." Simpson says Goldman hired a staff much too large for the theater, recalling that sometimes there would be 15 people to oversee a production crew of 15. "Kit had a need to have her finger in everything. She hired people who weren't professional because they were the only kind of people she could dominate."

Goldman talks of trying, unsuccessfully, to get Simpson and Earl to view other plays, to see how other people do it. to get fresh ideas, to become public figures like Jack O'Brien at the Old Globe, or Des McAnuff at the La Jolla Playhouse "But I couldn’t get them to do it. They wouldn’t budge." Meanwhile, the deficit was mounting, and the board was having trouble raising any significant amounts of money.

Then came Elizabeth North. A former real estate broker and investor who is in her 70s, North wanted to contribute money to the arts, and she figured that if Hahn’s name was on the theater, it must be a solid operation. In June of 1989, she pledged $75,000, and her name went up on the original 90-seat Gaslamp Quarter Theatre last October. North donated just over $40,000 but decided to withhold the remaining $35,000 when the theaters halted production in May. (Though North didn’t want to be interviewed for publication, she did submit a written statement, then changed her mind and withdrew it.)

Byron Pepper

Various sources agree that North, whose daughter Gaye became a board member of the theaters, felt that Goldman misled her into believing Ernie Hahn had paid the $150,000 to finish the second theater and that Hahn was also a guarantor on the theater's lease. Goldman denies saying this to North. But like Deane before her. North is said to have found it impossible to get satisfactory answers to questions she raised about theater finances, and she came to believe that the theaters were in a state of undeclared bankruptcy.

The 1990 budget that was approved by the Gaslamp theaters’ board last December showed a projected surplus of $552,000, which North apparently knew was wildly inaccurate That budget included a $300,000 projected profit from the fundraising gala and $225,000 that would accrue to the theaters should the building housing the Hahn theater be sold. At the time the budget was drawn up Pearson was planning to sell the property. As it turned out, there was no profit from the gala, as North had warned there wouldn’t be and the building never sold.

Many people connected with the Gaslamp theaters have become disturbed by these "fantasy budgets,” whose figures seem to shift according to the theaters’ needs. For instance, budgets submitted to the city in application for Transient Occupancy Tax money don’t necessarily reflect the budgets shown to the theaters' board. While the board’s 1990 budget projected a $552,000 profit, the budget submitted to the city a month later claimed a surplus of only $7058. The budget prepared for the city listed higher expenses than were shown in the board’s version. In reality, there was no surplus at all. and this year's loss is well over $100,000, according to Ted Considine, CPA and finance committee chairman for the Gaslamp theaters' board of directors.

Byron Pepper

Goldman admits that "I'm no MBA" and says budgets are "projections" and change with the day-to-day fortunes of the theater company. Ron Hahn, who joined the board last spring (his wife was already a trustee) in an effort to bring better business practices to the company, acknowledges that “we’ve had some problems with fiscal responsibility in the past.” When North raised questions last fall about the unrealistic profit projections for the January fundraising gala, her concerns were ignored. At that time, Goldman’s dreams still held sway over the board. "In Kit’s personality, there’s at first the need to believe, and then the belief," Simpson observes. "Certain people have been ’cultified’ by her. She has amazing influence over people.” Lately, there have even been attempts to rewrite the theaters’ history. A press handout distributed in May, when the financial crisis forced a halt in production, includes this statement: "In October of 1989, it becomes apparent that funds from the Gala will be less than projected and will not be available until August of 1990…” But Elizabeth North's questions about the gala proceeds had been rejected in October, and in December the board was given the optimistic projection of a $300,000 gala profit. The gala ended up costing the theaters more than $100,000, out of pocket, according to Ted Considine. That same press handout also claims that Charles Deane contributed only $60,000 of his $250,000 pledge. But many newspaper stories in the spring of 1987 quote Goldman and other theater officials saying Deane had contributed $100,000.

Last January’s fundraising gala at the convention center is a microcosm of the Gaslamp Theatre Company's star-crossed efforts to raise money. According to Goldman, the producer of the event, the theater company was never supposed to get involved with the actual production of what eventually came to be called "America’s Dance Awards" At the end of 1988, she says, she and Ernie Hahn met to discuss ways to reduce the theaters' swelling debt, and Hahn suggested a fundraiser that would tie in the new convention center, the port district, and the cultural development along the waterfront. Hahn is involved with the Bob Hope Cultural Center in Palm Desert, which gives Hope Awards to deserving individuals, and Hahn wondered if some kind of award show like that might be used as a fundraiser for the Gaslamp theaters.

Byron Pepper

The idea eventually developed into a network-televised dance awards show to benefit San Diego’s south-of-Broadway venues, including the Gaslamp, the Rep, the Bowery, and Sushi. Goldman was to organize the event and sell tickets, and an experienced television producer was to handle the TV end of the project. "But the executive we were working with at ABC left, and the project went to the back burner." Goldman explains. “So we had to take it over and produce, which is not something we had experience doing."

The city’s mainstream cultural institutions—the Old Globe the opera, and the symphony—were left off the list of beneficiaries of the fundraiser, and this proved to be a mistake. Ticket sales were sluggish, and a $600,000 bank loan was taken out to underwrite most of the production costs. The event was taped in January and broadcast July 5, with American Express as the main sponsor. As of early August, the Gaslamp company was still awaiting a $600,000 check from American Express.

"Suddenly we were producing fundraisers, we weren’t producing plays," says Will Simpson. who believes play production suffered during the year in which Goldman was putting in 70- and 80-hour weeks working on the gala. "The fiction of it all was there from the beginning, and the arrogance, thinking all this energy and time could go into the gala, while we're still going full speed ahead at the theaters."

Goldman concedes that producing the gala probably did have an impact on the theaters, but she felt trapped. The deal with the convention center stipulated that there would be a TV show, and this was to be part of the center's big coming-out party. "We had to do the show. There was no alternative," says Goldman. "But you should understand that if it weren’t for the costs of doing it on TV. we’d have made a couple hundred thousand dollars"

Gaslamp officers say the ABC network was impressed with the show’s ratings. The gala turned out to be Sammy Davis, Jr.’s last public appearance before his death on May 16. a fact mentioned prominently in ABC’s promotion for the show. Plans are underway for another dance awards show next year, but this time the Gaslamp Theatre Company won’t be producing it.

Groundwork for the Gaslamp's 1991 fundraiser is one piece of a grand plan by a revamped board of trustees to stem the loss of money and get the theaters operating again. Part of that plan includes a recent board resolution that Gaslamp officers could no longer write checks that the company didn’t have the money to cover. According to finance chairman Ted Considine. "We haven't incurred any new debt this summer, and that’s the first hurdle. And we’ve been able to pay all our expenses and keep everything current, which will allow us to make our next move." The next move he says, is to garner pledges from donors who presumably will come through with money when they see plays being at least co-produced by Gaslamp, starting in October. However, there are still unanswered questions about whether the city should give Transient Occupancy Tax money to what has been essentially a rental house for much of this year.

But the whole scheme is a house of cards, to use Considine’s own phrase. The company has quit paying the $10,000-a-month rent for the Hahn and instead now pays $5000. So Home Federal, the bank holding the note on the building, has seen the $20,000-a-month loan payment it receives drop to about $15,000. Dan Pearson says he’s still negotiating the $5000-a-month deficit with Home Fed but insists that the extra burden will not fall to the building’s partners. "It’s the theater’s obligation. It wouldn’t be fair for the limited partners to have to pay it," Pearson remarks.

The negotiations with Home Fed have become complicated by another lender. Bank of America, which had been a guarantor on a portion of the loan payment. The Horton Grand Hotel occupies the top floor of the building and pays about $12,000 a month in rent. That payment was backed by a line of credit at B of A that expired in July. Given the hotel’s current financial troubles, which are related to low occupancy. B of A officers aren’t sure they want to renew the guarantee. Home Fed’s executives are nervous that without such a guarantee, its loan to Pearson and the partnership is beginning to look too risky. Pearson is confident that the details will be worked out, but he admits, "A big part of me wishes that I had never built this building. The fact that Kit and I are husband and wife has opened us up to a lot of criticism."

Meanwhile, the theater company was behind on rent and interest payments until Southern California Edison came through with a $100,000 pledge, to be paid in two $50,000 increments. The theater borrowed $35,000 on the second installment, due next year, and made good on its rent, interest, and a few other pressing bills.

The Gaslamp theaters’ $400,000 loan at the Bank of San Diego came due earlier this summer, and after a series of emergency board meetings, the four guarantors approached a new local bank, Metro Bank, and worked out a deal wherein Metro would take over $350,000 of the loan, and each guarantor would back up $87,500. Because the theaters brought themselves up to date on rent and interest payments, the Bank of San Diego will continue to carry the other $50,000, plus the almost $80,000 in overdrafts.

Considine warns that "the ink isn’t dry yet" on this complicated deal, but he verified all the figures. He says donors are waiting to write checks, although he doesn’t specify that some of them are board members who've been asked to make large, nonrefundable pledges. "Everybody wants to see a project on the stage before they write a check," Considine cautions.

Goldman has come up with a new plan for the types of plays she wants to produce, leaning heavily toward proven money-makers that have had successful runs elsewhere. Considine believes that once the Gaslamp starts putting plays onstage, then Elizabeth North will release the remaining $35,000 of her pledge. But others think North is so fed up with the financial shenanigans that she has decided to withdraw completely, even though the donor’s agreement she signed would probably hold up in court. "Legally, it would seem that the theater is in the good, but I don’t think we promote our best interests in town by suing donors who don’t come through," says Ron Hahn. "Enforcability of that contract is not an issue to me.”

If North completely severs her ties to the theater, Hahn envisions the possibility of luring a major corporate sponsor to underwrite the smaller house But while Hahn strikes a conciliatory tone the theaters’ lawyer, C. David Herring, has recently sent a letter to North demanding the balance of her pledge.

As to the perception in some circles that Hahn and the other loan guarantors are really working to clear their own names off the loans, Hahn gave a forthright answer. It’s technically possible, he says, for him to line up eight people to write $10,000 checks, take them to the bank, and get his name off the loan. "The bank would love that, but from a moral and ethical standpoint, I couldn’t do it. Taking donor money not to operate the theater, but just to service the debt, would be unethical." He says a formula has been computed whereby all donor monies will be divided and applied to various classifications in the budget, including both production costs and debt. "Over four or five years, yes, the guarantors’ responsibility will be retired, but only if the theater continues to operate and produce shows and pay off its debt We’re actively helping because we're guarantors, yes, but our ultimate goal is the longevity of the theater.”