As Filed with the Securities and Exchange Commission on December 19, 1996
Registration No. 333-___________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------
COLONIAL DOWNS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Virginia 7948 54-1826807
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
3610 North Courthouse Road
Providence Forge, Virginia 23140
(804) 966-7223
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Michael D. Salmon
3610 North Courthouse Road
Providence Forge, Virginia 23140
(804) 966-7223
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
---------------
Copies to:
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J. Warren Gorrell, Jr., Esq. L. Charles Long, Jr., Esq. Emanuel Faust, Jr., Esq.
Bruce W. Gilchrist, Esq. James L. Weinberg, Esq. Howard S. Jatlow, Esq.
HOGAN & HARTSON L.L.P. HIRSCHLER, FLEISCHER, DICKSTEIN SHAPIRO MORIN &
555 Thirteenth Street, N.W. WEINBERG, COX & ALLEN OSHINSKY LLP
Washington, D.C. 20004-1109 701 East Byrd Street 2101 L Street, N.W.
(202) 637-5600 Richmond, VA 23219 Washington, D.C. 20037
(804) 771-9500 (202) 785-9700
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable following effectiveness of this Registration Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /_/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. /_/
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. /_/
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /_/
---------------
<PAGE>
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Amount Maximum Maximum Amount of
Title of Securities to be Registered(1) Offering Price Aggregate Registration Fee
To Be Registered Per Unit(2) Offering Price(2)
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<S> <C> <C> <C> <C>
Class A
Common Stock, par value $0.01 per share 4,485,000 $10.00 $44,850,000 $13,591
=========================================================================== ========================================
(1) Includes 585,000 shares of Class A Common Stock which may be purchased
by the Underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
</TABLE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 19, 1996
PROSPECTUS
3,900,000 Shares
[LOGO]
COLONIAL DOWNS HOLDINGS, INC.
Class A Common Stock
Colonial Downs Holdings, Inc. ("Colonial Downs Holdings" and, together
with its subsidiaries, the "Company") was organized to pursue opportunities for
horse racing and pari-mutuel wagering in Virginia. The Company holds the only
unlimited licenses to own and operate a racetrack and satellite wagering
facilities ("SWFs") in Virginia. The Company is constructing a racetrack
scheduled to open and begin live racing prior to July 1, 1997. The Company also
holds licenses for two SWFs, of which the first opened in February 1996 and the
second opened in December 1996, has applied for licenses for a third SWF, and
plans to apply for licenses for up to three additional SWFs during the next 12
to 18 months as suitable sites are selected. The shares of Class A common stock,
$.01 par value per share ("Class A Common Stock"), offered hereby are being sold
by the Company. Prior to this offering, there has been no public market for the
Class A Common Stock. It is currently anticipated that the initial public
offering price for the Class A Common Stock will be between $8 and $10 per
share. See "Underwriting" for information relating to the factors to be
considered in determining the initial public offering price.
The Company has two classes of common stock, the Class A Common Stock
and Class B common stock, $.01 par value per share (the "Class B Common Stock"
and, together with the Class A Common Stock, the "Common Stock"). The rights of
the holders of the Class A Common Stock and the holders of the Class B Common
Stock are substantially identical, except that holders of the Class A Common
Stock are entitled to one vote per share and holders of the Class B Common Stock
are entitled to five votes per share generally, provided that on any vote or
approval with respect to a merger, consolidation or other business combination,
or a sale of all or substantially all of the assets of the Company, the holders
of Class B Common Stock are entitled to one vote per share. The Class B Common
Stock is fully convertible into Class A Common Stock, at the option of the
holder, on a one-for-one basis. Both classes of Common Stock vote together as
one class on all matters generally submitted to a vote of stockholders,
including the election of directors. The Class B Common Stock will be held by
certain founders of the Company. See "Description of Capital Stock." There is no
established market for the Class A Common Stock, and there can be no assurance
an established market for the Class A Common Stock will develop. The Company
plans to apply for inclusion of the Class A Common Stock on The Nasdaq SmallCap
Market.
See "Risk Factors" beginning on page 6 for a discussion of certain
factors that should be considered by prospective purchasers of the Class A
Common Stock.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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==========================================================================================================================
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
==========================================================================================================================
<S> <C> <C> <C>
Per Share........................ $ $ $
Total(3)......................... $ $ $
==========================================================================================================================
(1) The Company has agreed to indemnify the Underwriters named herein against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to 585,000 additional shares of Class A Common Stock on the same
terms and conditions as set forth above. If all such shares are purchased by the
Underwriters, the total Price to Public, Underwriting Discounts and Commissions,
and Proceeds to Company will be $_____, $_____, and $______, respectively. See
"Underwriting."
</TABLE>
The shares of Class A Common Stock are offered by the Underwriters
named herein, subject to prior sale, when, as and if delivered to and accepted
by the Underwriters, and subject to their right to withdraw, modify, correct and
reject orders in whole or in part. It is expected that delivery of the
certificates representing the shares of Class A Common Stock will be made
against payment therefor at the offices of Friedman, Billings, Ramsey & Co.,
Inc., Arlington, Virginia or in book entry form through the book entry
facilities of The Depository Trust Company on or about __________, 1997.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
The date of this Prospectus is ____________, 1997.
<PAGE>
[INSIDE COVER: ARTIST'S RENDITION OF COLONIAL DOWNS TRACK]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP
MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information, financial statements
and notes thereto appearing elsewhere in this Prospectus. The information in
this Prospectus, unless otherwise indicated, (i) does not give effect to the
exercise of the over-allotment option granted to the Underwriters, (ii) assumes
that a convertible subordinated note issued by the Company in the principal
amount of $3 million on the closing date of this offering (the "Convertible
Subordinated Note") is not converted, and (iii) is set forth as if the
Reorganization described herein had already been completed. See "The
Reorganization." Unless the context indicates otherwise, the term "Company"
refers to Colonial Downs Holdings, Inc. ("Colonial Downs Holdings") and its
wholly owned subsidiaries, Colonial Downs, L.P. ("Colonial LP") and Stansley
Racing Corp. ("Stansley Racing"), collectively, or any of them. Certain of the
matters discussed under the captions "Risk Factors," "Management's Discussion
and Analysis of Results of Operations and Financial Condition," "Business," and
elsewhere in this Prospectus contain forward-looking statements and as such
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such forward-looking statements
speak only as of the date of this Prospectus.
THE COMPANY
The Company was organized to pursue opportunities for horse racing and
pari-mutuel wagering in Virginia. The Company is the only entity that has been
awarded unlimited licenses to own and operate a horse racetrack with pari-mutuel
wagering in Virginia and is the only entity eligible to apply for licenses to
own and operate satellite wagering facilities ("SWFs") in Virginia. The Company
plans to conduct thoroughbred and standardbred ("harness") horse racing at a
racetrack that it is currently constructing in New Kent County, Virginia (the
"Track"). The Company also intends to conduct pari-mutuel wagering at the Track
and at its SWFs on races run at the Track and on races telecast from
out-of-state tracks ("import simulcasting"). After it begins live racing at the
Track, the Company will seek to increase its revenues by entering into
agreements to simulcast races run at the Track to out-of-state racetracks, SWFs,
casinos and other gaming facilities ("export simulcasting").
The Track is scheduled to open and begin live racing prior to July 1,
1997. The Track's initial racing season is expected to consist of 30 days of
thoroughbred racing and 50 days of harness racing. The Company's goal is to
establish the Track as one of the premier venues for thoroughbred horse racing
in the East by attracting high quality horses and offering an appealing
environment for racing participants and customers. The Company believes that its
average purses will be competitive with those currently offered by most other
tracks in the mid-Atlantic region that hold racing meets at the same time as the
Company's scheduled meets, enabling the Track to attract high quality
thoroughbred horses, trainers and jockeys to the Company's meets.
The Track site consists of approximately 345 acres of land located
approximately 25 miles east of Richmond, Virginia and approximately 25 miles
west of Williamsburg, Virginia. When completed, the Track will include a dirt
race track, a unique double-width turf track, a four-level grandstand and
clubhouse, bleachers, six bars, a gift shop, two simulcast/TV amphitheaters, and
over 95 wagering stations. The Track site is located in an area that Chesapeake
Corporation and its subsidiaries plan to develop into a resort area. An 18-hole
golf course adjacent to the Track site was opened in July 1996 by The Legends
Golf Group, a golf course developer based in Hilton Head, South Carolina. Future
development plans for the area include hotels, theaters, restaurants, commercial
offices and residential development. New Kent County residents have demonstrated
support for this development, but the Company has no control over the extent and
timing of the development and, therefore, there can be no assurance that the
development will be actively pursued or completed. See "Business -- The Track
and Track Facilities."
The Company currently holds licenses for and operates two SWFs: a
15,000 square foot facility that opened in Chesapeake, Virginia in February 1996
and a 19,700 square foot facility that opened in Richmond in December 1996.
Under current Virginia law, which allows a maximum of six SWFs in the state, the
Company holds the right to seek licenses for up to four more SWFs. The Company
applied in December 1996, for the necessary licenses to own and
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
operate a third SWF in Hampton, which is located in southeastern Virginia. The
Company plans to apply for licenses for additional SWFs as soon as desirable
locations are selected, which the Company believes will be within 12 to 18
months after this offering closes. The Company intends to locate its additional
SWFs near the population centers in northern and southeastern Virginia and on
the southern border of Virginia, where the Company hopes to attract business
from residents of the Chapel Hill-Raleigh-Durham area of North Carolina. The
Company expects to apply for licenses in December 1996 for a fourth SWF in
Brunswick County on the North Carolina border. The Company plans to seek an
appropriate location in northern Virginia for one of its two remaining SWFs. In
order to obtain licenses for the fifth and sixth SWFs in the areas desired by
the Company, the Company will initiate referenda in certain localities in which
the additional SWFs may be located. Five northern Virginia localities have
rejected such referenda. In the future, the Company may seek legislative changes
to allow more than six SWFs in Virginia. There can be no assurance that the
Company will be able to obtain licenses for any additional SWFs.
Since it opened in February 1996, the Company's Chesapeake SWF has had
average daily attendance of 550 customers, average daily wagers of $110,000, and
annualized pari-mutuel wagering of approximately $39,000,000 (based on seven and
one-half months of actual results). In the future, the Company plans to promote
attendance and wagering business at the Track and its SWFs by introducing
entertainment activities, including family fun days, premium give-away programs,
contests and special events. See "Business -- Satellite Wagering Facilities."
To provide experienced management for the Track and promote
thoroughbred racing in Virginia and Maryland, the Company has entered into an
agreement with Maryland-Virginia Racing Circuit, Inc., which is affiliated with
the owners of the Pimlico and Laurel racetracks in Maryland (collectively,
"Maryland Jockey Club"), to create a Virginia-Maryland thoroughbred racing
circuit. Under this agreement (the "Management and Consulting Agreement"), the
Maryland Jockey Club will request permission from the Maryland Racing Commission
to close from mid-June until mid-October of each year. The Company plans to host
a thoroughbred meet at the Track during part of this period and expects to
attract the thoroughbred race horses that typically have run at the Maryland
racetracks at this time. The Company has been informed that the Maryland
racetracks plan to host their thoroughbred meets from January to May and
November through December, during which time the Track will not be used for live
thoroughbred racing, but will feature live harness racing and import
simulcasting. The Management and Consulting Agreement further provides that the
Maryland Jockey Club will provide experienced personnel from Laurel Park and
Pimlico Race Course to assist the Company in managing its thoroughbred meet at
the Track. See "Business -- Virginia-Maryland Thoroughbred Racing Circuit."
RISK FACTORS
For a discussion of considerations relevant to an investment in the
Class A Common Stock and the Company's ability to develop its operations and
achieve its objectives, see "Risk Factors."
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2
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THE OFFERING
Class A Common Stock offered.......... 3,900,000 shares(1)
Common Stock to be outstanding after
the Offering......................... 4,650,000 shares of Class A Common Stock
and 2,250,000 shares of Class B Common
Stock(2)
Use of Proceeds...................... The Company will use the estimated net
proceeds of this offering (the
"Offering"), the Bank Credit Facility
(see "Description of Certain
Indebtedness-- Bank Credit Facility"),
and the proceeds of the Convertible
Subordinated Note (see "Description of
Certain Indebtedness -- Convertible
Subordinated Note") (i) to complete
construction and commence operation of
the Track; (ii) to acquire, construct,
renovate and/or equip SWFs; (iii) to
repay interim financing provided by
certain shareholders; and (iv) for
working capital and other general
corporate purposes. See "Use of
Proceeds."
Other financing sources include the Bank
Credit Facility and the Convertible
Subordinated Note. See "Description of
Certain Indebtedness -- Bank Credit
Facility" and "--Convertible
Subordinated Note."
The completion of this Offering is
contingent upon the Company securing the
Bank Credit Facility and the Company
issuing the Convertible Subordinated
Note.
Nasdaq SmallCap Market Symbol........
Dividend Policy...................... The Company has never declared or paid
any dividends on its capital stock and
does not anticipate paying dividends in
the foreseeable future. See "Dividend
Policy."
- ----------------------
(1) No purchaser of shares in this Offering will be permitted to acquire
beneficial ownership of 5% or more of the Company's Common Stock, due to
certain provisions of the Horse Racing and Pari-Mutuel Wagering Act of
Virginia (the "Virginia Racing Act"). See "Risk Factors -- 5% Ownership
Limit; Virginia Racing Act Restrictions on Stock Ownership."
(2) Excludes 300,000 shares of Class A Common Stock issuable pursuant to the
Company's stock option plan, 317,460 shares of Class B Common Stock
issuable upon the conversion of the Convertible Subordinated Note (assuming
an initial public offering price of $9 per share for the Class A Common
Stock), and up to 300,000 shares of Class B Common Stock issuable upon the
exercise of the warrants that may be issued to Mr. Jacobs in connection
with credit enhancement relating to the Bank Credit Facility. (See
"Description of Certain Indebtedness -- Bank Credit Facility.")
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3
<PAGE>
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SUMMARY FINANCIAL AND OPERATING DATA(1)
The summary financial and operating data set forth below gives effect
to the Reorganization as if it had occurred as of September 30, 1993 and should
be read in conjunction with "Capitalization," "Selected Financial and Operating
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements and related notes
thereto included elsewhere in this Prospectus.
(In thousands, except share, per share, per capita, days of
operation, and attendance data.)
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Nine months ended Year ended
September 30, December 31,
----------------- ------------
1996 1995 1995
---- ---- ----
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Income Statement Data:
Revenues:
Pari-mutuel commissions -
Import simulcasting............ $ 5,231 $ -- $ --
Other related revenues........... 473 -- --
----------- ----------- -----------
Total revenues...................... 5,704 -- --
----------- ----------- -----------
Direct operating expenses
Direct expense of import
simulcasting..................... 3,043 -- --
Other direct operating expenses 1,758 -- --
----------- ----------- -----------
Total direct operating expenses..... 4,801 -- --
----------- ----------- -----------
EBITDA before general and
administrative (2)............... 903 -- --
General and administrative....... 1,041 156 315
Depreciation and amortization.... 182 2 3
----------- ----------- -----------
Loss from operations................ (320) (158) (318)
Interest expense (net).............. (88) (2) (2)
----------- ----------- -----------
Net loss............................ $ (408) $ (160) $ (320)
=========== =========== ===========
Net loss per share (2).............. $ (0.14) $ (0.05) $ (0.11)
Weighted average number of shares
outstanding (3).................. 3,000,000 3,000,000 3,000,000
</TABLE>
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At September 30, 1996 At December 31,
----------------------------- ---------------
Actual As Adjusted (4) 1995
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Balance Sheet Data:
Current assets...................... $ 689 $ 50,744 $ 330
Total assets........................ 6,104 56,159 3,142
Working capital..................... (1,572) 49,384 (1,589)
Short-term debt, including
current portion.................. 260 10 632
Long-term debt, excluding
current portion.................. 2,196 21,509 1,548
Total liabilities................... 4,837 32,999 3,467
Shareholders' equity................ $ 1,267 $ 33,160 $ (325)
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<PAGE>
For the 7.5 Months
February 17, 1996 (Opening Day)
Through September 30, 1996
--------------------------------
Operating Data:
Number of satellite wagering facilities...... 1
Chesapeake SWF operations:
Days of operation.......................... 226
Total pari-mutuel wagering (in thousands).. $ 24,756
Average daily wagering (in thousands)...... $ 110
Total attendance........................... 124,336
Average daily attendance................... 550
Average daily per capita wager............. $ 199
- ------------------
(1) Includes entities which prior to the Reorganization were affiliated through
common ownership and control. See "The Reorganization."
[Notes continued on next page]
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4
<PAGE>
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(2) EBITDA consists of the sum of the Company's net income (loss), net interest
expense and depreciation and amortization. EBITDA data are unaudited and
are presented because such data are used by certain investors to determine
the Company's ability to meet debt service requirements. The Company
considers EBITDA to be an indicative measure of the Company's ability to
service debt and fund capital expenditures. However, such information
should not be considered as an alternative to net income (loss), operating
profit, cash flows from operations, or any other operating or liquidity
performance measure prescribed by generally accepted accounting principles.
Cash expenditures for various long-term assets and interest expense have
been, and will be, incurred which are not reflected in the EBITDA
presentation.
(3) Based on 3,000,000 shares of Common Stock outstanding prior to the
consummation of this Offering.
(4) As adjusted to reflect (i) the sale of 3,900,000 shares of Class A Common
Stock by the Company and the application of the net proceeds therefrom,
(ii) borrowing by the Company of the full amount available under a certain
bank credit facility (see "Description of Certain Indebtedness -- Bank
Credit Facility"), and (iii) proceeds from the Convertible Subordinated
Note. See "Description of Certain Indebtedness -- Convertible Subordinated
Note."
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5
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following factors before
purchasing any of the Class A Common Stock offered hereby.
Limited Operating History; Losses
The Company was organized on September 30, 1993, was awarded the Track
licenses in October 1994, opened the Chesapeake SWF in February 1996, and opened
the Richmond SWF in December 1996. The Company has incurred losses since its
organization and anticipates that it will continue to incur losses until the
Track is completed and operating and four SWFs are opened and operating at the
levels projected by the Company, as is planned to occur prior to July 1, 1997,
although the Company may continue to incur losses thereafter. There can be no
assurance that the Company will achieve its objectives or that the Company's
operations as a whole will be profitable. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements included elsewhere in this Prospectus.
Financing Requirements
Although the Company believes that the proceeds of this Offering, a
bank credit facility in the amount of up to $18.5 million that the Company will
enter into on or before completion of this Offering (the "Bank Credit
Facility"), and the issuance by the Company of the Convertible Subordinated Note
in the principal amount of $3 million on the closing date of this Offering,
together with operating cash flow, will provide sufficient funds to complete the
Track and the related infrastructure for which the Company is responsible,
acquire and equip its planned additional SWFs and provide sufficient working
capital for the foreseeable future, there can be no assurance that such funds
will be adequate. There can be no guarantee that the Company will secure any
additional financing, or if it is able to do so, that the Company will secure
such additional financing in a timely fashion and on terms favorable to the
Company. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Risk of New and Uncertain Market
Horse racing with pari-mutuel wagering is a new industry in Virginia.
Although there is a long history of horse racing in Virginia, it is impossible
to predict with any certainty the economic outlook or future of the pari-mutuel
wagering industry in Virginia. There can be no guarantee that the market will be
sufficient to generate enough revenue to make the Company profitable. The
Company's business plan for operating its Track and system of SWFs is unproven
and there can be no assurance that the Company's business plan will be
successful.
Attendance and wagering at the Track and at the Company's SWFs may be
adversely affected by matters outside the Company's control, such as competing
gaming and entertainment opportunities, changes in public attitudes toward
gaming and pari-mutuel wagering, or other factors. In addition, the Company is
subject to risks to which other new businesses and industries in general are
subject, such as changes in general economic conditions, markets, and interest
rates.
Risk of Delay in Opening the Track and SWFs
Significant delays in the Company's plan to open the Track and open and
operate four SWFs prior to July 1, 1997 would have a material adverse effect on
the Company's expected revenues and its ability to offer competitive purses at
the Track. See "Business -- Purse Structure and Guarantees," and "Business --
Competition." In addition, a delay in the opening of the Track would cause the
invalidation of the Company's licenses to own and operate its SWFs and would
result in the closing of the SWFs until such time, if ever, as the SWFs are
relicensed.
Delay in the opening of the Track beyond July 17, 1997, could cause the
Company to become obligated to pay some or all of a $1,000,000 performance
guarantee provided to the Virginia Racing Commission. The Virginia Racing
Commission's decision awarding licenses to the Company required a performance
guarantee of the Company's obligation to construct, complete and open the Track
for racing by July 17, 1997. For each day beyond
6
<PAGE>
July 17, 1997 that the Track is not complete and open for racing, the Company
will pay a penalty of $5,000, up to a maximum of $1,000,000. The July 17
deadline may be extended by amendment at the discretion of the Virginia Racing
Commission, or by an act of God, war, terrorism or other force majeure event
beyond the control of the Company. Although the Company believes that it will be
able to complete the Track and commence racing in advance of such deadline,
there can be no assurance that it will be able to do so, and no assurance that
the Company will not have to pay a portion or all of the performance guarantee.
The Track site is subject to reversion to the grantors of the site if
the Company fails to complete, open and operate for three years a racetrack
licensed by the Virginia Racing Commission on the site.
State and Local Approval of Satellite Wagering Facilities
The Company's strategy and future success is dependent, in significant
part, upon the Company being awarded licenses from the Virginia Racing
Commission to own and operate the maximum of six SWFs permitted by Virginia law.
As set forth below, passage of a local referendum approving the location of SWFs
within a locality will be required as a condition to issuance of licenses to the
Company in certain localities where the Company wishes to operate. Under the
Virginia Racing Act, only the Company, as the holder of licenses to own and
operate a pari-mutuel racetrack in Virginia, may be licensed to own and operate
SWFs in Virginia. The Company has received licenses for two such facilities: a
Chesapeake SWF, which has operated since February 1996, and a Richmond SWF which
opened in December 1996. The Company has applied for licenses to own and operate
a third SWF in Hampton. In December 1996, the Company intends to apply for
licenses to own and operate an SWF in Brunswick County, where a referendum has
passed. There can be no guarantee that the Virginia Racing Commission will issue
licenses for the Hampton and Brunswick SWFs or the remaining two SWFs to the
Company, or if issued, that they will be issued consistent with the Company's
schedule for opening SWFs. See "Business -- Satellite Wagering Facilities."
The Virginia Racing Act provides that the Company cannot apply for a
license to own or operate a SWF in any county or city in Virginia unless a local
referendum approving such SWF has been passed. Although such referenda have
passed in several localities which are potential SWF sites, such referenda have
failed in certain parts of northern Virginia, which is a highly desirable market
to the Company for the location of additional SWFs. See "Business -- Satellite
Wagering Facilities." There can be no guarantee that the Company will be able to
obtain such local approval in localities considered desirable by the Company for
an SWF, or at all. This process may also delay or otherwise limit the Company's
ability to respond rapidly to changing operating or other conditions.
Government Regulation
The Company's success is dependent upon continued government and public
acceptance of horse racing as a form of legalized gaming. Although the Company
believes that pari-mutuel wagering on horse racing will continue to be legal in
Virginia, gaming has come under increasing scrutiny nationally and locally. The
United States Congress recently passed legislation creating a national gaming
study commission (the "National Gaming Commission"). The National Gaming
Commission will have the duty to conduct a comprehensive legal and factual study
of gambling in the United States and existing federal, state and local policies
and practices with respect to the legalization or prohibition of gambling
activities, to formulate and propose changes in such policies and practices, and
to recommend legislation and administration actions for such changes. It is not
possible to predict the future impact of any such proposals on the Company and
its operations. Any such proposals could have a material adverse effect on the
Company's business. Legislative opposition to the Virginia Racing Act is also
possible. If the Virginia Racing Act were repealed or materially amended, such
action could have a material adverse effect on the Company's business of
pari-mutuel wagering.
Virginia Racing Act. Under the Virginia Racing Act, the Virginia Racing
Commission is vested with control over all aspects of horse racing with
pari-mutuel wagering and the power to prescribe regulations and conditions under
which such racing and wagering are conducted. See "Business -- The Company's
Licenses." The Virginia Racing Commission is responsible for, among other
things, (i) conducting an annual review of the Company's Track and SWF licenses,
(ii) annually approving the Company's proposed schedule of racing days, (iii)
approving new or modified types of pari-mutuel wagering pools requested by the
Company, (iv) issuing permits to all officers, directors, racing officials and
other employees of the Company, and (v) approving simulcast
7
<PAGE>
schedules at the Track and at the SWFs. The Virginia Racing Commission also has
the authority to promulgate regulations pertaining to the Company's Track
facilities, equipment, safety and security measures, and controls the issuing of
permits for participants in pari-mutuel racing, including Company employees at
the Track and at the SWFs. In addition, the Virginia Racing Commission must
approve any acquisition or continuing ownership of a 5% or greater interest in
the Company. Action by the Virginia Racing Commission that is inconsistent with
the Company's business plan could have a material adverse effect on the Company.
The licenses issued by the Virginia Racing Commission to the Company
are for a period of not less than 20 years, but are subject to annual review by
the Virginia Racing Commission. It is possible that such licenses will not be
renewed or that such licenses could be suspended or revoked by the Virginia
Racing Commission for violations of the Virginia Racing Act or Virginia Racing
Commission rules. See "Business -- The Company's Licenses."
Other State and Local Regulation. The Company, the Track and the SWFs
are also subject to a variety of other laws and regulations, including zoning,
construction, and land-use laws and the regulations of the Virginia Alcoholic
Beverage Control Board. Such laws and regulations may affect the selection of
SWF sites because of parking, traffic flow, and other similar considerations.
Any interruption or termination of the Company's ability, or that of its
concessionaires, to serve alcoholic beverages could have a material adverse
effect on the Company.
Federal Regulation. The Company's interstate simulcast operations are
subject to the provisions of the federal Interstate Horse Racing Act, which
regulates interstate off-track wagering. In order to conduct wagering on import
simulcasting at the Track or any SWF, the Interstate Horse Racing Act requires
the Company to obtain the consent of the Virginia Racing Commission, the consent
of the racing commission of the state where the horse racing meet originates and
the consent of the representative horsemen groups in the originating state. To
conduct export simulcasting, the Company must obtain the consent of the Virginia
Horsemen's Benevolent & Protective Association, the Virginia Harness Horse
Association and the Virginia Racing Commission. Also, in the case of off-track
wagering to be conducted at any of the Company's SWFs, the Interstate Horse
Racing Act requires the Company to obtain the approval of all currently
operating horse racetracks within sixty miles of the SWF or, if there are no
currently operating tracks within sixty miles, the approval of the closest
operating horse racetrack, if any, in an adjoining state. Significant delay in
obtaining such consents and approvals or failure to obtain such consents or
approvals could have a material adverse effect on the Company.
Future Regulation. The Company's operations may become subject to
additional regulation from any of the foregoing or from other governmental
bodies. Such additional regulation could have a material adverse effect on the
Company.
Compliance With Regulation. No assurance can be given that the Company
will be able to obtain all necessary regulatory approvals for the operation or
expansion of its business without undue delay, cost or significant conditions
imposed therein, if at all. See "-- Risk of Delays in Opening the Track and the
SWFs."
Taxation
The Company is subject to a number of federal, state and local taxes
and fees. These include fees to support the Virginia Breeders' Fund, taxes
payable to the Commonwealth of Virginia, taxes payable to New Kent County where
the Track is located, and taxes payable to localities in which SWFs are located
based upon the amount of monies wagered both at the Track and at the Company's
SWFs. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview." The Company believes that the public
acceptance of pari-mutuel wagering on horse races, as well as other forms of
gaming, is based, in part, on the governmental revenues it generates from taxes
and fees on such activities. It is possible that gaming activities, including
horse racing, may become a target for additional federal, state, or local taxes
and fees. A significant increase in such taxes or fees or the creation of
significant additional taxes or fees could have a material adverse affect on the
Company.
Certain Income Tax Considerations Related to the Acquisition of the
Track Site
The Company will receive the property on which the Track is being
constructed from neighboring landowners, subject to a right of reversion if the
Company ceases to operate the Track, as licensed by the Virginia
8
<PAGE>
Racing Commission, within three years after transfer. The Company intends to
take the position that the conveyance should qualify as a nontaxable
contribution to capital. Nonetheless, the Internal Revenue Service may seek to
recharacterize the transaction as a taxable transfer, and there can be no
assurance that a court would not agree with that characterization. If the
Internal Revenue Service is successful, the Company would be obligated to pay
federal income tax based upon the land's fair market value of $5,000,000 as
estimated by the Company at the time of transfer (but the Company's gain on any
subsequent disposition of the land would be reduced by a corresponding amount).
Dependence on Key Personnel; Future Need to Hire Additional Qualified
Personnel
The Company believes it currently employs sufficient personnel to apply
for additional SWF licenses to the Virginia Racing Commission, to staff its
Chesapeake and Richmond SWFs, to oversee the development and construction of the
Track, and to develop future SWF sites. As Track construction nears completion,
however, the Company will need to hire additional personnel to operate the Track
and to supplement its management team. The Company anticipates hiring
approximately 200 full-time employees and approximately 200 part-time employees
for the Track. There can be no guarantee that the Company will be able to hire
such additional personnel on terms favorable to the Company or at all. In
addition, Arnold W. Stansley, who has directed the operations of the Company to
date, will assume a more passive role in the operations of the Company after
this Offering. He will serve as Vice-Chairman of the Board of Directors and will
provide management consultation and advice. The future success of the Company
will depend upon the continuing active participation of Jeffrey P. Jacobs, who
will serve as Chairman of the Board, Chief Executive Officer and President. Mr.
Jacobs will enter into an employment agreement with the Company to be effective
upon the completion of the Reorganization. See "Management -- Directors and
Executive Officers."
Risk of New Construction/Infrastructure Completion
The Track is scheduled to open prior to July 1, 1997; however, there
can be no guarantee that the opening will occur by that time or that budgeted
construction costs for the project will be sufficient. Major construction
projects such as the Track entail significant risks, including shortages of
materials or skilled labor, unforeseen engineering, environmental and/or
geological problems, work stoppages, weather interference and unanticipated cost
increases. Such problems, or difficulties in obtaining any of the requisite
licenses, permits or authorizations from regulatory authorities, could increase
the cost of or delay the construction or opening of the Track. The Company is
currently negotiating a construction agreement (the "Construction Agreement")
with Norglass, Inc. which would provide, among other matters, for a guaranteed
maximum price of $26 million for construction of the Track. There can be no
assurance that the Track will be completed without exceeding such guaranteed
maximum price or consistent with the Company's development schedule. See
"Certain Transactions."
Additional parties beyond the Company's control are responsible for
several infrastructure improvements affecting the Track. New Kent County has
agreed to widen Route 155, the road leading to the entrance of the Track's main
boulevard. Similarly, pursuant to a development agreement with the Company, a
grantor of the Track site will develop and construct a sewer and water system
that will service the Track, with costs reimbursed by the Company not to exceed
$985,000. There can be no guarantee that the widening of Route 155 and the sewer
and water system will be completed consistent with the Company's development
schedule.
Potential Fluctuations in Operating Results; Seasonality
The Company anticipates that its operating results will fluctuate from
quarter to quarter because revenues may be higher during scheduled live racing
than at other times of the year. Adverse weather conditions may cause
cancellation of or curtail attendance at outdoor races, thereby reducing
wagering. Attendance and wagering at both outdoor races and indoor SWFs may be
adversely affected by holidays and other competing seasonal activities. Given
that a substantial portion of the Company's expenses are fixed, the loss of
scheduled racing days could adversely effect the Company's profitability. See
"Business -- Seasonality and the Effects of Inclement Weather," and "Business --
Simulcasting."
9
<PAGE>
Competition
The Company competes and will compete for wagering dollars and
simulcast fees with live racing and races simulcast from horse racetracks in
other states, such as Charles Town in West Virginia, Pimlico Race Course and
Laurel Park in Maryland, and Delaware Park in Delaware. The Company believes
that the Management and Consulting Agreement will effectively promote
thoroughbred racing in Maryland and Virginia by enhancing coordination of
thoroughbred events between the two states. If the Virginia-Maryland
thoroughbred racing circuit is unsuccessful, however, the Track will also
compete directly with thoroughbred racetracks in Maryland. See "Business --
Virginia-Maryland Thoroughbred Racing Circuit." In addition, new racetracks
could be constructed in adjacent states that would compete with the Track, or
new licenses could be granted to Company competitors in Virginia.
See "-- Additional Licenses May Be Granted."
The Company will face competition from a wide range of entertainment
options, including other forms of gaming, live and televised professional and
collegiate sporting events, and other recreational activities. The legalization
of other forms of gaming in Virginia or any neighboring states also may provide
competition for the Company. The Company anticipates competition from video
lottery terminals ("VLTs") and slot machines. In particular, Delaware legalized
slot machines at three racetracks as of January 1, 1996 and a Maryland
legislative panel is studying the legalization of slot machines at Maryland
racetracks and SWFs. In addition, a referendum for the legalization of VLTs was
passed on November 5, 1996 in Lewistown, West Virginia, where the Charles Town
racetrack is located. VLTs and slot machines are prohibited in Virginia. The
Company believes that the legalization of VLTs and/or slot machines in
neighboring states may adversely affect its business by attracting the Company's
potential SWF and Track customers and enabling other tracks to offer higher
purses than the Track. It may be more difficult for the Company to attract
horsemen to race at the Track if other nearby racetracks offer higher purses.
See "Business -- Competition."
Additional Licenses May Be Granted
The Company was awarded the only unlimited licenses to own and operate
a horse racetrack with pari-mutuel wagering issued by the Virginia Racing
Commission. The Company's licenses were awarded on October 12, 1994 after a
competitive one-year application process involving five other applicants. The
Company does not believe that an award of additional licenses in the immediate
future is likely; however, the Virginia Racing Commission has the authority to
award subsequent licenses if it finds such award to be in the best interest of
the Virginia horse racing industry. The issuance of any additional unlimited
licenses to other parties could have a material adverse effect on the Company's
financial performance. The Virginia Racing Commission also has the authority to
issue limited licenses for race meets of less than 15 days. To date, the
Commission has only issued limited licenses to a nonprofit organization that
sponsors one day of pari-mutuel racing per year. See "Business -- The Company's
Licenses."
Decline in Live Racing Attendance at Racetracks; Future Growth
Dependent on SWFs
A substantial historic decline has occurred in attendance and wagering
on live racing at racetracks nationwide. The Company believes this decline
results primarily from competition from other forms of entertainment and gaming,
including wagering at SWFs, and an increasing unwillingness of customers to
travel a significant distance to racetracks. In light of this historical decline
in on-track customers, the Company believes that its future growth is dependent
upon the opening of additional SWFs to increase its total revenues. The Company
intends to obtain licenses for up to four additional SWFs. The Company's
wagering business, however, has a limited history. There can be no assurance
that the Chesapeake SWF will increase or maintain its current level of revenues,
that the Richmond SWF will be profitable, or that any or all of the additional
planned SWFs will be opened, or that, if opened, they will achieve or maintain
profitability. See "Business -- Satellite Wagering Facilities."
Reliance on Independent Horse Owners; Relationship with Maryland Racing
Organizations
The Company is dependent upon its ability to attract individual horse
owners to obtain and maintain a supply of race horses necessary for the Track to
operate. The Company has entered into agreements with certain associations
representing the Virginia thoroughbred and standardbred horse owners, pursuant
to which the Company
10
<PAGE>
has guaranteed certain purse levels which it believes will be attractive to
thoroughbred and standardbred horse owners. See "Business -- Purse Structure and
Guarantees." The future success of the Company is dependent upon its maintaining
a positive working relationship with such horsemen's groups and negotiating
future agreements with such groups on satisfactory terms. There can be no
assurance that the Company will be able to do so. To help promote its
thoroughbred racing, the Company entered into the Management and Consulting
Agreement with Maryland-Virginia Racing Circuit, Inc. to create a
Virginia-Maryland thoroughbred racing circuit. See "Business --
Virginia-Maryland Thoroughbred Racing Circuit." The Virginia-Maryland
thoroughbred racing circuit is designed to encourage Maryland horsemen who
historically have run their horses at the Maryland tracks during certain time
periods to send their horses to the Track. The Company and the Maryland Jockey
Club have agreed to encourage such horsemen to ship their horses to the Track
for its thoroughbred meet. There can be no guarantee that the Virginia-Maryland
thoroughbred racing circuit will be successful, however, or that the Company's
purses will be sufficient to attract horse owners to the Track.
Control of Company; Conflicts of Interest
Following the completion of this Offering, Jeffrey P. Jacobs, the
Company's Chairman of the Board, Chief Executive Officer and President, will
have effective voting control of the Company, directly and indirectly through a
family trust and other entities, by virtue of ownership of 1,500,000 shares of
Class B Common Stock, which will represent approximately 47.2% of the total
voting power of the Common Stock as to matters other than any vote or approval
with respect to a merger, consolidation or other business combination, or a sale
of all or substantially all of the assets of the Company ("Special Voting
Matters") (21.2% for Special Voting Matters). If Mr. Jacobs converts the
Convertible Subordinated Note, he will own 1,817,460 shares of Class B Common
Stock, which would represent approximately 52.0% of the total voting power of
the Common Stock (25.2% for Special Voting Matters). Mr. Jacobs is also a
substantial shareholder, directly and indirectly, in other gaming companies,
including, but not limited to, Jacobs Entertainment Ltd., which holds interests
in a number of casinos in Colorado and Nevada. The Company does not anticipate
any conflicts of interest with such casinos; however, there can be no assurance
that future activities of Mr. Jacobs or the companies in which he holds
interests will not compete with the Company. Except for Special Voting Matters,
Mr. Jacobs effectively controls and will be able to control all matters
submitted to stockholders for a vote. See "Principal Shareholders." See also
"Certain Transactions." Conflicts of interest also may arise in connection with
any credit enhancement that Mr. Jacobs may provide pursuant to the Bank Credit
Facility and related payments he may be required to make. See "Certain
Transactions -- Credit Enhancement for Bank Credit Facility."
5% Ownership Limit; Virginia Racing Act Restrictions on Stock Ownership
No purchaser of shares in this Offering will be permitted to acquire
beneficial ownership of 5% or more of the Company's Common Stock. The Virginia
Racing Act requires that any person proposing to acquire beneficial ownership of
5% or more of the Company's shares obtain the prior approval of the Virginia
Racing Commission. In addition, under the Virginia Racing Act, the Virginia
Racing Commission has the authority to order a 5% or greater beneficial
shareholder of the Company to dispose of his or her Common Stock of the Company
if it determines that such shareholder (i) is or has been guilty of any illegal,
corrupt or fraudulent act, conduct or practice in connection with horse racing
in Virginia or any other state, (ii) knowingly failed to comply with the
Virginia Racing Act or the Virginia Racing Commission's regulations, or (iii)
has had a license or permit to hold or conduct a race meet suspended, denied for
cause, or revoked. See "-- Government Regulation."
No Prior Market for the Class A Common Stock
Prior to this Offering, there has been no public market for the Class A
Common Stock, and there can be no assurance that a regular trading market for
the Class A Common Stock will develop or be sustained. The initial offering
price for the Class A Common Stock will be determined through negotiation
between the Company and Friedman, Billings, Ramsey & Co., Inc. as representative
of the Underwriters. There can be no assurance that future market prices for the
Class A Common Stock will equal or exceed the initial public offering price set
forth on the cover page of this Prospectus. Recent history relating to the
market prices of other newly public companies indicates that the market price of
the Class A Common Stock following this Offering may be highly volatile. The
market price of the Class A Common Stock could be subject to significant
fluctuations in response to such factors as
11
<PAGE>
regulation, competitive conditions, the Company's operating results, prevailing
interest rates and the markets for similar securities.
Provisions with Possible Anti-Takeover Effect
Certain provisions of Virginia law and the Company's Amended and
Restated Articles of Incorporation could delay or impede the removal of
incumbent directors or the acquisition of the Company by an outside party even
if such events would be beneficial to the interests of the shareholders. Such
provisions could limit the price that certain investors might be willing to pay
in the future for the Class A Common Stock. Such statutory provisions include
the 5% ownership limit under the Virginia Racing Act, the Virginia Affiliated
Transactions statute, and the Virginia Control Share Acquisition statute.
Provisions of the Company's Amended and Restated Articles of Incorporation
include the two classes of Common Stock with disproportionate voting power, a
staggered Board of Directors and the ability of the Company to issue up to 17
million shares of capital stock, including up to 2 million shares of preferred
stock, for which the Board of Directors could establish special preferences or
rights without a vote of the shareholders. See "Description of Capital Stock --
Certain Charter and Statutory Provisions," and "-- 5% Ownership Limit; Virginia
Racing Act Restrictions on Stock Ownership." In addition, following the
completion of this Offering, Jeffrey P. Jacobs will have direct or indirect
effective voting control of the Company. See "-- Control of Company; Conflicts
of Interest."
Dividend Policy
The Company does not anticipate paying any dividends on the Class A
Common Stock in the foreseeable future, and intends to retain earnings to
finance the development and expansion of its operations. See "Dividend Policy."
Dilution
Purchasers of the Class A Common Stock will experience immediate and
substantial dilution in pro forma net tangible book value per share of Class A
Common Stock of $4.33 from the initial public offering price, assuming an
offering price of $9.00 per share. See "Dilution."
Shares Eligible for Future Sale; Registration Rights
Upon completion of this Offering, there will be 4,650,000 shares of
Class A Common Stock outstanding (5,235,000 shares if the Underwriters'
over-allotment option is exercised in full), of which the 3,900,000 shares of
Class A Common Stock sold in this Offering are freely transferable by persons
other than "affiliates" of the Company without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"). The remaining 750,000 shares of Class A Common Stock and the 2,250,000
shares of Class B Common Stock may be deemed "restricted" or "affiliate"
securities within the meaning of the Securities Act and, if so, may not be sold
in the absence of registration under the Securities Act or an exemption
therefrom, including the exemption contained in Rule 144. No prediction can be
made as to the effect, if any, that future sales of shares of Class A Common
Stock will have on the market price of the shares of the Class A Common Stock
prevailing from time to time. Sales of substantial amounts of Class A Common
Stock in the public market following this Offering, or the possibility that such
sales could occur, could adversely affect the market price of the Class A Common
Stock. In connection with this Offering the Company has agreed not to issue any
shares of Common Stock, and the Company's current directors, officers and all
existing shareholders have agreed not to, directly or indirectly, offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock for a period
ending on the later of (i) 180 days following the consummation of this Offering
and (ii) the date on which the Company has four SWFs (excluding SWF operations
at the Track) in operation, without the prior written consent of Friedman,
Billings, Ramsey & Co., Inc. In addition, the Company has granted certain
registration rights to the holders of such shares. See "Shares Eligible for
Future Sale," and "Certain Transactions -- Registration Rights."
12
<PAGE>
THE COMPANY
Colonial Downs Holdings is a Virginia corporation organized in November
1996 to pursue opportunities for wagering and horse racing in Virginia. The
Company holds the only unlimited licenses to own and operate a horse racetrack
with pari-mutuel wagering in Virginia and is the only entity authorized to apply
for licenses to own and operate SWFs in Virginia. Upon completion of this
Offering and the Reorganization described below, Colonial Downs Holdings will be
a holding company for Colonial LP and Stansley Racing. Colonial LP was formed on
September 30, 1993, and was awarded the license to own the Track by the Virginia
Racing Commission in October 1994. Stansley Racing was formed on June 3, 1994,
and was awarded the license to operate the Track by the Virginia Racing
Commission in October 1994. Colonial LP also holds owner's licenses for the
Chesapeake and Richmond SWFs and Stansley Racing holds the operator's licenses
for those facilities. The Company has applied for licenses to own and operate a
third SWF in Hampton. The Company was delayed in commencing construction of the
Track and operation of its SWFs pending resolution of an appeal by a competitor
of the award of the initial licenses to the Company. That appeal was resolved in
May 1996.
The Company opened its first SWF in Chesapeake in February 1996, opened
its second SWF in Richmond in December 1996, has applied for licenses for a
third SWF in Hampton, and during the next 12 to 18 months intends to apply for
licenses for, and to open, three additional SWFs. The Company's Track in New
Kent County, Virginia, which will host thoroughbred and harness racing, is
scheduled to open and begin live racing prior to July 1, 1997. The Company plans
to conduct pari-mutuel wagering at the Track and at the Company's SWFs, on live
races run at the Track or imported by simulcast from other racetracks. After it
begins live racing at the Track, the Company also intends to enter into
agreements for the export simulcasting of races run at the Track.
The Company's principal executive offices are located at 3610 N.
Courthouse Road, Providence Forge, Virginia 23140 and its telephone number is
(804) 966-7223.
THE REORGANIZATION
The Company's licenses to own and operate the Track and its SWFs are
held by Colonial LP and Stansley Racing. These ownership and operating licenses
are non-transferable under the Virginia Racing Act. In order to bring the
licenses under the control of one entity while avoiding transfer of the
licenses, Colonial Downs Holdings will become a holding company for Colonial LP
and Stansley Racing pursuant to an Agreement and Plan of Reorganization (the
"Plan of Reorganization"). Pursuant to the Plan of Reorganization, concurrent
with the consummation of this Offering, Colonial Downs Holdings will acquire a
99% limited partner interest in Colonial LP and 100% of the outstanding stock of
Stansley Racing, in exchange for 750,000 shares of its Class A Common Stock and
2,250,000 shares of its Class B Common Stock. Also pursuant to the Plan of
Reorganization, Stansley Racing will acquire a 1% general partner interest in
Colonial LP. The transactions described in the Plan of Reorganization are
collectively referred to herein as the "Reorganization."
As a result of the Reorganization, the Company will own, through its
wholly owned subsidiaries Colonial LP and Stansley Racing, the ownership and
operating licenses for the Track and the Chesapeake and Richmond SWFs, the real
property on which the Richmond SWF will be located, the 345 acres on which the
Track is being constructed, the Track facilities and certain related
infrastructure, and the rights under various agreements described in this
Prospectus.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,900,000 shares
of Class A Common Stock offered in this Offering are estimated to be
approximately $31.9 million (assuming an initial public offering price of $9.00
per share) after deducting estimated underwriting discounts and estimated
expenses of this Offering.
The Company plans to use the net proceeds of this Offering, the Bank
Credit Facility and the issuance of the Convertible Subordinated Note (i) for
completion and operation of the Track; (ii) to acquire, renovate and/or equip
SWFs; (iii) to repay interim financing provided by certain shareholders totaling
$6.2 million; and (iv) for working capital and other general corporate purposes,
such as marketing activities, and other development and operating costs.
Pending the application of proceeds for these uses, the Company intends
to invest the net proceeds from this Offering in interest-bearing bank accounts,
United States government securities, certificates of deposit of major banks or
high grade commercial paper.
Financing Plan
A brief description of the Company's financing plan through December
1997 is set forth below. The financing plan includes the Company's present
expectations regarding the sources of necessary funding and assumes completion
of this Offering on January 31, 1997. See "Risk Factors -- Financing
Requirements."
<TABLE>
<CAPTION>
$ (millions) % of Total
<S> <C> <C>
Sources:
Net proceeds from this Offering (1)....... $ 31.9 59.7%
Bank Credit Facility...................... 18.5 34.7
Convertible Subordinated Note............. 3.0 5.6
------- ------
Total $ 53.4 100.0%
======= ======
Uses:
Construction of the Track................. $34.5 64.8%
Acquisition, renovation and equipping
of SWFs.................................. 6.3 11.8
Payment of interim financing owed to
certain shareholders(2).................. 6.2 11.6
Funding of Purse Accounts(3).............. 2.5 4.7
Working Capital........................... 2.2 4.1
Other..................................... 1.7 3.0
------- -----
Total $ 53.4 100.0%
======= =====
----------------------
(1) Net proceeds from this Offering are net of approximately $3.2
million of estimated offering expenses.
(2) Interim financing includes loans and other credit facilities
aggregating $5.5 million from CD Entertainment Ltd., loans
aggregating $386,788 from Arnold W. Stansley, and loans aggregating
$311,994 from Norglass, Inc. See "Certain Transactions."
(3) Upon funding of the purse accounts, a letter of credit provided by
CD Entertainment Ltd. as support for the Company's purse funding
obligation will be terminated.
</TABLE>
DIVIDEND POLICY
The Company does not anticipate paying any dividends on any class of
its Common Stock in the foreseeable future and intends to retain earnings to
finance the development and expansion of its operations. The payment of any
future dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, future earnings, operations, capital
requirements, the financial condition of the Company and general business
conditions.
14
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1996 (i) the actual
capitalization of the Company after giving effect to the Reorganization and (ii)
the capitalization of the Company as adjusted to reflect the net proceeds from
this Offering, borrowing by the Company of the full amount available under the
Bank Credit Facility and the issuance of the Convertible Subordinated Note. See
"Use of Proceeds." This table should be read in conjunction with the
consolidated financial statements and related notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
September 30, 1996
-------------------
Actual As Adjusted(1)
------ --------------
(In thousands)
<S> <C> <C>
Current portion of long-term debt and notes.............. $ 260 $ 10
Long-term debt and notes................................. 2,196 21,509
Shareholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized, none issued........... -- --
Common stock, $.01 par value, 15,000,000 outstanding,
shares authorized; 3,000,000 issued and
6,900,000 shares as adjusted....................... 30 69
Additional paid-in capital........................... 2,001 33,855
Retained earnings (deficit).......................... (764) (764)
------ -------
Total stockholders' equity........................... 1,267 33,160
------ -------
Total capitalization..................................... $3,723 $54,679
====== =======
- ---------------
(1) Gives effect to this Offering, borrowing by the Company of the full amount
available under the Bank Credit Facility and the issuance of the Convertible
Subordinated Note as if each had occurred as of September 30, 1996.
</TABLE>
15
<PAGE>
DILUTION
As of September 30, 1996, the Company had a net tangible book value of
$343,291 or approximately $0.11 per share. After giving effect to the sale of
the Class A Common Stock offered by the Company hereby and the application by
the Company of the estimated net proceeds of this Offering, the Bank Credit
Facility and the issuance of the Convertible Subordinated Note as described in
"Use of Proceeds," the pro forma net tangible book value of the Company as of
September 30, 1996 would have been $32,236,291, or $4.67 per share of Common
Stock. This represents an immediate increase in pro forma net tangible book
value of $4.56 per share of Common Stock to the current shareholders and an
immediate dilution in pro forma net tangible book value per share of Common
Stock of $4.33 after the completion of this Offering from the price per share
paid by purchasers in this Offering. The following table illustrates this
dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share of Class A Common Stock (1)............ $9.00
Net tangible book value per share of Common Stock as of
September 30, 1996, before this Offering (2)....................................... $0.11
Increase attributable to this Offering............................................. $4.56
====
Pro forma net tangible book value per share of Common Stock
after this Offering................................................................ $4.67
====
Dilution per share of Class A Common Stock to purchasers of
Class A Common Stock in this Offering.............................................. $4.33
====
- ------------------------
(1) Before deduction of underwriting discounts and concessions and estimated
offering expenses.
(2) Net tangible book value per share is determined by dividing the net tangible
book value of the Company (total assets less intangible assets less total
liabilities) by the number of shares of Common Stock outstanding.
</TABLE>
The following table sets forth as of September 30, 1996, on a pro forma
basis after giving effect to this Offering: (i) the total number of shares of
Common Stock held by the current shareholders, the total consideration given for
such shares and the average price per share paid or invested in the Company for
such shares; (ii) the total number of shares to be purchased from the Company,
the total consideration for such shares and the average price per share to be
paid by new investors purchasing such shares in this Offering; and (iii) the
percentage of shares purchased and the percentage of total consideration paid by
the current shareholders and the new investors.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
---------------- ------------------- Price
(thousands) (thousands) Per Share
---------
Number Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Current Shareholders............. 3,000 43.5% $ 2,031 5.5% $0.68
New Investors.................... 3,900 56.5% 35,100 94.5% $9.00
----- ----- ------ ----
Total................... 6,900 100.0% $ 37,131 100.0%
===== ===== ====== =====
</TABLE>
16
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA(1)
The following selected consolidated financial data of the Company for
the years ended December 31, 1995, 1994, and the period ended December 31, 1993,
except for Operating Data, are derived from financial statements that have been
examined by BDO Seidman, LLP, independent certified public accountants, adjusted
as described in the notes below. The selected consolidated financial data for
each of the nine month periods ended September 30, 1996 and 1995 are derived
from the Company's unaudited financial statements, which reflect in the opinion
of management all adjustments, consisting only of normal recurring expenditures,
necessary for a fair presentation of the results of such periods, adjusted as
described in the notes below. The results for the nine month periods ended
September 30, 1996 and 1995 are not necessarily indicative of results for the
full year or any future period. The selected consolidated financial data should
be read in conjunction with the consolidated financial statements, and related
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other financial information included herein.
(In thousands, except share, per share, per capita, days of
operation, and attendance data.)
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
------------- -----------------------
1996 1995 1995 1994 1993(2)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Pari-mutuel commissions -
Import simulcasting............ $ 5,231 $ -- $ -- $ -- $ --
Other related revenues........... 473 -- -- -- --
---------- ---------- ---------- ---------- ---------
Total revenues...................... 5,704 -- -- -- --
---------- ---------- ---------- ---------- ---------
Direct operating expenses
Direct expense of import
simulcasting..................... 3,043 -- -- -- --
Other direct operating expenses 1,758 -- -- -- --
---------- ---------- ---------- ---------- ---------- --
Total direct operating expense 4,801 -- -- -- --
---------- ---------- ---------- ---------- ---------
EBITDA before general and
administrative (3)............... 903 -- -- -- --
General and administrative....... 1,041 156 315 19 17
Depreciation and amortization 182 2 3 -- --
---------- ---------- ---------- ---------- ---------
Loss from operations................ (320) (158) (318) (19) (17)
Interest expense (net).............. (88) (2) (2) -- --
---------- ---------- ---------- ---------- ---------
Net loss............................ $ (408) $ (160) $ (320) $ (19) $ (17)
========== ========== ========== ========== =========
Net loss per share (4).............. $ (0.14) $ (0.05) $ (0.11) $ (0.01) $ (0.01)
Weighted average number of shares
outstanding...................... 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000
</TABLE>
<TABLE>
<CAPTION>
At September 30, 1996 At December 31,
--------------------- ---------------
Actual As Adjusted(5) 1995 1994 1993
------ -------------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current assets...................... $ 689 $ 50,744 $ 330 $ 2 $ --
Total assets........................ 6,104 56,159 3,142 667 227
Working capital..................... (1,572) 49,384 (1,589) (669) (213)
Short-term debt, including
current portion.................. 260 10 632 671 213
Long-term debt, excluding
current portion.................. 2,196 21,509 1,548 -- --
Total liabilities................... 4,837 22,999 3,467 671 213
Shareholders' equity................ 1,267 33,160 (325) (4) 14
</TABLE>
17
<PAGE>
For the 7.5 Months
February 17, 1996 (Opening Day)
Through September 30, 1996
--------------------------
Operating Data:
Number of satellite wagering facilities 1
Days of operation.................... 226
Total pari-mutuel wagering
(in thousands)..................... $ 24,756
Average daily wagering (in thousands) $ 110
Total attendance..................... 124,336
Average daily attendance............. 550
Average daily per capita wager....... $ 199
----------------
(1) The consolidated financial statements of the Company include entities which
prior to the Reorganization were affiliated through common ownership and
control. See "The Reorganization."
(2) From inception on September 30, 1993 to December 31, 1993.
(3) EBITDA consists of the sum of the Company's net income (loss), net interest
expense and depreciation and amortization. EBITDA data are unaudited and are
presented because such data are used by certain investors to determine the
Company's ability to meet debt service requirements. The Company considers
EBITDA to be an indicative measure of the Company's ability to service debt
and fund capital expenditures. However, such information should not be
considered as an alternative to net income (loss), operating profit, cash
flows from operations, or any other operating or liquidity performance
measure prescribed by generally accepted accounting principles. Cash
expenditures for various long-term assets and interest expense have been,
and will be, incurred which are not reflected in the EBITDA presentation.
(4) Based on 3,000,000 shares of Common Stock outstanding before this Offering.
(5) As adjusted to reflect (i) the sale of 3,900,000 shares of Class A Common
Stock by the Company and the application of the net proceeds therefrom, (ii)
borrowing by the Company of the full amount available under the Bank Credit
Facility, and (iii) proceeds from the Convertible Subordinated Note.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
selected financial information and the Company's consolidated financial
statements and the notes thereto appearing elsewhere in this Prospectus.
Overview
The Company has incurred losses since its organization and anticipates
that it will continue to incur losses until the Track is completed and operating
and four SWFs are operating, as is planned to occur prior to July 1, 1997.
However, the Company may continue to incur losses thereafter.
The Company's revenues currently are derived from: (i) pari-mutuel
commissions from wagering on races broadcast from out-of-state racetracks to the
Company's Chesapeake and Richmond SWFs using import simulcasting; (ii)
admissions fees, program, racing form and tip sheet sales, and certain other
ancillary activities at the Chesapeake and Richmond SWFs; and (iii) rent from
food and beverage sales and concessions at the Chesapeake and Richmond SWFs.
Upon the opening of the Track and additional SWFs, the Company expects to derive
additional revenue from (i) wagering on races at the Track and at the Company's
SWFs; (ii) admissions fees, program, racing form and tip sheet sales, and
certain other ancillary activities; (iii) rent from food and beverage sales and
concessions; and (iv) fees from wagering at out-of-state locations on races run
at the Track using export simulcasting. The Company operates in a single
industry segment.
The amount of revenue the Company earns from each wager depends on
where the race is run and where the wagering takes place. Revenues from import
simulcasting of out-of-state races and from wagering at the Track and at the
SWFs on races run at the Track consist of the total amount wagered at the
Company's facilities, less the amount paid as winning wagers. The percentage of
each dollar wagered on horse races that must be returned to the public as
winning wagers (typically approximately 80%), is legislated by the state in
which a race takes place. Revenues from export simulcasting will consist of
amounts payable to the Company by the out-of-state racetracks and the SWFs with
respect to wagering on races run at the Track.
The Company's operating expenses have included or will include (i)
purses payable to the horsemen for races run at the Track, (ii) commissions
payable to other racetracks with respect to wagering at their facilities on
races run at the Track (iii) amounts payable to host racetracks for import
simulcast races (approximately 3% of amounts wagered on such races at the
Company's SWFs), (iv) pari-mutuel taxes payable to Virginia (approximately 1.6%
of all amounts wagered), New Kent County (approximately 0.4% of all amounts
wagered) and the SWF's locality (approximately 0.4% of all amounts wagered at
that locality), (v) 1.0% of all amounts wagered payable to the Virginia Breeders
Fund, and (vi) other direct and indirect operating expenses. Historically, the
Company has included management fees paid to Stansley Racing as an operating
expense (which have been accrued and will be paid out of the proceeds of this
Offering).
19
<PAGE>
Results of Operations
Nine months ended September 30, 1996 compared to the nine months ended September
30, 1995.
The following table sets forth certain consolidated income statement
data and such data as a percentage of total revenues.
<TABLE>
<CAPTION>
(In thousands, except share and per share data.)
Percent of Percent of
September 30, 1996 Total Revenues September 30, 1995 Total Revenues
------------------ -------------- ------------------ --------------
<S> <C> <C> <C> <C>
Revenues
Pari-mutuel commissions -
Import simulcasting....... $ 5,231 91.7% $ -- $ --
Admissions.................. 149 2.6% -- --
Programs.................... 240 4.2% -- --
Rental income............... 58 1.0% -- --
Miscellaneous............... 26 0.5% -- --
----------------- --------------- ------------------ ----------------
Total revenues............ 5,704 100.0% -- --
----------------- --------------- ------------------ ----------------
Direct operating expenses
Purses, awards, and
breeders fund fees........ 1,539 27.0% -- --
Pari-mutuel taxes........... 650 11.4% -- --
Simulcast and totalisator
expenses.................. 867 15.2% -- --
Direct salaries, payroll
tax and benefits.......... 590 10.3% -- --
Other direct operating
expenses.................. 660 11.6% -- --
Management fees paid to
Maryland Jockey Club...... 495 8.7% -- --
----------------- --------------- ------------------ ----------------
Total direct operating
expenses............... 4,801 84.2% -- --
----------------- --------------- ------------------ ---------------
EBITDA before general and
administrative expenses(2) 903 15.8% -- --
General and administrative
expenses.................... 1,041 18.3% 156 --
Depreciation and amortization.. 182 3.1% 2 --
----------------- --------------- ------------------ ---------------
Loss from operations........... (320) 5.6% (158) --
Interest expense (net)...... (88) 1.5% (2) --
----------------- --------------- ------------------ ---------------
Net loss....................... $ (408) 7.1% $ (160) --
================== =============== ================== ===============
Net loss per share (3)......... $ (0.14) $ (0.05)
Weighted average of shares
outstanding................. 3,000,000 3,000,000
- ---------------------
(1) The consolidated financial statements of the Company include entities which
prior to the Reorganization were affiliated through common ownership and
control. See "The Reorganization."
(2) EBITDA consists of the sum of the Company's net income (loss), net interest
expense and depreciation and amortization. EBITDA data are unaudited and are
presented because such data are used by certain investors to determine the
Company's ability to meet debt service requirements. The Company considers
EBITDA to be an indicative measure of the Company's ability to service debt
and fund capital expenditures. However, such information should not be
considered as an alternative to net income (loss), operating profit, cash
flows from operations, or any other operating or liquidity performance
measure prescribed by generally accepted accounting principles. Cash
expenditures for various long-term assets and interest expense have been,
and will be, incurred which are not reflected in the EBITDA presentation.
(3) Based on 3,000,000 shares of Common Stock outstanding prior to the
consummation of this Offering.
</TABLE>
The following table sets forth certain operating data for the
Chesapeake SWF for the period from February 17, 1996, when it opened, through
September 30, 1996.
Days of operation.................... 226
Total pari-mutuel wagering
(in thousands)...................... $ 24,756
Average daily wagering (in thousands) $ 110
Total attendance..................... 124,336
Average daily attendance............. 550
Average daily per capita wager....... $ 199
20
<PAGE>
For the nine months ended September 30, 1996, the Company's operating
results reflect the opening of the Chesapeake SWF in February 1996. For the
operating period of February 17, 1996 through September 30, 1996, the Company
had total revenues of $5.7 million and direct operating expenses of $4.8
million, resulting in earnings before general and administrative expenses,
interest expense, income taxes, depreciation and amortization of $0.9 million.
After general and administrative expenses, depreciation, amortization, and
interest expense, the Company had a net loss of $0.4 million for the nine months
ended September 30, 1996. The Company expects that general and administrative
expenses will decline significantly as a percentage of total revenue after the
Company opens additional SWFs.
Prior Fiscal Years
The Company had no meaningful operations prior to the opening of the
Chesapeake SWF in February 1996. As a result, the Company reported no revenue
from its inception on September 30, 1993 until February 1996. The Company
incurred costs since its inception in obtaining the licenses and developing the
Track and the SWFs.
Liquidity and Capital Resources
Funding to Date. Historically, the Company's primary sources of liquidity
and capital resources have been cash flow from operations of the Chesapeake SWF,
capital contributions from its partners and shareholders, and borrowings from
related parties. From December 31, 1995 to September 30, 1996, the Company's
cash position decreased from $330,000 to $313,000. Net cash provided by
operating activities for the nine months ended September 30, 1996 totaled
$1,277,860, which came from increased accounts payable, accrued expenses, and
purses owed to horsemen. Upon the consummation of this Offering, the Company
plans to eliminate the accrued expenses relating to the purse accounts from the
proceeds of this Offering. CD Entertainment Ltd., Arnold W. Stansley, and
Norglass, Inc. each have outstanding loans to the Company aggregating $5.5
million, $386,788 and $311, 994, respectively, each of which will be repaid from
the proceeds of this Offering. See "Use of Proceeds."
The Company's primary uses of funds have been expenditures relating to
securing licenses for the Track and SWFs, coverage of operating costs, and
capital improvements at the Track and SWFs. Since inception (September 30, 1993)
to the opening of the first SWF (February 17, 1996), the Company expended
approximately $814,000 relating to securing licenses for the Track and the SWFs.
In addition, since inception the Company expended $4.4 million for property,
equipment, development and construction of the Track and the Chesapeake and
Richmond SWFs.
Capital expenditures during 1995 totaled $1.6 million, and for the nine
months ended September 30, 1996 totaled $2.5 million. The Company's capital
expenditures from inception through September 30, 1996 reflect approximately:
(i) $1.5 million to develop, construct, and equip the Chesapeake SWF; (ii) $1.5
million for the purchase of the Richmond SWF, with a renovation and equipment
budget to be expended of $900,000, which will result in a total Richmond SWF
investment of $2.4 million; and (iii) $1.2 million towards the development and
construction of the Track.
Current Funding Requirements. Substantially all of the Company's assets are
pledged to secure the Company's loans and loans of certain affiliates. Upon
payment of the loans with proceeds from this Offering, the liens will be
released. The proceeds from this Offering, the Bank Credit Facility and the
issuance of the Convertible Subordinated Note are expected to provide the
Company a total of approximately $53.4 million. The Company believes that such
proceeds, together with cash generated from operations, will be sufficient to
complete construction of and equip and furnish the Track, acquire, construct,
equip and open four additional SWFs and satisfy its working capital requirements
for the foreseeable future. See "Use of Proceeds." See also "Description of
Certain Indebtedness."
Historically, the Company has operated with a working capital deficit.
As of September 30, 1996, the Company had a working capital deficit of $1.6
million. Such deficit will be eliminated upon the consummation of this Offering.
21
<PAGE>
BUSINESS
The Company was organized to pursue opportunities for horse racing and
pari-mutuel wagering in Virginia. The Company is the only entity that has been
awarded unlimited licenses to own and operate a horse racetrack with pari-mutuel
wagering in Virginia and as such is the only entity eligible to apply for
licenses to own and operate SWFs in Virginia. The Company plans to conduct
thoroughbred and harness horse racing at a racetrack that it is currently
constructing in New Kent County, Virginia. The Company also intends to conduct
pari-mutuel wagering at the Track and at its SWFs on races run at the Track and
on races that the Company shows via import simulcasting. After it begins live
racing at the Track, the Company intends to increase its revenues by entering
into agreements to simulcast races run at the Track to out-of-state racetracks,
SWFs, casinos and other gaming facilities.
The Company's plan is to open additional SWFs as soon as possible, and
to promote a successful inaugural 1997 season at the Track (currently scheduled
to include 80 race days, including 30 days of thoroughbred racing from late June
to mid-August and 50 days of harness racing from late September through
November). The Company will seek to increase the number of venues for
pari-mutuel wagering while simultaneously increasing the number of races
available for simulcast. The Company may seek legislative changes to allow more
than six SWFs in Virginia. In addition, the Company will actively seek out
export simulcast opportunities in other states. In the future, the Company plans
to promote attendance and wagering business at the Track and its SWFs by
introducing additional entertainment activities, including family fun days,
premium giveaway programs, contests and special events.
Satellite Wagering Facilities
Chesapeake. The Chesapeake SWF opened on February 17, 1996. During the
period ended September 30, 1996, the Chesapeake SWF has had average daily
attendance of 550 patrons, average daily wagers of $110,000, and annualized
revenues of approximately $39,000,000.
The Company's Chesapeake SWF is a 15,000 square foot facility featuring
wagering, racing and wagering information, a modern lounge area,
state-of-the-art television and video monitors, as well as food and beverage
services. It is accessible by nearby highways and major thoroughfares and offers
patrons free parking. The facility contains a sports bar area in which patrons
can watch and wager on horse races and watch other sporting events. A grandstand
area provides seating for patrons where they may also watch and wager on horse
races. Patrons may select from a variety of food and beverage options, from
concession-style sandwiches and salads, to full service dining. The Chesapeake
SWF is equipped with state-of-the-art simulcast technology and a total of
approximately 170 television screens, including approximately seven large screen
televisions for viewing races. The Company leases the premises in which the
Chesapeake SWF is located pursuant to a lease expiring in May 2000, subject to
two 5-year renewal terms at the option of the Company.
Richmond. The Company's Richmond SWF opened on December 10, 1996, in
the west end of Richmond, the capital of Virginia. The 19,700 square foot
Richmond facility offers similar amenities and services to those offered by the
Chesapeake SWF, described above. The Richmond facility is accessible by
Interstate 64 and by public transportation and will offer patrons free parking.
The Company acquired the Richmond facility for $1.4 million in July 1996 and has
made an additional investment of approximately $900,000 to refurbish and
renovate the facility.
Hampton and Brunswick County. The Company applied in December 1996, for
the necessary licenses to own and operate a third SWF in Hampton. The Company
expects to apply in December 1996 for the necessary licenses to own and operate
a fourth SWF in Brunswick County (in southern Virginia, on the North Carolina
border). The referenda approving SWFs in Hampton and Brunswick County expire in
November 1997. The Company will custom design and construct the Hampton and
Brunswick County SWFs and plans to make similar amenities and services available
at these facilities as are available at its Chesapeake SWF described above. The
proposed sites for these SWFs are convenient to major thoroughfares. The Company
expects to open the Hampton and Brunswick County SWFs by June 1997, provided
that it obtains the licenses in a timely manner. There can be no assurance that
the licenses will be obtained for these facilities consistent with the Company's
development schedule or at all.
22
<PAGE>
Two Additional SWFs. Under Virginia law, the Company is eligible to
apply for licenses to own and operate up to a total of six SWFs, leaving two
SWFs in addition to the current Chesapeake and Richmond, and planned Hampton and
Brunswick County SWFs. See "-- The Company's Licenses." The Company may apply
for SWF licenses only in those Virginia localities which have passed a
referendum approving the location of a SWF within their boundaries. A SWF
license must be issued for a locality within five years of the date of the
approving referendum. In addition to the localities in which the Company has
licenses, has applied for licenses, or for which it intends to apply for
licenses in December 1996, two additional localities, Greenville (in southern
Virginia) and the City of Virginia Beach (in southeast Virginia), have passed
referenda that expire in November 1997.
The Company plans to initiate referenda in various localities in 1997
for its fifth and sixth SWFs. The Company anticipates that it will focus on
obtaining support for a referendum in northern Virginia, with the goal of
opening an SWF in northern Virginia by March 1998, but there can be no assurance
that it will be successful and, if the Company is unsuccessful, it may decide to
locate both SWFs elsewhere in the state. Referenda initiated by other entities,
prior to the receipt of the licenses by the Company, failed in a number of
northern Virginia localities: Arlington (1993), Alexandria (1993), Fairfax City
(1992), and Falls Church (1992). A referendum organized by the Company failed in
Manassas Park in November 1996. A new referendum cannot be sought in a locality
for three years from the date of the failed referendum in that locality.
If the Company successfully receives licenses for all six SWFs
authorized under current law, the Company may make a request to the Virginia
General Assembly to amend the Virginia Racing Act to authorize additional SWFs.
Additional SWFs would allow the Company to reach a larger patron base and to
expand its business. There can be no assurance that the Company will be
successful in any such efforts.
The Company believes that the opening of its additional SWFs may
negatively impact live racing attendance at the Track. The Company expects this
potential impact to be minimized, however, by the Company's strategy of opening
SWFs at distances that generally are more than 35 miles from the Track. The
Company further believes that wagering, food and beverage and other ancillary
revenues (such as the sale of racing programs) at its SWFs will more than offset
the effects of any such decline in live racing attendance at the Track caused by
the opening of additional SWFs. An additional benefit of the SWFs is that they
are not as subject to interruptions by adverse weather conditions as is live
racing at the Track.
Simulcasting
Simulcasting involves broadcasting a live race to other locations.
Wagers are then placed on the race being broadcast. Generally, wagering
conducted on simulcast races is aggregated with the pool of the track at which
the live race is run and wherever the race is broadcast, so that track odds are
maintained. The Company has been receiving import simulcasts at its Chesapeake
SWF from racetracks in other states since February 1996 and at its Richmond SWF
since December 1996. The Company plans to receive import simulcasts at the Track
after it opens and at all additional SWFs that the Company opens. At its
Chesapeake SWF, the Company regularly receives import simulcasts from over 20
different racetracks (including Belmont Park, Saratoga, Gulfstream Park, Santa
Anita and Arlington International Racecourse).
The Company currently receives simulcast signals from many of these
tracks pursuant to an agreement with Pocono Downs (the "Hubbing Agreement")
under which the Company receives the benefit of import simulcasting terms
negotiated by Pocono Downs with other racetracks. The Company believes that
these terms are more favorable than the terms it could separately negotiate with
such racetracks because of the economies of scale achieved under the Hubbing
Agreement. The original term of the Hubbing Agreement expires December 31, 1996,
but the parties have extended the agreement until December 31, 1997, and it will
continue to be renewed automatically every year unless either party gives notice
prior to December 1 of its desire to terminate the agreement.
The Company intends to increase the number and quality of races it
imports for simulcast wagering in the future. The Company believes that by
simulcasting high-quality races from nationally known racetracks it will
increase the number of wagerers as well as the size of the average wager. The
Company's success in implementing this strategy will depend upon the terms it
negotiates with such tracks.
23
<PAGE>
The Company believes that simulcasting diminishes the negative effect
of inclement weather on wagering. Indoor facilities featuring simulcasting make
available wagering on races from racetracks regardless of local weather. In
addition, the Company can change the simulcast signals it receives if racing at
a particular track is canceled because of poor weather conditions. See
"--Seasonality and the Effects of Inclement Weather."
Typical simulcast arrangements usually require the receiver of a signal
to pay a fee equal to approximately 2% to 4% of the handle (the total amount
wagered at the off-track facilities) attributable to such signal. The Management
and Consulting Agreement provides for reciprocal simulcasting agreements between
the Company and the Maryland Jockey Club. The Company will send its live racing
signal to the Maryland tracks and the Maryland tracks will send their live
racing signals to the Track and the Company's current and future SWF facilities
at no cost to either party. Wagers placed at the Company's SWFs on races run at
other racetracks are treated as part of the common pari-mutuel wagering pool at
that track. From such a pool, a fixed percentage is paid out as winning wagers.
Winning wagers paid at the Company's SWFs are likely to be disproportionate to
the winning wagers to be paid from the entire pari-mutuel pool for a particular
race. Accordingly, to the extent the Company paid out more or less than its
share of winning wagers, it is obligated to pay or be paid funds from the track
at which the race originated. In contracting for the receipt of simulcast
signals, the Company agrees with the originators of the signals for the
reconciliation of winning wagers. The reconciliation occurs on a daily basis
with cash reconciliation occurring each week. Through the Hubbing Agreement,
Pocono Downs handles the Company's weekly reconciliation with other tracks, and
the Company settles with Pocono Downs each month. It is possible that the
Company could fail to receive reimbursement for funds to which it is entitled
under the Hubbing Agreement. Historically, the Company has not experienced such
collection problems.
Import simulcasting of races from other tracks, especially from
nationally known tracks in other states, may compete with wagering on Company
races run at the Track. The Company believes, however, that simulcasting of
out-of-state races, and making available wagering on higher quality races, will
increase the number of wagerers as well as the size of the average wager. Due to
the Company's limited history of simulcasting, the Company is unable to predict
whether such simulcasting will favorably or adversely affect its net income.
The Track and Track Facilities
The Track Site. The Track is being constructed approximately 25 miles
east of Richmond, Virginia and approximately 25 miles west of Williamsburg,
Virginia. It is scheduled to be completed prior to July 1, 1997. See "Risk
Factors -- Risk of New Construction/Infrastructure Completion." The Track is
located within a 50-mile radius of a population of approximately 1.8 million
people, according to The 1990 Census Report for Virginia, Summary of Social,
Economic and Housing Characteristics. Richmond, Williamsburg and their adjoining
areas are tourist and business destinations, with such attractions as Busch
Gardens, Colonial Williamsburg, Kings Dominion, downtown Richmond, Virginia
Beach, and the Williamsburg Pottery Factory. Approximately 1,935,000 people
visit the Richmond-Williamsburg area each year based on data maintained by the
Virginia Division of Tourism. The Track site is accessible via several major
federal and state highways. Interstate 64 intersects the property from the east
and west. North and southbound traffic on Interstate 95 will be able to take
advantage of the Interstate 295 beltway around Richmond, which intersects with
Interstate 64 only 12 miles from the Track site. Interstate 85 and Interstate 95
can be used by patrons traveling up from North Carolina and the southern portion
of Virginia. The Track is within a two hour drive of several major Virginia
localities, such as Alexandria, Arlington, Charlottesville, Fairfax,
Fredericksburg, Norfolk, Richmond, Williamsburg, and Virginia Beach.
The Company will own the Track site subject to the reversionary right
of the grantors if the Company fails to complete, open and operate for three
years a racetrack licensed by the Virginia Racing Commission. Pursuant to a
development agreement with the Company, one of the grantors will develop,
construct and put into service a sewer and water system that will serve the
Track and will provide water to the Track in sufficient quantities to meet the
Company's needs, with costs reimbursed by the Company not to exceed $985,000.
New Kent County has agreed to widen Route 155, the road leading to the entrance
of the Track's main boulevard. The Company will construct a short road leading
from Route 155 to the Track. The Company anticipates that the sewer and water
system and the road will be completed prior to July 1, 1997. Upon completion,
the sewer and water system will become the property of New Kent County and the
road will become the property of the Commonwealth of Virginia.
24
<PAGE>
The Grandstand and the Clubhouse. The grandstand has been designed with
an initial occupancy capacity of approximately 4,000 patrons. The front apron
will accommodate an additional 4,000 people and, on special event days, the
grass picnic area east of the grandstand will accommodate an additional 3,000
non-reserved seats in bleachers and on benches. Valet, preferred and general
paved parking will be available for over 1,825 vehicles. Additional unpaved
parking will be available for large and capacity crowds.
The grandstand and clubhouse will have four levels. A grandstand area
will be on the first level where patrons will enter the facility, together with
two simulcast/TV amphitheaters, two covered patio seating areas, four bars, one
large concession center court, a gift shop, restrooms, and wagering locations
with approximately 60 tellers. The second level will house administrative
offices and a kitchen. The main grandstand area will be located on the third
level together with a full-service dining area with a seating capacity of 200
patrons, an additional 616 box seats, two separate lounge areas and additional
wagering locations with 38 tellers. When live racing is not occurring at the
Track, the third level will serve as a SWF. Ten suites with sky box seating and
a full-service finish line dining area will be located on the fourth level. The
fourth level will also house the judges' room, the stewards' room, a press
agents' room, photo finish services, a video room, the announcers' room, the
audio/video control room and a VIP room.
The Turf and Dirt Tracks. The Track is planned to include a unique one
mile double-width (180 feet wide) turf racetrack and a one and one quarter mile
dirt racetrack. The Company believes that the tracks' designs will help it to
attract highly competitive horses, which will in turn both attract patrons and
produce a desirable product for the Company to market via export simulcasting to
other racetracks, SWFs, casinos and other gaming facilities outside Virginia.
The Company's turf track is designed to be twice as wide as a typical
turf track in order to maximize usage. A typical turf track may be raced over
only two or three times a day before it requires repair. The Company's turf
course will be equipped with two moveable rails, enabling the Company in effect
to run turf races over two courses. This design should allow more turf racing
per day than at most tracks in the mid-Atlantic region. The turf track will
require extensive maintenance and will be expensive to maintain and will also be
vulnerable to adverse weather conditions. To prevent damage to the turf track in
the event of rain, races will be moved off of this track and onto the dirt track
(although thoroughbred horse owners may choose not to participate in a dirt
track race). The Company's management, based on its experience, believes that
the unique design of the Company's turf track will be attractive to thoroughbred
owners, who are believed to prefer to race their horses on turf courses, which
are generally considered to be less stressful on the horses and to produce fewer
injuries.
The Company's dirt track will be used for harness racing and for a
significant portion of the Company's thoroughbred racing. Due to the design of
the dirt track, standardbreds will be able to race one mile with only one turn.
The Company believes that most tracks include more turns over a one mile
distance. The dirt track's design is expected to result in extremely fast mile
times. The Company believes that the times recorded on its dirt track will help
attract standardbred owners to race at the Track.
Other Track Facilities. The Track's backstretch area will provide
stables for over 1,000 horses, as well as several bath houses, a blacksmith and
tack shop, dormitory buildings, a restaurant and horsemen's lounge, and a
recreation park/picnic area for the horsemen and backstretch employees. The
paddock building will house the jockeys' quarters, the kitchen, dining and
lounge areas for the jockeys, the veterinarian's office and lab, and the
pre-race and post-race holding area.
Simulcast signals from other tracks will be received at the clubhouse
and, when live racing is not conducted at the Track, the first level of the
grandstand and clubhouse will be operated as a SWF. The Track's features also
are conducive to other activities between live race meets. The Track provides a
polo field for the staging of polo matches and can be used for horse shows and
sales. In addition, the Company anticipates using the facilities for other
special events such as concerts, antique shows, and hot air balloon races and
exhibitions.
Live Racing
The Company expects to enter into agreements with the Virginia chapter
of the Horsemen's Benevolent and Protective Association (the "VaHBPA"), a
representative association of Virginia thoroughbred horsemen, and
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the Virginia Harness Horsemen Association (the "VHHA"), a representative
association of Virginia standardbred horsemen, for the conduct of live racing at
the Track. The agreements are expected to address, among other matters, the
setting of a schedule of purse amounts, preparation of conditions for races,
reconciliation of any over or under payment of purse amounts, the number of
Virginia-bred races to be run at each meet, the availability of stalls and track
facilities during and after meets, and the sharing of revenues, if any, from
television (other than simulcasting) or radio broadcasts of races run at the
Track.
The Company's 1997 race days for the Track have been approved by the
Virginia Racing Commission. The Company plans to conduct a thoroughbred meet
from June 29 to August 15, 1997 with 30 days of racing. Post times during the
week will be between 3:30 and 5:30 p.m. and post times on weekends will be at
1:00 p.m. Few racetracks in the eastern time zone offer twilight thoroughbred
racing, and as a consequence, the Company expects to be able to sell its weekday
twilight simulcast signal to a number of other tracks, out-of-state SWFs,
casinos and other gaming establishments. In addition, the Company will conduct a
50 day harness racing meet from late September through November 1997. The
Virginia Racing Act requires the Company to conduct at least 150 days of live
racing each calendar year; however, the Commission may permit fewer live race
days during the first five years of the Track's operation. In approving the 1997
race schedule, the Virginia Racing Commission approved 80 days of live racing as
proposed by the Company.
Purse Structure and Guarantees
The Company has taken steps to ensure competitive purses to attract
horse owners to race at the Track. The Company has guaranteed purses of $150,000
per day for not less than 30 days for thoroughbred meets to be held in 1997 and
1998, and minimum purses of $50,000 per day for not less than 50 days for
standardbred meets in 1997 and 1998. The Company expects its purses to be
competitive with purses at tracks in the mid-Atlantic market that conduct meets
concurrently with the Company's meets, with the possible exception of Delaware
Park and Charles Town, West Virginia, each of which have recently legalized VLTs
or slot machines, which will likely increase the purses offered at such
racetracks.
The guaranteed purse structure arises from the Company's SWF agreements
(the "SWF Agreements") with each of the VaHBPA and the VHHA. Pursuant to the
VaHBPA SWF Agreement, the Company has agreed, among other things, to contribute
to its thoroughbred purse account, a certain percentage (approximately 5%) of
all money wagered on thoroughbreds at its SWFs until such account accumulates a
total of $4.5 million. (Under the Virginia Racing Act, the Company is also
required to contribute, on average, approximately 8.5% of all money wagered at
the Track on live racing to the purse account and these funds will be counted
towards the $4.5 million target.) If such funds are less than $4.5 million, the
Company will contribute one half of the deficiency and loan the purse account
the remaining one half of the deficiency. The VHHA SWF Agreement reflects a
similar arrangement, and requires the Company, among other things, to contribute
to its standardbred purse account a certain percentage (approximately 5%) of all
money wagered on harness racing at its SWFs until such account accumulates a
total of $2.5 million.
If the total thoroughbred and standardbred purse contributions for any
year is greater than $4.5 million and $2.5 million, respectively, then the
amounts otherwise payable to such accounts will be paid to the Company until its
after-tax income equals $1 million (for the first year) or $3 million (for the
second year), after which point such amounts will be shared equally between the
Company, on the one hand, and the applicable purse account, on the other hand.
These additional contributions, if any, to the purse accounts are expected to
enhance the Company's ability to attract quality horses to the Track and, as a
result, to sell the Company's export simulcast signal.
Marketing
In addition to increasing the number of facilities that it operates,
the Company will seek to increase its revenues by further developing its
customer base and expanding the wagering activity of its customers. The Company
believes that new customers are more likely to wager on races if they feel
comfortable doing so. For example, to make wagering more "user friendly" to the
novice and more efficient for the expert, the Company employs individuals to
give entertaining, on-site instruction at its SWFs on how to place a wager and
how to understand printed racing materials. The Company also leases
state-of-the-art Autotote automated wagering equipment. These wagering systems
enable the customer to choose a variety of ways to place a bet through
touch-
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screen interactive terminals and personalized portable wagering terminals,
provide current odds information and enable customers to place bets and credit
winning tickets to their accounts. The same strategy will be used at additional
planned SWFs. Management currently anticipates that approximately 25% of all
wagers at the Track and SWFs will be processed through self-service wagering
terminals.
The Company also works to create a welcoming physical environment at
its SWFs. The Chesapeake and Richmond SWFs are modern, comfortable facilities,
each including a lounge, a sports bar area devoted to televised sporting events,
multiple state-of-the-art television and video displays, and a range of
restaurant services. The same amenities are planned for additional SWFs. The
Company believes that its attractive new facilities will appeal to its current
customers and to new customers, including those who have not previously visited
a SWF or racetrack.
The Company also plans to attract new customers by pursuing various
types of promotions, including special events, family fun days, premium
give-away programs, contests and handicapping seminars.
Seasonality and the Effects of Inclement Weather
Revenues may be higher during scheduled live racing than at other times
of the year. In addition, weather conditions sometimes cause cancellation of
outdoor horse races or curtail attendance, both of which reduce wagering.
Attendance and wagering at both outdoor races and indoor SWFs also may be
adversely affected by certain holidays and professional and college sports
seasons as well as other recreational activities. Conversely, attendance and
wagering may be favorably affected by special racing events which stimulate
interest in horse racing, such as the Triple Crown races in May and June and the
Breeders' Cup in November. As a result, the Company's revenues and net income
may fluctuate from quarter to quarter. Given that a substantial portion of the
Company's Track expenses are fixed, the loss of scheduled racing days could have
a material adverse affect on the Company's profitability. The Company believes
that simulcasting diminishes the effect of inclement weather on wagering. See
"-- Simulcasting."
The Company's Licenses
The Company (i) holds the only unlimited licenses to own and operate a
horse racetrack with pari-mutuel wagering in Virginia, (ii) is the only entity
that holds licenses to own and operate SWFs in Virginia (currently in Chesapeake
and Richmond), and (iii) is the only entity authorized to apply for additional
licenses to own and operate SWFs in Virginia. Each of these licenses is granted
by the Virginia Racing Commission. The Company's licenses and current and
planned horse racing and pari-mutuel wagering operations are subject to
extensive regulation and oversight by the Virginia Racing Commission pursuant to
the Virginia Racing Act. See "Risk Factors -- Government Regulation."
The Track and each of the current and planned SWFs require both an
ownership license and an operating license. Colonial LP holds the Company's
ownership licenses and Stansley Racing holds the Company's operating licenses.
The Company anticipates applying for additional SWF ownership licenses through
Colonial LP and additional SWF operating licenses through Stansley Racing. Each
of the Company's current licenses is for a period of not less than 20 years, but
is subject to annual review by the Virginia Racing Commission. Such licenses may
be suspended or revoked by the Virginia Racing Commission for violations of the
Virginia Racing Act or Virginia Racing Commission rules.
The SWF ownership and operating license applications must describe,
among other matters, the proposed facility in detail, the number of jobs to be
created, the social and economic impact of the facility on the locality, the
anticipated amount of investment and capital improvements to the facility,
requisite governmental actions, and identification of on-site management. The
Virginia Racing Commission considers each application at a public hearing at
which the objections of any parties are considered, following which the Virginia
Racing Commission determines whether to approve the application. Although there
is no specified time period for the decision from the Virginia Racing
Commission, the Company estimates, based upon its experience, that it can obtain
a license and open an additional SWF in approximately six to nine months after
submitting a license application.
The Virginia Racing Commission will consider a variety of factors when
deciding on a license application, including community opposition. The Company
has encountered some community opposition, but, to date, once a
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referendum has been passed, such opposition has not ultimately affected the
licensing process. See "-- Legal Proceedings."
Virginia-Maryland Thoroughbred Racing Circuit
The Company and the Maryland Jockey Club have agreed to create a
Virginia-Maryland thoroughbred horse racing circuit to promote thoroughbred
racing in the two states. More than 2,200 horses race at Laurel Park and Pimlico
Race Course in Maryland each year, making it the nation's second largest
year-round thoroughbred racing operation, according to the Maryland Jockey Club.
Pursuant to the Management and Consulting Agreement, the Maryland Jockey Club
will request permission from the Maryland Racing Commission to close from
mid-June until mid-October of each year. The Company plans to host a
thoroughbred meet at the Track during this period and expects to attract the
thoroughbred race horses that typically have run at the Maryland tracks at this
time. The Company understands that the Maryland racetracks plan to host
thoroughbred meets from January to May and November through December, during
which time the Track will not be used for live thoroughbred racing, but will
feature live harness racing and import simulcasting.
Pursuant to the Management and Consulting Agreement, the Maryland
Jockey Club will be responsible for providing, at the Company's expense, all
horse racing officials and management staff essential to the operation of a
thoroughbred racing meet. Colonial LP and Stansley Racing, as the licensees,
will retain ultimate authority with respect to the operation of the Track during
the thoroughbred meet. The Company believes that the Maryland Jockey Club's
significant thoroughbred experience and expertise will serve to complement that
of Company management. The Management and Consulting Agreement also should allow
the Company to reduce labor costs as the Company should not need to employ and
maintain a separate staff of thoroughbred race officials. For its undertakings
pursuant to the Management and Consulting Agreement, the Maryland Jockey Club
will receive 2% of the Company's thoroughbred meet handle and 2% of its SWF
handle. All disputes arising under the Management and Consulting Agreement are
to be addressed through arbitration.
The Maryland Jockey Club and the Company must submit their proposed
race days to the Maryland Racing Commission and the Virginia Racing Commission,
respectively, each year. The Virginia Racing Commission has approved the
Company's proposed 1997 race schedule. The Maryland Racing Commission approved
the Maryland Jockey Club's proposed 1997 race schedule without specifically
commenting on the Maryland Jockey Club's proposal to not host live racing during
the Company's thoroughbred meet.
Competition
The Company is subject to competition from racetracks located outside
Virginia (including several in Delaware, Maryland, New Jersey, New York,
Pennsylvania, and West Virginia) and other forms of gaming, such as land-based
casinos, including those in Atlantic City, and statewide lotteries in Virginia
and in neighboring states. The Company will also face competition from a wide
range of entertainment options, including live and televised sporting events and
other recreational activities. The possible legalization of other forms of
gaming in Virginia, such as riverboat casino gaming, also could have an adverse
effect on the Company's business. Although bills for the creation of riverboat
gaming have failed in the Virginia legislature for the last three years,
proponents of riverboat gaming in Virginia may continue to seek legislative
approval. It is not possible, at this time, to determine if or when additional
forms of gaming will be permitted in Virginia or neighboring states and, if so,
the impact, if any, on the Company. If additional gaming opportunities become
available in or around Virginia and the Company is unable to participate in such
gaming opportunities, it could have a material adverse effect on the Company and
its operations.
The Company competes and will compete for wagering dollars and
simulcast fees with live racing and races simulcast from horse racetracks in
other states, particularly racetracks in neighboring states such as Charles Town
in West Virginia, Pimlico Race Course and Laurel Park in Maryland, and Delaware
Park in Delaware. In addition, patrons may be attracted to thoroughbred races in
Maryland during the Company's harness racing meet. The Company believes that the
Management and Consulting Agreement will promote coordination of thoroughbred
events between the two states. See "Business -- Virginia-Maryland Thoroughbred
Racing Circuit." However, if the Virginia or Maryland Racing Commissions do not
approve a party's proposed racing days, or if the Virginia-Maryland thoroughbred
racing circuit is otherwise unsuccessful, the Track may compete directly with
thoroughbred
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racetracks in Maryland. In addition, new racetracks could be constructed in
adjacent states that would compete with the Track, or new licenses could be
granted to Company competitors in Virginia. Based on the stated intent of the
Virginia Racing Commission, the Company does not believe that the Virginia
Racing Commission is likely to grant licenses to other entities in the
foreseeable future. See "Risk Factors -- Additional Licenses May Be Granted."
The Company anticipates competition from VLTs and slot machines, in
particular. Delaware legalized slot machines at three racetracks as of January
1, 1996. In addition, a Maryland legislative panel is studying the legalization
of slot machines at Maryland racetracks and SWFs, and a referendum for the
legalization of VLTs was passed on November 5, 1996 in Lewistown, West Virginia
where the Charles Town racetrack is located. VLTs and slot machines are
prohibited in Virginia. The Company believes that the legalization of VLTs and
slot machines in neighboring states may adversely affect its business in two
ways. First, VLTs and slot machines may attract the Company's potential SWF and
Track customers, thereby reducing the Company's revenues. Second, racetracks
with VLTs and/or slot machines generally are required to devote a significant
portion of VLT and/or slot machine revenues to the purses for which horses race.
As a result, such racetracks may be able to offer higher purses than the Track.
It may be more difficult for the Company to attract horsemen to race at the
Track if other nearby racetracks offer higher purses.
Other Business
In addition to SWF and Track wagering revenues, the Company receives
revenues from the sale of food and beverages, admission fees, the sale of
programs and corporate sponsorship. Such revenues are anticipated to
collectively total less than ten percent of total revenue.
Other Property and Equipment
The Company currently leases office space in an office building in
Providence Forge, Virginia. Upon completion of the Track, the Company will
relocate its offices to the Track.
The Company considers its properties adequate for its present purposes,
but, as noted above, the Company intends to open four additional SWFs. Based
upon its experience, the Company believes that suitable sites will be available
on satisfactory terms.
Employees and Labor Relations
At November 1, 1996 (prior to the opening of the Richmond SWF), the
Company had 163 permanent employees, of whom 64% were full-time and 36%
part-time. Other than management personnel and head office staff, all employees
worked at the Company's SWF. No employees are represented under a collective
bargaining agreement. The Company believes that its relations with its employees
are satisfactory.
Legal Proceeding
The following pending proceeding affects the Company, although the
Company is not a party to the proceeding.
Robin J. Pearsall and Monument Avenue Park Association, an
unincorporated association representing certain individuals residing close to
the Richmond SWF, filed suit in Richmond Circuit Court on July 11, 1996, against
the Virginia Racing Commission. (Robin J. Pearsall and Monument Avenue Park
Association v. The Virginia Racing Commission.) The suit seeks to overturn the
award of the Company's licenses for the Richmond SWF on the grounds that the
referendum approving the locating of an SWF in Richmond was void and that the
Virginia Racing Commission did not have authority to issue the licenses under
the Virginia Racing Act. The Virginia Attorney General, representing the
Virginia Racing Commission, has moved for dismissal of the case on grounds that
the group lacks standing to sue and has failed to properly and timely perfect
its appeal of the Virginia Racing Commission's decision. A hearing on the merits
in this matter is scheduled for January 31, 1997.
Although the ultimate outcome of this proceeding cannot be predicted,
the Company believes that it will be ultimately resolved in a manner that will
not have a material adverse effect on the Company's business.
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MANAGEMENT
Directors and Executive Officers
The following persons are the current directors and executive officers
of Colonial Downs Holdings:
Name Position
Jeffrey P. Jacobs Chairman of the Board,
President and Chief Executive Officer
Arnold W. Stansley Director,
Secretary
Robert H. Hughes Vice President,
Chief Financial Officer
Michael D. Salmon Controller
The following is a list of the people who will be directors and
executive officers following the consummation of this Offering. Biographies of
these individuals follow below. In addition, the Board of Directors will include
one additional independent director following consummation of this Offering.
Name Age (1) Position Term of Office
- ---- ------ -------- --------------
Jeffrey P. Jacobs 42 Chairman of the Board, President
and Chief Executive Officer
Arnold W. Stansley 62 Vice-Chairman of the Board
and Director
Robert H. Hughes 55 Chief Financial Officer and
Director
Stephen Peskoff 54 Director
David Grunenwald 43 Secretary and Director
Patrick McKinley 41 Director
Brett Lee Stansley 33 Vice President of Satellite
Wagering Facilities
Gilbert Short 50 Vice President of Track Operations
Michael D. Salmon 39 Controller
Hugh Mellon 47 Vice President of Marketing
- ----------------------
(1) All ages are set forth as of September 30, 1996.
Information with respect to the business experience and the
affiliations of the directors and executive officers of the Company and those
persons nominated or chosen to become such following consummation of this
Offering for the past five years is set forth below.
Jeffrey P. Jacobs serves as Chairman of the Board, President and Chief
Executive Officer of the Company. From 1995 to the present, he has served as
Chairman and Chief Executive Officer of Jacobs Entertainment, Inc., a company
based in Cleveland, Ohio that has investments in other gaming companies and
ventures, including Black Hawk Gaming, Inc. based in Denver, Colorado and the
Holiday Inn Boardwalk hotel and casino in Las Vegas. From 1975 to present, he
has also served as President and CEO of Jacobs Investments, Inc., a
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company engaged in the development, construction and operation of residential
and commercial real estate and entertainment projects in Ohio. Mr. Jacobs also
served in the Ohio House of Representatives from 1982 until 1986. Mr. Jacobs
became involved with the Company in November, 1995, acquired a fifty percent
ownership interest in the Company through an affiliate in July, 1996, and
devotes an increasing amount of time to the activities of the Company.
Arnold W. Stansley will assume the role of Vice-Chairman of the Board
upon the consummation of this Offering. He served as President of Stansley
Management Corp., Colonial LP's managing general partner prior to the
Reorganization, from 1993 to 1996. He also served as President of Stansley
Racing prior to the Reorganization, from 1994 to 1996. Mr. Stansley has devoted
a substantial amount of his time to the development of the Company's business.
He directed the successful effort to win an owner's license and an operator's
license granted by the Virginia Racing Commission and was instrumental in the
opening of the Company's Chesapeake SWF and anticipated opening of the Richmond
SWF. Mr. Stansley is an owner and has been an executive officer of Raceway Park,
a standardbred racetrack in Toledo, Ohio, for seven years. Mr. Stansley has over
30 years of experience in the horse racing industry, as a driver, trainer and
owner of standardbred horses. He shares management responsibility at Raceway
Park with his sister and brother-in-law. Mr. Stansley is the father of Brett Lee
Stansley.
Robert H. Hughes has served as Chief Financial Officer of Jacobs
Investments, Inc. since 1993. Mr. Hughes is a director of Black Hawk Gaming and
Development Co., Inc. Mr. Hughes was a partner in charge of the audit department
of the Cleveland office of the accounting firm of Deloitte & Touche LLP until
his retirement in 1991. Mr. Hughes is a certified public accountant.
Stephen Peskoff has served as President of Underhill Investment Corp.
since 1976 and has acted as a consultant to Friedman, Billings, Ramsey & Co.,
Inc. for the last two years. Mr. Peskoff was active in the thoroughbred horse
industry from 1978 to 1992 during which time he won two Eclipse Awards (1983 and
1991) and was the breeder of the 1991 U.S. horse of the year (Black Tie Affair).
David Grunenwald has served as Vice President of Development and
Leasing for Jacobs Investments, Inc. since 1988 and directs such company's
development, construction and leasing operations. Prior to joining Jacobs
Investments, Inc., Mr. Grunenwald worked for Weston, Inc. (1987-88) in
syndication and property management and Touche Ross & Company from 1981 to 1987
as a tax consultant.
Patrick McKinley has served as Executive Vice President of Jacobs
Investments, Inc. for more than twenty years and is responsible for such
company's day-to-day operations. Mr. McKinley has over twenty years' experience
in restaurant operations and real estate development and management.
Brett Lee Stansley will assume the role of Vice President of Satellite
Wagering Facilities upon the consummation of this Offering. He has served as
Vice President of Stansley Management Corp., Colonial LP's managing general
partner prior to the Reorganization, since 1994. From 1987 to 1994, Mr. Stansley
was a grain analyst with Merrill Lynch. Mr. Stansley has worked as a trainer and
groom of standardbred race horses and has owned several standardbred race
horses. Brett Lee Stansley is the son of Arnold W. Stansley.
Gilbert Short will assume the role of Vice President of Track
Operations upon the consummation of this Offering. He joined the Company in 1994
as General Manager and has overseen the design and development of the Track and
the Chesapeake and Richmond SWFs. Prior to joining the Company, Mr. Short served
as Director of Operations of Trinity Meadows, a thoroughbred racetrack outside
of Fort Worth, Texas, from 1991 to 1994. He has been a standardbred horse owner
and trainer for over twenty years.
Michael D. Salmon will assume the role of controller upon the
consummation of this Offering. He has served as the Company's Certified Public
Accountant from January 1, 1996 until June 1, 1996 at which time he joined the
Company as Controller. Mr. Salmon was an accounting manager with Philip Morris
from 1979 to 1989 at which time he started a public accounting firm as a sole
proprietor and merged his practice with a larger firm in 1995 before joining the
Company. Mr. Salmon has consulted in a number of mergers, acquisitions, and
start-ups of small businesses as a CPA, as well as starting a mortgage banking
company and being its initial officer and director. Mr. Salmon also served as an
elected official on the New Kent County, Virginia, Board of Supervisors from
1992 through 1995.
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Hugh R. Mellon will assume the role of Vice President of Marketing upon
the consummation of this Offering. He has served as Marketing Director of the
Playfair Race Course from 1993 to 1996. For ten years prior to 1993, Mr. Mellon
was an independent consultant providing marketing, advertising and corporate
sponsorship consulting services for Hialeah Park, Delaware Park, Arlington
International and other racetracks across the country. Mr. Mellon has also
worked in the marketing and publicity departments of Charles Town Races, Penn
National Race Course, and Delta Downs.
The Amended and Restated Bylaws of Colonial Downs Holdings provide for
a staggered Board of Directors divided into three classes. See "Description of
Capital Stock -- Certain Charter and Statutory Provisions." Officers are
appointed by and serve at the discretion of the Board of Directors.
Board Committees
The Board of Directors intends to establish an Audit Committee, a
Compensation Committee and a Stock Option Committee within 90 days of the
consummation of this Offering.
Executive Compensation
The Company to date has not paid any compensation to its executive
officers. The Company has paid certain management and other fees to affiliates
of Messrs. Stansley, Leadbetter and Jacobs.
The Company plans to enter into employment agreements effective upon
the completion of the Reorganization with Jeffrey P. Jacobs, Brett Lee Stansley,
Mike Salmon, Hugh Mellon and Gilbert Short, at annual base salaries of
approximately $120,000, $75,000, $60,000, $60,000 and $60,000, respectively. The
agreements are expected to terminate two years after consummation of this
Offering. Such employment agreements are expected to restrict the ability of the
employee to engage in certain activities which compete with the Company during
its term and for one year thereafter. Such agreements are further expected to
provide that Mr. Jacobs devote so much of his time to the Company as is
reasonably necessary for the performance of his duties. Pursuant to the
remaining employment agreements, each of the executives is expected to agree to
devote his full time to the Company.
Upon the consummation of this Offering, the Company will enter into a
five-year consulting agreement with Arnold W. Stansley. Mr. Stansley will advise
and assist the Company in the operation of the Track and the SWFs as the Company
requests. For his services, the Company will pay Mr. Stansley $75,000 annually,
payable quarterly.
Stock Option Plan
Immediately prior to the consummation of this Offering, the Company's
Board of Directors will adopt and approve a stock option plan (the "Stock Option
Plan"). The Stock Option Plan will be administered by a committee (the
"Committee") consisting of at least two persons who are appointed by, and serve
at the pleasure of, the Board of Directors and at least two of whom are
"disinterested persons" as that term is defined in Rule 16b-3(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Pending
election of two independent directors, the Stock Option Plan is to be
administered by the Board of Directors, which does not consist of two
"disinterested persons." Subject to the express provisions of the Stock Option
Plan, the Committee has the sole discretion to determine to whom, among those
eligible, options will be granted and the time or times at which options may be
exercised. Options are designated at the time of grant as either "incentive
stock options" or "non-qualified options." Unless the Stock Option Plan is
terminated earlier by the Board of Directors, the Stock Option Plan will
terminate ten years from the date of its approval by the shareholders.
Subject to adjustments resulting from changes in capitalization,
300,000 shares of Class A Common Stock may be issued pursuant to the exercise of
options granted under the Stock Option Plan. If any option expires or terminates
for any reason, without having been exercised in full, the unpurchased shares
subject to such option will be available again for purposes of the Stock Option
Plan. An option may not be transferred other than by will or by laws of descent
and distribution, and, during the lifetime of any option holder, may be
exercised only by such holder.
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Director Compensation
Directors of the Company who are also employees of the Company (other
than Mr. Hughes) will receive no directors' fees. Non-employee directors and Mr.
Hughes will receive directors fees of $________ for each Board and committee
meeting attended in person and $________ for each Board and committee meeting
attended by telephone. In addition, directors are reimbursed for their
reasonable out-of-pocket travel expenditures incurred in attending Board and
committee meetings.
Limitation of Liability and Indemnification of Directors and Officers
The Company's Amended and Restated Articles of Incorporation provide
that in any proceeding brought in the name of the Company or by or on behalf of
shareholders of the Company, the damages assessed against an officer or director
arising out of a single transaction, occurrence, or course of conduct shall not
exceed one dollar, unless the officer or director engaged in willful misconduct
or a knowing violation of the criminal law or any federal or state securities
law, including without limitation, any claim of unlawful insider trading or
manipulation of the market for any security.
Additionally, the Company's Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws provide that the Company shall
indemnify an officer, director or employee who is, was or is threatened to be
made a party to a proceeding (including a proceeding by or in the right of the
Company) because he is or was an officer, director, or employee of the Company,
against liability incurred in the proceeding and against expenses incurred by
him in connection therewith except such liabilities and expenses incurred
because of his willful misconduct or knowing violation of the criminal law.
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CERTAIN TRANSACTIONS
Historically, the Company has not had a formal mechanism for addressing
potential conflicts of interest. Following the completion of the Reorganization,
the Company plans to adopt a policy requiring that any material transactions
between the Company and persons or entities affiliated with officers, directors
or principal shareholders of the Company be on terms no less favorable to the
Company than reasonably could have been obtained in arm's-length transactions
with independent third parties. The management of the Company believes that the
terms of the related party transactions set forth below are consistent with what
would have been negotiated in an arm's-length transaction with an independent
third party, except for management fees described below, which will be
terminated on the date of the Reorganization, and the Food and Beverages
Concessions Agreement described below.
The following is a summary of certain transactions and relationships
among the Company and its associated entities, and among the directors,
executive officers, nominees for directors and shareholders of the Company and
its associated entities.
Loans to the Company
CD Entertainment Ltd. has made a loan and has provided credit support
to the Company aggregating $8.0 million. CD Entertainment Ltd. is beneficially
owned by Jeffrey P. Jacobs, and Gary L. Bryenton and Jeffrey P. Jacobs as
Trustees under the Opportunities and Trust Agreement dated February 1, 1996. The
indebtedness under these facilities bears interest at a variable rate equal to
CD Entertainment's cost of funds. The current rate is LIBOR plus 2%. Interest is
payable monthly. Principal is due on the earlier to occur of January 31, 1998 or
the consummation of this Offering. In addition to principal and interest
payments, the Company has agreed to pay all fees, costs and expenses incurred by
CD Entertainment Ltd. in making such funds available. As of September 30, 1996,
the Company had incurred aggregate interest costs of $110,000 and made no
principal payments. The proceeds of the credit facilities were used to acquire
and renovate the Chesapeake and Richmond SWFs, to fund improvements at the Track
site and to pay for expenses incurred in seeking licenses for other SWFs. A
portion of such indebtedness is secured by a first deed of trust on the Richmond
SWF and the pledge of certain other assets of the Company. These facilities are
to be repaid from the proceeds of this Offering, at which time the deeds of
trust and other security interests of CD Entertainment Ltd. will be released.
Arnold W. Stansley, a principal shareholder, loaned the Company
$386,788, which is evidenced by notes dated as of September 30, 1995 and January
23, 1996. These notes do not bear interest unless the notes are not repaid from
the proceeds of this Offering. The loan proceeds were used to fund the
operations of the Company and will be repaid from the proceeds of this Offering.
Norglass, Inc. loaned $311,994 to the Company, which is evidenced by
notes dated as of September 30, 1995 and January 23, 1996. Norglass, Inc. is
owned by James Leadbetter, a principal shareholder of the Company. The loan does
not bear interest unless not repaid from the proceeds of this Offering. The loan
proceeds were used to fund the operations of the Company and will be repaid from
the proceeds of this Offering.
Construction
The Company has agreed to enter into a guaranteed maximum price
contract with Norglass, Inc. for the construction of the Track. Pursuant to the
contract, Norglass, Inc. will receive a fixed fee of $ ________. In addition,
Norglass, Inc. will be paid for certain out-of-pocket expenses. Pursuant to the
contract terms, absent certain force majeure events, the guaranteed maximum
price for the contract is expected to be $26,000,000. Norglass, Inc. will
warrant and guarantee its labor for periods running from one to two years and
will warrant the materials provided to the project for periods ranging from one
to fifteen years. (The project's roofing is warranted for fifteen years.)
Norglass, Inc. will provide market terms for insurance and bonding requirements.
The Company will retain 10% of the cost of all work, including Norglass, Inc.'s
fee until substantial completion of the Track. The contract may be terminated by
the Company upon seven days' written notice for Norglass, Inc.'s failure to
perform and may be terminated by Norglass, Inc. upon seven days' written notice
for the Company's failure to pay amounts when due. In addition, Norglass, Inc.
acted as general contractor for the renovation of the Chesapeake and Richmond
SWFs, for which it received from the Company aggregate fees of approximately
$160,500 and reimbursement of expenses of approximately $97,000.
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<PAGE>
Concessions Agreement
The Company is party to a Food and Beverages Concessions Agreement with
Virginia Concessions LLC, an entity owned by Jeffrey P. Jacobs. Pursuant to the
Food and Beverages Concessions Agreement, Virginia Concessions LLC was granted
an option to manage the food and beverage concessions at the initial six SWFs
and up to 50% of any additional SWFs that may be licensed and developed by the
Company. Virginia Concessions LLC pays the Company rent based upon gross sales
equal to 10% of the first $500,000 of gross sales, 13% of the next $500,000 of
sales and 15% of all gross sales above $1,000,000 at each SWF. The Company is
responsible for site-related expenses such as updating, refurbishing, equipping,
and repairing each SWF. It also is responsible for all advertising, cleaning of
areas other than those relating to food service, linen, casualty insurance,
one-half of the premiums for liquor liability insurance, utilities, real estate
taxes and assessments, trash removal and equipment repair and replacement. The
agreement is for a term of ten years from the opening date of each applicable
SWF, but in no event beyond February 17, 2011. In addition, within six months
prior to the expiration of the initial term with respect to any SWF, Virginia
Concessions LLC has a first right of refusal to meet any competing offer to
provide food and beverage service; however, Virginia Concessions LLC is entitled
to a 1% discount to such competing offer.
Management Fees
The Company is party to a management agreement with Stansley Racing
(the "Management Agreement"), which prior to the Reorganization is owned by
Messrs. Stansley and Leadbetter. Stansley Racing is in turn party to a
submanagement agreement (collectively with the Management Agreement, the
"Management Agreements") with CD Entertainment Ltd., an affiliate of Mr. Jacobs.
Pursuant to the Management Agreements, the Company is obligated to pay a $15,000
monthly management fee. As of September 30, 1996, the accrued and unpaid
management fees are $165,000. Upon consummation of this Offering, the Management
Agreements will be terminated and the accrued management fees will be paid to
Messrs. Stansley and Leadbetter and CD Entertainment Ltd.
The Company also has agreed to pay Premier Development Co., an
affiliate of Mr. Jacobs, a fee of $250,000 upon consummation of this Offering
for real estate development and construction consulting services.
Convertible Subordinated Note
Concurrently with the consummation of this Offering, CD Entertainment
Ltd., an affiliate of Mr. Jacobs, will acquire the Convertible Subordinated Note
for $3,000,000. See "Description of Certain Indebtedness -- Convertible
Subordinated Note."
Credit Enhancement for Bank Credit Facility
Concurrently with the consummation of this Offering, the Company will
enter into the Bank Credit Facility, which will provide up to $18.5 million of
financing for construction of the Track, to acquire, construct, equip and open
additional planned SWFs and for general corporate purposes. Mr. Jacobs has
agreed to provide credit enhancement if required by the bank or banks providing
the Bank Credit Facility. In return for such credit enhancement, if required,
Mr. Jacobs may elect either to receive (i) an annual fee equal to 2% of such
amount of the Bank Credit Facility as he has guaranteed during the preceding
year (based on the average maximum amount guaranteed) or (ii) warrants to
purchase up to 300,000 shares of Class B Common Stock (based on the amount of
credit enhancement provided) at a price per share of 105% of the initial public
offering price of the shares of Class A Common Stock offered hereby.
Arnold W. Stansley Consulting Agreement
Upon the consummation of this Offering, the Company will enter into a
five-year consulting agreement with Arnold W. Stansley. Mr. Stansley will advise
and assist the Company in the operation of the Track and the SWFs as the Company
requests. For his services, the Company will pay Mr. Stansley $75,000 annually,
payable quarterly.
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Underhill Investment Financial Advisory Fee
Pursuant to an agreement with Colonial LP, Underhill Investment
Corporation, which is an affiliate of Mr. Peskoff (who will be a director of the
Company following consummation of this Offering), has provided financial
advisory services to the Company and its founders since in 1995. As compensation
for such services, Underhill Investment Corporation received a $50,000 fee for
services rendered in 1995. Underhill Investment Corporation also received 15,000
shares of Class A Common Stock from Messrs. Stansley and Leadbetter for such
services.
Registration Rights Agreement
In connection with the Reorganization, the Company will enter into a
registration rights agreement on behalf of all holders of Class A Common Stock
issued in the Reorganization and Class A Common Stock that may be issued in
exchange for shares of Class B Common Stock issued in the Reorganization or
issuable upon conversion of the Convertible Subordinated Note and any shares
issued to Mr. Jacobs in return for providing credit enhancement in connection
with the Bank Credit Facility.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table provides information concerning beneficial
ownership of Common Stock, as of September 30, 1996 (after giving effect to the
Reorganization), and as adjusted to reflect the sale of 3,900,000 shares of
Class A Common Stock offered hereby and the issuance of the Convertible
Subordinated Note, by (1) each person or entity known by the Company to
beneficially own more than 5% of the outstanding Common Stock, (2) each director
of the Company following this Offering, (3) the Chief Executive Officer, and (4)
all directors and executive officers of the Company as a group following this
Offering. The information as to beneficial ownership has been furnished by the
respective shareholders, directors and executive officers of the Company, and,
unless otherwise indicated, each of the shareholders has sole voting and
investment power with respect to the shares beneficially owned. Unless otherwise
specified, the address of all shareholders is the address of the Company set
forth herein.
<TABLE>
<CAPTION>
Voting Power as
Percent of Common Percent of Common
Name of Beneficial Stock Outstanding Stock Outstanding
Owner Shares Owned After Offering After Offering(4)
----- ------------ -------------- -----------------
<S> <C> <C> <C> <C>
Class A Class B
------- -------
CD Entertainment Ltd. (1) -- 1,817,460(2) 25.2% 52.0%
Jeffrey P. Jacobs (3) -- 1,817,460(2) 25.2 52.0
Arnold W. Stansley....... 496,250 510,000 14.6 19.2
James M. Leadbetter...... 211,250 225,000 6.3 8.4
Stephen Peskoff.......... 15,000 -- 0.2 0.1
David Grunenwald......... -- -- -- --
Robert H. Hughes......... -- -- -- --
Patrick McKinley......... -- -- -- --
All executive officers and
directors as a group (10
persons)............... 722,500 2,552,460 45.4% 77.1%
</TABLE>
- -------------
(1) CD Entertainment Ltd. is beneficially owned by Jeffrey P. Jacobs, and Gary
L. Bryenton and Jeffrey P. Jacobs as Trustees under the Opportunities Trust
Agreement dated February 1, 1996.
(2) Includes 317,460 shares of Class B Common Stock issuable upon conversion of
the Convertible Subordinated Note (assuming a $9 per share initial public
offering price for the Class A Common Stock). Excludes 300,000 shares of Class B
Common Stock which may be issued to Mr. Jacobs in return for providing credit
enhancement in connection with the Bank Credit Facility.
(3) Represents the shares owned by CD Entertainment Ltd.
(4) Except for votes on Special Voting Matters, in which case the voting
power of the Company's officers and directors will be equal to their respective
percentage ownership of Common Stock outstanding after this Offering, as set
forth above.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company
does not purport to be complete and is subject to the provisions of the
Company's Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws, which are included as exhibits to the Registration Statement of
which this Prospectus forms a part and by the provisions of applicable law.
Authorized and Outstanding Capital Stock
Pursuant to the Company's Amended and Restated Articles of
Incorporation, which will become effective upon the consummation of the
Reorganization, the Company has authority to issue 17,000,000 shares of capital
stock, consisting of 12,000,000 shares of Class A Common Stock, par value $.01
per share, 3,000,000 shares of Class B Common Stock par value $.01 per share,
and 2,000,000 shares of Preferred Stock. As of the date hereof, the Company has
two outstanding shares of Common Stock, one each held by CD Entertainment Ltd.
and Arnold W. Stansley, and no outstanding shares of Preferred Stock.
Immediately following the Reorganization, the Company will have outstanding
750,000 shares of Class A Common Stock, 2,250,000 shares of Class B Common Stock
and no outstanding shares of Preferred Stock. Immediately following this
Offering, the Company will have outstanding 4,650,000 shares of Class A Common
Stock and 2,250,000 shares of Class B Common Stock. All the shares of Common
Stock outstanding on the date of this Prospectus are validly issued, fully paid
and non-assessable, and the shares offered hereby, when sold, will be validly
issued, fully paid, and non-assessable. The Company will reserve 317,460 shares
of Class B Common Stock (subject to adjustment) for issuance upon conversion of
the Convertible Subordinated Note (assuming a $9 per share initial public
offering price for the Class A Common Stock).
Class A Common Stock
Voting Rights. Each holder of the Class A Common Stock shall be
entitled to attend all special and annual meetings of the stockholders of the
Company and, together with the holders of shares of Class B Common Stock and the
holders of all other classes of stock entitled to attend and vote at such
meetings, to vote upon any matter or thing (including, without limitation, the
election of one or more directors) properly considered and acted upon by the
stockholders. Holders of the Class A Common Stock will be entitled to one vote
per share. The holders of Class A Common Stock will have certain class voting
rights as set forth in the Amended and Restated Articles of Incorporation and as
required under Virginia law.
Liquidation Rights. In the event of any dissolution, liquidation or
winding up of the Company, whether voluntary or involuntary, the holders of the
Class A Common Stock, the holders of the Class B Common Stock and holders of any
class or series of stock entitled to participate therewith, shall become
entitled to participate in the distribution of any assets of the Company
remaining after the Company shall have paid, or provided for payment of, all
debts and liabilities of the Company and after the Company shall have paid, or
set aside for payment to the holders of any class of stock having preference
over the Common Stock in the event of dissolution, liquidation or winding up the
full preferential amounts (if any) to which they are entitled.
Dividends. Dividends may be paid on the Class A Common Stock, the Class
B Common Stock and on any class or series of stock entitled to participate
therewith when and as declared by the Board. The Class A Common Stock and Class
B Common Stock will be entitled to participate equally in any dividend declared
by the Board in respect of the Common Stock.
Class B Common Stock
Voting Rights. Each holder of the Class B Common Stock shall be
entitled to attend all special and annual meetings of stockholders of the
Company and, together with the holders of shares of Class A Common Stock and the
holders of all other classes of stock entitled to attend and vote at such
meetings to vote upon any matter or thing (including without limitation, the
election of one or more directors) properly considered and acted upon by the
stockholders. Holders of the Class B Common Stock are entitled to five votes per
share generally, other than votes on any Special Voting Matters, and any
amendments to the Amended and Restated Articles of Incorporation or Amended
38
<PAGE>
and Restated Bylaws to alter or adversely effect the voting rights of the Class
B Common Stock. The holders of Class B Common Stock will have certain class
voting rights as set forth in the Amended and Restated Articles of Incorporation
and as required under Virginia law.
Liquidation Rights. In the event of any dissolution, liquidation or
winding up of the Company, whether voluntary or involuntary, the holders of the
Class B Common Stock, the holders of the Class A Common Stock, and the holders
of any class or series of stock entitled to participate therewith shall become
entitled to participate in the distribution of any assets of the Company
remaining after the Company shall have paid, or provided for payment of, all
debts and liabilities of the Company and after the Company shall have paid, or
set aside for payment, to the holders of any class of stock having preference
over the Common Stock in the event of dissolution, liquidation or winding up the
full preferential amounts (if any) to which they are entitled.
Dividends. Dividends may be paid on the Class B Common Stock the Class
A Common Stock and any class or series of stock entitled to participate
therewith when and as declared by the Board. The Class A Common Stock and Class
B Common Stock will be entitled to participate equally in any dividend declared
by the Board in respect of the Common Stock.
Conversion into Class A Common Stock. The shares of Class B Common
Stock may be converted at any time at the option of the holder into fully paid
and nonassessable shares of Class A Common Stock at the rate of one share of
Class A Common Stock for each share of Class B Common Stock (as adjusted for any
stock split or combination).
Restrictions on Transfer. The Class B Common Stock shall not be
transferable to any person or entity other than any of CD Entertainment Ltd.,
Jeffrey P. Jacobs, or members of Mr. Jacob's immediate family.
Preferred Stock
The Board of Directors is authorized to have the Company issue one or
more series of shares of Preferred Stock, and to provide for the designation,
preferences, limitations and relative rights thereof. The Board of Directors can
fix and determine, among other things: (i) whether the shares of such class or
series shall have voting rights, in addition to any voting rights provided by
law, and if so, the terms of such voting rights; (ii) the rate or rates (which
may be fixed or variable) at which dividends, if any, are payable on such
series; (iii) whether the shares of such series shall be subject to redemption
or repurchase by the Company; (iv) the amount or amounts payable upon shares of
such series upon, and rights of the holders of such series in, the voluntary or
involuntary liquidation, dissolution or winding up, or any distribution of the
assets of the Company, whether the shares of such series shall be subject to the
operation of a retirement or sinking fund, and if so, the extent to and manner
in which any such retirement or sinking fund shall be applied to the repurchase
or redemption of the shares of such series for retirement or other corporate
purposes and the terms and provisions relative to the operation thereof; and (v)
whether the shares of such series shall be convertible into, or exchangeable
for, shares of stock or any other securities (including Common Stock) and, if
so, the price or prices or the rate or rates of conversion or exchange.
Certain Charter and Statutory Provisions
The Amended and Restated Bylaws of the Company provide for the Board of
Directors to be divided into three classes of directors, with each class to
consist as nearly as possible of an equal number of the directors. The terms of
office of one class of directors (2 directors) will expire at the 1998 annual
meeting of shareholders; the term of the next class of directors (2 directors)
will expire at the 1999 annual meetings of shareholders; and the term of the
third class of directors (3 directors) will expire at the 2000 annual meeting of
shareholders. At each annual meeting of shareholders, the class of directors to
be elected at such meeting will be elected for a three-year term, and the
directors in the other two classes will continue in office. Because holders of
Common Stock have no right to cumulative voting for the election of directors,
at each annual meeting of shareholders, the holders of the shares of Common
Stock with a majority of the voting power of the Common Stock will be able to
elect all of the successors of the class of directors whose term expires at that
meeting. The over-all effect of the provision of the Bylaws with respect to a
classified Board of Directors may be to render more difficult a change in
control of the Company or the removal of incumbent management.
Because under the Amended and Restated Articles of Incorporation the
Board of Directors has the power to establish the preferences and rights of
additional series of capital stock without further shareholder vote, the Board
of Directors may afford the holders of any series of senior capital stock
preferences, powers and rights, voting or otherwise, senior to the rights of
holders of Common Stock. The issuance of any such senior capital stock could
have the effect of delaying or preventing a change in control of the Company.
The Board of Directors, however, currently
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<PAGE>
does not contemplate the issuance of any series of capital stock other than the
Class A Common Stock and the Class B Common Stock.
The Virginia Racing Act requires that any person proposing to acquire
beneficial ownership of 5% or more of the Company's shares acquire the approval
of the Virginia Racing Commission. The shares of any 5% or greater shareholder
may be redeemed at fair market value by the Company pursuant to the Company's
Amended and Restated Articles of Incorporation upon a vote of the majority of
its shareholders if the Virginia Racing Commission determines that such
shareholder (i) is or has been guilty of any illegal, corrupt or fraudulent act,
conduct or practice in connection with horse racing in Virginia or any other
state, (ii) knowingly failed to comply with the Virginia Racing Act or the
Virginia Racing Commission's regulations, or (iii) has had a license or permit
to hold or conduct a race meet suspended, denied for cause or revoked. Each of
CD Entertainment Ltd., Stansley Racing and Stansley Management Corp. and the
controlling persons thereof, including Mr. Jacobs, Arnold Stansley and Mr.
Leadbetter, have been approved as beneficial owners of 5% or more of the
Company's voting stock by the Virginia Racing Commission.
The Virginia Affiliated Transactions statute imposes restrictions on
certain transactions between a public Virginia corporation and a 10% beneficial
shareholder of the corporation (the "Interested Shareholder"). Under this
statute, significant transactions (such as a merger, a transfer to the
Interested Shareholder of corporate assets worth more than 5% of net worth, or a
reclassification of securities having the effect of increasing by 5% or more the
corporation's outstanding voting shares held by any Interested Shareholder)
between the corporation and an Interested Shareholder must receive the approval
of both a majority of disinterested directors and the holders of two-thirds of
the corporation's voting shares (not including the Interested Shareholder's
shares). After an Interested Shareholder has held the stock for three years, the
transaction may proceed upon the approval of either the disinterested directors
or the holders of two-thirds of the voting shares. The corporation may avoid
application of the statute if a majority of the disinterested directors approves
the initial 10% stock acquisition by the Interested Shareholder. In addition,
this statute does not apply to an Interested Shareholder who has been such
continuously since the date the corporation first became a public corporation.
Pursuant to the Virginia Control Share Acquisition statute, any person
acquiring 20% or more of the outstanding shares of the Company may not be able
to vote such shares and such shares may be redeemed by the Company at their cost
of acquisition unless such acquisition is approved by a majority of the
Company's shareholders and the Board of Directors.
Pursuant to Section 13.1-648 of the Virginia Stock Corporation Act, the
Board of Directors has the ability to create or issue rights, options or
warrants for the purchase of shares of the Company upon such terms and
conditions and for such consideration, if any, as the Board may approve. The
terms and conditions of such rights, options or warrants may include
restrictions or conditions that preclude or limit the exercise, transfer or
receipt of such rights, options or warrants by designated persons or classes of
persons (such as 10% or more shareholders) that invalidate or void such rights,
options or warrants held by them.
Transfer Agent and Registrar
The transfer agent and registrar for the Class A Common Stock will be
- -------------------------.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
Set forth below is a summary of certain indebtedness to which the
Company will be subject following completion of this Offering. This summary does
not purport to be complete and is qualified in its entirety by reference to the
applicable agreements filed as exhibits to the Registration Statement of which
this Prospectus is a part.
Convertible Subordinated Note
Concurrently with the consummation of this Offering, CD Entertainment
Ltd. will purchase the Convertible Subordinated Note at a purchase price equal
to its $3 million principal amount. The Convertible Subordinated Note will be
unsecured, bear interest, payable quarterly, at a floating rate equal to the
cost of funds of CD Entertainment Ltd. from time to time. Currently, such cost
of funds is LIBOR plus 2% per annum (currently ____%). The principal of the
Convertible Subordinated Note will be payable in a single balloon payment at
maturity, which will be three years after issuance. The Company will have the
right to redeem the Convertible Subordinated Note at any time upon specified
notice to the holder, at a price equal to the principal amount thereof plus
interest accrued to the date of redemption. The holder will have the option to
convert the Convertible Subordinated Note in whole or in part into Class B
Common Stock, at a conversion price equal to 105% of the initial public offering
price of the Class A Common Stock in this Offering (subject to adjustment in
certain events), at any time or from time to time prior to maturity or any
earlier date specified for redemption by the Company. The Convertible
Subordinated Note will be subordinated in right of payment to Senior
Indebtedness (as defined therein), including indebtedness under the Bank Credit
Facility.
Bank Credit Facility
Concurrently with the consummation of this Offering, the Company will
enter into the Bank Credit Facility, pursuant to which one or more banks or
other institutional lenders will provide up to $18.5 million of secured
financing to the Company, to be used to construct the Track, acquire, construct,
equip and open additional planned SWFs and for general corporate purposes. The
Company has not yet entered into negotiations relating to such financing. Mr.
Jacobs has agreed to provide credit enhancement for such financing if the
lenders require such enhancement as a condition for providing terms that the
Company believes are the most favorable to the Company. See "Certain
Transactions -- Credit Enhancement of Bank Credit Facility."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has not been any public market for
securities of the Company. No prediction can be made as to the effect, if any,
that market sales of shares or the availability of shares for sale will have on
the market price prevailing from time to time. An increase in the number of
shares of Class A Common Stock that may become available for sale in the public
market after the expiration of the restrictions described below could adversely
affect the market price prevailing from time to time of the Class A Common Stock
in the public market and could impair the Company's ability to raise additional
capital through the sale of its equity securities in the future.
Upon consummation of this Offering, the Company will have issued and
outstanding 4,650,000 shares of Class A Common Stock (5,235,000 shares if the
Underwriters' over-allotment is exercised in full) and 2,250,000 shares of Class
B Common Stock. The 3,900,000 shares of Class A Common Stock sold in this
Offering are freely transferable by persons other than "affiliates" of the
Company without restriction or further registration under the Securities Act.
The 750,000 shares of Class A Common Stock and the 2,250,000 shares of Class B
Common Stock currently outstanding (the "Restricted Shares") are "restricted
securities" within the meaning of Rule 144 under the Securities Act and may only
be sold if they are registered under the Securities Act or unless an exemption
from registration is available, including an exemption afforded by Rule 144 of
the Securities Act.
Under Rule 144, a person who holds Restricted Shares that were acquired
from the Company or an affiliate of the Company at least two years prior to any
proposed resale of such securities is entitled to sell, within any three-month
period, that number of shares that does not exceed the greater of (i) 1.0% of
the then outstanding shares of Common Stock or (ii) the average weekly trading
volume in the over-the-counter market of the then outstanding shares of Common
Stock during the four calendar weeks preceding each such sale. However, a person
who is not
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<PAGE>
an affiliate of the Company and who has held Restricted Shares acquired from the
Company or an affiliate of the Company for at least three years prior to any
proposed resale is entitled to sell such shares under Rule 144 without regard to
the volume limitations described above. Under Rule 144, the Company's existing
shareholders will be deemed to have acquired the shares of Common Stock
currently held by them upon their acquisition of shares in the Company.
Accordingly, no existing shareholder will be able to commence any public sale of
any of its currently-held shares of Common Stock until one year or thereafter,
absent registration of such shares of Common Stock to be sold. The Company has
granted certain registration rights to the holders of the Common Stock issued in
the Reorganization and issuable upon conversion of the Convertible Subordinated
Note. See "Certain Transactions -- Registration Rights."
In connection with this Offering, the Company has agreed not to issue
any shares of Common Stock, and the Company's current directors, officers and
existing shareholders have agreed not to, directly or indirectly, offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock, until the
later of (i) 180 days after the consummation of this Offering or (ii) such time
as the Company is operating four SWFs, not including any SWF operations at the
Track, without the prior written consent of Friedman, Billings, Ramsey & Co.,
Inc. See "Underwriting."
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UNDERWRITING
The Underwriters named below, represented by Friedman, Billings, Ramsey
& Co., Inc. (the "Representative"), have severally agreed to purchase, subject
to the terms and conditions of a purchase agreement (the "Purchase Agreement"),
and the Company has agreed to sell, the number of shares of Class A Common Stock
set forth opposite the name and each Underwriter.
Number of
Underwriters Shares
------------ ------
Friedman, Billings, Ramsey & Co., Inc..........................
---------
Total................................................. 3,900,000
=========
The Purchase Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Class A Common
Stock if any shares are purchased.
The Representative has advised the Company that the Underwriters
propose initially to offer the shares of Class A Common Stock to the public on
the terms set forth on the cover page of this Prospectus and to certain dealers
at such price less a concession not in excess of $_____ per share. After the
shares of Class A Common Stock have been released for sale to the public, the
offering price and concession may be changed. The Class A Common Stock is
offered subject to receipt and acceptance by the Underwriters, and to certain
other conditions, including the right to reject orders in whole or in part. The
Representative has informed the Company that the Underwriters do not intend to
confirm sales to accounts over which they exercise discretionary authority.
The Company has granted the Underwriters an option, exercisable not
later than 30 days from the date of this Prospectus, to purchase up to an
aggregate of 585,000 additional shares of Class A Common Stock at the public
offering price less underwriting discounts and commissions shown on the cover of
this Prospectus. The Underwriters may exercise such options solely to cover
over-allotments. To the extent that such options are exercised, each Underwriter
will be committed, subject to certain conditions, to purchase a number of
additional shares of Class A Common Stock proportionate to such Underwriter's
initial commitment as indicated in the preceding table.
Prior to the Offering, there has been no public market for the Class A
Common Stock. The offering price has been determined by negotiation between the
Company and the Representative. In determining such price, consideration was
given to, among other things, the financial and operating history and trends of
the Company, the experience of its management, the position of the Company in
its industry, the Company's prospects and the Company's financial results. In
addition, consideration has been given to the status of the securities markets,
market conditions for new offerings of securities and the prices of similar
securities of comparable companies.
In connection with this Offering, the Company, and the Company's
executive officers, directors and existing shareholders have agreed not to,
directly or indirectly, offer for sale, sell or otherwise dispose of any shares
of Common Stock (other than shares purchased in the Offering or otherwise in the
open market, if any), until the later of (i) 180 days after the consummation of
this Offering or (ii) such time as the Company is operating four SWFs, not
including any SWF operations at the Track, without the prior written consent of
the Representative. See "Shares Eligible for Future Sale."
The Company has agreed to indemnify the Underwriters against certain
civil liabilities, including liabilities under the Securities Act, or to
contribute to payments that the Underwriters may be required to make in respect
43
<PAGE>
thereof. The Company will reimburse the Underwriters for their reasonable
out-of-pocket expenses (including legal fees and expenses) incurred in
connection with this Offering. The Company has also granted the Representative
the exclusive right to act as the Company's financial advisor, placement agent
and underwriter in connection with any debt financings, equity financings or
sale transactions by the Company during the period ending 24 months after the
closing date of this Offering.
LEGAL MATTERS
The validity of the Class A Common Stock offered hereby has been passed
upon for the Company by Hogan & Hartson L.L.P., Washington, D.C. Certain legal
matters are being passed upon for the Underwriters by Dickstein Shapiro Morin &
Oshinsky LLP, Washington, D.C.
EXPERTS
The financial statements included in this Prospectus and in the
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their report appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such report given upon the authority of said firm
as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act, a Registration Statement on Form S-1 (of
which this Prospectus is a part) with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and in the exhibits and schedules thereto. For further
information with respect to the Company, reference is made to the Registration
Statement and to the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any
contract or other document filed as an exhibit to the Registration Statement are
not necessarily complete and, in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. Copies of
the Registration Statement, including all exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at Seven World Trade Center, New York, New
York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material may also be obtained from the Public Reference Section
of the Commission, at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission and the address of such
web site is http://www.sec.gov.
As a result of this Offering, the Company will be subject to the
informational requirements of the Exchange Act. In accordance therewith, the
Company will file certain reports and other information with the Commission. The
Company intends to furnish its shareholders with annual reports containing
financial statements audited by the Company's independent accountants and
unaudited quarterly consolidated financial statements and other reports.
44
<PAGE>
COLONIAL DOWNS HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements
Balance Sheets as of December 31, 1995 and 1994, and
September 30, 1996 (Unaudited) F-3
Statements of Operations for the Periods Ended December 31,
1995, 1994 and 1993 and for the Nine Months Ended
September 30, 1996 and 1995 (Unaudited) F-4
Statements of Stockholders' Equity (Capital Deficit) for
the Periods Ended December 31, 1995, 1994 and 1993 and
for the Nine Months Ended September 30, 1996 (Unaudited) F-5
Statements of Cash Flows for the Periods Ended December 31,
1995, 1994 and 1993 and for the Nine Months Ended
September 30, 1996 and 1995 (Unaudited) F-6
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
Report of Independent Certified Public Accountants
(the following is the form of the report that BDO Seidman, LLP will be in a
position to issue upon completion of the reorganization described in Note 1)
Colonial Downs Holdings,Inc.
Providence Forge, Virginia
We have audited the accompanying consolidated balance sheets of Colonial Downs
Holdings, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity (capital
deficit), and cash flows for the years ended December 31, 1995 and 1994, and for
the period since inception (September 30, 1993) to December 31, 1993. These
financial statements are the responsibility of the Company'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 Colonial Downs
Holdings, Inc. and subsidiaries at December 31, 1995 and 1994, and the results
of their operations and their cash flows for the years ended December 31, 1995
and 1994, and for the period since inception (September 30, 1993) to December
31, 1993 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Richmond, Virginia
November 21, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1996 1995 1994
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
Assets
Current
Cash $ 312,996 $ 330,066 $ 2,423
Horsemen's deposits (Note 9) 364,935 -- --
Accounts receivable 10,335 -- --
Prepaid expenses 1,250 -- --
---------- ---------- ----------
Total current assets 689,516 330,066 2,423
---------- ---------- ----------
Property and equipment (Notes 1, 6 and 7)
Land 800,000 -- --
Building 650,000 -- --
Leasehold improvements 1,174,519 737,864 --
Equipment, furnishings and fixtures 546,111 253,222 --
Vehicles 19,585 19,585 --
Construction in progress (Note 8) 1,165,768 858,029 302,197
---------- ---------- ----------
4,355,983 1,868,700 302,197
Less accumulated depreciation and amortization 83,464 3,060 --
---------- ---------- ----------
Net property and equipment 4,272,519 1,865,640 302,197
---------- ---------- ----------
Other
Financing costs 198,698 131,244 31,244
Organization and licensing costs (Note 1) 813,932 775,092 291,443
Miscellaneous 41,352 40,000 40,000
Horsemen's deposits (Note 9) 190,168 -- --
---------- ---------- ----------
1,244,150 946,336 362,687
Less accumulated amortization 101,743 -- --
---------- ---------- ----------
Total other 1,142,407 946,336 362,687
---------- ---------- ----------
$6,104,442 $3,142,042 $ 667,307
========== ========== ==========
</TABLE>
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1996 1995 1994
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Liabilities and Stockholders' Equity (Capital Deficit)
Current liabilities
Accounts payable $ 728,633 $ 1,242,855 $ --
Management fee payable (Note 7) 165,000 30,000 --
Accrued expenses 83,900 14,761 --
Uncashed pari-mutuel tickets 112,123 -- --
Current maturities of long-term debt
and capital lease obligations (Note 6) 10,289 4,403 --
Notes payable - stockholders (Note 9) 250,000 400,000 --
Advances from stockholders (Note 6) -- 227,234 671,649
Purses due horsemen (Note 9) 911,831 -- --
----------- ----------- -----------
Total current liabilities 2,261,776 1,919,253 671,649
----------- ----------- -----------
Long-term liabilities
Long-term debt and capital lease obligations,
net of current maturities (Note 6) 9,552 11,086 --
Notes payable - stockholders (Note 6) 2,186,532 1,536,532 --
Purses due horsemen (Note 9) 379,802 -- --
----------- ----------- -----------
Total long-term liabilities 2,575,886 1,547,618 --
----------- ----------- -----------
Total liabilities 4,837,662 3,466,871 671,649
----------- ----------- -----------
Commitments and contingencies (Notes 2, 3, 4, 5, 7, 8 and 9)
Stockholders' equity (capital deficit)
Preferred stock, $.01 par value, 2,000,000
shares authorized; none issued -- -- --
Common stock
Class A, $.01 par value, 12,000,000 shares
authorized; 750,000 shares outstanding 7,500 7,500 7,500
Class B, $.01 par value, 3,000,000 shares
authorized; 2,250,000 shares outstanding 22,500 22,500 22,500
Additional paid-in capital 2,001,100 1,100 1,100
Retained earnings (deficit) (764,320) (355,929) (35,442)
----------- ----------- -----------
Total stockholders' equity (capital deficit) 1,266,780 (324,829) (4,342)
----------- ----------- -----------
$ 6,104,442 $ 3,142,042 $ 667,307
=========== =========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-3
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine Months Nine Months From Inception
Ended Ended Year Ended Year Ended (September 30, 1993)
September 30, September 30, December 31, December 31, to December 31,
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Pari-mutuel commissions -
import simulcasting $ 5,230,899 $ -- $ -- $ -- $ --
Admissions 148,972 -- -- -- --
Programs 240,046 -- -- -- --
Miscellaneous (Note 7) 84,201 -- -- -- --
----------- ----------- ----------- ----------- -----------
Total revenues 5,704,118 -- -- -- --
----------- ----------- ----------- ----------- -----------
Operating expenses
Purses and awards 1,291,632 -- -- -- --
Totalisator expenses 774,159 -- -- -- --
Breeder's fund fees 247,564 -- -- -- --
Pari-mutuel taxes 650,011 -- -- -- --
Simulcast expenses 92,880 -- -- -- --
Direct salaries, payroll taxes
and employee benefits 770,789 67,371 110,040 -- --
Management fees (Note 7) 135,000 -- 30,000 -- --
Consulting fees (Note 2) 577,218 -- -- -- --
Depreciation and
amortization 182,147 2,490 3,060 -- --
Attorney and
professional fees 364,037 -- -- -- --
Other operating expenses 938,653 88,937 175,135 18,648 16,794
----------- ----------- ----------- ----------- -----------
Total operating expenses 6,024,090 158,798 318,235 18,648 16,794
----------- ----------- ----------- ----------- -----------
Loss from operations (319,972) (158,798) (318,235) (18,648) (16,794)
Interest expense, net (88,419) (1,655) (2,252) -- --
----------- ----------- ----------- ----------- -----------
Net loss $ (408,391) $ (160,453) $ (320,487) $ (18,648) $ (16,794)
=========== =========== =========== =========== ===========
Earnings per share data:
Earnings per share $ (0.14) $ (0.05) $ (0.11) $ (0.01) $ (0.01)
Weighted average number
of shares outstanding 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-4
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Consolidated Statements of Stockholders' Equity (Capital Deficit)
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------------
Class A Class B Additional Retained
------------------------- ------------------------- Paid-in Earnings Partners'
Shares Amount Shares Amount Capital (Deficit) Capital Total
----------- ----------- ----------- ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Partners' contributions -- $ -- -- $ -- $ -- $ -- $ 1,100 $ 1,100
Elimination of partners'
capital due to
reorganization -- -- -- -- 1,100 -- (1,100) --
Issuance of the
reorganized common
stock 750,000 7,500 2,250,000 22,500 -- -- -- 30,000
Net loss for the
period ended
December 31, 1993 -- -- -- -- -- (16,794) -- (16,794)
----------- ----------- ----------- ----------- ----------- ----------- ----------- --------
Balance, December 31,
1993 750,000 7,500 2,250,000 22,500 1,100 (16,794) -- 14,306
Net loss for the
year ended
December 31, 1994 -- -- -- -- -- (18,648) -- (18,648)
----------- ----------- ----------- ----------- ----------- ----------- ----------- --------
Balance, December 31,
1994 750,000 7,500 2,250,000 22,500 1,100 (35,442) -- (4,342)
Net loss for the year
ended December 31,
1995 -- -- -- -- -- (320,487) -- (320,487)
----------- ----------- ----------- ----------- ----------- ----------- ----------- --------
Balance, December 31,
1995 750,000 7,500 2,250,000 22,500 1,100 (355,929) -- (324,829)
Net loss for the nine
months ended September
30, 1996 (unaudited) -- -- -- -- -- (408,391) -- (408,391)
Conversion of shareholder
debt to equity (Note 6)
(unaudited) -- -- -- -- 2,000,000 -- -- 2,000,000
----------- ----------- ----------- ----------- ----------- ----------- ----------- --------
Balance, September 30,
1996 (unaudited) 750,000 $ 7,500 2,250,000 $ 22,500 $ 2,001,100 $(764,320) $ -- $1,266,780
----------- ----------- ----------- ----------- ----------- ----------- ----------- --------
</TABLE>
See accompanying summary of accounting policies and notes
to consolidated financial statements.
F-5
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Ended Ended Year Ended Year Ended (September 30, 1993)
September 30, September 30, December 31, December 31, to December 31,
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss $ (408,391) $(160,453) $ (320,487) $ (18,648) $ (16,794)
Adjustments to net loss
Depreciation 80,404 2,490 3,060 -- --
Amortization 101,743 -- -- -- --
Increase in purses due
horsemen 1,291,633 -- -- -- --
Increase in uncashed
tickets 112,123 -- -- -- --
Increase in accounts
receivable and other
assets (11,585) -- -- -- --
Increase in accounts
payable - trade 462,897 -- 112,922 -- --
Increase in accrued
expenses and other 158,077 -- 44,132 -- --
Increase in accrued
interest payable 46,062 -- 629 -- --
Increase in horsemen's
deposits (555,103) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided
(absorbed) by operating
activities 1,277,860 (157,963) (159,744) (18,648) (16,794)
----------- ----------- ----------- ----------- -----------
Investing activities
Purchases of property
and equipment (2,487,283) (282,272) (436,570) (223,240) (78,957)
Investment in other
assets (107,646) (61,518) (583,649) (214,388) (118,299)
----------- ----------- ----------- ----------- -----------
Net cash absorbed by
investing activities (2,594,929) (343,790) (1,020,219) (437,628) (197,256)
----------- ----------- ----------- ----------- -----------
</TABLE>
continued...
F-6
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(continued)
<TABLE>
<CAPTION>
Nine Months Nine Months From Inception
Ended Ended Year Ended Year Ended (September 30, 1993)
September 30, September 30, December 31, December 31, to December 31,
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Financing activities
Net proceeds from
borrowings and
other, net $ (972,767) $ 16,508 $ 15,489 $ -- $ --
Net increase
in stockholders'
advances and notes
payable 2,272,766 485,254 1,492,117 458,699 212,950
Capital contributions -- -- -- -- 1,100
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities 1,299,999 501,762 1,507,606 458,699 214,050
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents (17,070) 9 327,643 2,423 --
Cash and cash
equivalents, beginning
of period 330,066 2,423 2,423 -- --
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents, end of
period $ 312,996 $ 2,432 $ 330,066 $ 2,423 $ --
----------- ----------- ----------- ----------- -----------
</TABLE>
Supplemental Disclosures of Cash Flow Information
Cash paid for interest during the nine months ended September 30, 1996 and
1995, and year ended December 31, 1995 was approximately $76,000, $0 and
$2,400, respectively.
During the nine months ended September 30, 1996, a stockholder of the Company
converted $2,000,000 of debt to equity.
At December 31, 1995, $1,129,933 was due vendors for property and equipment
purchases.
See accompanying summary of accounting policies and notes
to consolidated financial statements.
F-7
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1996 and for the
Nine Months Ended September 30, 1996 and 1995 is Unaudited)
1. Significant Principles of Consolidation
Accounting
Policies The consolidated financial statements include the
following entities of Colonial Downs Holdings, Inc.
(collectively, the "Company"), which prior to the
planned reorganization were affiliated through common
ownership and control:
Colonial Downs, L.P. ("Partnership")
Stansley Racing Corp. ("SRC")
Colonial Downs Holdings, Inc. ("CD Holdings")
The consolidated financial statements have been prepared
as if the entities had operated as a single consolidated
group and assuming that the reorganization had taken
place as of September 30, 1993. All significant
intercompany accounts and transactions have been
eliminated.
Reorganization
The Company intends to obtain funds to develop,
construct, and operate a pari-mutuel horse racing
facility and six satellite wagering facilities through a
public offering of $35.1 million in common stock, and
securing $18.5 million in bank debt and a $3 million
Convertible Subordinated note.
On November 25, 1996, the Company entered into a letter
of intent with an investment banking firm to sell
approximately 3,900,000 shares of its common stock in an
underwritten initial public offering ("IPO"). The IPO is
expected to close during the first quarter of 1997.
In order to facilitate the IPO, CD Holdings intends to
enter into an Agreement and Plan of Reorganization (the
"Plan") with the shareholders and partners of SRC and
the Partnership. Pursuant to the Plan, and concurrent
with the consummation of the IPO, CD Holdings will
acquire, in exchange for 3,000,000 shares of its common
stock, a 99% limited partner interest in the Partnership
and 100% of the outstanding stock of SRC. Also, pursuant
to the Plan, SRC will acquire a 1% general partner
interest in the Partnership.
F-8
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1996 and for the
Nine Months Ended September 30, 1996 and 1995 is Unaudited)
1. Significant Reorganization (continued)
Accounting
Policies As a result of the reorganization, the Company will own,
(continued) directly, or through its wholly-owned subsidiaries, the
ownership and operating licenses for the racetrack and
the Chesapeake and Richmond Satellite Wagering
Facilities ("SWF's"); the property for the Richmond SWF;
the rights to apply for licenses to own and operate up
to four additional SWFs in Virginia; upon conveyance,
the 345 acres on which the racetrack is being
constructed; and the racetrack facilities and certain
related infrastructure.
Description of Business
The Company's wholly-owned subsidiary, Colonial Downs,
L.P., a Virginia limited partnership, was organized on
September 30, 1993. The Partnership, along with its
affiliate, Stansley Racing Corp., was formed to apply to
the Virginia Racing Commission for licenses to acquire,
own and operate a pari-mutuel horse racing facility in
New Kent County, Virginia, in accordance with the
regulations stipulated by the Virginia Racing Commission
(the "Commission"). On October 12, 1994, the Commission
awarded the ownership and operating licenses for the
facility to the Partnership and SRC. In addition to the
construction and operation of the pari-mutuel horse
racing facility, the Partnership and SRC are the only
entities authorized to be awarded by the Commission the
licenses to own and operate up to six SWFs, which offer
off-track pari-mutuel wagering on simulcast races from
tracks around the country.
The Company is seeking to secure the funds
necessary to construct the facilities and begin
operation of the racetrack. Upon obtaining the necessary
funds, the Company intends to construct the Colonial
Downs racing facility on approximately 345 acres between
Interstate Highway 64 and State Route 155 in New Kent
County. The facility has been designed to accommodate
thoroughbred and standardbred racing as well as
simulcast wagering.
The Company currently operates two SWFs. The first SWF
began operations in Chesapeake, Virginia during February
1996. The second facility opened in Richmond, Virginia
in December 1996. The Company has applied for licenses
to own and operate a third SWF in Hampton, Virginia, and
plans to apply for licenses in Brunswick County,
Virginia, which the Company expects to open in the
second quarter of 1997. The Company plans to work
towards obtaining licenses for the remaining two SWFs
authorized by the Commission.
F-9
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1996 and for the
Nine Months Ended September 30, 1996 and 1995 is Unaudited)
(continued)
1. Significant Cash and Cash Equivalents
Accounting
Policies For the purposes of preparing the Company's statement of
(continued) cash flows, investments with maturities of less than
three months are considered to be cash equivalents.
Construction in Progress
Construction in progress is recorded at cost and
includes capitalized costs such as architect,
contractor, and engineering fees at December 31, 1995
and 1994 and September 30, 1996.
Property, Equipment and Depreciation
Property and equipment is stated at cost. Expenditures
for ordinary maintenance and repairs are charged to
income as incurred. Costs of betterments, renewals, and
major replacements are capitalized. At the time
properties are retired or otherwise disposed of, the
related cost and allowance for depreciation are
eliminated from the accounts and any gain or loss on
disposition is reflected in income.
Depreciation is computed using the straight-line method
over the following estimated useful lives:
Years
-------------------------------------------------
Building 30
Leasehold improvements 7 - 39
Vehicles 3 - 7
Machinery and equipment 3 - 7
Office equipment 3 - 7
Organization Costs and Amortization
Organization costs consist primarily of legal and
professional fees associated with the application for
the racetrack license and related licensing fees for the
SWF. Also included are legal and professional fees
incurred in conjunction with organizing the Company.
Organization costs are being amortized over a period of
sixty months.
F-10
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1996 and for the
Nine Months Ended September 30, 1996 and 1995 is Unaudited)
(continued)
1. Significant Revenue Recognition
Accounting
Policies The Company currently primarily derives revenue from
(continued) import simulcasting, which is the Company's share of
wagering (approximately 20%) at the Company's SWFs on
races simulcast from other racetracks. Revenue is
recognized under the accrual method.
Income Taxes
Subsequent to the reorganization, the Company and its
subsidiaries will file a consolidated income tax return.
Prior to the reorganization, the Partnership and SRC
filed income tax returns as separate entities. No
provision for income taxes has been made with respect to
the Partnership, SRC or CD Holdings due to the Company
incurring operating losses since inception.
The Company adopted the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109),
"Accounting for Income Taxes" effective January 1, 1993.
SFAS 109 requires a company to recognize deferred tax
liabilities and assets for the expected future tax
consequences of events that have been recognized in a
company's financial statements or tax returns. Under
this method, deferred tax liabilities and assets are
determined based on the difference between the financial
statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported
amounts of revenues and expenses during the reported
period. Actual results could differ from those
estimates.
Interim Financial Statements
The financial statements for the nine months ended
September 30, 1996 and 1995 are unaudited but, in the
opinion of management, include all adjustments,
consisting of only normal recurring accruals, necessary
for fair presentation of financial position and results
of operations. Results for the interim periods are not
necessarily indicative of the results for a full year.
F-11
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1996 and for the
Nine Months Ended September 30, 1996 and 1995 is Unaudited)
(continued)
1. Significant Concentration of Credit Risk
Accounting
Policies Financial instruments which potentially subject the
(continued) Company to credit risk consist of cash equivalents and
accounts receivable.
The Company's policy is to limit the amount of credit
exposure to any one financial institution and place the
investments with financial insitituions evaluated as
being creditworthy. At December 31, 1995 and September
30, 1996, the Company had cash deposits which exceeded
federally insured limits by approximately $230,000 and
$213,000, respectively.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents
approximates the fair value due to the short maturity of
any cash equivalents.
The fair value of the Company's long-term debt and
capital lease obligations is estimated based on the
quoted market prices for the same or similar issues and
on the current rates offered to the Company for the debt
of the same remaining maturities. The carrying amount
approximates fair value since the Company's interest
rates approximate current interest rates.
F-12
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1996 and for the
Nine Months Ended September 30, 1996 and 1995 is Unaudited)
(continued)
2. Management and The Company entered into a consulting agreement
Consulting Agreement with the Maryland - Virginia Racing Circuit,
with Maryland - Inc. ("Circuit") an affiliate of the Maryland
Virginia Racing Jockey Club ("MJC"). Pursuant to the agreement,
Circuit MJC plans to suspend live racing at the Pimlico
and Laurel racetracks during the Company's live
thoroughbred racing period to manage the
thoroughbred racing at the Company's racing
facility.
The agreement provides that the Company pay
Circuit two percent of gross amounts wagered on
all racing, exclusive of live harness racing at
the Company's racetrack, at all of the Company's
locations. In addition, the Company must pay a
pro-rata share of all of MJC salaries. Under the
agreement, $495,000 of costs were incurred
through September 30, 1996.
3. Land Conveyance Delmarva Properties, Inc. and Chesapeake Forest
and Land Products Company (collectively "Delmarva") and
Development the Company entered into an agreement in which
Delmarva, at no cost to the Company, will convey
the land required to build the racetrack and
facilities in New Kent County upon the Company
obtaining the financing required to build the
racetrack and facilities. Under the agreement,
Delmarva will convey the land to the Company or
designee within five days of such a request by
the Company. The land is subject to reversion to
Delmarva if the Company fails to complete, open
and operate for three years a racetrack licensed
by the Commission on the land. The land will be
recorded at fair value upon conveyance and
satisfaction that reversion to Delmarva will
not occur.
The Company has entered into a development
agreement with Delmarva in which Delmarva is
responsible for the construction of water and
sewer lines on the property. Under the agreement,
the Company will reimburse Delmarva for 100% of
the construction costs, not to exceed $985,000.
The water and sewer system will become property
of New Kent County upon completion.
F-13
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1996 and for the
Nine Months Ended September 30, 1996 and 1995 is Unaudited)
(continued)
4. Performance As part of obtaining the pari-mutuel license from
Guarantee the Virginia Racing Commission, the Company was
required to provide the Commission with a
$1,000,000 performance agreement. The agreement
stipulates that the Company must construct the
racetrack and related facilities, as proposed,
within 14 months of the unappealable award of the
licenses to the Company. The award of the
licenses became unappealable on May 17, 1996;
therefore, the racetrack facilities must be
completed by July 17, 1997. Current legislation
requires that live racing commence at the track
facilities by July 1, 1997 or the Company will
lose all licenses to own and operate SWFs,
however, should that occur it is expected that
the Commission will reissue the licenses to the
Company upon commencement of live racing, but
there is no assurance that the Commission would
do so.
If the Company does not perform under the
agreement, the Commission is to be paid $5,000
a day that performance is not complete, up to
a maximum of $1,000,000. The July 17, 1997
deadline can be extended by consent of the
Commission or if an event specified in the
performance agreement outside of the Company's
control prevents performance.
As part of the agreement, the Commission required
the Company to provide it with two letters of
credit of $500,000 each. In connection with this
requirement, the Company obtained two letters of
credit in the sum of $1,000,000, which can be
drawn on by the Commission. The letters of credit
expire in December 1996 and are renewable for two
additional twelve month terms.
F-14
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1996 and for the
Nine Months Ended September 30, 1996 and 1995 is Unaudited)
(continued)
5. Industrial To assist in the development and improvement in
Development certain public roads adjacent to the racetrack
Agreement facility, the Company entered into an agreement in
July 1996 with New Kent County and the Capital Area
Training Consortium for a Community Development Block
Grant of $700,000. In addition to the grant, an
additional amount of approximately $700,000 will be
allocated by the Virginia Department of
Transportation to complete a project which will
widen State Route 155 from I-64 to the entrance of
the racetrack grounds.
Under the agreement, the Company will take affirmative
steps to employ a minimum number of low and moderate
income persons based on HUD Section 8 Income Limits.
In the event that the Company fails to honor its
commitment to take such affirmative steps, the Company
must repay all local or grant funds already expended
in full to the locality and the Virginia Department of
Housing and Community Development.
6. Notes Payable, Notes payable and advances from stockholders
Advances from consist of the following:
Stockholders, and
Capital Lease
Obligations
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C>
Advances from Arnold
Stansley $ - $ 227,234 $ 186,621
Note payable to Arnold
Stansley, maturing March
1998, unsecured 211,788 273,213 -
Note payable to Arnold
Stansley, maturing
January 1997, unsecured 175,000 - -
Advances from James
Leadbetter - - 485,028
</TABLE>
F-15
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1996 and for the
Nine Months Ended September 30, 1996 and 1995 is Unaudited)
(continued)
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
6. Notes Payable, Note payable to Norglass,
Advances from Inc., maturing March $ 236,994 $ 263,319 $ -
Stockholders, 1998, unsecured
and Capital
Lease
Obligations Note payable to Norglass,
(continued) Inc., maturing
January 1997 75,000 - -
Convertible promissory note
to Jacobs Entertainment,
Inc. maturing with principal
and interest on March
1998 at a rate of 10%;
collateralized by machinery,
equipment, inventory,
and receivables - 1,000,000 -
Demand note payable to
Jacobs Entertainment,
Inc. payable on demand,
with interest payable
monthly at a rate of
10%; collateralized by
machinery, equipment,
inventory, and
receivables - 400,000 -
Note payable to Jacobs
Entertainment, Inc.
maturing January 1998
bearing interest at
LIBOR plus 2%;
collateralized by
land and building 1,737,750 - -
</TABLE>
F-16
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1996 and for the
Nine Months Ended September 30, 1996 and 1995 is Unaudited)
(continued)
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
6. Notes Payable, Installment notes and
Advances from capitalized leases
stockholders, collateralized by
and Capital certain vehicles,
Lease Obligations machinery, and equipment,
(continued) maturing at various
dates, primarily March
1997 through January
1999, at interest rates
ranging from 3% to 12% $ 19,841 $ 15,489 $ -
-------------------------------------------------------
2,456,373 2,179,255 671,649
Less current maturities 260,289 631,637 671,649
-------------------------------------------------------------------------------
$ 2,196,084 $ 1,547,618 $ -
-------------------------------------------------------------------------------
The aggregate amounts of notes payable at September 30, 1996 matures as follows:
Through December 31, Amount
-------------------------------------------------------------------------------
1997 $ 261,976
1998 2,193,897
1999 500
-------------------------------------------------------------------------------
$ 2,456,373
-------------------------------------------------------------------------------
During the period ended September 30, 1996, $2,000,000 of shareholder debt was
converted to equity and treated as a capital contribution.
</TABLE>
F-17
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1996 and for the
Nine Months Ended September 30, 1996 and 1995 is Unaudited)
(continued)
7. Related Party The Company has a management agreement to pay certain
Transactions shareholders a management fee of $15,000 per month until
closing of the IPO. The Company incurred management fees
of $30,000 and $135,000 during the periods ended
December 31, 1995 and September 30, 1996, respectively.
Virginia Concessions, LLC, an affiliate of a
shareholder, was granted an option by the Company to
manage the food and beverage concessions at the initial
six SWF's. Under the agreement, Virginia Concessions,
LLC pays rent to the Company based upon gross sales
equal to 10% of the first $500,000 of gross sales, 13%
of the next $500,000 of gross sales, and 15% of all
gross sales above $1,000,000 at each SWF. The Company
had approximately $58,000 of rental income generated
from the Chesapeake SWF for the nine months ended
September 30, 1996.
Norglass Inc., an affiliate of one of the Company's
principal shareholders, is engaged as the general
contractor to construct the racetrack and related
facilities in New Kent County, Virginia. The original
contract value with Norglass, Inc. for the facilities
(which does not include approximately $8.5 million for
certain equipment, furniture, fixtures and improvements)
is estimated at approximately $26 million. Norglass,
Inc. has also been engaged to perform all remodeling or
new construction related to the SWFs. Total construction
costs incurred with Norglass, Inc. were approximately
$2,267,000 through September 30, 1996.
F-18
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1996 and for the
Nine Months Ended September 30, 1996 and 1995 is Unaudited)
(continued)
8. Commitments and Total estimated costs to complete the racetrack as of
Contingencies September 30, 1996 were $34.5 million.
Pursuant to 1996 Acts of the General Assembly, the
Virginia Racing Commission has directed the Company to
establish a construction account into which are
deposited total net profits derived from the operation
of the SWFs. There were no amounts deposited into the
construction account at December 31, 1995 and September
30, 1996 since there were no net profits.
In 1995, the Company entered into an agreement with a
totalisator company which provides wagering services and
designs, programs, and manufactures totalisator systems
for use in wagering applications. The basic terms of the
agreement state that the totalisator company shall
provide totalisator services to the Company for all
wagering held at the Company's facilities during the
first six years of operations. As a part of the
agreement, the Company agreed to pay the totalisator
company certain percentages of the gross amounts wagered
at the facilities, as well as a minimum of $37,500,
payable annually for equipment installed at the
racetrack for live race meets. In addition, the Company
agreed to use certain equipment provided by the
totalisator company.
In 1996, the Company entered into agreements with a
company which provides closed circuit television service
and equipment. The basic terms of the agreement state
that the company shall provide closed circuit television
to the Company at the Chesapeake and Richmond SWFs. As a
part of the agreement, the Company agreed to pay the
company approximately $245 and $246 per simulcast day at
the Chesapeake and Richmond SWFs, respectively, as well
as certain additional amounts per television per day.
Total expense incurred for totalisator and TVs
(excluding host fees) was approximately $106,000 for the
nine months ended September 30, 1996.
The Company is liable under numerous operating leases
for automobiles, equipment and buildings expiring at
various dates. In addition, the Company currently rents
its temporary main office facilities on a month to month
basis for $1,200 a month. Total rental expense under
non-cancelable leases was approximately $23,000 and
$87,000 for the year ended December 31, 1995 and for the
nine months ended September 30, 1996, respectively.
F-19
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1996 and for the
Nine Months Ended September 30, 1996 and 1995 is Unaudited)
(continued)
8. Commitments and The following are the future estimated minimum lease
Contingencies commitments relating to non-cancelable operating
(continued) agreements and leases. The totalisator and TV categories
include amounts for the Chesapeake and Richmond SWFs.
The SWF category includes rent and other operating
leases for the Chesapeake facility.
<TABLE>
<CAPTION>
Year Ending
December 31, Totalisator TVs SWF Other Total
------------ ----------- -------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
1997 $192,000 $178,200 $ 87,400 $15,900 $ 473,500
1998 192,000 178,200 87,400 -- 457,600
1999 125,000 178,200 87,400 -- 390,600
2000 -- 178,200 42,000 -- 220,200
2001 -- 38,300 -- -- 38,300
------------ ----------- -------- --------- ------- ----------
$509,000 $751,100 $304,200 $15,900 $1,580,200
============ =========== ======== ========= ======= ==========
</TABLE>
9. Horsemen's The Company entered into an agreement effective February
Agreements 17, 1996 with the Virginia Horsemen's Benevolent and
Protective Association, Inc. ("VAHBPA") applicable to
revenue generated from pari-mutuel wagering on simulcast
thoroughbred races at all facilities owned and operated
by the Company in Virginia, exclusive of live races at
the racetrack. In accordance with the agreement, the
Company will maintain a separate joint bank account into
which the Company will deposit an amount equal to 5.25%
of the SWF thoroughbred handle (the "Thoroughbred
Partner Account"). The initial period of the agreement
runs through December 31, 1997 with an additional term
to follow through December 31, 1998, with similar terms.
If the sum of 5.25% of the SWF thoroughbred handle plus
the total amount of handle generated by live
thoroughbred racing at the racetrack for each period is
less than the guaranteed $4.5 million, then the Company
shall pay the difference into the Thoroughbred Partner
Account, used to pay purses, with half of such amount
being considered a loan by the Company to the VAHBPA.
F-20
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1996 and for the
Nine Months Ended September 30, 1996 and 1995 is Unaudited)
(continued)
9. Horsemen's The Company entered into another agreement effective
Agreements February 17, 1996 with the Virginia Harness Horse
(continued) Association ("VHHA") applicable to revenue generated
from pari-mutuel wagering on simulcast standardbred
races at all facilities owned and operated by the
Company in Virginia, exclusive of live races held at the
racetrack. In accordance with the agreement, the Company
will maintain a separate joint bank account into which
the Company will deposit an amount equal to 5% of the
SWF standardbred handle (the "Standardbred Partner
Account"). The initial period of the agreement runs
through December 31, 1997, with an additional term to
follow through December 31, 1998, with similar terms.
If the sum of 5% of the SWF standardbred handle plus the
total amount of handle generated by live standardbred
racing at the Racetrack for the initial period is less
than the guaranteed $2.5 million, then the Company shall
pay the difference into the Standardbred Partner
Account, used to pay purses, with half of such amount
being considered a loan by the Company to the VHHA.
If the sum of all thoroughbred and standardbred purse
contributions is greater than $4.5 million and $2.5
million, respectively, then such excess contributions
will be paid back to the Company until $1 million (year
1) and $3 million (year 2) after tax net income is
achieved by the Company after which point any remaining
amounts will be shared equally between the Company and
the VAHBPA and VHHA respectively.
Under the Virginia Racing Act, the Company is required
to contribute approximately 8.5% of all money wagered at
the racetrack on live racing to the purse accounts and
these funds will count towards the required minimum $4.5
million and $2.5 million for thoroughbred and
standardbred purses, respectively.
F-21
<PAGE>
[INSIDE BACK COVER-- INSERT PHOTO OF
INTERIOR OF CHESAPEAKE SWF]
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offer contained herein, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Underwriter. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy the shares of Class A Common Stock
offered hereby by anyone in any jurisdiction in which such offer or solicitation
is not authorized, or in which the person making such offer or solicitation is
not qualified to do so, or to any person to whom it is unlawful to make such
solicitation or offer. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to the date
hereof.
----------------
TABLE OF CONTENTS
Page
Prospectus Summary.......................... 1
Risk Factors................................ 6
The Company................................. 13
The Reorganization.......................... 13
Use of Proceeds............................. 14
Dividend Policy............................. 14
Capitalization.............................. 15
Dilution.................................... 16
Selected Financial and Operating Data ...... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 19
Business.................................... 22
Management.................................. 30
Certain Transactions........................ 34
Principal Shareholders...................... 37
Description of Capital Stock................ 38
Description of Certain Indebtedness......... 41
Shares Eligible for Future Sale............. 41
Underwriting................................ 43
Legal Matters............................... 44
Experts..................................... 44
Available Information....................... 44
Index to Consolidated Financial Statements F-1
Until _______________, 1997 (25 days after the date of this Prospectus), all
dealers effecting in the shares of Class A Common Stock, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
<PAGE>
================================================================================
3,900,000 Shares
[LOGO]
COLONIAL DOWNS
HOLDINGS, INC.
Class A Common Stock
----------
PROSPECTUS
----------
FRIEDMAN, BILLINGS,
RAMSEY & CO., INC.
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Expenses of Issuance and Distribution.
The following is an estimate of the expenses to be incurred by the
Company in connection with the issuance and distribution of the securities being
registered, other than the underwriting discounts and commissions:
SEC registration fee.............................. $ 13,591
NASD filing fee................................... *
Nasdaq SmallCap Market fee........................ *
Blue Sky fees and expenses........................ *
Printing.......................................... *
Transfer agent's fees and expenses................ *
Attorneys' fees and expenses...................... *
Accountants' fees and expenses.................... *
Miscellaneous.....................................
--------
Total ................................ $ *
========
-----------------
*To be filed by amendment.
Item 14. Indemnification of Directors and Officers.
Article J of the Company's Amended and Restated Articles of
Incorporation provides that the Company will, to the fullest extent permitted by
the laws of Virginia, indemnify an individual who is or was a director or
officer of the Company and who was, is, or is threatened to be made a named
defendant or respondent in any threatened, pending or completed action, suit, or
proceeding, whether civil, criminal, administrative or investigative and whether
formal or informal (collectively, a "proceeding"), against any obligation to pay
a judgment, settlement, penalty, fine (including any excise tax assessed with
respect to any employee benefit plan) or other liability and reasonable expenses
(including counsel fees) incurred with respect to such a proceeding, except such
liabilities and expenses as are incurred because of such director's or officer's
willful misconduct or knowing violation of the criminal law.
Article J also provides that unless a determination has been made that
indemnification is not permissible, the Company will make advances and
reimbursements for expenses reasonably incurred by a director or officer in a
proceeding as described above upon receipt of an undertaking from such director
or officer to repay the same if it is ultimately determined that such director
or officer is not entitled to indemnification.
Article J also provides that the determination that indemnification
under such Article J is permissible, the authorization of such indemnification
(if applicable), and the evaluation as to the reasonableness of expenses in a
specific case shall be made as provided by law. Special legal counsel selected
to make determinations under such Article J may be counsel for the Company. The
termination of a proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent will not of itself create a
presumption that a director or officer acted in such a manner as to make him or
her ineligible for indemnification.
For the purposes of Article J, every reference to a director or officer
includes, without limitation, (i) every individual who is a director or officer
of the Company, (ii) an individual who, while a director or officer, is or was
serving at the Company's request as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation,
II-1
<PAGE>
partnership, joint venture, trust, employee benefit plan or other enterprise,
(iii) an individual who formerly was a director or officer of the Company or
who, while a director or officer, occupied at the request of the Company any of
the other positions referred to in clause (ii) of this sentence, and (iv) the
estate, personal representative, heirs, executors and administrators of a
director or officer of the Company or other person referred to herein. Service
as a director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise controlled by the Company shall be deemed service at
the request of the Company. A director or officer shall be deemed to be serving
an employee benefit plan at the Company's request if such person's duties to the
Company also impose duties on, or otherwise involve services by, such person to
the plan or to participants in or beneficiaries of the plan.
Section 13.1-704(B) of the Virginia Stock Corporation Act provides that
a corporation may provide indemnification and make provision for advances and
reimbursement of expenses so long as the party who is seeking indemnification,
advances or reimbursement did not commit willful misconduct or a knowing
violation of criminal law.
As provided in Section ___ of the Underwriting Agreement, the
Underwriter has agreed, under certain conditions, to indemnify the Company, each
of its directors, each of its officers who has signed the Registration Statement
and each person who controls the Company within the meaning of the Securities
Act of 1933, against certain civil liabilities, including certain civil
liabilities under the Act.
The Company intends to purchase directors and officers liability
insurance in the amount of $___________ million.
Item 15. Recent Sales of Unregistered Securities.
Since the formation of Colonial Downs Holdings, Inc. in November 1996,
the Company has issued and sold the following unregistered securities:
The Company will issue an aggregate of 750,000 shares of Class A Common
Stock and 2,250,000 shares of Class B Common Stock to CD Entertainment Ltd., the
shareholders of Stansley Management Corp. and the shareholders of Stansley
Racing in exchange for their interests in those entities.
No underwriters were engaged in connection with the foregoing sales
and/or issuances of securities. Such sales were made in reliance upon the
exemption from the registration provisions of the Securities Act set forth in
Rule 701 thereunder permitting unregistered sales to employees and consultants,
and/or Section 4(2) thereof as transactions not involving a public offering, the
respective purchasers thereof having acquired such shares for their respective
accounts without a view to the distribution thereof.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit Number Description
*1.1 Form of Underwriting Agreement
*2.1 Agreement and Plan of Reorganization
*3.1 Amended and Restated Articles of Incorporation of Colonial
Downs Holdings, Inc.
*3.2 Amended and Restated By-laws of Colonial Downs Holdings, Inc.
*4.1 Stock certificate representing Colonial Downs Holdings, Inc.
Common Stock
*4.2 Form of Indenture
*5.1 Opinion of Hogan & Hartson L.L.P. regarding the validity of the Common
Stock being registered
*10.1 Management and Consulting Agreement
*10.2 Performance Guarantee
*10.3 Form of Deed for Track site
*10.4 Construction Agreement
*10.5 Development Agreement
*10.6 Hubbing Agreement
*10.7 VHHA SWF Agreement
*10.8 VaHBPA SWF Agreement
*10.9 Form of Convertible Subordinated Note
*10.10 Employment Agreements
*10.11 Stansley Consulting Agreement
*10.12 Notes to CD Entertainment Ltd. and Jacobs Entertainment, Inc.
*10.13 Notes to Arnold W. Stansley
*10.14 Notes to Norglass, Inc.
*10.15 Food and Beverages Concessions Agreement
*11.1 Statement regarding computation of net income per share
*21.1 Subsidiaries of the Registrant
*23.1 Consent of Hogan & Hartson L.L.P. (included in exhibit 5.1)
23.2 Consent of BDO Seidman, LLP
24.1 Power of attorney (included on signature page)
*27.1 Financial Data Schedule
*99.1 Consents of persons named as directors
=============
* To be filed by amendment
(b) Financial Statement Schedules
The financial statement schedules required to be filed as part of this
Registration Statement are listed on the attached Index to Financial Statement
Schedules. All other schedules have been omitted because they are inapplicable
or the information is provided in the Financial Statements including the Notes
thereto included in the Prospectus.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant under the provisions referred to in Item 14 of this Registration
Statement, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of New Kent,
Virginia, on the 19th day of December, 1996.
COLONIAL DOWNS HOLDINGS, INC.
By: /s/ Jeffrey P. Jacobs
______________________________
Jeffrey P. Jacobs
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
Know all men by these presents, that each individual whose signature
appears below constitutes and appoints Jeffrey P. Jacobs and Robert H. Hughes,
and each of them, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign a registration
statement (the "Registration Statement") relating to a registration of shares of
common stock on Form S-1 and to sign any and all amendments (including
post-effective amendments) to the Registration Statement, and to file the same,
with all exhibits and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their, his or her substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Capacity Date
-------- ----
/s/ Jeffrey P. Jacobs Chairman of the Board, December 19, 1996
- ---------------------- President and Chief
Jeffrey P. Jacobs Executive Officer
/s/ Arnold W. Stansley Secretary and Director December 19, 1996
- ----------------------
Arnold W. Stansley
/s/ Robert H. Hughes Chief Financial Officer December 19, 1996
- ----------------------
Robert H. Hughes
/s/ Michael D. Salmon Controller December 19, 1996
- ----------------------
Michael D. Salmon
II-6
<PAGE>
EXHIBIT INDEX
Exhibit Number Description Page Number
- -------------- ----------- -----------
*1.1 Form of Underwriting Agreement
*2.1 Agreement and Plan of Reorganization
*3.1 Amended and Restated Articles of Incorporation of Colonial
Downs Holdings, Inc.
*3.2 Amended and Restated By-laws of Colonial Downs Holdings, Inc.
*4.1 Stock certificate representing Colonial Downs Holdings, Inc.
Common Stock
*4.2 Form of Indenture
*5.1 Opinion of Hogan & Hartson L.L.P. regarding the validity of the
Common Stock being registered
*10.1 Management and Consulting Agreement
*10.2 Performance Guarantee
*10.3 Form of Deed for Track site
*10.4 Construction Agreement
*10.5 Development Agreement
*10.6 Hubbing Agreement
*10.7 VHHA SWF Agreement
*10.8 VaHBPA SWF Agreement
*10.9 Form of Convertible Subordinated Note
*10.10 Employment Agreements
*10.11 Stansley Consulting Agreement
*10.12 Notes to CD Entertainment Ltd. and Jacobs Entertainment, Inc.
*10.13 Notes to Arnold W. Stansley
*10.14 Notes to Norglass, Inc.
*10.15 Food and Beverages Concessions Agreement
*11.1 Statement regarding computation of net income per share
*21.1 Subsidiaries of the Registrant
*23.1 Consent of Hogan & Hartson L.L.P. (included in exhibit 5.1)
23.2 Consent of BDO Seidman, LLP
24.1 Power of attorney (included on signature page)
*27.1 Financial Data Schedule
*99.1 Consents of persons named as directors
- -----------------
* To be filed by amendment
Exhibit 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
(the following is the form of the consent that BDO Seidman, LLP will be in a
position to issue upon completion of the reorganization described in Note 1 to
the consolidated statements)
Colonial Downs Holdings, Inc.
Providence Forge, Virginia
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement, of our report dated November 21, 1996, relating to the
consolidated financial statements of Colonial Downs Holdings, Inc., which is
contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Richmond, Virginia
December 18, 1996
