As Filed with the Securities and Exchange Commission on February 14, 1997
Registration No. 333-14879
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
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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<S> <C> <C>
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(3)
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 4,887,500 $11.00 $53,762,500 $16,292
===================================================================================================================
(1) Includes 637,500 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.
(3) The amount of $13,591 was previously paid.
</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 FEBRUARY 14, 1996
PROSPECTUS
4,250,000 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 SW Fs, 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. Approximately $7.5 million of the net proceeds of this offering
will be used to repay indebtedness and fees owed to affiliates of the Company.
See "Use of Proceeds." 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 $9 and $11
per share. See "Underwriting" for information relating to the factors to be
considered in determining the initial public offering price. The Company has
applied for inclusion of the Class A Common Stock on The Nasdaq SmallCap Market.
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."
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 637,500 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.
2
<PAGE>
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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
an initial public offering price of $10 per share, (iii) assumes that the
convertible subordinated note to be issued by the Company in the principal
amount of $5.5 million on the closing date of this offering (the "Convertible
Subordinated Note") is not converted, and (iv) 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 currently 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
live thoroughbred racing and 50 days of live 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, additional
golf courses, commercial offices and residential development. This development
is planned to occur in four phases over the next twenty-five years. The first
phase of development is in the areas adjacent to the Track site and the golf
course and is expected to be completed over the next eight years. According to
plans filed with New Kent County by the developer, 460 residential units and
approximately 930,000 square feet of commercial space will be completed in the
next three years. New Kent County residents have demonstrated support for this
development, but the Company has no control over the extent and timing of the
development or the grant of governmental approvals required for its completion
as planned. Therefore, there can be no assurance that the development will be
actively pursued or completed or if pursued, will be fully developed according
to the plans filed with New Kent County. See "Business -- The Track and Track
Facilities."
- --------------------------------------------------------------------------------
3
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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. An
application for licenses to own and operate a third SWF in Hampton, which is
located in southeastern Virginia, is pending before the Virginia Racing
Commission. 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 February 1997 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 potential
localities in which the additional SWFs may be located. Five northern Virginia
localities have in the past 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 500 customers, average daily wagers of $105,000, and
pari-mutuel wagering of approximately $36,600,000 (based on eleven and one-half
months of actual results). Since the Richmond SWF opened December 10, 1996, the
facility has had average daily attendance of 785 customers, average daily wagers
of $162,000, and pari-mutuel wagering of approximately $8,400,000 (based on 52
days 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 has agreed to cease live racing during the Company's
thoroughbred meets. While the Maryland thoroughbred tracks are not conducting
live racing, the Company expects to attract the thoroughbred race horses that
typically have run at the Maryland racetracks at that 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. The Company has agreed to pay the Maryland
Jockey Club a management fee equal to two percent of all amounts wagered at the
Company's facilities other than on live standardbred racing. 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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4
<PAGE>
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THE OFFERING
Class A Common Stock offered.......... 4,250,000 shares(1)
Common Stock to be outstanding after
the Offering......................... 5,000,000 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"), a credit facility from
an institutional lender or an affiliate
of a shareholder (see "Description of
Certain Indebtedness--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."
Nasdaq SmallCap Market Symbol........ CDWN
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, 450,820 shares of Class B Common Stock
issuable upon the conversion of the Convertible Subordinated Note (assuming
an initial public offering price of $10 per share for the Class A Common
Stock). See "Description of Certain Indebtedness--Convertible
Subordinated Note."
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5
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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, the date
on which the predecessor to the Company was formed, 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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Year Ended Year Ended
December 31, December 31,
1996 1995
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Income Statement Data:
Revenues:
Pari-mutuel commissions -
Import simulcasting............ $ 7,745 $ --
Other related revenues........... 782 --
----------- -----------
Total revenues...................... 8,527 --
----------- -----------
Direct operating expenses
Direct expense of import
simulcasting..................... 4,582 --
Other direct operating expenses 2,691 --
----------- -----------
Total direct operating expenses..... 7,273 --
----------- -----------
General and administrative....... 1,438 315
Depreciation and amortization.... 284 3
----------- -----------
Loss from operations................ (468) (318)
Other interest income............... 6 --
Interest expense ................... (183) (2)
----------- -----------
Net loss............................ $ (645) $ (320)
=========== ===========
Net loss per share (2).............. $ (0.22) $ (0.11)
Weighted average number of shares
outstanding (2).................. 3,000,000 3,000,000
Pro forma net loss per share (3).... $ (0.13) --
Pro forma weighted average number
of shares outstanding (3)........ 3,561,369 --
</TABLE>
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<CAPTION>
At December 31, 1996
----------------------------- At December 31,
Actual As Adjusted (4) 1995
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Balance Sheet Data:
Current assets........................ $ 1,765 $ 50,468 $ 330
Total assets.......................... 12,176 61,280 3,142
Working capital....................... (5,926) 45,474 (1,589)
Short-term debt, including
current portion of long-term debt.. 1,686 49 632
Long-term debt, excluding
current portion..................... 3,491 15,542 1,548
Total liabilities..................... 11,181 21,385 3,467
Shareholders' equity.................. 995 $ 39,895 (325)
</TABLE>
6
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Year Ended
December 31, 1996
--------------------------------
Other Data:
EBITDA(5)..................................... $ (184)
Net cash provided (absorbed) by:
Operating activities....................... 2,285
Investing activities....................... (5,997)
Financing activities....................... 4,761
From Opening Day
Through December 31, 1996
--------------------------------
Chesapeake SWF Richmond SWF
-------------- ------------
Operating Data:
Days of operation.......................... 317 21
Total pari-mutuel wagering (in thousands).. $ 33,561 $ 3,391
Average daily wagering (in thousands)...... $ 106 $ 161
Total attendance........................... 160,579 17,493
Average daily attendance................... 507 833
Average daily per capita wager............. $ 209 $ 194
- ------------------
(1) Includes entities which prior to the Reorganization were affiliated through
common ownership and control. See "The Reorganization."
(2) Based on 3,000,000 shares of Common Stock outstanding prior to the
consummation of this Offering.
(3) Reflects the per share data and weighted average number of shares
outstanding giving effect to the issuance of only that number of shares
needed to generate the portion of the net proceeds used to repay
debt, and elimination of interest expense, as if the repayment had
occurred at the beginning of the latest year.
(4) As adjusted to reflect (i) the sale of 4,250,000 shares of Class A Common
Stock by the Company in this Offering and the application of the net
proceeds therefrom, (ii) borrowing by the Company of $10 million under a
credit facility from an institutional lender or an affiliate of a
shareholder (see "Description of Certain Indebtedness--Credit Facility"),
and (iii) proceeds of $5.5 million from the Convertible Subordinated Note.
See "Description of Certain Indebtedness--Convertible Subordinated Note."
(5) 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.
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7
<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
credit facility in the amount of up to $10 million that the Company will obtain
from an institutional lender or an affiliate of a shareholder (the "Credit
Facility"), and the issuance by the Company of the Convertible Subordinated Note
in the principal amount of $5.5 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."
In the event that the Company obtains the Credit Facility from an
institutional lender, it is likely that such lender will require credit
enhancement from an affiliate of the Company, and any adverse change in the
financial condition of such affiliate may cause a default and such Credit
Facility. Such a default could have a maker's adverse effect on the Company.
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 Commencement of Live Racing; Possible Loss of SWF
Licenses
Significant delays in the Company's plan to open and operate four SWFs
prior to commencement of live racing would have a material adverse effect on the
Company's expected revenues, its ability to offer competitive purses at the
Track and its ability to meet its obligation to fund to guaranteed minimum purse
amounts on an ongoing basis. See "Business -- Purse Structure and Guarantees,"
and "Business -- Competition."
Under current Virginia law, if the Company fails to open the Track and
conduct live racing by July 1, 1997, its existing SWF licenses will become
invalid and the Company would be required to close its existing SWFs, pending
issuance of new SWF licenses. Although the Virginia Racing Commission may
subsequently re-grant such licenses, there can be no assurance that it would do
so. Legislation has passed the Virginia General Assembly that will extend the
deadline to September 1, 1997. However, the legislation must be signed by the
Governor of Virginia before it becomes law, and there can be no assurance that
the Governor will do so.
8
<PAGE>
Pending litigation that challenges the Virginia Racing Commission's
authority to issue SWF licenses for the Richmond SWF prior to the completion of
the Track's construction also may affect the Company's Richmond SWF licenses.
Although the final 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. See "Business-- Legal
Proceeding."
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 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 is required as a condition to issuance of licenses to the
Company in 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, is eligible to 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 February 1997, 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, all five attempts at
such referenda have failed in northern Virginia, which because of its population
density 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
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have a material adverse effect on the Company's business. Opposition to the
Virginia Racing Act has been unsuccessfully introduced in the Virginia
legislature in the past, but additional legislative opposition may arise in the
future. 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 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 licenses and permits
for participants in pari-mutuel racing, including Company employees at the Track
and at the SWFs and the Maryland Jockey Club as manager of the Company's
thoroughbred meets pursuant to the Management and Consulting Agreement. 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
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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 effect 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 Racing
Commission, within three years after transfer and subject to a deed restriction
limiting its use to operation of a horse racetrack and ancillary special events
unless otherwise agreed by the grantor. 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 and Chief Executive Officer. 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 has
entered into a construction agreement (the "Construction Agreement") with
Norglass, Inc., an affiliate of James M. Leadbetter, a substantial shareholder
of the Company, which provides among other matters, for a guaranteed maximum
price of $27,025,000 for construction of the grandstand, barns, track surfaces
and related sitework and Norglass, Inc.'s fee and out-of-pocket expense
reimbursement. Norglass, Inc. also will provide additional work and act as
construction manager for the entire Track. The total estimated cost of Norglass,
Inc.'s services under the Construction Agreement is approximately $29.5 million.
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." Construction expenditures not covered by
this contract are estimated to be $4.0 million for Track fixtures and equipment
and $2.4 million for furniture, fixtures and equipment.
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.
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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."
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. 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 proposed legislation
increasing gaming activities, including slot machines at Maryland racetracks and
SWFs, is pending before the Maryland legislature. 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. Although Charles Town's
purses are currently significantly lower than those that the Company expects to
offer, VLT revenue may substantially increase Charles Town's purses. 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."
Reliance Upon Virginia-Maryland Thoroughbred Racing Circuit
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. Pursuant to this
agreement, Pimlico Race Course and Laurel Park will cease live thoroughbred
racing during the Company's thoroughbred meet, and the management team of these
courses will manage the Company's thoroughbred meet. Accordingly, the Company
will avoid competing directly with Maryland's thoroughbred tracks, will seek to
attract horses that typically run at the Maryland tracks during such period and
will benefit from the experience of the management provided by the Maryland
Jockey Club. The Maryland Jockey Club has received the maximum number of race
days (296) allowed under Maryland law for 1997. In requesting such race days,
the Maryland Jockey Club notified the Maryland Racing Commission of its
intention to close Pimlico Race Course and Laurel Park for live racing during
the Company's thoroughbred meet. Although the Maryland Racing Commission's
approval is not a pre-condition to the Maryland Jockey Club not conducting live
racing at such tracks during the Company's thoroughbred meet in 1997, if the
Maryland Racing Commission disapproves of such action, it may penalize the
Maryland Jockey Club in a variety of ways, including denying race days in future
years or imposing monetary fines. If the Maryland Jockey Club is unable (or
unwilling) to cease live racing as aforesaid in future years because of actions
by the Maryland Racing Commission, the Company may compete directly with
thoroughbred horse racing at the Maryland tracks. Further, while the Company may
be able to recoup some or all of the two percent management fee payable to the
Maryland Jockey Club, the Company will need to recruit additional personnel to
manage its thoroughbred meet in such event. See "Business -- Virginia-Maryland
Thoroughbred Racing Circuit."
Additional Licenses May Be Granted
The Company was awarded the only existing unlimited licenses to own and
operate a horse racetrack with pari-mutuel wagering issued by the Virginia
Racing Commission. (The Maryland Jockey Club has been issued an operator's
license for the limited purpose of managing the Company's thoroughbred meet.)
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
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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 either the Chesapeake or Richmond SWFs will increase or maintain its
current level of revenues, 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 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 and Chief Executive Officer, 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 46.2% 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") (20.7%
for Special Voting Matters). If Mr. Jacobs converts the Convertible Subordinated
Note, he will own 1,950,820 shares of Class B Common Stock, which would
represent approximately 52.7% of the total voting power of the Common Stock
(25.3% for Special Voting Matters). The foregoing does not give effect to the
exercise of options that Arnold W. Stansley and James M. Leadbetter will grant
to Mr. Jacobs for up to 300,000 shares of Class A Common Stock. 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 casino in Colorado and a casino in 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." In addition, pursuant to the Convertible Subordinated
Note and the agreements of an affiliate of Mr. Jacobs in connection with the
Credit Facility, Mr. Jacobs and his affiliates may be the Company's largest
secured creditors, and conflicts of interest also may arise in connection with
such indebtedness. See "Certain Transactions--Credit Facility."
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5% Ownership Limit; Virginia Racing Act Restrictions on Stock Ownership
No purchaser of shares in this Offering will be permitted to acquire direct or
indirect ownership or control ("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 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 $4.65 from the initial public offering price, assuming an
offering price of $10.00 per share. See "Dilution."
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Shares Eligible for Future Sale; Registration Rights
Upon completion of this Offering, there will be 5,000,000 shares of
Class A Common Stock outstanding (5,637,500 shares if the Underwriters'
over-allotment option is exercised in full), of which the 4,250,000 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."
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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 currently
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. Stansley Management Corp. ("SMC") and
CD Entertainment Ltd. each own 50% of the partnership interests in Colonial LP.
CD Entertainment Ltd. is beneficially owned by Jeffrey P. Jacobs, and Gary L.
Bryenton and Jeffrey P. Jacobs as Trustees. SMC is owned 68% by Arnold W.
Stansley and 30% by James M. Leadbetter, with the balance held by two other
individuals. Mr. Stansley also owns 70% of the outstanding capital stock of
Stansley Racing and Mr. Leadbetter owns the remaining 30% of the outstanding
capital stock. CD Entertainment Ltd. and Mr. Stansley each own one share of
common Stock of Colonial Downs Holdings. The ownership and operating licenses
held by Colonial LP and Stansley Racing 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 from
SMC (which will be merged into Colonial Downs Holdings) and CD Entertainment
Ltd., and 100% of the outstanding stock of Stansley Racing from Messrs. Stansley
and Leadbetter, in exchange for an aggregate of 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 Virginia Racing Commission has approved the
Reorganization, as required by the Virginia Racing Act. 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, directly or
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.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,250,000 shares
of Class A Common Stock offered in this Offering are estimated to be
approximately $38.9 million (assuming an initial public offering price of
$10.00 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 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 and fees owed to certain
shareholders totaling $7.5 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 March
1998 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 March 15, 1997. See "Risk Factors -- Financing
Requirements."
<TABLE>
<CAPTION>
$ (millions) % of Total
<S> <C> <C>
Sources:
Net proceeds from this Offering (1)....... $ 38.9 72.0%
Credit Facility (2)....................... 9.6 17.8
Convertible Subordinated Note............. 5.5 10.2
------- ------
Total $ 54.0 100.0%
======= ======
Uses:
Completion of construction, equipping
and furnishing of the Track............. $35.0 64.8%
Acquisition, renovation and equipping
of SWFs.................................. 6.3 11.7
Payment of interim financing owed to
certain shareholders(3).................. 7.2 13.3
Funding of purse accounts(4).............. 2.5 4.6
Working capital........................... 2.7 5.0
Management fees(5)........................ 0.3 0.6
------- -----
Total $ 54.0 100.0%
======= =====
----------------------
(1) Net proceeds from this Offering are net of approximately $3.6
million of estimated offering expenses.
(2) Net proceeds from the Credit Facility assumes that such facility
will be provided by an institutional lender and are net of
approximately $400,000 of estimated expenses. Upon the consummation
of this Offering and prior to the closing of the Credit Facility,
certain affiliates of Mr. Jacobs will provide a $6.5 million
irrevocable letter of credit and will leave outstanding $3.5
million of interim financing described in footnote (3) below. On
closing of the Credit Facility, the letter of credit will be
withdrawn and the amounts drawn under the letter of credit and the
remaining balance of interim financing will be repaid from the
proceeds of the Credit Facility.
(3) Interim financing includes loans and other credit facilities
aggregating $6.5 million from CD Entertainment Ltd. ($4.4 million
accumulated from June 1996 to December 1996, and projected $2.1
million from January 1997 to March 1997), of which $3.0 million
will be paid from this Offering, loans aggregating $386,788 from
Arnold W. Stansley (accumulated from inception, September 1993, to
February 1996), and loans aggregating $311,994 from Norglass,
Inc.(accumulated from inception, September 1993, to February 1996).
See "Certain Transactions."
(4) Upon funding of the purse accounts, letters of credit provided by
CD Entertainment Ltd., as support for the Company's purse funding
obligation, will be terminated.
(5) Deferred management fees due to Stansley Racing and to Premier One
Development Co., an affiliate of Mr. Jacobs.
</TABLE>
17
<PAGE>
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.
CAPITALIZATION
The following table sets forth as of December 31, 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 $10 million under the
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>
December 31, 1996
-------------------
Actual As Adjusted(1)
------ --------------
(In thousands)
<S> <C> <C>
Current portion of long-term debt ....................... $ 49 $ 49
Current portion of notes payable to shareholders......... 1,638 --
Long-term debt .......................................... 42 10,042
Long-Term Notes payable to shareholders.................. 3,448 5,500
Shareholders' equity:
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 issued (actual)
and 5,000,000 shares issued (as adjusted)........... 7 50
Common stock, Class B, $.01 par value, 3,000,000
shares authorized; 2,250,000 shares issued (actual)
and 2,250,000 shares issued (as adjusted).......... 23 23
Additional paid-in capital........................... 1,966 40,823
Retained earnings (deficit).......................... (1,001) (1,001)
------ -------
Total stockholders' equity........................... 995 39,895
------ -------
Total capitalization..................................... $6,172 $55,486
====== =======
- ---------------
(1) Gives effect to this Offering, borrowing by the Company of $10 million under
the Credit Facility and the issuance of the Convertible Subordinated Note as
if each had occurred as of December 31, 1996.
</TABLE>
18
<PAGE>
DILUTION
As of December 31, 1996, the Company had a negative net tangible book
value of $126,417 or approximately $.04 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
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 December 31, 1996 would have been $38,773,583, or $5.35 per share
of Common Stock. This represents an immediate increase in pro forma net tangible
book value of $5.39 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 $4.65 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)............ $10.00
Net tangible book value per share of Common Stock as of
December 31, 1996, before this Offering (2)....................................... $(0.04)
Increase attributable to this Offering............................................. $ 5.39
======
Pro forma net tangible book value per share of Common Stock
after this Offering................................................................ $5.35
=====
Dilution per share of Class A Common Stock to purchasers of
Class A Common Stock in this Offering.............................................. $4.65
=====
- ------------------------
(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 December 31, 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
---------------- -------------------
(thousands) (thousands) Average
Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Current Shareholders............. 3,000 41.4% $ 1,996 4.5% $0.67
New Investors.................... 4,250 58.6% 42,500 95.5% $10.00
----- ----- ------ ----
Total................... 7,250 100.0% $ 44,496 100.0%
===== ===== ====== =====
</TABLE>
19
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA(1)
The following selected consolidated financial data of the Company for
the years ended December 31, 1996, 1995, 1994, and 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 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>
Year ended December 31,
-----------------------
1996 1995 1994 1993(2)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Pari-mutuel commissions -
Import simulcasting............ $ 7,745 $ -- $ -- $ --
Other related revenues........... 782 -- -- --
---------- ---------- ---------- ---------
Total revenues...................... 8,527 -- -- --
---------- ---------- ---------- ---------
Direct operating expenses
Direct expense of import
simulcasting..................... 4,582 -- -- --
Other direct operating expenses 2,691 -- -- --
---------- ---------- ---------- ----------
Total direct operating expense 7,273 -- -- --
---------- ---------- ---------- ----------
General and administrative....... 1,438 315 19 17
Depreciation and amortization 284 3 -- --
---------- ---------- ---------- ----------
Loss from operations................ (468) (318) (19) (17)
Other interest income............... 6 -- -- --
Interest expense.................... (183) (2) -- --
---------- ---------- ---------- ----------
Net loss............................ $ (645) $ (320) $ (19) $ (17)
========== ========== ========== ==========
Net loss per share (3).............. $ (0.22) $ (0.11) $ (0.01) $ (0.01)
Weighted average number of shares
outstanding...................... 3,000,000 3,000,000 3,000,000 3,000,000
Pro forma net loss per share(4)..... $ (0.13) --
Pro forma weighted average number
of shares outstanding............ 3,555,847 --
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1996 At December 31,
--------------------- ---------------
Actual As Adjusted(5) 1995 1994 1993
------ -------------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current assets...................... $ 1,765 $ 50,468 $ 330 $ 2 $ --
Total assets........................ 12,176 61,280 3,142 667 227
Working capital..................... (5,926) 45,474 (1,589) (669) (213)
Short-term debt, including
current portion of long-term debt.. 1,686 49 632 671 213
Long-term debt, excluding
current portion.................... 3,491 15,542 1,548 -- --
Total liabilities................... 11,181 21,385 3,467 671 213
Shareholders' equity................ 995 39,895 (325) (4) 14
</TABLE>
20
<PAGE>
Year Ended
December 31, 1996
-----------------
Other Data:
EBITDA(6)................................. $ (184)
Net cash provided (absorbed) by:
Operating activities................. 2,285
Investing activities................. (5,997)
Financing activities................. 4,761
From Opening Day
Through December 31, 1996
----------------------------
Chesapeake SWF Richmond SWF
-------------- ------------
Operating Data:
Days of operation.................... 317 21
Total pari-mutuel wagering
(in thousands)..................... $ 33,561 $ 3,391
Average daily wagering (in thousands) $ 106 $ 161
Total attendance..................... 160,579 17,493
Average daily attendance............. 507 833
Average daily per capita wager....... 209 194
- ----------------
(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) Based on 3,000,000 shares of Common Stock outstanding before this Offering.
(4) Reflects the per share data and weighted average number of shares
outstanding giving effect to the issuance of only that number of shares
needed to generate the portion of the net proceeds used to repay debt, and
elimination of interest expense, as if the repayment had occurred at the
beginning of the latest year.
(5) As adjusted to reflect (i) the sale of 4,250,000 shares of Class A Common
Stock by the Company and the application of the net proceeds therefrom, (ii)
borrowing by the Company of $10 million under the Credit Facility, and (iii)
proceeds of $5.5 million from the Convertible Subordinated Note.
(6) 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.
21
<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) a management fee of 2% of amounts wagered (other than on
standardbred races run at the Track) payable to the Maryland Jockey Club, which
fee represents approximately 10% of the Company's revenues from wagering, (v)
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),
(vi) 1.0% of all amounts wagered payable to the Virginia Breeders Fund, (vii)
totalisator, video and audio expenses at the Company's SWFs, (viii) direct
salaries, payroll and benefit expenses and (ix) 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).
The Maryland Jockey Club management fee is compensation for services
provided under the Management and Consulting Agreement, including the management
of the Company's thoroughbred meet. The Company will also pay a pro rata share
(based upon the duration of the thoroughbred meet) of the salaries of those
employees of the Maryland Jockey Club that participate in live thoroughbred
racing at the Track. The Company will bear all expenses associated with the
thoroughbred meet. The Management and Consulting Agreement will remain in effect
for so long as the Company owns, controls or operates the Track, not to exceed a
term of 50 years. At the Company's option, the Company may terminate the
agreement any time after 25 years upon payment of a fee equal to 17 times the
average management fee paid during the three years immediately preceding such
termination.
The Maryland-Virginia Racing Circuit, Inc. is owned by Laurel Park
Racing Association Limited Partnership (50%) and Pimlico Racing Association,
Inc. (50%), which conduct business under the trade name The Maryland Jockey
Club. A potential conflict of interest arises between the Maryland-Virginia
Racing Circuit, Inc. and the Maryland Jockey Club if the Maryland Jockey Club
cannot, or elects not to, cease live
22
<PAGE>
racing in Maryland during the Company's live thoroughbred meet. The
Maryland-Virginia Racing Circuit, Inc. is responsible for managing the Company's
thoroughbred meet. To the extent that it is unable to do so because the Maryland
Jockey Club does not receive the Maryland Racing Commission's approval to cease
live racing during the Company's thoroughbred meet, it may forfeit its
management fee payable by the Company and the Company will need to recruit
additional personnel to manage its thoroughbred meet.
The Maryland Racing Commission has issued a license for race days for
1997 to the Maryland Jockey Club. In its request for race days, the Maryland
Jockey Club noted its intention to cease live racing at Pimlico Race Course and
Laurel Park during the thoroughbred meet at the Track. If in the future the
Maryland Racing Commission does not allow thoroughbred racing to cease at
Pimlico Race Course or Laurel Park, the Company may compete directly with the
Maryland tracks and will rely upon its purse structure, unique turf track and
the timing of its race meet to attract quality thoroughbred horses. Further,
depending upon the basis for the Maryland Jockey Club's inability to close its
tracks or provide management, the Company may recoup some or all of the 2%
management fee payable under the Management and Consulting Agreement.
In addition to other services, the Management and Consulting Agreement
provides for reciprocal simulcasting of live races. Pursuant to the agreement,
the Company receives simulcasts of races at Laurel Park and Pimlico Race Course
free of charge in exchange for simulcast of races at the Track. If the
Management and Consulting Agreement is terminated, the Company would need to
negotiate a fee for the receipt of simulcast races from Pimlico Race Course and
Laurel Park. The fee for such import simulcasting is typically 3% of the amounts
wagered at the Company's SWFs and Track on such races.
Minimum purses for live racing at the Track during its first two years
have been agreed with the Virginia Horsemen's Benevolent and Protective
Association ("VaHBPA") and the Virginia Harness Horse Association ("VHHA")
pursuant to SWF agreements. Pursuant to these agreements, the Company has
agreed, among other things, to make annual contributions or loans to the purse
accounts of not less than $4.5 million for thoroughbred races and $2.5 million
for standardbred races. After the Company has realized after-tax net income of
$1 million in the first year, and $3 million in the second year, the Company
will share net income equally. Contributions under the SWF agreements amount to
approximately 26.25% of revenues from wagering (after payment of winning wagers)
for thoroughbreds and approximately 25% of revenues from wagering (after payment
of winning wagers) for standardbreds. See "Purse Structure and Guarantees."
The Track is being constructed on approximately 345 acres approximately
25 miles east of Richmond and approximately 25 miles west of Williamsburg. The
Company will own the Track site upon consummation of the Offering and subject to
the reversionary rights of the grantors, which may be exercised if the Company
fails to complete, open and operate for three years a racetrack licensed by the
Virginia Racing Commission and subject to the limitation that the site may only
be used for operating a horse racetrack and ancillary speed events unless
otherwise agreed by the grantor. Exercise of the reversion would arise only if
the Company lost its licenses to own and operate a racetrack, which would also
result in the loss of the SWF licenses under current law.
Executives of the Company will be employed pursuant to two-year
employment agreements and receive a salary plus expenses associated with travel
and membership in horsemen and trade associations. See "Management -- Executive
Compensation."
23
<PAGE>
Results of Operations
Year Ended Decembr 31, 1996 Compared to the Year Ended December 31, 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
December 31, 1996 Total Revenues December 31, 1995 Total Revenues
------------------ -------------- ------------------ --------------
<S> <C> <C> <C> <C>
Revenues:
Pari-mutuel commissions -
Import simulcasting....... $ 7,745 90.8% $ -- --
Admissions.................. 215 2.5% -- --
Programs.................... 361 4.2% -- --
Rental income............... 85 1.0% -- --
Miscellaneous............... 121 1.5% -- --
---------- ----- ------ ----
Total revenues............ 8,527 100.0% -- --
---------- ----- ------ ----
Direct operating expenses:
Purses, awards, and
breeders fund fees........ 2,316 27.2% -- --
Pari-mutuel taxes........... 947 11.1% -- --
Simulcast and totalisator
expenses.................. 1,319 15.5% -- --
Direct salaries, payroll
tax and benefits.......... 1,160 13.6% -- --
Other direct operating
expenses.................. 792 9.3% -- --
Management fees paid to
Maryland Jockey Club...... 739 8.7% -- --
---------- ---- ------ ----
Total direct operating
expenses............... 7,273 85.4% -- --
---------- ----- ------ ----
General and administrative
expenses.................... 1,438 16.8% 315 --
Depreciation and amortization.. 284 3.3% 3 --
---------- ---- ------ ----
Loss from operations........... (468) 5.5% (318) --
Other interest income.......... 6 0.0% -- --
Interest expense .............. (183) 2.1% (2) --
----------- ---- ------ ----
Net loss....................... $ (645) 7.6% $ (320) --
=========== ==== ====== ====
Net loss per share(2).......... $ (0.22) $(0.11)
EBITDA(3)...................... $ (184)
Weighted average number of
shares outstanding.......... 3,000,000 3,000,000
</TABLE>
- ---------------------
(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) Based on 3,000,000 shares of Common Stock outstanding prior to the
consummation of this Offering.
(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.
24
<PAGE>
The following table sets forth certain operating data for the
Chesapeake SWF for the period from February 17, 1996, when it opened, through
December 31, 1996 and for the Richmond SWF for the period from December 10,
1996, when it opened, through December 31, 1996.
Chesapeake SWF Richmond SWF
-------------- ------------
Days of operation.................... 317 21
Total pari-mutuel wagering
(in thousands)...................... $ 33,561 $ 3,391
Average daily wagering (in thousands) $ 106 $ 161
Total attendance..................... 160,579 17,493
Average daily attendance............. 507 833
Average daily per capita wager....... 209 194
For the year ended December 31, 1996, the Company's operating results
reflect the opening of the Chesapeake SWF in February 1996 and the Richmond SWF
in December 1996. For the operating period of February 17, 1996 through December
31, 1996, the Company had total revenues of $8.5 million and direct operating
expenses of $9.0 million. The Company's pari-mutuel commissions from import
simulcasting were approximately 21% of the amount wagered at the Chesapeake and
Richmond SWFs ($7.7 million), representing 317 days of operation of the
Chesapeake SWF with an average daily attendance of 507 and an average daily per
capita wager of $209 and 21 days of operation of the Richmond SWF with an
average daily attendance of 833 and an average daily per capita wager of $194.
The Company's other revenue from the sale of racing programs, admissions, and
other miscellaneous items was approximately $0.8 million over the same period.
The Company's operating expenses included (i) purses payable to the
horsemen of $1.9 million (approximately 5.2% of all amounts wagered), (ii) host
fees paid for import simulcast races of $1.0 million (approximately 2.8% of all
amounts wagered), (iii) management fees paid to the Maryland Jockey Club of $0.7
million (approximately 2.0% of all amounts wagered), (iv) pari-mutuel taxes paid
the Commonwealth of Virginia and their localities of $0.9 million (approximately
2.6% of all amounts wagered), (v) breeders fund fees of $0.4 million (1% of all
amounts wagered), (vi) salaries and payroll expense of $1.2 million
(approximately 3.0% of all amounts wagered), and (vii) other direct operating
expenses of $2.9 million, consisting of such items as utilities, maintenance,
leases, advertising, legal, accounting and supplies (approximately 7.8% of all
amounts wagered).
The Company had negative EBITDA of $184,000 for the year ended December
31, 1996. After depreciation, amortization, and interest expense, the Company
had a net loss of $0.6 million for the year ended December 31, 1996. However,
because the principal components of the Company's general and administrative
expenses are relatively fixed, the Company's current level of general and
administrative expenses, which were approximately $1.4 million in 1996, are not
expected to increase significantly with the opening of the Track and the
remaining SWFs. The Company plans to open the Hampton SWF, an additional SWF,
and the Track prior to July 1997 and the two remaining SWFs by March 1998. As
these additional SWFs are located in new markets within the state not easily
serviced by the existing SWFs, the Company expects to generate additional
revenue. Accordingly, 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. The Company had four employees before staffing
the Chesapeake SWF; after its opening, the Company had approximately 160
employees. 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. The
majority of costs specific to the acquisition and development of the Chesapeake
SWF were incurred in fiscal 1995, whereas those relating to the Richmond SWF
generally were not incurred until 1996.
<PAGE>
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 December 31, 1996,
the Company's cash position increased from $0.3 million to $1.4 million. Net
cash provided by operating activities for the year ended December 31, 1996
totaled $2.3 million, which came from increased accounts payable, accrued
expenses, and purses owed to horsemen. Upon the consummation of this Offering,
the Company plans to deposit up to $2.5 million from the proceeds of this
Offering into the horsemen's purse accounts. CD Entertainment Ltd., Arnold W.
25
<PAGE>
Stansley, and Norglass, Inc. each have outstanding loans to the Company
aggregating $6.5 million, $386,788 and $311, 994, respectively, each of which
will be repaid from the proceeds of this Offering or the Credit Facility. 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)
the Company expended approximately $0.9 million relating to securing licenses
for the Track and the SWFs. In addition, since inception the Company expended
$9.4 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 year
ended December 31, 1996 totaled $7.5 million. The Company's capital expenditures
from inception through December 31, 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 renovation and equipment expenditures of $1.2
million, which resulted in a total Richmond SWF investment of $2.7 million; and
(iii) $5.2 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 Credit Facility and the issuance
of the Convertible Subordinated Note to CD Entertainment Ltd., the Company's
principal shareholder, are expected to provide the Company a total of
approximately $54 million. The Company has projected the capital expenditures
required to complete the construction of the Track to be $35 million,
including the necessary furniture and equipment, and funds required for the
acquisition and/or the renovation and equipping of the four additional SWFs to
be $6.3 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. In
addition, the Company has projected the full funding of the thoroughbred and
standardbred purses based on the opening schedule of the additional SWFs. The
Company has included in the use of such proceeds an amount of $2.5 million to
cover any potential shortfall due to delays in opening the remaining SWFs. See
"Use of Proceeds." See also "Description of Certain Indebtedness."
Historically, the Company has operated with a working capital deficit.
As of December 31, 1996, the Company had a working capital deficit of $5.9
million. Such deficit will be eliminated upon the consummation of this Offering.
Additionally, the Company has outstanding three letters of credit and
will have two additional letters outstanding prior to consummation of this
Offering. Two letters of credit in the amount of $500,000 each secure the
Company's obligations under the Performance Guarantee Agreement with the
Virginia Racing Commission. See "Risk Factors - Risk of Delay in Commencement of
Live Racing; Possible Loss of SWF Licenses" An additional $200,000 letter of
credit secures the Company's obligations under certain erosion control bonds
related to construction of the Track. These letters of credit are personally
guaranteed by Messrs. Stansley and Leadbetter, who will be released from these
guarantees upon the consummation of this Offering. These letters of credit will
remain outstanding until the Track is complete and open for racing. Finally, the
Company has agreed to issue letters of credit aggregating $1.6 million to the
VaHBPA and the VHHA to secure the Company's payment to certain joint accounts to
be used to fund purses for live racing. These letters of credit will be canceled
upon consummation of the Offering and the use of proceeds to fund such joint
purse accounts.
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 currently eligible to apply
for licenses to own and operate SWFs in Virginia. The Company plans to conduct
thoroughbred and standardbred 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.
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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 January 31, 1997, the Chesapeake SWF has had average daily
attendance of 500 patrons, average daily wagers of $105,000, and
revenues of approximately $36,600,000.
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 offers patrons free parking. The
Company acquired the Richmond facility for $1.5 million in July 1996 and has
made an additional investment of approximately $1.2 million to refurbish,
renovate and equip the facility. During the first 52 days of operation, the
facility has had average daily attendance of 785 customers, average daily
wagering of $162,000 and pari-mutuel wagering of approximately $8,400,000.
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 February 1997 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.
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 February 1997, two additional localities, Greenville (in southern
Virginia) and the City of Virginia Beach (in southeast Virginia), have passed
referenda that expire in November 1997.
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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 expired December 31, 1996,
and the Company has elected to extend the agreement on a month-to-month basis.
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.
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
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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. 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. The prior consent
of the grantors is required for any use of the track site for any purpose other
than operation of a horse racetrack and ancillary special events. 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.
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
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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
first level will continue to receive simulcasts of races from other tracks. 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. An unfinished
fifth level will be available for further expansion.
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 may 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 continue to receive simulcasts of races from other
tracks. 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
In addition to the SWF Agreements entered into with the VaHBPA and the VHHA
described below under "Purse Structure and Guarantees," the Company will enter
into a live racing agreement (a "Live Racing Agreement") with each of the VaHBPA
and the VHHA regarding the conduct of racing at the Track. The Live Racing
Agreements will address, among other things, the sharing of export simulcast
revenues (50% for the Company and 50% for the Track's purse account), the
setting of a schedule of purse amounts, preparation of conditions for races, the
equal sharing of revenues from sponsorship of products and events at the Track,
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. A Live Racing Agreement with each of the VaHBPA and the VHHA must be
signed at least one day prior to commencement of the thoroughbred and
standardbred meet or the VaHBPA SWF Agreement and the VHHA SWF Agreement,
respectively, will terminate. See "Purse Structure and Guarantees."
The Company's 1997 race days for the Track have been approved by the
Virginia Racing Commission. Such approval provides for a thoroughbred meet from
June 29 to August 15, 1997 with 30 days of racing. Post
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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 scheduled 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.
Each SWF Agreement terminates if a live racing agreement is not signed
by the day prior to the commencement of the thoroughbred meet or the
standardbred meet, as the case may be. Each SWF Agreement expires on December
31, 1998 and renews automatically for successive one year terms. Contributions
to the purse accounts after December 31, 1998 are to be negotiated in good faith
by the parties based upon annual budgets prepared by the Company. These budgets
will contain provisions for net after-tax return consistent with prior years and
purse contributions necessary to attract quality horses to race at the Track.
Because the Company commenced simulcast operations prior to the
commencement of live racing, it has entered, or plans to enter, into two
separate agreements -- a live racing agreement and a SWF agreement -- with each
horsemen group. After 1998, the Company likely will enter into a single
agreement with each horsemen group. The agreements are not mandated by law;
however, each contains the horsemen group's consent to the receipt and sending
of simulcast signals in compliance with the Interstate Horse Racing Act.
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
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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- 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 currently 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 Maryland-Virginia Racing Circuit, Inc. was granted an operator's license for
the limited purpose of managing the Company's thoroughbred meet. 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
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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 referendum has
been passed, such opposition has not ultimately affected the licensing process.
See "-- Legal Proceedings."
Under current Virginia law, if the Company fails to open the Track and
conduct live racing by July 1, 1997, its existing SWF licenses will become
invalid. Although the Virginia Racing Commission may subsequently re-grant such
licenses, there can be no assurance that it would do so. Legislation has passed
the Virginia General Assembly that will extend the deadline to September 1,
1997. However, the legislation must be signed by the Governor of Virginia before
it becomes law, and there can be no assurance that the Governor will do so.
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 cease live racing during the Company's thoroughbred meet. While the
Maryland tracks are not conducting live racing, the Company expects to attract
the thoroughbred race horses that typically have run at the Maryland tracks at
that time. The Company understands that in 1997 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 year-round. 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. Although the Maryland Racing Commission's
approval is not required for the Maryland Jockey Club to cease thoroughbred
racing during the Company's meet in 1997, if the Maryland Racing Commission
disapproves of such action, it may penalize the Maryland Jockey Club, through
fines, the denial of future race days, or otherwise, in future years. If the
Maryland Jockey Club cannot, or elects not to, cease thoroughbred racing at
Pimlico Race Course or Laurel Park in future years, the Company may compete
directly with the Maryland tracks and will rely upon its purse structure, unique
turf track and the timing of its race meet to attract quality thoroughbred
horses. Further, depending upon the reason for the Maryland Jockey Club's
inability to cease live racing at its tracks or provide management, the Company
may recoup some or all of the 2% management fee payable under the Management and
Consulting Agreement.
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
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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, 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 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 December 31, 1996, the Company had 213 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.
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Legal 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 Company intervened as a
party on January 28, 1997. 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; that the Virginia Racing Commission did
not have authority to issue the licenses under the Virginia Racing Act; and that
no SWF licenses could be issued until completion of construction of the Track.
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.
A hearing on the issue of standing and on the merits in this matter was held on
January 31, 1997 and a decision is expected shortly.
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
and Chief Executive Officer
Arnold W. Stansley Director and
Secretary
O. James Peterson, III President and Chief
Operating Officer
Robert H. Hughes Vice President and 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.
Name Age (1) Position
- ---- ------ --------
Jeffrey P. Jacobs 42 Chairman of the Board and Chief
Executive Officer
Arnold W. Stansley 62 Vice-Chairman of the Board
and Director
O. James Peterson, III 61 President and Chief Operating Officer
Robert H. Hughes 55 Director and Chief Financial Officer
Stephen Peskoff 54 Director
William J. Koslo, Jr. 37 Director
David C. Grunenwald 43 Secretary and Director
Patrick J. McKinley 41 Director
Brett Lee Stansley 33 Vice President of Administration
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 December 31, 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 and Chief Executive
Officer of the Company. From 1995 to the present, he has served as Chairman and
Chief Executive Officer of Jacobs Entertainment Ltd., a company based in
Cleveland, Ohio that has investments in other gaming companies and ventures,
including Black Hawk Gaming & Development Company, Inc. based in Boulder,
Colorado and the Boardwalk Casino, Inc. hotel and casino in Las Vegas. From 1975
to present, he has also served as President and CEO of Jacobs Investment, Inc.,
a 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. Following
consummation of this Offering, Mr. Jacobs expects to devote approximately
one-third of his time to the Company's affairs.
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 1997. He also served as President of Stansley
Racing prior to the Reorganization, from 1994 to 1997. 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
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operator's license granted by the Virginia Racing Commission and was
instrumental in the opening of the Company's Chesapeake SWF and 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.
O. James Peterson, III, has served as President and Chief Operating
Officer of the Company since January 1997. From 1994 through 1996, Mr. Peterson
served as Chief Financial Officer of The Maryland Jockey Club. For fifteen years
prior to his retirement in 1994, Mr. Peterson was the Chief Financial Officer of
Dominion Resources, Inc., a utility holding company and its subsidiary, Virginia
Electric and Power Company. Mr. Peterson has been active in owning and breeding
thoroughbred race horses since 1983. He currently serves as Chairman and a
director of Maplewood Investment Trust.
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).
William J. Koslo, Jr. joined CIBC Wood Gundy Securities Corp., an
investment banking subsidiary of the Canadian Imperial Bank of Commerce, as a
director in September 1996. From 1993 to 1996, Mr. Koslo was an associate
director of the investment bank Rodman & Renshaw, Inc. In 1992 and 1993, he was
a vice president with Creditanstalt--Bankverein, a commercial bank then
affiliated with Rodman & Renshaw, Inc. Prior to joining Creditanstalt-
Bankverein, Mr. Koslow was a vice president of Security Pacific Business Credit.
David C. 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 J. 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
Administration 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. 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 of which he
was an 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 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, each consisting of
approximately one-third of the total number of directors. There will be seven
directors upon consummation of this Offering. Class I directors, consisting of
Messrs. Peskoff and McKinley, will hold office until the 1998 annual meeting of
shareholders; Class II directors, consisting of Messrs. Stansley and Koslo, will
hold office until the 1999 annual meeting of shareholders; and Class III
directors, consisting of Messrs. Jacobs, Hughes, and Grunenwald, will hold
office until the 2000 annual meeting of shareholders. 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 will enter into employment agreements effective upon the
completion of the Reorganization with Jeffrey P. Jacobs, O. James Peterson, III,
Brett Lee Stansley, Mike Salmon, Hugh Mellon and Gilbert Short, at annual base
salaries of approximately $120,000, $200,000, $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 any activities which compete
with the Company's horse racing business in Virginia, Maryland, North Carolina
or West Virginia during the agreement's term and for one year thereafter. Such
agreements are further expected to provide that Mr. Jacobs will devote not less
than one-third of his time to the Company in 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 and will devote not more than two days a month to the Company. 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
non-employee directors 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
non-employee directors. 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 earlier of the the date of its approval by the
shareholders or its adoption by the Company's Board of Directors.
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
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<PAGE>
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 incentive stock 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.
Pursuant to Section 422 of the Internal Revenue Code of 1986, as
amended, stock options granted under the Stock Option Plan may be treated as
incentive stock options only if the following conditions are satisfied: (i) the
options must be granted under a plan specifying the aggregate number of shares
of stock which may be issued and the employees or class of employees eligible to
receive the option; (ii) the Stock Option Plan must be approved by the
shareholders of the Company within twelve (12) months before or after the Stock
Option Plan is adopted; (iii) the options must be granted within ten years from
the earlier of (x) the date the Stock Option Plan is adopted or (y) the date the
Stock Option Plan is approved by the shareholders; (iv) the options must by
their terms be exercisable only within ten years of the date it is granted; (v)
the option price must equal or exceed the fair market value of the stock at the
time the option is granted; (vi) the options must be nontransferable other than
at death and, during the employee's lifetime, must not be exercisable by any
other person; (vii) the employee may not, at the time the option is granted, own
stock representing more than 10% of the voting power of all classes of stock of
the Company, unless the option price is at least 110% of the fair market value
of the stock subject to the option determined at the time the option is granted,
and the option is not exercisable more than five years from the date it is
granted; and (viii) the aggregate fair market value of the stock (determined at
the time of the grant of the option) that can be exercised for the first time by
an employee in any one year may be more than $100,000.
No options have been granted under the Stock Option Plan; however,
pursuant to a two-year employment agreement with O. James Peterson, III, the
Company has agreed to grant Mr. Peterson stock options for 30,000 shares of
Class A Common Stock per year, which options vest after each such year of
employment. The exercise price of such stock options shall be 105% of the
initial offering price of the Company's stock pursuant to this Offering. Such
options are exercisable after January 2, 2002, the fifth anniversary of Mr.
Peterson's commencement of employment with the Company.
Director Compensation
Directors of the Company who are also employees of the Company will
receive no directors' fees. Non-employee directors will receive directors fees
of $1,000 for each Board and committee meeting attended in person and $500 for
committee meeting, which fees may at the option of the Committee, be payable in
the form of shares of Class A Common Stock having an aggregate fair market value
equal to the fees owed. 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.
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 letters of
credit 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. The
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<PAGE>
indebtedness under these facilities bears interest at a variable rate equal to
CD Entertainment Ltd.'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, except with respect to $3.5
million, which will be repaid upon closing of the Credit Facility. 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 and
letters of credit available. As of September 30, 1996, the Company had incurred
aggregate interest costs of $272,000 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.
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 grandstand and certain
ancillary facilities for Track. Pursuant to the contract, Norglass, Inc. will
receive a fixed fee of $2,000,000. The fee was negotiated by CD Entertainment
Ltd. on behalf of the Company with Norglass, Inc. SMC, the other general partner
of Colonial LP, vested CD Entertainment Ltd. with SMC's authority to negotiate
such fee on an arm's length basis by taking into account the work performed by
Norglass, Inc. in assisting the Company to secure licenses for the ownership and
operation of the racetrack and for work performed at the Track site. In
addition, Norglass, Inc. will be paid up to $1,050,000 for certain out-of-pocket
expenses. Pursuant to the contract terms, absent certain force majeure events,
the guaranteed maximum price for the contract is $27,025,000 An additional
$2,475,000 of work that is not subject to the guaranteed price is to be
performed for the interior finish of the grandstand and construction of the
paddock, dorms and other backstretch buildings. Further, this contract does not
cover other areas of the Track, such as the track kitchen, nor does it include
furniture and equipment for the grandstand. 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 depending upon the nature of the work and the materials. Norglass. Inc.
will provide market terms for insurance and bonding requirements upon the
Company's demand. One half of Norglass, Inc.'s fee is payable in monthly
installments as construction progresses. One quarter is due upon the issuance of
a certificate of occupancy for the Company's fourth SWF (but no later than
December 31, 1997), and the remaining quarter of Norglass, Inc.'s fee is due
upon the issuance of a certificate of occupancy for the Company's sixth SWF (but
no later than December 31, 1998). 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 if work ceases
for more than 30 days as a result of the Company's default, court order or
government action. In addition, Norglass, Inc. acted as general contractor for
the renovation of the Chesapeake and Richmond SWFs, pursuant to the terms of a
costs plus ten percent (10%) contract between the Company and Norglass, Inc.
that was entered into at the time the Company applied for licenses to own and
operate a racetrack in Virginia, Pursuant to such contract, Norglass, Inc.
received from the Company aggregate fees of approximately $160,500 and
reimbursement of expenses of approximately $97,000. The contract for the
Richmond and Chesapeake SWFs was negotiated between Mr. Stansley, on behalf of
Colonial LP, and Mr. Leadbetter, on behalf of Norglass, Inc., and the Company
believes that fees paid under the contract were consistent with those that would
have been negotiated in an arm's-length transaction, particularly in light of
the financial and other assistance provided by Norglass, Inc. at the time of the
application process.
Pursuant to the Construction Agreement, Norglass, Inc. will act as
construction manager for construction or renovation of the Company's SWFs on a
cost of construction plus 10% basis. The Company may direct Norglass, Inc. to
bid work on the SWFs to local general contractors or to subcontractors.
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
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<PAGE>
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. Additionally, once the Track and six
SWFs have been open and operating for twenty-four (24) months, the Company shall
have the option for sixty (60) days to terminate the Food and Beverage
Concessions Agreement for a purchase price equal to six (6) times the net
operating cash flow, calculated in accordance with generally accepted accounting
principles consistently applied, of Virginia Concessions LLC under the
agreement.
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 December 31, 1996, the accrued and unpaid
management fees are $210,000. 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.
Premier One Development Co. Management Fee
The Company also has agreed to pay Premier One Development Co., an
affiliate of Mr. Jacobs, a fee of $250,000, of which $125,000 was paid in
December 1996 and the balance will be paid immediately upon consummation of this
Offering, for real estate development and construction consulting services.
Premier One Development Co. has assisted the Company in its negotiations with
Chesapeake Corporation for the timely construction of the infrastructure to
support the Track; the design, bidding and construction management of the Track;
site selection, permitting, development, renovation and construction of the
Richmond, Hampton and proposed SWFs; and other real estate development matters.
The three principal shareholders of the Company negotiated the fee.
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 $5,500,000. See "Description of Certain Indebtedness -- Convertible
Subordinated Note."
Credit Facility
Pursuant to an Agreement for Provision of Credit, Diversified Opportunities
Group Ltd. ("Diversified"), an affiliate of Mr. Jacobs, has agreed to provide
the Company with an irrevocable bank letter of credit in the amount of $6.5
million, which may be drawn upon at any time. Diversified has also agreed to
provide credit support as may be required for, or to extend, a loan to the
Company of $10 million on specified terms and conditions. See "Description of
Certain Indebtedness--Credit Facility." Interest on, and any repayment of,
amounts drawn under the letter of credit or amounts loaned by Diversified with
respect to the Credit Facility shall be identical. In return for such agreement,
Diversified will receive an annual fee equal to 3% of the amount represented by
the letter of credit, or guaranteed or loaned, as the case may be, during the
preceding year (based on the average maximum amount thereof). The Company will
reimburse Diversified for the cost of the letter of credit provided and in no
event will the annual fee payable by the Company be less than $50,000.
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.
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 services rendered in 1995,
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<PAGE>
Underhill Investment Corporation received a $50,000 fee and will be paid an
additional $50,000 upon consummation of this Offering. Underhill Investment
Corporation will receive 15,000 shares of Class A Common Stock from Messrs.
Stansley and Leadbetter for such services. These shares were personal property
of Messrs. Stansley and Leadbetter and the Company did not compensate them for
the shares conveyed by them.
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 Diversified in return for providing credit enhancement in connection
with the Credit Facility (such shares of Class A Common Stock, "Registrable
Shares"). If at any time beginning 12 months after the date of this Offering,
the holders of not less than 30% of the Registrable Shares request that the
Company file a registration statement covering at least 20% of the Registrable
Shares (or any lesser percentage if the anticipated aggregate offering price
would exceed $10,000,000), the Company will be obligated to file a registration
statement under the Securities Act covering the resale of Registrable Shares and
to use reasonable efforts to maintain the effectiveness of such registration
statement for a period of up to 180 days or such earlier time as all Registrable
Shares can be sold pursuant to Rule 144 under the Securities Act without
limitation on volume. Thereafter, the Company will be required to file up to two
additional registration statements with respect to resale of Registrable Shares
held by affiliates of the Company, upon the demand of holders of a majority of
such Registrable Shares, and will be required to use reasonable efforts to
maintain the effectiveness of such registration statement for a period of up to
180 days. The Company will be obligated to pay the expenses of any such
registration, other than any brokerage fees or commissions payable in connection
with the sale of Registrable Shares pursuant to any such registration statement.
In addition, the holders of Registrable Shares are entitled to have Registrable
Shares included in a registration statement filed on behalf of the Company, on a
pro rata basis, subject to certain other terms and conditions. The Company will
bear the expenses of registration of such shares, except for any underwriting
discounts and commissions which will be borne by the participating shareholders
in proportion to the number of shares sold. These registration rights are
subject to customary conditions and limitations.
Issuance of Shares of Common Stock
In connection with the Reorganization, the Company will issue 750,000
shares of Class A Common Stock and 2,250,000 shares of Class B Common Stock for
the acquisition of 99% of the partnership interests of Colonial LP and all of
the outstanding stock of Stansley Racing. Arnold W. Stansley will receive
510,000 shares of Class A Common Stock and 510,000 shares of Class B Common
Stock in exchange for his shares of SMC (which presently owns one half of
Colonial LP) and Stansley Racing, which shares he has held since September 1993
and June 1994, respectively. James M. Leadbetter will receive 225,000 shares of
Class A Common Stock and 225,000 shares of Class B Common Stock for his shares
of SMC and Stansley Racing, which shares he has held since June 1994. Two
individuals will each receive 7,500 shares of Class A Common Stock and 7,500
shares of Class B Common Stock for shares of SMC they received as gifts from Mr.
Stansley in July 1995. Additionally, CD Entertainment Ltd., which owns 50% of
the partnership interests of Colonial LP, will receive 1,500,000 shares of Class
B Common Stock. CD Entertainment Ltd. acquired its 50% interest in Colonial LP
in July 1996 for $2,000,000 and its provision of certain interim financing.
Stansley Racing will acquire a 1% general partnership interest in
Colonial LP for nominal consideration in connection with the Reorganization.
Also in connection with the Reorganization, Mr. Stansley will convey
10,408 shares of Class A Common Stock, and Mr. Leadbetter will convey 4,592
shares of Class A Common Stock, to Underhill Investment Corporation, an
affiliate of Mr. Peskoff, for payment for certain financial services received by
them. Additionally, Mr. Stansley will convey 8,673 shares of Class A Common
Stock, and Mr. Leadbetter will convey 3,827 shares of Class A Common Stock, to
an affiliate of a financial advisor that assisted in the application of the
racetrack owner's and operator's licenses.
Share Transactions Among Certain Shareholders
In connection with the consummation of the Offering, Arnold W. Stansley
and James M. Leadbetter will grant options to CD Entertainment Ltd. to acquire
up to 300,000 shares in aggregate (208,200 from Mr. Stansley and 91,800 from Mr.
Leadbetter) of Class A Common Stock at 85% of the initial offering price for
this Offering. Such options shall remain outstanding for three years from the
date of the consummation of the Offering and may be exercised all or in part.
Prior to the consummation of the Offering, Arnold W. Stansley, James M.
Leadbetter and CD Entertainment Ltd. will enter into a Buy-Sell Agreement
covering the shares of Common Stock held by them. The agreement will provide,
with certain exceptions, that if any one of the parties receives a bona-fide
offer for the purchase of any or all of his shares, such shareholder will first
offer the shares to the others on a pro rata basis. For private transactions
exempt from the registration requirements of the Securities Act, the other
shareholders will have five business days in which to elect to purchase such
shares on the terms presented in the offering shareholder's notice. For public
market sales, the other shareholders will have 24 hours in which to elect to
purchase such shares. Additionally, prior to the exercise of any rights under
the Registration Rights Agreement, the selling shareholder will offer his shares
to the remaining shareholders (unless all three shareholders elect to exercise
their rights under the Registration Rights Agreement).
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table provides information concerning beneficial
ownership of Common Stock, as of December 31, 1996 (after giving effect to the
Reorganization), and as adjusted to reflect the sale of 4,250,000 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 all
other executive officers whose salaries or bonuses was or would have been in
excess of $100,000 for the fiscal year ended December 31, 1996, 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(7)
----- ------------ ----------------------------- -----------------
Class A Class B Class A Class B All
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
CD Entertainment Ltd. (1) -- 1,950,820(2) -- 72.2% 25.3% 52.7%
Jeffrey P. Jacobs (3) -- 1,950,820(2) -- 72.2 25.3 52.7
Arnold W. Stansley....... 490,919(4) 510,000 11.6% 22.7 13.8 18.7
James M. Leadbetter...... 216,581(5) 225,000 5.1 10.0 6.1 8.3
Stephen Peskoff(6)....... 15,000 -- 0.4 -- 0.2 0.1
O. James Peterson, III... -- -- -- -- -- --
David C. Grunenwald...... -- -- -- -- -- --
Robert H. Hughes......... -- -- -- -- -- --
Patrick J. McKinley...... -- -- -- -- -- --
All executive officers and
directors as a group (12
persons)............... 722,500 2,685,820 14.5% 99.4% 44.3% 76.5%
</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 450,820 shares of Class B Common Stock issuable upon conversion of
the Convertible Subordinated Note (assuming a $10 per share initial public
offering price for the Class A Common Stock). Excludes 300,000 shares of
Class A Common Stock which may be transferred upon the exercise of options
to be issued by Messrs. Stansley and Leadbetter.
(3) Represents the shares owned by CD Entertainment Ltd.
(4) Includes 208,200 shares that will be subject to an option in favor of
CD Entertainment Ltd.
(5) Includes 91,800 shares that will be subject to an option in favor of
CD Entertainment Ltd.
(6) Represents shares owned by Underhill Investment Corp., an affiliate of
Mr. Peskoff.
(7) 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 total
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 5,000,000 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 450,820 shares
of Class B Common Stock (subject to adjustment) for issuance upon conversion of
the Convertible Subordinated Note (assuming a $10 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.
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. The holders of
Class A Common Stock and Class B Common Stock will participate equally, on a per
share basis, in any such distribution of any such assets.
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 (which include
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), and any amendments to the Amended and Restated Articles of
Incorporation or Amended and Restated Bylaws to alter or adversely effect the
voting rights of the Class B Common Stock.
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<PAGE>
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. The holders of
Class A Common Stock and Class B Common Stock will participate equally, on a per
share basis, in any such distribution of any such assets.
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
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<PAGE>
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 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.
Accordingly, although CD Entertainment Ltd., Jeffrey P. Jacobs, Gary L. Bryenton
and Jeffrey P. Jacobs as trustees, and Arnold W. Stansley are each an Interested
Shareholder, the restrictions imposed under the statute are inapplicable because
each will be an Interested Shareholder as of the date the Company 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
American Stock Transfer and Trust Company.
46
<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 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 $5.5 million principal amount. The Convertible Subordinated Note will be
secured by a second deed of trust on the Track, and will bear interest, payable
quarterly, at a fixed rate of 7.25% per annum. 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 122% 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 Credit Facility.
Credit Facility
In connection with this Offering, the Company will require
approximately $10 million of financing to be used to construct the Track,
acquire, construct, equip and open additional planned SWFs, to repay interim
financing and for general corporate purposes. The Company has entered into
negotiations with a number of banks and other institutional lenders relating to
such financing but has not yet signed a firm commitment letter for such
financing. Such financing is expected to provide for an interest rate of not
more than LIBOR plus 3% and have a term of four to five years. Pursuant to an
Agreement for Provision of Credit, Diversified, an affiliate of Mr. Jacobs, has
agreed to provide the Company guarantees, a pledge of its assets or other form
of security to assist the Company in securing such financing from a financial
institution on certain terms and conditions. If the Company is unable to obtain
such a facility, Diversified has agreed to loan the Company $10 million. The
Diversified loan, if made, will bear interest, payable quarterly, at a rate of
not more than LIBOR plus three percent (3%) per annum have a term of four years.
During the first year, the Diversified loan will require payment only of
interest. During the remaining years, principal amortization will be
required in quarterly payments, based on a 15-year amortization schedule, with
the balance payable at maturity. The loan will be secured by liens on
substantially all of the Company's real and personal property. Mr. Jacobs has
agreed to personally guarantee the performance of Diversified pursuant to this
agreement. The proceeds of the Credit Facility will be used to retire any
obligations the Company may have to repay Diversified in respect of any drawings
under the $6.5 million letter of credit provided at closing, and to repay
approximately $3.5 million of interim financing provided by CD Entertainment
Ltd.
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<PAGE>
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 5,000,000 shares of Class A Common Stock (5,637,500 shares if the
Underwriters' over-allotment is exercised in full) and 2,250,000 shares of Class
B Common Stock. The 4,250,000 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 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. No existing
shareholder will be able to commence any public sale of any of its
currently-held shares of Common Stock for at least two years, 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."
48
<PAGE>
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................................................. 4,250,000
=========
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 637,500 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
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
49
<PAGE>
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 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.
50
<PAGE>
COLONIAL DOWNS HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants........................ F-2
Consolidated Financial Statements
Balance Sheets as of December 31, 1996 and 1995......................... F-3
Statements of Operations for the Years Ended December 31,
1996, 1995 and 1994................................................... F-5
Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995, and 1994..................................... F-6
Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994......................................................... F-7
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, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
Richmond, Virginia
February 10, 1997
F-2
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Consolidated Balance Sheets
December 31, December 31,
1996 1995
------------ ------------
Assets
Current
Cash and cash equivalents.................. $ 1,379,884 $ 330,066
Horsemen's deposits (Notes 1 and 9)........ 337,738 -
Accounts receivable........................ 38,519 -
Prepaid expenses........................... 9,335 -
----------- ----------
Total current assets........................ 1,765,476 330,066
----------- ----------
Property and equipment (Notes 1, 6 and 7)
Land...................................... 800,000 -
Building and improvements................. 1,788,343 -
Leasehold improvements.................... 807,643 737,864
Equipment, furnishings and fixtures....... 868,918 253,222
Vehicles.................................. 19,585 19,585
Construction in progress.................. 5,080,098 858,029
----------- ----------
9,364,587 1,868,700
Less accumulated depreciation
and amortization........................ 126,167 3,060
----------- ----------
Net property and equipment.................. 9,238,420 1,865,640
----------- ----------
Other
Licensing costs (Note 1).................. 942,572 777,592
Financing costs........................... 332,037 131,244
Organization costs (Note 1)............... 7,500 7,500
Miscellaneous............................. 51,352 30,000
----------- ----------
1,333,461 946,336
Less accumulated amortization............. 160,867 -
----------- ----------
Total other................................. 1,172,594 946,336
----------- ----------
$12,176,490 $3,142,042
=========== ==========
F-3
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Consolidated Balance Sheets--(Continued)
December 31, December 31,
1996 1995
------------ ------------
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Accounts payable......................... $ 3,567,388 $1,242,855
Management fee payable (Note 7).......... 210,000 30,000
Accrued expenses......................... 123,292 14,761
Uncashed pari-mutuel tickets............. 147,064 -
Current maturities of long-term debt
and capital lease obligations
(Note 6).............................. 47,678 4,403
Notes payable - stockholders (Note 6).... 1,637,619 400,000
Advances from stockholders (Note 6)...... - 227,234
Purses due horsemen (Note 9)............. 1,957,683 -
----------- ----------
Total current liabilities.................. 7,690,724 1,919,253
----------- ----------
Long-term liabilities
Long-term debt and capital lease
obligations, net of current
maturities (Note 6).................... 42,159 11,086
Notes payable - stockholders
(Note 6)............................... 3,448,782 1,536,532
----------- ----------
Total long-term liabilities................ 3,490,941 1,547,618
----------- ----------
Total liabilities.......................... 11,181,665 3,466,871
----------- ----------
Commitments and contingencies (Notes 1, 2, 3, 4, 5, 7, 8 and 9)
Stockholders' equity (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
Class B, $.01 par value, 3,000,000
shares authorized; 2,250,000
shares outstanding................... 22,500 22,500
Additional paid-in capital............... 1,966,169 1,100
Retained earnings (deficit).............. (1,001,344) (355,929)
----------- ----------
Total stockholders' equity (deficit)....... 994,825 (324,829)
----------- ----------
$12,176,490 $3,142,042
=========== ==========
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-4
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues
Pari-mutuel commissions--
import simulcasting.................. $7,744,839 $ - $ -
Admissions............................. 215,494 - -
Programs............................... 361,217 - -
Miscellaneous (Note 7)................. 205,760 - -
---------- ---------- ----------
Total revenues........................... 8,527,310 - -
---------- ---------- ----------
Operating expenses
Direct operating expenses:
Purses and awards...................... 1,946,037 - -
Totalisator and simulcast expenses..... 1,319,187 - -
Breeder's fund fees.................... 369,526 - -
Pari-mutuel taxes...................... 947,180 - -
Direct salaries, payroll taxes
and employee benefits................ 1,160,385 - -
Other direct expenses.................. 792,023 - -
Consulting fees (Note 2)............... 739,062 - -
---------- ---------- ----------
Total direct operating expenses........ 7,273,400 - -
---------- ---------- ----------
General and administrative
expenses:
Management fees (Note 7)............. 180,000 30,000 -
Attorney and professional fees....... 536,733 - -
Other................................ 721,720 285,175 -
---------- ---------- ----------
Total general and administrative
expenses............................ 1,438,453 315,175 -
---------- ---------- ----------
Depreciation and amortization......... 283,974 3,060 -
---------- ---------- ----------
Total operating expense.................. 8,995,827 318,235 18,648
---------- ---------- ----------
Loss from operations..................... (468,517) (318,235) (18,648)
---------- ---------- ----------
Other income (expense)
Interest expense....................... (183,118) (2,252) -
Interest income........................ 6,220 - -
---------- ---------- ----------
Total other income (expense)............. (176,898) (2,252) -
---------- ---------- ----------
Net loss................................. $ (645,415) $ (320,487) $ (18,648)
---------- ---------- ----------
Earnings per share data:
Earnings per share..................... $ (0.22) $ (0.11) $ (0.01)
---------- ---------- ----------
Weighted average number
of shares outstanding................ 3,000,000 3,000,000 3,000,000
========== ========== ==========
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-5
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Consolidated Statements 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>
Balance, December 31,
1993.................... - $ - - $ - $ - $ (16,794) $ 1,100 $ (15,694)
Elimination of partner's
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.................. - - - - - (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.................. - - - - - (320,487) - (320,487)
-------- ------ ---------- ------- ---------- ----------- --------- ----------
Balance, December 31,
1995.................... 750,000 7,500 2,250,000 22,500 1,100 (355,929) - (324,829)
Conversion of shareholder
debt to equity (Note 6). - - - - 1,965,069 - - 1,965,069
Net loss.................. - - - - - (645,415) - (645,415)
-------- ------ ---------- ------- ---------- ----------- --------- ----------
Balance, December 31,
1996.................... 750,000 $7,500 2,250,000 $22,500 $1,966,169 $(1,001,344) $ - $ 994,825
======== ====== ========== ======= ========== =========== ========= ==========
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-6
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating activities
Net loss....................................... $ (645,415) $ (320,487) $ (18,648)
Adjustments to net loss
Depreciation and amortization................ 283,974 3,060 -
Increase in purses due horsemen.............. 1,957,683 - -
Increase in uncashed tickets................. 147,064 - -
Increase in accounts receivable
and other assets........................... (47,854) - -
Increase in accounts payable - trade......... 638,867 112,922 -
Increase in accrued expenses and other....... 200,087 44,132 -
Increase in accrued interest payable......... 88,444 629 -
Increase in horsemen's deposits.............. (337,738) - -
---------- ---------- ---------
Net cash provided (absorbed) by
operating activities........................ 2,285,112 (159,744) (18,648)
---------- ---------- ---------
Investing activities
Purchases of property and equipment (5,810,221) (436,570) (223,240)
Investment in other assets.................. (186,332) (483,649) (199,343)
---------- ---------- ---------
Net cash absorbed by investing activities..... (5,996,553) (920,219) (422,583)
---------- ---------- ---------
Financing activities
Net proceeds (repayments) from borrowings... $ (4,404) $ 15,489 $ -
Net increase in financing costs............. (200,793) (100,000) (15,045)
Proceeds from long-term debt................ 50,200 - -
Payments on long-term debt.................. (712) - -
Proceeds from capital lease agreements...... 39,483 - -
Payments on capital lease agreements........ (10,219) - -
Proceeds from stockholder advances
and notes payable......................... 4,987,704 1,492,117 458,699
Payments on stockholders' advances
and notes payable......................... (100,000) - -
---------- ---------- ---------
Net cash provided by financing activities..... 4,761,259 1,407,606 443,654
---------- ---------- ---------
Net increase in cash and cash equivalents..... 1,049,818 327,643 2,423
Cash and cash equivalents, beginning of year.. 330,066 2,423 -
---------- ---------- ---------
Cash and cash equivalents, end of year........ $1,379,884 $ 330,066 $ 2,423
========== ========== =========
Supplemental Disclosures of Cash Flow
Information
Cash paid for interest........................ $ 94,674 $ 2,400 $ -
---------- ---------- ---------
Conversion of debt to equity.................. $1,965,069 $ - $ -
---------- ---------- ---------
At December 31, 1996 and 1995, $2,815,599 and $1,129,933, respectively, were due
vendors for property and equipment purchases.
</TABLE>
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
1. Significant Accounting Policies
Principles of Consolidation
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 December 31, 1993. All significant intercompany accounts
and transactions have been eliminated.
The Company intends to obtain funds to develop, construct, and operate a
pari-mutuel horse racing facility and up to six satellite wagering credit
facility through a public offering of $42.5 million in common stock and securing
a $10.0 million credit facility from an institutional lender or an affilate of a
shareholder and a $5.5 million convertible subordinated note issued to the
Company's principal Shareholder.
On November 25, 1996, the Company entered into a letter of intent with an
investment banking firm to sell 4,250,000 shares of its common
stock in an underwritten initial public offering ("IPO"). The IPO is expected to
close during the first quarter of 1997.
Reorganization
The Company's licenses to own and operate the racetrack and its SWFs are
held by the Partnership and SRC. Stansley Management Corp. ("SMC") and CD
Entertainment Ltd. each own 50% of the Partnership. CD Entertainment Ltd. is
beneficially owned by Jeffrey P. Jacobs, and Gary L. Bryenton and Jeffrey P.
Jacobs as Trustees. SMC is owned 68% by Arnold W. Stansley and 30% by James M.
Leadbetter, with the balance held by two other individuals. Mr. Stansley also
owns 70% of the outstanding capital stock of SRC and Mr. Leadbetter owns the
remaining 30%. CD Entertainment Ltd. and Mr. Stansley each own one share of
common stock of CD Holdings. The ownership and operating licenses held by the
Partnership and SRC 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, CD Holdings will become a holding company for the Partnership and
SRC pursuant to an Agreement and Plan of Reorganization ("Reorganization").
Pursuant to the Reorganization, 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, in conjunction with the Reorganization, SRC will acquire a
1% general partner interest in the Partnership.
As a result of the Reorganization, the Company will own, directly or
through its wholly-owned subsidiaries, the ownership and operating licenses for
the racetrack and the Chesapeake and Richmond Satellite Wagering Facilities
("SWFs"); the property for the Richmond SWF; the application for the Hampton
SWF; the rights to apply for licenses to own and operate up to three additional
SWFs in Virginia; 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
F-8
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
1. Significant Accounting Policies--(continued)
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 currently authorized to be awarded
unrestricted licenses to own and operate up to six SWFs, which offer or will
offer off-track pari-mutuel wagering on simulcast races from tracks around the
country.
The Company is seeking to secure the funds necessary to complete
construction of 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 SWF's. 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 SWF's authorized by the Commission.
Cash and Cash Equivalents
For the purposes of preparing the Company's statement of 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.
Estimated costs to complete the racetrack, including all furnishings and
equipment, is approximately $35.9 million as of December 31, 1996.
Approximately $72,000 of interest expense was capitalized during 1996 in
connection with the construction of the racetrack and development of the SWF's.
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 and improvements............... 39
Leasehold improvements.................. 7-39
Vehicles................................ 3-7
Machinery and equipment................. 3-7
Office equipment........................ 3-7
F-9
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
1. Significant Accounting Policies--(continued)
Licensing Costs and Amortization
Licensing costs consist primarily of legal and professional fees associated
with the application for the racetrack licenses and related licensing fees for
the SWF's. Organization costs include legal and professional fees incurred in
conjunction with organizing the Company. Organization and licensing costs are
being amortized over a period of sixty months.
Revenue Recognition
The Company currently primarily derives revenue from import simulcasting,
which is the Company's share of wagering (approximately 20%) at the Company's
SWF's on races simulcast from other racetracks. Revenue is recognized under the
accrual method, and accordingly, revenue is recognized when earned and expenses
are recognized when incurred.
Horsemen's Purses and Awards
Amounts due under agreements with the Virginia Horsemen's Benevolent and
Protective Association, Inc. and the Virginia Harness Horse Association
(collectively "the Associations"), are accrued based on the terms of the
agreements. Funds not yet remitted to the Associations to satisfy the liability
are held in a restricted cash account. As of December 31, 1996 approximately
$337,800 was held in the restricted cash accounts. See also Note 9.
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 (an "S" Corporation
for income tax purposes) filed income tax returns as separate entities. No
provision has been made for income taxes for the Partnership and SRC as income
taxes are the liabilities of the individual partners and shareholders,
respectively. CD Holdings was incorporated in November, 1996 and had no activity
for the periods presented.
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.
Concentration of Credit Risk
Financial instruments which potentially subject the 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 institutions
evaluated as being creditworthy. At December 31, 1996 and 1995, the
F-10
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
1. Significant Accounting Policies--(continued)
Company had cash deposits which exceeded federally insured limits by
approximately $899,000 and $230,000, respectively.
Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued its
Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for
the Impairment of Long-Lived Assets and For Long-Lived Assets to Be Disposed
Of". SFAS 121 requires that long-lived assets and certain intangibles to be held
and used by an entity be reviewed for impairment when events or changes in
circumstances indicate that the carrying amount may be not recoverable. In
addition, SFAS 121 requires long-lived assets and certain intangibles to be
disposed of to be reported at the lower of carrying amount of fair value less
costs to sell. SFAS 121 is effective for fiscal years beginning after December
15, 1995. The application of this pronouncement did not have a material effect
on the Company's financial statements.
2. Management and Consulting Agreement with Maryland -
Virginia Racing Circuit
The Company entered into a consulting agreement with the Maryland -
Virginia Racing Circuit, Inc. ("Circuit") an affiliate of the Maryland Jockey
Club ("MJC"). Pursuant to the agreement, MJC will suspend live racing at
Pimlico and Laurel racetracks during the Company's live thoroughbred racing
meet and 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, which is approximately 10% of pari-mutuel
revenues, exclusive of live harness racing at the Company's racetrack, at all of
the Company's locations. Additionally, the Company will pay a pro-rata share,
based on the duration of its live thoroughbred racing meet, of the salaries of
the MJC employees that participate in the management of the Company's meet.
Under the agreement, approximately $739,000 of costs were incurred through
December 31, 1996.
3. Land Conveyance and Land Development
Delmarva Properties, Inc. and Chesapeake Forest Products Company
(collectively "Delmarva") and 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 and subject to a restriction limiting its
use to operation of a horse racetrace and certain ancillary activities. The land
will be recorded at fair value due to the contribution being made from an
independent third party. Conveyance will occur upon the completion of the IPO.
The property will be treated as a capital contribution to the Company when the
likelihood for reversion is remote, which is expected to be upon the completion
of the IPO and the racing facility and the commencement of live racing.
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.
4. Performance Guarantee
As part of obtaining the pari-mutuel license from 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;
F-11
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
4. Performance Guarantee--(continued)
therefore, the racetrack facilities must be completed by July 17, 1997.
If the Company fails to complete the racetrack by July 17, 1997, the
Commission is to be paid $5,000 a day that performance is not complete, up to a
maximum of $1,000,000.
As a part of the agreement, the Commission required the Company to provide
two letters of credit of $500,000 each. In connection with this requirement, the
Company obtained two letters of credit which can be drawn on by the Commission,
one of which expires in December 1997 and the other in March, 1997 in the sum of
$1,000,000. Both letters of credit are renewable for additional terms.
5. Industrial Development Agreement
To assist in the development and improvement in certain public roads
adjacent to the racetrack 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 would 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, Advances from Stockholders,
and Capital Lease Obligations
Notes payable, advances from stockholders and capital lease obligations
consist of the following:
December 31,
------------
1996 1995
---- ----
Advances from Arnold Stansley, non-interest
bearing, unsecured................................. $ - $ 227,234
Note payable to Arnold Stansley, maturing March
1998, non-interest bearing, unsecured.............. 211,788 273,213
Note payable to Arnold Stansley, maturing
January 1997, non-interest bearing, unsecured...... 175,000 -
Note payable to Norglass, Inc., maturing March
1998, non-interest bearing, unsecured.............. $ 236,994 $ 263,319
Note payable to Norglass, Inc., maturing
January 1997, unsecured............................ 75,000 -
Convertible promissory note to CD Entertainment
Ltd. 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 CD Entertainment Ltd.
payable on demand, with interest payable monthly
at a rate of 10%; collateralized by machinery,
equipment, inventory, and receivables............ - 400,000
Note payable to CD Entertainment Ltd.
maturing January 1998 bearing interest at
LIBOR (5.625% at December 31, 1996) plus
2%; collateralized by land and building.......... 3,000,000 -
Note payable to CD Entertainment Ltd. bearing
interest at LIBOR (5.625% at December 31, 1996)
plus 2%, with maximum borrowings of $5,000,000,
unsecured........................................ 1,387,619 -
Demand note payable to a Bank, with interest payable
at prime plus 2% (10.25% at December 31, 1996);
unsecured........................................ 20,100 -
Note payable to a Bank, maturing November, 1999
bearing interest at 11% with monthly payments
of $987; collateralized by equipment.............. 29,388 -
F-12
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
6. Notes Payable, Advances from Stockholders,
and Capital Lease Obligations--(continued)
Installment notes and capitalized leases collateralized by certain vehicles,
machinery, and equipment, maturing at various dates, primarily March 1997
through January 1999,
at interest rates ranging from 3% to 12%......... 40,349 15,489
---------- ----------
5,176,238 2,179,255
Less current maturities............................ 1,685,297 631,637
---------- ----------
$3,490,941 $1,547,618
========== ==========
Capital lease obligations as of December 31, 1996 and 1995 are
approximately $29,300 and $0, respectively. The amount of leased fixed assets
capitalized at December 31, 1996 and 1995 are approximately $39,500 and $0,
respectively.
Arnold Stansley, Norglass, Inc. and CD Entertainment Ltd. are related to
the Company either directly or indirectly (See Note 1).
The aggregate amounts of notes payable and capital lease obligations at
December 31, 1996 matures as follows:
Through December 31, Amount
-------------------- ------
1997............................ $1,685,297
1998............................ 3,469,456
1999............................ 13,345
2000............................ 3,636
2001............................ 4,504
----------
$5,176,238
==========
During the year ended December 31, 1996, $1,965,069 of debt due to CD
Entertainment Ltd. was converted to equity and treated as capital
contributions. No shares of common or preferred stock were issued in connection
with the conversion.
7. Related Party Transactions
The Company has a management agreement to pay directly and indirectly to
SRC and CD Entertainment a monthly management fee of $10,000 and $5,000,
respectively, per month until closing of the IPO. The Company accrued management
fees of $180,000 and $30,000 during the years ended December 31, 1996 and
December 31, 1995, respectively.
Virginia Concessions, L.L.C., an affiliate of a shareholder, was granted an
option by the Company to manage the food and beverage concessions at the initial
six SWFs. Under the agreement, Virginia Concessions, L.L.C. 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 $89,000 of rental income
generated from the Chesapeake and Richmond SWF's for the year ended December 31,
1996.
Norglass, Inc., an affiliate of a shareholder, 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 $6.4 million for certain equipment,
furniture, fixtures and improvements) is estimated at approximately $29.5
million. Norglass, Inc. has also been engaged to perform construction management
related to the SWFs. Total construction costs incurred with Norglass, Inc. were
approximately $5,545,000 through December 31, 1996.
F-13
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
8. Commitments and Contingencies
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.
The Company agreed to pay Premier One Development Co. (Premier), a company
affiliated with a shareholder of the Company, a fee of $250,000 (of which
$125,000 was paid, capitalized and included in construction in progress at
December 31, 1996) for services related to the construction of the Track and the
development of the SWF's.
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 SWF's.
There were no amounts deposited into the construction account at December 31,
1995, since there were no net profits. As of December 31, 1996, there was $717
in the construction account.
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 $190,000 for the year ended December 31,
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 $144,000 for the year ended December 31, 1996.
The following are the future estimated minimum lease commitments relating
to non-cancelable operating 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 and
Richmond facilities.
Year Ending
December 31, Totalisator TVs SWF Other Total
- ------------ ----------- --- --- ----- -----
1997............. $228,800 $178,200 $ 86,000 $26,300 $ 519,300
1998............. 228,800 178,200 86,000 17,900 510,900
1999............. 125,000 178,200 86,000 6,300 395,500
2000............. - 178,200 36,700 1,400 216,300
2001............. - 48,700 - 700 49,400
-------- -------- -------- ------- ----------
$582,600 $761,500 $294,700 $52,600 $1,691,400
======== ======== ======== ======= ==========
The Company has a $200,000 letter of credit that secures the Company's
obligations under certain erosion control bonds related to construction of the
racetrack. This letter of credit is personally guaranteed by certain
shareholders of the Company.
In conjunction with the Reorganization and IPO, the Company intends to
implement a stock option plan. Options granted under the plan may be either
Incentive Stock Options or Non-qualified Stock Options, based on the discretion
of the Board of Directors. The maximum aggregate number of shares which may be
optioned and sold under the plan is 300,000 shares of Class A Common Stock. The
exercise price per share for Incentive Stock Options will be no less than the
fair value of the stock at the grant date. The exercise price of Non-qualified
Stock Options will be determined by the Board of Directors on the grant date.
The term of the plan is ten years from its effective date unless sooner
terminated.
Pursuant to a two-year employment agreement with the President of the
Company, the Company has agreed to grant stock options for 30,000 shares of
Class A Common Stock per year, which vest after each year of employment. The
exercise price of such stock options shall be 105% of the initial offering price
of the IPO. Such options are exercisable after January 2, 2002, the fifth
anniversary of the President's employment with the Company.
Pursuant to an agreement to provide credit support to the Company,
Diversified Opportunities Group Ltd., ("Diversified"), an affiliate of a
shareholder, will receive an annual fee equal to 3% of the amount of any letters
of credit or guarantees provided to the Company or the amount of any loans made
to the Company (subject, in the case of a letter of credit, to a minimum annual
fee of $50,000).
F-14
<PAGE>
Colonial Downs Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
9. Horsemen's Agreements
The Company entered into an agreement effective February 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
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%, which is
approximately 26.25% of pari-mutuel revenues, 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, and renews automatically for successive one year
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.
The Company entered into another agreement effective February 17, 1996 with
the Virginia Harness Horse 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%, which is approximately 25% of pari-mutuel revenue, 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, and renews automatically for
successive one year 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 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 by the Company and the VAHBPA and VHHA.
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-15
<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................................ 8
The Company................................. 16
The Reorganization.......................... 16
Use of Proceeds............................. 17
Dividend Policy............................. 18
Capitalization.............................. 18
Dilution.................................... 19
Selected Financial and Operating Data ...... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 22
Business.................................... 26
Management.................................. 36
Certain Transactions........................ 39
Principal Shareholders...................... 43
Description of Capital Stock................ 44
Description of Certain Indebtedness......... 47
Shares Eligible for Future Sale............. 48
Underwriting................................ 49
Legal Matters............................... 50
Experts..................................... 50
Available Information....................... 50
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>
================================================================================
4,250,000 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.............................. $ 16,292
NASD filing fee................................... *
Nasdaq SmallCap Market fee........................ 10,000
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 Form of Plan and Agreement of Reorganization
3.1 Form of Amended and Restated Articles of Incorporation of Colonial
Downs Holdings, Inc.
3.2 Form of Amended and Restated By-laws of Colonial Downs Holdings, Inc.
*4.1 Stock certificate representing Colonial Downs Holdings, Inc.
Common Stock
*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 Agreement
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 Form Stansley Consulting Agreement
10.12 Notes to CD Entertainment Ltd.
*10.13 Notes to Arnold W. Stansley
*10.14 Notes to Norglass, Inc.
*10.15 Food and Beverages Concessions Agreement
10.16 Form of 1997 Stock Option Plan
*10.17 Agreement for Provision of Credit
*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
27.1 Financial Data Schedule
*99.1 Consents of persons named as directors
=============
* To be filed by amendment
+ Filed previously
(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.
II-3
<PAGE>
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.
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 Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of New Kent,
Virginia, on the 14th day of February, 1997.
COLONIAL DOWNS HOLDINGS, INC.
By: /s/ Jeffrey P. Jacobs
------------------------------
Jeffrey P. Jacobs
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to 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 February 14th, 1997
- -------------------------- and Chief Executive Officer
Jeffrey P. Jacobs
/s/ Arnold W. Stansley* Secretary and Director February 14th, 1997
- --------------------------
Arnold W. Stansley
/s/ Robert H. Hughes* Chief Financial Officer February 14th, 1997
- --------------------------
Robert H. Hughes
/s/ Michael D. Salmon* Controller February 14th, 1997
- --------------------------
Michael D. Salmon
* By Jeffrey P. Jacobs,
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
Exhibit Number Description Page Number
- -------------- ----------- -----------
*1.1 Form of Underwriting Agreement
2.1 Form of Plan and Agreement of Reorganization
3.1 Form of Amended and Restated Articles of Incorporation of Colonial
Downs Holdings, Inc.
3.2 Form of Amended and Restated By-laws of Colonial Downs Holdings, Inc.
*4.1 Stock certificate representing Colonial Downs Holdings, Inc.
Common Stock
*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 Agreement
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 Form of Stansley Consulting Agreement
10.12 Notes to CD Entertainment Ltd.
*10.13 Notes to Arnold W. Stansley
*10.14 Notes to Norglass, Inc.
*10.15 Food and Beverages Concessions Agreement
10.16 Form of 1997 Stock Option Plan
*10.17 Agreement for Provision of Credit
*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
27.1 Financial Data Schedule
*99.1 Consents of persons named as directors (William J. Koslo, Jr.)
- -----------------
* To be filed by amendment
+ Filed previously
FORM OF PLAN AND AGREEMENT OF REORGANIZATION
THIS PLAN AND AGREEMENT OF REORGANIZATION (the "Agreement") is made as
of February __, 1997, among CD ENTERTAINMENT, LTD., an Ohio limited liability
company ("CD Entertainment"), COLONIAL DOWNS HOLDINGS, INC., a Virginia
corporation ("Holdings"), COLONIAL DOWNS, L.P., a Virginia limited partnership
(the "Partnership"), JAMES L. LEADBETTER ("Leadbetter"), STANSLEY MANAGEMENT
CORP., a Virginia corporation ("SMC"), STANSLEY RACING CORP., a Virginia
corporation ("Stansley Racing Corp.") and ARNOLD W. STANSLEY ("Stansley").
W I T N E S S E T H:
WHEREAS, the Virginia Racing Commission has granted the Partnership and
Stansley Racing Corp. exclusive licenses to own and operate a pari-mutuel horse
racing facility in New Kent County, Virginia and several satellite wagering
facilities;
WHEREAS, Holdings has been formed to consolidate the ownership
management, financing and operation of such facilities; and the parties wish to
set forth their agreement regarding the manner for achieving consolidation
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
I. REORGANIZATION STEPS
The parties hereto shall be reorganized and interests within such
parties shall be transferred and acquired as provided below in this Section I.
A. Merger of SMC. Pursuant to Section 13.1-716 et seq. of the Virginia
Code of 1950, as amended, SMC shall merge into Holdings which shall be the
surviving corporation. Under such merger, Holdings shall acquire all of SMC's
assets and assume all of SMC's liabilities, and in exchange therefor Holdings
shall issue 750,000 shares of Class A Common Stock and 749,900 shares of Class B
Common Stock of Holdings to the shareholders of SMC in proportion to their
relative shares of SMC stock which shall be surrendered and canceled.
B. Transfer by CD Entertainment. CD Entertainment shall transfer all of
its partnership interest in the Partnership to Holdings, and in exchange
therefor Holdings shall issue 1,500,000 shares of Class B Common Stock of
Holdings to CD Entertainment.
C. Transfer by Leadbetter and Stansley. Leadbetter and Stansley shall
transfer all of their shares of Stansley Racing Corp. stock to Holdings, and in
exchange therefor Holdings shall issue 50 shares of Class B Common Stock of
Holdings to Leadbetter and 50 shares of Class B Common Stock of Holdings to
Stansley.
D. Cancellation of Existing Shares. The shares of Common Stock of
Holdings held by each of CD Entertainment and Stansley prior to reorganization
described herein shall be canceled.
E. Issue by the Partnership. The Partnership shall issue to Stansley
Racing Corp. an interest in one percent of the Partnership's profits. In
exchange therefor Stansley Racing Corp. shall be admitted to the Partnership as
the Partnership's sole general partner.
F. Ownership of the Partnership. As a result of the transactions
described in Section I.A, I.B, I.C and I.D hereof, Holdings shall own directly
all of the limited partner interests in the Partnership and shall own indirectly
through Stansley Racing Corp. the sole general partner interest in the
Partnership.
G. Land. Holdings shall acquire the approximately 345 acre tract of
land located in New Kent County, Virginia now owned by Delmarva Properties, Inc.
and Chesapeake Forest Products Company, and shall develop the land in accordance
with the provisions of all agreements and laws to which it is subject. Holdings
and the Partnership shall enter into a lease of the land for a period of 99
years for the sum of $1,000.00 per year.
H. Public Offering. Immediately following the completion of the
foregoing transactions, Holdings shall conduct an initial public offering of its
stock in accordance with a registration statement filed with the United States
Securities and Exchange Commission.
<PAGE>
II. IMPLEMENTATION
A. Closing. Closing of the transactions described in Sections I.A
through I.G hereof shall occur upon one day's notice by Holdings to the other
parties hereto and closing of the public offering shall occur immediately
thereafter.
B. Action. Each of the parties hereto agrees to take the action with
regard to itself described in Section I hereof in reliance on each other party's
agreement to do the same. Each of the parties shall take such further action as
is necessary to carry out such transactions in accordance with all laws to which
it is subject.
C. Termination. This Agreement shall terminate and be of no further
force or effect if the transactions set forth in Sections I.A through I.G have
not occurred on or before May 1, 1997.
III. GENERAL PROVISIONS
A. Virginia Law. This Agreement and the parties' rights and obligations
hereunder shall be construed and governed under the law of the Commonwealth of
Virginia other than its provisions regarding conflicts of law.
B. Parties Bound. This Agreement shall be binding on and shall inure to
the benefit of the parties' successors in interest.
C. Entire Agreement. This Agreement contains the parties' entire
understanding regarding the subject matter hereof and supersedes all prior and
contemporaneous agreements regarding the subject matter hereof.
D. Amendment. This Agreement may be modified only by a written document
signed by all of the parties hereto.
E. Counterpart. This Agreement may be signed in counterpart. Together,
all signed counterparts shall constitute a single agreement notwithstanding that
not all parties may have signed the same counterpart.
<PAGE>
WITNESS the following signatures:
CD ENTERTAINMENT, LTD.,
an Ohio limited liability company
By: Jacobs Entertainment Ltd., Manager
By: __________________________
Jeffrey P. Jacobs, Manager
1231 Main Avenue
Cleveland, Ohio 44113
COLONIAL DOWNS HOLDINGS, INC.,
a Virginia corporation
By: ___________________________
Jeffrey P. Jacobs, Chairman and
Chief Executive Officer
COLONIAL DOWNS, L.P.,
a Virginia limited partnership
By: CD Entertainment, Ltd.
an Ohio limited liability company,
General Partner
By: Jacobs Entertainment, Ltd.,
Manager
By:_________________________
Jeffrey P. Jacobs, Manager
1231 Main Avenue
Cleveland, Ohio 44113
By: Stansley Management Corp.,
a Virginia corporation,
General Partner
By: _____________________________
Arnold W. Stansley, President
3610 N. Courthouse Rd.
P.O. Box 456
Providence Forge, VA 23140
- ---------------------------
James M. Leadbetter
A. C. Leadbetter & Son, Inc.
110 Arco Drive
Toledo, Ohio 43607
STANSLEY MANAGEMENT CORP.,
a Virgnia corporation
By: _____________________________
Arnold W. Stansley, President
3610 N. Courthouse Rd.
P.O. Box 456
Providence Forge, Virginia 23140
STANSLEY RACING CORP.,
a Virginia corporation
By: _____________________________
Arnold W. Stansley, President
3610 N. Courthouse Rd.
P.O. Box 456
Providence Forge, Virginia 23140
- -------------------------------
Arnold W. Stansley
3610 N. Courthouse Rd.
P.O. Box 456
Providence Forge, Virginia 23140
FORM OF AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
COLONIAL DOWNS HOLDINGS, INC.
By unanimous consent in writing dated the 10th day of February, 1997,
the Board of Directors of Colonial Downs Holdings, Inc. (the "Corporation"),
found that the following proposed Amendment to and Restatement of the Articles
of Incorporation of the Corporation was in the best interests of the
Corporation, and directed that it be submitted to a vote of the shareholders.
The Amended and Restated Articles of Incorporation, as proposed by the Board of
Directors (the "Board") and set forth below, were unanimously approved and
adopted by the shareholders of the Corporation by consent in writing dated the
10th day of February, 1997.
A. Corporate Name. The name of the corporation is Colonial Downs
Holdings, Inc. (the "Corporation").
B. Purposes and Powers. The purpose for which the Corporation is formed
is to engage in any lawful business. In addition, the Corporation shall have the
same powers as an individual to do all things necessary or convenient to carry
out its business and affairs.
C. Authorized Stock. The aggregate number of shares which the
Corporation shall have authority to issue, and the par value per share, are as
follows:
Class Par Number
and Series Value of Shares
---------- ----- ---------
Class A Common $.01 12,000,000
Class B Common $.01 3,000,000
Preferred $.01 2,000,000
No holders of any class or series of stock shall have the preemptive
right to acquire unissued shares of any class or series of stock of the
Corporation. The Class A Common Stock and the Class B Common Stock are
collectively referred to as the "Common Stock."
D. 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 shareholders of the
Corporation, together with 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 shareholders. Holders of the Class A Common Stock are
entitled to one vote per share.
Liquidation Rights. In the event of any dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
the holders of the Class A 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 Corporation remaining after the
Corporation shall have paid, or provided for payment of, all debts and
liabilities of the Corporation and after the Corporation shall have paid, or set
aside for payment to the holders of any class of stock having preference over
the Class A Common Stock in the event of dissolution, liquidation or winding up
the full preferential amounts (if any) to which they are entitled. The holders
of Class A Common Stock and Class B Common Stock shall participate equally, on a
per share basis, in any such distribution of such assets.
Dividends. Dividends may be paid on the Class A Common Stock
and on any class or series of stock entitled to participate therewith when and
as declared by the Board. Holders of the Class A Common Stock and Class B Common
Stock will be entitled to participate equally, on a per share basis, in any
dividend declared by the Board in respect of the Common Stock.
<PAGE>
E. 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 shareholders of the
Corporation, together with 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 shareholders. Holders of the Class B Common Stock are
entitled to five (5) votes per share generally, other than votes or approvals
with respect to (i) a merger, consolidation, or other business combination of
the Corporation, (ii) a sale of all or substantially all of the assets of the
Corporation, or (iii) amendments to the Corporation's Articles of Incorporation,
as amended from time to time, or Bylaws, as amended from time to time, that
alter or affect the voting rights of the holders of Class B Common Stock.
Liquidation Rights. In the event of any dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
the holders of the Class B 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 Corporation remaining after the
Corporation shall have paid, or provided for payment of all debts and
liabilities of the Corporation and after the Corporation shall have paid, or set
aside for payment, to the holders of any class of stock having preference over
the Class B Common Stock in the event of dissolution, liquidation or winding up
the full preferential amounts (if any) to which they are entitled. The holders
of Class A Common Stock and Class B Common Stock shall participate equally, on a
per share basis, in any such distribution of any such assets.
Dividends. Dividends may be paid on the Class B Common Stock,
and any class or series of stock entitled to participate therewith when and as
declared by the Board. Holders of the Class A Common Stock and Class B Common
Stock will be entitled to participate equally, on a per share basis, in any
dividend declared by the Board in respect of the Common Stock.
Conversion into Class A Common Stock. Each holder of Class B
Common Stock may, at its option, convert any or all shares of Class B Common
Stock into the same number of shares of Class A Common Stock upon presentation
of such shares of Class B Common Stock to the Corporation's stock transfer
agent.
Restrictions on Transfer. The Class B Common Stock may not be
sold, assign, or other transferred to any person or entity other than any of CD
Entertainment Ltd., Jeffrey P. Jacobs, or members of Mr. Jacobs' immediate
family. A legend to such effect shall appear on each certificate evidencing
shares of Class B Common Stock.
F. Preferred Stock. The Board of Directors is authorized to have the
Corporation 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 Corporation; (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 Corporation, 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 of any
other securities (including Common Stock) and, if so, the price or prices or the
rate or rates of conversion or exchange.
<PAGE>
G. Certain Charter and Statutory Provisions. The number of Directors
constituting the Board of Directors shall be not less than four nor greater than
nine, as set forth in the Bylaws from time to time. The terms of the Directors
shall be staggered by dividing the total number of Directors into three classes,
as nearly equal in number as the total number of Directors constituting the
Board then permits, with any Director or Directors in excess of the number
divisible by three being assigned to Class 3 and Class 2, as the case may be.
The terms of Directors in Class 1 shall expire at the first annual shareholders'
meeting after their election (or until their respective successors are duly
elected and qualified or until their earliest death, resignation, or removal);
the terms of the Directors in Class 2 shall expire at the second annual
shareholders' meeting after their election (or until their respective successors
are duly elected and qualified or until their earliest death, resignation, or
removal); and the terms of the Directors in Class 3 shall expire at the third
annual shareholders' meeting after their election (or until their respective
successors are duly elected and qualified or until their earliest death,
resignation, or removal). Upon the expiration of the initial staggered term of
each director, directors shall be chosen for a term of three years to succeed
those whose terms expire.
H. Limitation on Liability. In any proceeding brought in the right of
the Corporation or by or on behalf of shareholders of the Corporation, 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.
I. Repurchase Stock under the Virginia Horse Racing Act. The
Corporation may purchase, upon a vote of a majority of its shareholders, at fair
market value, the entire interest of any shareholder who is or becomes
unqualified for such position under Section 59.1-379 of the Code of Virginia of
1950, as the same may be amended from time to time.
J. Indemnification of Directors, Officers and Others.
1. Indemnification. The Corporation shall indemnify an
individual who is, was or is threatened to be made a party to a proceeding
(including a proceeding by or in the right of the Corporation) because he is or
was a director 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.
2. Advance for Expenses. The Corporation shall pay for or
reimburse the reasonable expenses incurred by a director who is a party to a
proceeding in advance of final disposition of the proceeding if:
(a) the director furnishes the Corporation a written
statement of his good faith belief that he has met the standard of conduct
described in Section 1;
(b) the director furnishes the Corporation a written
undertaking, executed personally or on his behalf, to repay the advance if it is
ultimately determined that he did not meet the standard of conduct (which
undertaking shall be an unlimited general obligation of the director but need
not be secured and may be accepted without reference to financial ability to
make repayment); and
(c) a determination is made that the facts then known
to those making the determination would not preclude indemnification under
Article 10 of the Virginia Stock Corporation Act or Section 1 hereof.
3. Determination and Authorization of Indemnification. The
Corporation shall not indemnify a director under Section 1 unless authorized in
the specific case after a determination has been made that indemnification of
the director is permissible in the circumstances because he has met the standard
of conduct set forth in Section 1. The determination shall be made:
(a) by the Board of Directors by a majority vote of a
quorum consisting of directors not at the time parties to the proceeding;
(b) if such a quorum cannot be obtained, by majority
vote of a committee duly designated by the Board of Directors (in which
directors who are parties may participate in such designation), consisting
solely of two or more directors not at the time parties to the proceeding;
<PAGE>
(c) by special legal counsel:
(i) selected by the Board of Directors or
its committee in the manner prescribed in subsection (a) or (b) above;
(ii) if such a quorum of the Board of
Directors cannot be obtained and such a committee cannot be designated, selected
by a majority vote of the full Board of Directors, in which directors who are
parties may participate in such selection; or
(d) by the shareholders, but shares owned by or voted
under the control of directors who are at the time parties to the proceeding may
not be voted on the determination.
Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection (c)
of this Section 3 to select counsel.
If a majority of the directors of the Corporation has changed after
the date of the alleged conduct giving rise to a claim for indemnification, the
determination that indemnification is permissible and the authorization of
indemnification and evaluation as to the reasonableness of expenses in a
specific case shall, at the option of the person claiming indemnification, be
made by special legal counsel agreed upon by the Board of Directors and such
person.
4. Indemnification of Officers, Employees, Agents and Others.
Each officer and employee of the Corporation shall be entitled to
indemnification and advance expenses to the same extent as a director.
The Corporation may, to a lesser extent or to the same extent that the
Corporation is required to provide indemnification and make advances for
expenses to its directors, provide indemnification and make advances and
reimbursements for expenses to its agents, the directors, officers, employees
and agents of its subsidiaries and predecessor entities, and any person serving
any other legal entity in any capacity at the request of the Corporation, and
may contract in advance to do so. The determination that indemnification under
this paragraph is permissible, the authorization of such indemnification and the
evaluation as to the reasonableness of expenses in a specific case shall be made
as authorized from time to time by general or specific action of the Board of
Directors, which action may be taken before or after a claim for indemnification
is made, or as otherwise provided by law.
5. Insurance. The Corporation may purchase and maintain
insurance on behalf of an individual who is or was a director, officer, employee
or agent of the Corporation, or who, while a director, officer, employee or
agent of the Corporation, is or was serving at the request of the Corporation 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, against liability asserted against or incurred by him in
that capacity or arising from his status as a director, officer, employee or
agent, whether or not the Corporation would have power to indemnify him against
the same liability under Section 1.
6. Application. Indemnity hereunder shall continue as to a
person who has ceased to have the capacity referred to above and shall inure to
the benefit of the heirs, executors and administrators of such a person.
DATED: February ___, 1997
Jeffrey P. Jacobs, Chairman and CEO
FORM OF COLONIAL DOWNS HOLDINGS, INC.
AMENDED AND RESTATED BYLAWS
******************************
ARTICLE I
OFFICES
1. Principal Office. The principal office of the corporation shall be
in the County of New Kent, Commonwealth of Virginia, but the corporation may
conduct its business or open branch offices within or without the Commonwealth
as the Board of Directors deems advisable.
ARTICLE II
SHAREHOLDERS
2. Place of Meeting. Meetings of the shareholders shall be held at the
principal office of the corporation or at such other place, within or without
the Commonwealth of Virginia, as may be designated by the Board of Directors and
set forth in the notice of the meeting.
3. Annual Meeting. Commencing with the year 1997, the annual meeting of
the shareholders of the corporation shall be held on or about the fourth day in
November of each year (and if such date is a legal holiday, on the next business
day) for the purpose of electing a Board of Directors and transacting such other
business as may properly come before the meeting.
4. Special Meetings. Special meetings of the shareholders may be called
by the Board of Directors, the Chairman of the Board of Directors, the
President, the Secretary or, in the case the corporation has thirty-five or
fewer shareholders, if the holders of at least twenty percent (20%) of all votes
entitled to be cast on any issue proposed to be considered at the meeting sign,
date and deliver to the corporation's Secretary one or more written demands for
such a meeting describing the purpose or purposes for which the meeting is to be
held.
5. Action without Meeting. Action required or permitted to be taken by
the Virginia Stock Corporation Act (the "Act") at a shareholders' meeting may be
taken without a meeting and without action by the Board of Directors if the
action is taken by all the shareholders entitled to vote on the action. The
action shall be evidenced by one or more written consents describing the action
taken, signed by all the shareholders entitled to vote on the action and
delivered to the Secretary of the corporation for inclusion in the minutes or
filing with the corporate records. Any action taken by unanimous written consent
shall be effective according to its terms when all consents are in possession of
the corporation. A shareholder may withdraw his consent only by delivering a
written notice of withdrawal to the corporation prior to the time that all
consents are in the possession of the corporation. Action taken under this
Section 5 of these bylaws is effective as of the date specified in the consent
provided the consent states the date of execution by each shareholder. A consent
signed under this Section 5 of these bylaws has the effect of a unanimous vote
of voting shareholders and may be described as such in any document filed with
the Virginia State Corporation Commission under the Act.
<PAGE>
If the Act or these bylaws requires notice of proposed action
to be given to nonvoting shareholders, if any, and the action is to be taken by
unanimous consent of the voting shareholders written notice of the proposed
action at least ten (10) days before the action is taken. The notice shall
contain or be accompanied by the same material that would have been required to
be sent to nonvoting shareholders in a notice of meeting at which the proposed
action would have been submitted to the shareholders for action.
6. Notice of Meeting. The corporation shall notify shareholders of the
date, time and place of each annual and special shareholders' meeting. Such
notice shall be given no less than ten (10) nor more than sixty (60) days before
the meeting date except that notice of a shareholders' meeting to act on an
amendment of the Articles of Incorporation, a plan of merger or share exchange,
a proposed sale of all or substantially all of the assets of the corporation,
otherwise than in the usual and regular course of business, or the dissolution
of the corporation shall be given not less than twenty-five (25) nor more than
sixty (60) days before the meeting date, which notice shall be accompanied by a
copy of the proposed amendment, plan of merger, share exchange or dissolution or
agreement pursuant to which the proposed sale will be effected. Unless the Act
or the Articles of Incorporation require otherwise, the corporation is required
to give notice only to shareholders entitled to vote at the meeting and notice
of an annual meeting need not state the purpose or purposes for which the
meeting is called. Notice of a special meeting, however, shall state the purpose
or purposes for which the meeting is called.
If an annual or special meeting is adjourned to a different
date, time or place, notice need not be given if the new date, time or place is
announced at the meeting before adjournment. If a new record date for the
adjourned meeting is or shall be fixed under Section 8 of these bylaws, however,
notice of the adjourned meeting shall be given under this Section 6 of these
bylaws to persons who are shareholders as of the new record date.
Notwithstanding the foregoing, no notice of a shareholders'
meeting need be given to a shareholder if (i) an annual report and proxy
statements for two (2) consecutive annual meetings of shareholders or (ii) all,
and at least two (2), checks in payment of dividends or interest on securities
during a twelve (12) month period, have been sent by first-class United States
mail, addressed to the shareholder at his address as it appears on the stock
transfer books of the corporation, and were returned undeliverable. The
obligation of the corporation to give notice of shareholders' meetings to any
such shareholder shall be reinstated once the corporation shall have received a
new address for such shareholder for entry on its stock transfer books.
7. Waiver of Notice. A shareholder may waive any notice required by the
Act, the Articles of Incorporation or these bylaws before or after the date and
time of the meeting that is the subject of such notice. The waiver shall be in
writing, be signed by the shareholder entitled to the notice and be delivered to
the Secretary of the corporation for inclusion in the minutes or filing with the
corporate records.
A shareholder's attendance at a meeting:
(1) waives objection to lack of notice or defective notice of
the meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting; and
(2) waives objection to consideration of a particular matter
at the meeting that is not within the purpose or purposes described in the
meeting notice, unless the shareholder objects to considering the matter when it
is presented.
<PAGE>
8. Determination of Shareholders of Record. The Board of Directors may
fix in advance the record date in order to make a determination of shareholders
entitled to notice of, or to vote at, any meeting of the shareholders or any
adjournment thereof, to receive payment of any dividend or distribution, to
demand a special meeting, to take action without a meeting or to make a
determination of shareholders for any other proper purpose. A record date fixed
under this Section 8 of these bylaws may not be more than seventy (70) days
before the meeting or action requiring a determination of shareholders. If not
otherwise fixed by the Board of Directors, the record date for determining
shareholders entitled to (i) notice of and to vote at a shareholders' meeting is
the close of business on the day before the effective date of the notice to
shareholders, (ii) receive payment of any dividend or distribution, other than a
distribution involving a repurchase or acquisition of shares by the corporation,
is the date the Board of Directors authorizes the dividend or distribution,
(iii) demand a special meeting is the date the first shareholder signs the
demand and (iv) take action without a meeting is the date the first shareholder
signs the consent. A determination of shareholders entitled to notice of, or to
vote at, a shareholders' meeting is effective for any adjournment of the meeting
unless the Board of Directors fixes a new record date, which it shall do if the
meeting is adjourned to a date more than one hundred twenty (120) days after the
date fixed for the original meeting.
9. Shareholders' List for Meeting. The officer or agent having charge
of the stock transfer books of the corporation shall make, at least ten (10)
days before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, with the address of
and the number of shares held by each. The list shall be arranged by voting
group and within each voting group, if more than one, by class or series of
shares.
For a period of ten (10) days prior to the meeting, the list
of shareholders shall be kept on file at the registered office of the
corporation or at its principal office or at the office of its transfer agent or
registrar and shall be subject to inspection by any shareholder at any time
during usual business hours. Such list shall also be produced and kept open at
the time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting for the purposes thereof. The
original share transfer books shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders. The right of the holder of shares of the corporation
whose securities are registered under the Securities Exchange Act of 1934, as
amended, to inspect such list prior to a meeting of shareholders shall be
subject to the limitations set forth in Section 13.1-771.C. of the Code of
Virginia of 1950, as amended (the "Code"), and Section 51 of these bylaws.
If the requirements of this Section 9 of these bylaws have not
been substantially complied with, the meeting shall, on the demand of any
shareholder in person or by proxy, be adjourned until the requirements are met.
Refusal or failure to prepare or make available the shareholders' list does not
affect the validity of any action taken at the meeting prior to the making of
any such demand, but any action taken by the shareholders after the making of
any such demand shall be invalid and without effect.
10. Voting Entitlement of Shares. Unless otherwise provided in these
bylaws or required under the Act, all shareholders of Common Stock, regardless
of the class of stock, will vote as a single group. Except as otherwise provided
in this Section 10 of these bylaws with respect to the election of directors and
in Section 13.1-662 of the Code or in the Articles of Incorporation, each
outstanding share of Class A Common Stock is entitled to one vote on each
<PAGE>
matter voted on at a shareholders' meeting. Unless the Articles of Incorporation
provide otherwise, in the election of directors each outstanding share of Class
A Common Stock is entitled to one vote for as many persons as there are
directors to be elected at that time and for whose election the shareholder has
a right to vote. No cumulative voting shall be permitted.
Except as otherwise provided in this Section 10 of these bylaws with
respect to the election of directors and in Section 13.1-662 of the Code or in
the Articles of Incorporation, each outstanding share of Class B Commons Stock
is entitled to five votes on each matter voted on at a shareholders' meeting,
except with respect to any vote or approval with respect to (i) a merger,
consolidation, or other business combination of the Corporation, (ii) a sale of
all or substantially all of the assets of the Corporation, or (iii) amendments
to the Corporation's Articles of Incorporation, as amended from time to time, or
bylaws, as amended from time to time, that alter or affect the voting rights of
the holders of Class B Common Stock.
Unless the Articles of Incorporation provide otherwise, in the election
of directors each outstanding share of Class B Common Stock is entitled to five
votes (cast as a single bloc per share) for as many persons as there are
directors to be elected at that time and for whose election the shareholder has
a right to vote. No cumulative voting shall be permitted
11. Proxies. A shareholder may vote his shares in person or by proxy. A
shareholder may appoint a proxy to vote or otherwise act for him by signing an
appointment form, either personally or by his attorney-in-fact. An appointment
of a proxy is effective when received by the Secretary or other officer or agent
authorized to tabulate votes. An appointment is valid for eleven (11) months
unless a longer period is expressly provided in the appointment form. An
appointment of a proxy is revocable by the shareholder unless the appointment is
coupled with an interest. An appointment made irrevocable by being coupled with
an interest is revoked when such interest is extinguished. The death or
incapacity of the shareholder appointing a proxy does not affect the right of
the corporation to accept the proxy's authority unless notice of the death or
incapacity is received by the Secretary or other officers or agent authorized to
tabulate votes before the proxy exercises his authority under the appointment. A
transferee for value of shares subject to an irrevocable appointment may revoke
the appointment if he did not know of its existence when he acquired the shares
and the existence of the irrevocable appointment was not noted conspicuously on
the certificate representing the shares.
12. Corporation's Acceptance of Votes. If the name signed on a vote,
consent, waiver or proxy appointment corresponds to the name of a shareholder,
the corporation, if acting in good faith, is entitled to accept the vote,
consent, waiver or proxy appointment and give it effect as the act of the
shareholder.
If the name signed on a vote, consent, waiver or proxy
appointment does not correspond to the name of its shareholder, the corporation,
if acting in good faith, is nevertheless entitled to accept the vote, consent,
waiver or proxy appointment and give it effect as the act of the shareholder in
accordance with Section 13.1-665 of the Code.
The corporation is entitled to reject a vote, consent, waiver
or proxy appointment if the Secretary or other officer or agent authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
Section 13.1-665 of the Code, as may be in effect from time to
time, shall apply with respect to any matters not specifically set forth in this
Section 12.
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13. Quorum and Voting Requirements for Voting Groups. Shares entitled
to vote as a separate voting group, in the case of multiple voting groups, may
take action on a matter at a meeting only if a quorum of those shares exists
with respect to that matter. Unless the Articles of Incorporation or the Act
provides otherwise, a majority of the votes entitled to be cast on the matter by
the voting group constitutes a quorum for action on that matter. Less than a
quorum may adjourn a meeting.
Once a share is represented for any purpose at a meeting, it
is deemed present for quorum purposes for the remainder of the meeting and for
any adjournment of that meeting unless a new record date is or shall be set for
that adjourned meeting.
If a quorum exists, action on a matter, other than the
election of directors, is approved if the votes cast favoring the action exceed
the votes cast opposing the action, unless the Articles of Incorporation or the
Act requires a greater number of affirmative votes. Unless otherwise provided in
the Articles of Incorporation, directors shall be elected by a plurality of the
votes cast by the shares entitled to vote in the election at a meeting at which
a quorum is present.
14. Action by Single and Multiple Voting Groups. If the Articles of
Incorporation or the Act provides for voting by a single voting group on a
matter, action on that matter is taken when voted upon by that voting group as
provided in Section 13 of these bylaws.
If the Articles of Incorporation or the Act provides for
voting by two (2) or more voting groups on a matter, action on that matter is
taken only when voted upon by each of those voting groups counted separately as
provided in Section 13 of these bylaws. Action may be taken by one (1) voting
group on a matter even though no action is taken by another voting group
entitled to vote on the matter.
ARTICLE III
DIRECTORS
15. Number and Election. The Board of Directors shall consist of a
minimum of four (4) and a maximum of nine (9) persons and, upon the replacement
of the initial directors, shall consist of seven (7) persons. Except for the
initial directors who will have been named in the Articles of Incorporation or
elected at the organizational meeting of directors or incorporators, directors
shall be elected as follows, or at any special meeting of the shareholders
called for such purpose. The terms of the directors shall be staggered by
dividing the total number of directors into three classes, as nearly in equal in
number as the total number of Directors constituting the Board then permits,
with any Director or Directors in excess of the number divisible by three being
assigned to Class 3 and Class 2, as the case may be. The terms of Directors in
Class 1 shall expire at the first annual shareholders' meeting after their
election (or until their respective successors or duly elected and qualified or
until their earlier death, resignation, or removal); the terms of the directors
in Class 2 shall expire at the second annual shareholders' meeting after their
election; and the terms of the directors in Class 3 shall expire at the third
annual shareholders' meeting after their election (or until their respective
successors or duly elected and qualified or until their earlier death,
resignation, or removal). Upon the expiration of the initial staggered term of
each director, directors shall be chosen for a term of three years. Any Director
may be removed from office at a meeting called expressly for that purpose by the
vote of shareholders holding not less than a majority of the shares entitled to
vote at an election of Directors.
<PAGE>
The number of directors may be increased or decreased from
time to time by amendment to these bylaws, unless the Articles of Incorporation
provide that a change in the number of directors shall be made only by amendment
of the Articles of Incorporation.
The shareholders may adopt a bylaw fixing the number of
directors and may direct that such bylaws not be amended by the Board of
Directors. If a bylaw states a fixed number of directors and the Board of
Directors has the right to amend the bylaw, it may by amendment to the bylaw
increase or decreased by thirty percent (30%) or less the number of directors
last elected by the shareholders, but only the shareholders may increase or
decrease the number by more than thirty percent (30%).
No individual shall be named or elected as a director without
his prior consent.
16. Election of Directors by Certain Classes of Shareholders. If the
Articles of Incorporation authorize dividing the stock into classes, the
Articles of Incorporation may also authorize the election of all or a specified
number of directors by the holders of one (1) or more authorized classes of
stock. Each class, or classes, of stock entitled to elect one (1) or more
directors is a separate voting group for purposes of election of directors.
17. Terms of Office. The terms of the initial directors of the
corporation expire at the first shareholders' meeting at which directors are
elected. The terms of all other directors expire as provided in Section 15
hereof. A decrease in the number of directors does not shorten an incumbent
director's term. The term of a director elected by the Board of Directors to
fill a vacancy shall be the unexpired term of the director who created the
vacancy. Despite the expiration of a director's term, he continues to serve
until his successor is elected and qualifies or until there is a decrease in the
number of directors.
18. Resignation. A director may resign at any time by delivering
written notice to the Board of Directors, the President or the Secretary. A
resignation is effective when the notice is delivered, unless the notice
specifies a later effective date. If a resignation is made effective at a later
date, the Board of Directors may fill the pending vacancy before the effective
date, provided, however, the successor may not take office until the effective
date.
19. Removal. The shareholders may remove one (1) or more directors with
or without cause, unless the Articles of Incorporation provide that directors
may be removed only with cause. If a director is elected by a voting group of
shareholders, only the shareholders of that voting group may participate in the
vote to remove him. Unless the Articles of Incorporation require a greater vote,
a director may be removed if the number of votes cast to remove him constitutes
a majority of the votes entitled to be cast at an election of directors of the
voting group or voting groups by which such director was elected. A director may
be removed by the shareholders only at a meeting called for the purpose of
removing him and the meeting notice must state that the purpose, or one of the
purposes, of the meeting is removal of the director.
20. Vacancy. Unless the Articles of Incorporation provide otherwise, if
a vacancy occurs on the Board of Directors, including a vacancy resulting from
an increase in the number of directors:
(1) the shareholders may fill the vacancy;
(2) the Board of Directors may fill the vacancy; or
<PAGE>
(3) if the directors remaining in office constitute fewer than
a quorum of the Board, they may fill the vacancy by the affirmative vote of a
majority of directors remaining in office.
Unless the Articles of Incorporation provide otherwise, if the
vacant office was held by a director elected by a voting group of shareholders,
only the holders of that voting group are entitled to fill the vacancy if it is
to be filled by the shareholders.
A vacancy that will occur at a specific later date, by reason
of a resignation effective at a later date under Section 18 of these bylaws or
otherwise, may be filled before the vacancy occurs but the new director may not
take office until the vacancy occurs.
A vacancy shall be deemed to exist whenever the number of
directors then in office is less than the maximum number permitted under these
bylaws.
21. Compensation. Directors shall not receive a stated salary for their
services, but directors may be paid a fixed sum and expenses for attendance at
any regular or special meeting of the Board of Directors or any meeting of any
committee. A director may serve or be employed by the corporation in any other
capacity and receive compensation therefor.
22. Meetings. Regular meetings of the Board of Directors may be held
without notice at such time and place, in or out of the Commonwealth of
Virginia, as the Board of Directors may designate from time to time. A regular
meeting of the Board of Directors shall be held immediately after the annual
meeting of the shareholders. Unless changed, that regular meeting shall be held
in New Kent County, Virginia. Special meetings may be called by the Board of
Directors, the President or the Secretary by giving reasonable notice of the
time and place thereof.
Unless the Articles of Incorporation provide otherwise, the
Board of Directors may permit any or all directors to participate in a regular
or special meeting by, or conduct the meeting through the use of, any means of
communication by which all directors participating may simultaneously hear each
other during the meeting. A director participating in a meeting by this means is
deemed to be present in person at the meeting.
23. Action Without Meeting. Unless the Articles of Incorporation
provide otherwise, action required or permitted by the Act to be taken at a
Board of Directors meeting may be taken without a meeting if the action is taken
by all members of the Board. The action shall be evidenced by one or more
written consents stating the action taken, signed by each director either before
or after the action taken, and included in the minutes or filed with the
corporate records reflecting the action taken.
Action taken under this Section 23 of these bylaws is
effective when the last director signs the consent unless the consent specifies
a different effective date, in which event the action taken is effective as of
the date specified therein, provided the consent states the date of execution by
each director. A consent signed under this Section 23 of these bylaws has the
effect of a meeting vote and may be described as such in any document.
24. Notice of Meetings. Unless the Articles of Incorporation provide
otherwise, regular meetings of the Board of Directors may be held without notice
of the date, time, place or purpose of the meeting. Special meetings of the
Board of Directors may be called by resolution
<PAGE>
of the Board of Directors or any officer or director by giving reasonable notice
of the time and place thereof. The notice need not describe the purpose of the
special meeting.
25. Waiver of Notice. A director may waive any notice required by the
Act, the Articles of Incorporation or these bylaws before or after the date and
time stated in the notice, and such waiver shall be equivalent to such notice
having been given. Except as provided in the following paragraph, the waiver
shall be in writing, signed by the director entitled to the notice and filed
with the minutes or corporate records.
A director's attendance at or participation in a meeting
waives any required notice to him of the meeting unless the director at the
beginning of the meeting or promptly upon his arrival objects to holding the
meeting or transacting business at the meeting and does not thereafter vote for
or assent to action taken at the meeting.
26. Quorum and Voting. Unless the Articles of Incorporation require a
greater number for the transaction of all business or any particular business, a
quorum of the Board of Directors consists of:
(1) a majority of the fixed number of directors if the
corporation has a fixed board size; or
(2) a majority of the number of directors prescribed, or if no
number is prescribed the number in office immediately before the meeting begins,
if the corporation has a variable-range sized board.
If a quorum is present when a vote is taken, the affirmative
vote of a majority of directors present is the act of the Board of Directors
unless the Articles of Incorporation require the vote of a greater number. A
director who is present at a meeting of the Board of Directors or a committee of
the Board of Directors when corporate action is taken is deemed to have assented
to the action taken unless:
(1) he objects at the beginning of the meeting, or promptly
upon his arrival, to holding it or transacting specified business at the
meeting; or
(2) he votes against, or abstains from, the action taken.
Whenever the Act requires the Board of Directors to recommend
or approve any proposed corporate act, such recommendation or approval shall not
be required if the proposed corporate act is adopted by the unanimous consent of
shareholders.
27. Committees. Unless the Articles of Incorporation provide otherwise,
the Board of Directors may create one or more committees, including an Executive
Committee, and appoint members of the Board of Directors to serve on them. Each
committee may have two or more members, who serve at the pleasure of the Board
of Directors. The creation of a committee and appointment of members to it shall
be approved by the greater number of (i) a majority of all the directors in
office when the action is taken or (ii) the number of directors required by the
Articles of Incorporation or these bylaws to take action under Section 26 of
these bylaws. Sections 22 through 26 of these bylaws, which govern meetings,
action without meetings, notice and waiver of notice and quorum and voting
requirements of the Board of Directors, apply to committees and their members as
well.
<PAGE>
To the extent specified by the Board of Directors or in the
Articles of Incorporation or these bylaws, each committee may exercise all of
the authority permitted to be exercised by the Board of Directors, except that a
committee may not:
(1) approve or recommend to shareholders action that is
required to be approved by shareholders;
(2) fill vacancies on the Board or on any of its committees;
(3) amend Articles of Incorporation pursuant to Section
13.1-706 of the Code;
(4) adopt, amend or repeal the bylaws;
(5) approve a plan of merger not requiring shareholder
approval;
(6) authorize or approve a distribution, except according to a
general formula or method prescribed by the Board of Directors; or
(7) authorize or approve the issuance or sale or contract for
sale of shares, or determine the designation and relative rights, preferences
and limitations of a class or series of shares, except that the Board of
Directors may authorize a committee, or a senior executive officer of the
corporation, to do so within limits specifically prescribed by the Board of
Directors.
The creation of, delegation of authority to, or action by a
committee does not alone constitute compliance by a director with the standards
of conduct described in Section 13.1-690 of the Code and Section 28 of these
bylaws.
28. General Standards of Conduct. A director shall discharge his duties
as a director, including his duties as a member of a committee, in accordance
with his good faith business judgment of the best interests of the corporation.
A director shall not be liable for any action taken as a director, or any
failure to take any action, if he performs the duties of his office in
compliance with Section 13.1-690 of the Code.
29. Director Conflict of Interests. A conflict of interests transaction
is a transaction with the corporation in which a director or the corporation has
a direct or indirect personal interest. A conflict of interests transaction
shall not be voidable by the corporation solely because of the director's
interest in the transaction if any one of the following is true in accordance
with Section 13.1-691 of the Code:
(1) the material facts of the transaction and the director's
interest were disclosed or known to the Board of Directors or a committee of the
Board of Directors and the Board of Directors or committee authorized, approved
or ratified the transaction;
(2) the material facts of the transaction and the director's
interest were disclosed to the shareholders entitled to vote and they
authorized, approved or ratified the transaction; or
(3) the transaction was fair to the corporation.
<PAGE>
ARTICLE IV
OFFICERS
30. Officers. As a minimum, the officers of the corporation shall be a
President and a Secretary, each of whom shall be appointed by the Board of
Directors at its regular meeting following the annual meeting of the
shareholders. The Board of Directors may appoint such other officers ,
including, but not limited to, a Chief Executive Officer and Chairman of the
Board, and assistant officers and fill any vacancy at any regular or special
meeting of the Board of Directors. A duly appointed officer may appoint one or
more officers or assistant officers as may be authorized by these bylaws or the
Board of Directors. The same individual may simultaneously hold more than one
office. Each officer shall be appointed to hold office until the next succeeding
regular meeting of the Board of Directors following the annual meeting of the
shareholders, or for such longer or shorter terms as the Board of Directors may
specify, and until his successor shall have been elected or such earlier time as
he shall resign, die or be removed. Each officer shall have the authority and
perform the duties set forth in these bylaws or, to the extent consistent with
these bylaws, the duties prescribed by the Board of Directors or by direction of
an officer authorized by the Board of Directors to prescribe the duties of other
officers.
31. Chairman. The Chairman shall preside at all meetings of the Board
of Directors and shareholders and shall have the power to call special meetings
of the shareholders and Directors for any purpose.
32. Chief Executive Officer ("CEO"). The CEO may hire, appoint and
discharge, subject to the approval of the Board of Directors, employees and
agents of the corporation and fix their compensation; may make and sign deeds,
leases, contracts and agreements in the name and on behalf of the corporation;
shall have power to carry into effect all directions of the Board of Directors;
and shall have general supervision of the business of the corporation, except as
may be limited by the Board of Directors, the Articles of Incorporation or these
bylaws.
33. President. The President shall have the same duties, authority and
obligations as the CEO.
34. Secretary. The Secretary shall be the ex-officio clerk of the Board
of Directors, shall have the power to call special meetings of the shareholders
and directors for any purpose and shall give, or cause to be given, notices of
all meetings of shareholders and directors, and all other notices required by
these bylaws or by law. The Secretary shall record the proceedings of the
meetings of the shareholders and directors in a book kept for that purpose and
shall keep the seal of the corporation and attach it to all documents requiring
such impression unless some other officer is designated to do so by the Board of
Directors. The Secretary shall have responsibility for authenticating records of
the corporation and shall perform such other duties as may be assigned from time
to time by the Board of Directors.
35. Vice President. There may be one or more Vice Presidents who shall
exercise all of the functions of the President during the absence or incapacity
of the latter and such other duties as may be assigned from time to time by the
Board of Directors.
36. Treasurer. There may be a Treasurer who shall keep or cause to be
kept full and accurate books of account, render a financial statement showing
all transactions of the Treasurer and the financial condition of the corporation
as may be required by the Board of Directors or the
<PAGE>
President and perform such other duties as may be assigned from time to time by
the Board of Directors.
37. Assistant Secretary. There may be one or more Assistant Secretaries
who shall exercise all of the functions of the Secretary during the absence or
incapacity of the latter and such other duties as may be assigned from time to
time by the Board of Directors.
38. Other Officers. There may be one or more Assistant Vice Presidents
or Assistant Treasurers and other officers and assistant officers who shall
perform such duties as may be assigned from time to time by the Board of
Directors.
39. Salaries. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors unless otherwise delegated
to the President by the Board of Directors.
40. Resignation and Removal. An officer may resign at any time by
delivering notice to the corporation. A resignation is effective when the notice
is delivered unless the notice specifies a later effective date. If a
resignation is made effective at a later date and the corporation accepts the
future effective date, it may fill the pending vacancy before the effective date
if the successor does not take office until the effective date. The Board of
Directors may remove any officer at any time with or without cause and any
officer or assistant officer, if appointed by another officer, may likewise be
removed by such officer.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
41. Indemnification. The corporation shall indemnify an individual who
entirely prevails in the defense of any proceeding to which he was a party
because he is or was a director of the corporation against reasonable expenses
incurred by him in connection with the proceeding. The corporation shall also
indemnify an individual made a party to a proceeding because he is or was a
director against liability incurred in the proceeding if:
(1) he conducted himself in good faith; and
(2) he believed:
(a) in the case of conduct in his official capacity
with the corporation, that his conduct was in its best interests; and
(b) in all other cases, that his conduct was at least
not opposed to its best interests; and
(3) in the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful.
A director's conduct with respect to an employee benefit plan
for a purpose he believed to be in the interests of the participants in and
beneficiaries of the plan is conduct that satisfies the requirement that his
conduct was at least not opposed to the best interests of the corporation.
<PAGE>
The termination of a proceeding by judgment, order, settlement
or conviction is not, of itself, determinative that the director did not meet
the standard of conduct described in this Section 41 of these bylaws.
Notwithstanding the foregoing, the corporation shall not
indemnify a director under this Section 41 of these bylaws:
(1) in connection with a proceeding by or in the right of the
corporation in which the director is adjudged liable to the corporation; or
(2) in connection with any other proceeding charging improper
personal benefit to him, whether or not involving action in his official
capacity, in which he is adjudged liable on the basis that personal benefit was
improperly received by him.
Indemnification granted under this Section 41 of these bylaws
in connection with a proceeding by or in the right of the corporation is limited
to reasonable expenses incurred in connection with the proceeding. The
definitions as set forth in Section 13.1-696 of the Code, as in effect from time
to time, shall apply with respect to Sections 41 through 46 of these bylaws.
42. Advance for Expenses. The corporation shall pay for or reimburse
the reasonable expenses incurred by a director who is a party to a proceeding in
advance of final disposition of the proceeding if:
(1) the director furnishes the corporation a written statement
of his good faith belief that he has met the standard of conduct described in
Section 41 of these bylaws;
(2) the director furnishes the corporation a written
undertaking, executed personally or on his behalf, to repay the advance if it is
ultimately determined that he did not meet the standard of conduct (which
undertaking shall be an unlimited general obligation of the director but need
not be secured and may be accepted without reference to financial ability to
make repayment); and
(3) a determination is made that the facts then known to those
making the determination would not preclude indemnification under Article 10 of
the Act or this Article V of these bylaws.
43. Determination and Authorization of Indemnification. The corporation
shall not indemnify a director under this Article V of these bylaws unless
authorized in the specific case after a determination has been made that
indemnification of the director is required under this Article V of these bylaws
because he has met the standard of conduct set forth hereunder. The
determination shall be made:
(1) by the Board of Directors by a majority vote of a quorum
consisting of directors not at the time parties to the proceeding;
(2) if such a quorum cannot be obtained, by majority vote of a
committee duly designated by the Board of Directors (in which directors who are
parties may participate in such designation), consisting solely of two or more
directors not at the time parties to the proceeding:
(3) by special legal counsel:
<PAGE>
(a) selected by the Board of Directors or its
committee in the manner prescribed in subsection (1) or (2) above;
(b) if such a quorum of the Board of Directors cannot
be obtained; and such a committee cannot be designated, selected by a majority
vote of the full Board of Directors, in which directors who are parties may
participate in such selection; or
(4) by the shareholders, but shares owned by or voted under
the control of directors who are at the time parties to the proceeding may not
be voted on the determination.
Authorization of indemnification and evaluation as to
reasonableness of expenses shall be made in the same manner as the determination
that indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection (3)
of this Section 43 to select counsel.
44. Indemnification of Officers, Employees, Agents and Others. Unless
limited by the Articles of Incorporation, each officer, employee and agent of
the corporation shall be entitled to indemnification and advance expenses to the
same extent as to a director.
45. Insurance. The corporation may purchase and maintain insurance on
behalf of an individual who is or was a director, officer, employee or agent of
the corporation, or who, while a director, officer, employee or agent of the
corporation, is or was serving at the request of the corporation 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, against liability asserted against or incurred by him in that
capacity or arising from his status as a director, officer, employee or agent,
whether or not the corporation would have power to indemnify him against the
same liability under Section 41 of these bylaws.
46. Application. The corporation shall have power to make any further
indemnity, including advance of expenses, to any director, officer, employee or
agent that may be authorized by the Articles of Incorporation or any bylaw made
by the shareholders or any resolution adopted, before or after the event, by the
shareholders, except an indemnity against his gross negligence or willful
misconduct. Unless the Articles of Incorporation or any such bylaw or resolution
provide otherwise, any determination as to any further indemnity shall be made
in accordance with Section 43 of these bylaws. Each such indemnity may continue
as to a person who has ceased to have the capacity referred to above and may
inure to the benefit of the heirs, executors and administrators of such a
person.
ARTICLE VI
CERTIFICATES OF STOCK
47. Form and Content. Each stock certificate shall state on its face
the name of the corporation and that it is organized under the law of
Commonwealth of Virginia, the name of the person to whom issued and the number
and class of stock and the designation of the series, if any, the certificate
represents. If the corporation is authorized to issue different classes of stock
or different series within a class, the designations, relative rights,
preferences and limitations applicable to each class and the variations in
rights, preferences and limitations determined for each series (and the
authority of the Board of Directors to determine variations for future series)
shall be summarized on the front or back of each certificate for stock of such
class or series.
<PAGE>
Alternatively, each certificate may state conspicuously on its front or back
that the corporation will furnish the shareholder this information on request in
writing and without charge. Each stock certificate shall be signed by the
President and the Secretary or an Assistant Secretary and shall bear the
corporate seal or its facsimile. The signatures of the officers upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent, or registered by a registrar, other than the corporation or an employee
of the corporation.
48. Fractional Shares. The corporation may, if authorized by the Board
of Directors, issue fractions of a share or pay in money the value of fractions
of shares, arrange for disposition of fractional shares by the shareholders or
issue scrip in registered or bearer form entitling the holder to receive a full
share upon surrendering enough scrip to equal a full share. Each certificate
representing scrip shall be conspicuously labeled "Scrip" and shall contain the
information required by Section 47 of these bylaws. The holder of a fractional
share is entitled to exercise the rights of a shareholder, including the right
to vote, to receive dividends and to participate in the assets of the
corporation upon dissolution. The holder of scrip is not entitled to any of
these rights unless the scrip provides for them.
The Board of Directors may authorize the issuance of scrip
subject to any condition considered desirable by it, including that the scrip
will become void if not exchanged for full shares before a specified date and
that the shares for which the scrip is exchangeable may be sold by the
corporation and the proceeds paid to the scrip holders.
When the corporation is to pay in money the value of fractions
of a share, such value shall be determined by the Board of Directors. A good
faith judgment of the Board of Directors as to the value of a fractional share
is conclusive.
49. Lost Certificates. The Board of Directors may direct new
certificates to be issued in place of any lost or destroyed certificate or
certificates previously issued by the corporation if the person or persons who
claim the certificate or certificates make an affidavit stating that the
certificates of stock have been lost or destroyed. When authorizing the issuance
of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificates, or the legal representative, to
advertise the same in such manner as the Board of Directors shall require and/or
to give the corporation a bond or other form of indemnification, in such sum,
and with or without surety, as the Board of Directors may direct, to indemnify
the corporation against any claim that may be made against the corporation with
respect to the certificate or certificates alleged to have been lost or
destroyed.
50. Transfer of Stock. Upon surrender to the corporation, or to the
transfer agent of the corporation, if any, of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, the corporation shall issue a new certificate to the
person entitled thereto, cancel the old certificate, and record the transaction
upon its books.
51. Registered Shareholders. The corporation shall be entitled to treat
the holder of record of any share or shares of stock as the owner thereof and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person. The
corporation shall not be liable for registering any transfer of shares which are
registered in the name of a fiduciary unless done with actual knowledge that the
fiduciary is committing a breach of obligation as fiduciary in making the
transfer, or unless done with actual
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knowledge of such facts that the corporation's action in registering the
transfer amounts to bad faith.
ARTICLE VII
RECORDS AND REPORTS
52. Corporate Records. The corporation shall keep as permanent records
its Articles of Incorporation or restated Articles of Incorporation and all
amendments thereto and bylaws or restated bylaws and all amendments thereto
currently in effect, all written communications to shareholders generally,
annual reports filed with the Virginia State Corporation Commission, minutes of
all meetings of its shareholders and Board of Directors, a record of all actions
taken by the shareholders or Board of Directors without a meeting and a record
of all actions taken by a committee of the Board of Directors in place of the
Board of Directors on behalf of the corporation. The corporation shall maintain
appropriate accounting records. The corporation or its agent shall maintain the
names and business addresses of its officers and directors and a record of its
shareholders, in a form that permits preparation of a list of the names and
addresses of all shareholders, in alphabetical order by class and series, if
any, of shares showing the number and class and series, if any, of shares held
by each. The corporation shall maintain its records in written form or in
another form capable of conversion into written form within a reasonable time.
53. Inspection of Records by Shareholders. Subject to Section
13.1-772.C. of the Code, a shareholder of the corporation or his agent or
attorney is entitled to inspect and copy (at his expense), during regular
business hours at the corporation's principal office, any of the records of the
corporation described in Section 13.1-770.E. of the Code if he gives the
corporation written notice of his demand at least five (5) business days before
the date on which he wishes to inspect and copy.
A shareholder of the corporation or his agent or attorney is
entitled to inspect and copy (at his expense), during regular business hours at
a reasonable location specified by the corporation, any of the records of the
corporation described in Section 13.1-771.B. of the Code if the shareholder
meets the requirements set forth in Section 13.1-771.C. of the Code and gives
the corporation written notice of his demand at least five (5) business days
before the date on which he wishes to inspect and copy such records.
54. Financial Statements for Shareholders. If requested in writing by
any shareholder, the corporation shall furnish the shareholder with the
financial statements for the most recent fiscal year, which may be consolidated
or combined statements of the corporation and one or more of its subsidiaries,
as appropriate, that include a balance sheet as of the end of the fiscal year,
an income statement for that year and a statement of changes in shareholders'
equity for the year unless that information appears elsewhere in the financial
statements. If financial statements are prepared for the corporation on the
basis of generally accepted accounting principles, the annual financial
statements must also be prepared on that basis.
If the annual financial statements are reported upon by a
public accountant, his report must accompany them. If the annual financial
statements are not reported upon by a public accountant, the President or the
person responsible for the corporation's accounting records shall provide the
shareholder with a statement of the basis of accounting used in preparation of
the annual financial statements and a description of any respects in which the
statements were not prepared on a basis of accounting consistent with the
statements prepared for the preceding year.
<PAGE>
ARTICLE VIII
MISCELLANEOUS
55. Control Share Acquisitions. The corporation is authorized to redeem
shares of its Common Stock acquired in a control share acquisition in accordance
with Section 13.1-728.7 of the Code.
56. Registered Office and Agent. The corporation shall at all times
have a registered office and a registered agent.
57. Seal. The seal of the corporation shall be a flat faced circular
die containing the word "SEAL" in the center and the name of the corporation or
an appropriately abbreviated name around the circumference.
58. Amendment of Bylaws. The corporation's Board of Directors may amend
or repeal the corporation's bylaws except to the extent that:
(1) the Articles of Incorporation or the Act reserve this
power exclusively to the shareholders;
(2) the shareholders in adopting or amending particular bylaws
provide expressly that the Board of Directors may not amend or repeal that
bylaw;
(3) a corporation's shareholders may amend or repeal the
corporation's bylaws even though the bylaws also may be amended or repealed by
its Board of Directors.
59. General. Any matters not specifically covered by these bylaws shall
be governed by the applicable provisions of the Code in force at the time.
The foregoing Amended and Restated Bylaws for Colonial Downs
Holdings, Inc. have been approved and adopted pursuant to a Consent of Directors
in Lieu of Special Meeting dated February ___, 1997.
COLONIAL DOWNS HOLDINGS, INC.
-----------------------------
Arnold W. Stansley, Secretary
MANAGEMENT AND CONSULTING AGREEMENT
This Management and Consulting Agreement is entered into by and among:
(1) COLONIAL DOWNS, L.P., a Virginia limited partnership ("Owner"), STANSLEY
MANAGEMENT CORP., a Virginia corporation which is the sole general partner of
Owner ("General Partner"), and STANSLEY RACING CORP., a Virginia corporation
("Operator") (collectively, "Colonial Downs" unless the context indicates
otherwise); and (2) MARYLAND-VIRGINIA RACING CIRCUIT, INC. (formerly known as
OLD DOMINION JOCKEY CLUB, INC., a Virginia corporation ("Manager").
R E C I T A L S:
1. Owner applied to the Virginia Racing Commission ("Commission"), on
behalf of itself and the General Partner, for a license to own a horse racing
facility with pari-mutuel wagering at a site in New Kent County, Virginia (the
"Racetrack"). Operator applied to the Commission for a license to operate the
Racetrack.
2. The parents of Manager are Pimlico Racing Association, Inc. and
Laurel Racing Association Limited Partnership (collectively, "Maryland Jockey
Club").
3. Colonial Downs and Maryland Jockey Club entered into a letter
agreement dated January 1, 1994, as amended September 12, 1994 (the "Letter
Agreement"), which was filed with the Commission as part of Colonial Downs'
application for the licenses.
4. The Commission, by Decision and Order dated October 12, 1994,
awarded the licenses (the "Licenses") to own and operate a horse racing facility
in New Kent County to Owner and Operator, respectively.
5. The Commission in the Decision and Order made findings that the
Maryland Jockey Club had agreed to manage Colonial Downs' thoroughbred meet;
that Colonial Downs and Maryland Jockey Club had agreed to coordinate racing
schedules to create a Virginia-Maryland thoroughbred circuit; and that Maryland
Jockey Club and Colonial Downs had agreed to share the broadcast signals from
their respective thoroughbred meets.
6. Colonial Downs intends to apply to the Commission for licenses ("OTB
Licenses") to develop and operate the maximum number of off-track betting
facilities ("OTB Facilities") consistent with its business and financing.
A G R E E M E N T S:
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties, intending to be legally bound, agree
as follows:
<PAGE>
SECTION 1
RESPONSIBILITIES OF COLONIAL DOWNS
1.1 Financing and Development of the Racetrack and OTB Facilities.
Owner shall have the exclusive responsibility to obtain all of the funds needed
to develop, build, equip and operate the Racetrack and all OTB Facilities. In
addition, Owner shall develop, build and equip the Racetrack and all OTB
Facilities and in connection therewith shall acquire all movable and other
equipment necessary or desirable for the successful operation of the Racetrack
and OTB Facilities including but not limited to all equipment reasonably
necessary for Manager to perform properly its duties and responsibilities under
this Agreement. However, in the event Owner experiences any unforeseen
difficulty with securing the equity portion of the required capital for the
Racetrack, if Owner requests, Manager shall cause Maryland Jockey Club to use
its reasonable best efforts to assist Owner in securing such equity capital. The
funds needed to develop, build and equip the Racetrack were estimated by Owner
in its application to the Commission to total $34,300,000, and Owner intends to
raise such amount as a combination of equity and debt. The funds needed to
develop the OTB Facilities are unknown at this time. The terms of all equity and
debt financing shall be determined solely by Owner, but shall not restrict,
without Manager's consent, Owner's authority to pay the Management Fee and
expense reimbursements to Manager as required by this Agreement. Except as
specifically provided in this section, Manager shall have no obligation to
obtain or provide any such equity or debt financing.
1.2 Working Capital. Owner shall provide all the funds necessary for
working capital during the development and construction phase as well as during
the operating phases of all racing meets at the Racetrack and the OTB
Facilities. Owner shall use its reasonable best efforts to provide, timely and
in adequate amounts, the funds necessary to pay all of the costs and expenses of
the Racetrack and all OTB Facilities.
1.3 Licenses and Permits. Owner and Operator shall apply for and
obtain, and shall apply for and obtain renewal of, all licenses and permits
necessary to develop and operate the Racetrack and all OTB Facilities. Such
licenses include but are not limited to the Licenses and the OTB Licenses. If
Owner or Operator fail to apply timely for the issuance or renewal of any such
license or permit, Manager shall have the right to do so, at the cost of Owner
or Operator, as the case may be, and in the name of and as attorney-in-fact for
Owner or Operator, upon at least thirty (30) days' advance notice to Colonial
Downs.
1.4 Maintenance of Facilities and Capital Expenditures. Colonial Downs
shall use its best efforts to assure that after the Racetrack and OTB Facilities
have been opened, they are maintained as first-class facilities with all
repairs, maintenance and capital expenditures made to assure that they continue
to be first-class facilities. Manager may, from time to time, recommend capital
improvements to be made to the Racetrack and/or the OTB Facilities. Colonial
Downs shall be under no obligation to make all or any of the capital
improvements recommended by Manager unless (1) Colonial Downs determines, in its
sole and absolute discretion, that such capital improvements are necessary or
desirable and that sufficient funds are available to Colonial
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Downs to pay for such capital improvements; or (2) such improvements are
necessary for the health or safety of persons or animals.
1.5 Outer Turf Track. As represented by Colonial Downs to the
Commission, Owner shall be responsible to complete the construction of the outer
turf track system at the Racetrack so that it may be placed in service not later
than the date established by the Commission in its Decision and Order, as the
same m y be amended from time to time. The design of the outer turf track system
will be mutually agreeable to Colonial Downs and Manager and be acceptable to
and approved by the Commission.
1.6 Guarantee to Commission. Colonial Downs has furnished to the
Commission a performance guarantee of $1 million in accordance with paragraph
109 of the Decision and Order of the Commission. Colonial Downs shall give p
ompt notice to Manager if the Commission rejects or requests material amendments
of the terms of the performance guarantee or Colonial Downs fails to perform
under such guarantee.
1.7 Responsibility and Authority of Colonial Downs. Except for the
delegation herein to Manager of general supervisory authority in conjunction
with Colonial Downs' general manager and as otherwise specifically set forth in
this Agreement, Colonial Downs reserves and retains management responsibility,
control and authority over all functions at the Racetrack and OTB Facilities,
including the following, which will be staffed with Colonial Downs' employees:
a. Controller, Accounting, Finance and Treasury functions;
b. Money Room;
c. Purchasing;
d. Personnel;
e. Public Relations;
f. Advertising and Promotion;
g. Mutuels;
h. Concessions;
i. Sale and Printing of Programs;
j. Admissions;
k. Parking;
1. Security;
m. Clubhouse, grandstand, grounds and track cleaning,
maintenance and repair;
n. Cleaning, maintenance and repair of the stable area;
o. Except as set forth in Section 2.2 hereof, simulcasting
and audio visual;
p. Any other activity or function necessary or desirable and
not specifically delegated to Manager under this Agreement.
1.8 Execution of Contracts. In all instances under this Agreement in
which Colonial Downs is required to approve and enter into a contract or other
agreement at the request of Manager, Colonial Downs shall act reasonably
promptly.
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<PAGE>
SECTION 2
RESPONSIBILITIES OF MANAGER
2.1 Management of Live Thoroughbred Meets. Colonial Downs has retained and
hereby retains Manager to manage all live thoroughbred racing meets to be
conducted at the Racetrack during the Term, on the terms and subject to the
conditions of this Agreement, with such changes therein as the parties hereto
may from time to time agree, and subject to the rules, regulations and orders of
the Commission. Manager shall not have any duties, responsibilities or authority
with respect to any live harness racing meets at the Racetrack, which shall be
managed exclusively by Colonial Downs, except as otherwise specifically set
forth in this Agreement. Manager shall have the following specific
responsibility and authority with respect to the live thoroughbred meets
conducted at the Racetrack:
2.1.1 Racing. Manager shall be responsible for and have
authority with respect to all functions generally performed by the Racing
Department of a major thoroughbred racetrack, including but not limited to the
following:
a. Receiving stall applications and making stall
assignments;
b. Determining the qualifications and acceptability of
all horses;
c. Performing all race office and stable functions,
including writing the condition and stakes books,
writing the races and conducting the draws for the
races;
d. Developing and producing the daily racing program and
past performance information, including, subject to
the approval of Colonial Downs, which shall not be
unreasonably withheld or delayed, negotiating
contracts or agreements with Equibase and/or the
Daily Racing Form, and with printers or other such
entities necessary to produce the daily racing
program;
e. In conjunction with the appropriate representative(s)
of Colonial Downs, establishing and maintaining the
liaison between management and the horsemen and
jockeys and the organizations that represent them;
f. Charting and clerk of course functions;
g. Paddock and patrol judges;
h. Starter, assistant starters and gate crew; and
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i. Negotiating photo finish, teletimer and starting gate
contracts, subject to the approval of Colonial Downs
which shall not be unreasonably withheld or delayed.
2.1.2 Track Maintenance. Manager shall be responsible for and
have authority with respect to all functions generally performed by the Track
Maintenance Department of a major thoroughbred racetrack, including but not
limited to the following:
a. All activities related to assuring that the dirt and
turf courses and all inner and outer rails are
well-maintained and safe for the horses and jockeys;
b. Using tractors, water trucks, harrows, floats and
other vehicles and other equipment provided by Owner
to maintain the track surfaces at necessary and
proper levels of condition;
c. Supervising the watering systems for the turf courses
and assuring that sufficient fertilizer, seed and sod
are applied as necessary; and
d. Taking such action as may be necessary to shut the
racing surfaces down properly for periods of time
when they are not utilized for thoroughbred training
or racing.
Unless Owner otherwise agrees, all of the direct labor required for track
maintenance, to the extent reasonably possible, will be performed by employees
of Owner, under the supervision and control of Manager's Track Superintendent
and his assistant.
2.1.3 Liaison With Colonial Downs' Personnel. Manager shall
coordinate with the general manager of the Racetrack appointed by Colonial Downs
during all thoroughbred training and all thoroughbred race meets. Colonial Downs
shall have primary responsibility and authority with respect to the performance
by Colonial Downs' employees of their work as provided in Section 1.7. However,
Colonial Downs and its general manager shall cooperate with Manager to assure
that such employees perform their work as reasonably requested by Manager during
thoroughbred racing and training.
2.1.4 Promotion and Marketing. Colonial Downs shall establish,
in consultation with Manager, annually a budget for promotion, marketing and
advertising with respect to thoroughbred racing. The budget will be reasonably
adequate to promote and market thoroughbred racing at the Racetrack, consistent
with normal industry standards, taking into consideration Colonial Downs'
financial condition. Manager shall coordinate with the Racetrack's general
manager in overseeing the promotional and marketing activities with respect to
live and simulcast thoroughbred racing within the aforesaid budgetary
parameters.
2.1.5 Virginia-Bred Races. In planning, scheduling, promoting
and conducting the live thoroughbred meet at the Racetrack, the Manager shall
use its best efforts to schedule
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races which promote qualified Virginia-bred horses and otherwise to promote and
encourage the horse breeding industry in the Commonwealth of Virginia.
2.1.6 Establishment and Maintenance of Thoroughbred Purse
Account. Not later than the earlier of thirty (30) days prior to the opening
date of the first thoroughbred meet at the Racetrack or the opening of the first
of the OTB Facilities, and continuing in effect thereafter, Owner shall
establish a separate trust account, known as the thoroughbred purse account, to
be used in connection with thoroughbred meets (the "Purse Account"). Owner shall
deposit into the Purse Account all amounts required by Virginia law, applicable
rules and regulations of the Commission and agreement with the thoroughbred
horsemen. Additional funds may be deposited in the Purse Account from time to
time as Owner, in its sole discretion, may determine. Manager shall have the
authority to determine the purses to be paid on races held during thoroughbred
meets and to cause Owner to pay such amounts from the Purse Account. The
allocation of funds for purses between thoroughbred and standardbred races
resulting from all betting on simulcast races both at the OTB Facilities and the
Racetrack shall be made so as to allocate (1) all purse funds generated by
betting on thoroughbred races to the thoroughbred purse account, and (2) all
purse funds generated by betting on standardbred races to the standardbred purse
account. Not later than ninety (90) days prior to the commencement of each live
thoroughbred race meet, Colonial Downs shall notify Manager in writing of the
total amount of purse money to be distributed during the forthcoming race meet
(exclusive of contributions from horse owners, sponsors and persons other than
Colonial Downs for stakes races and similar events). Manager shall then
establish the purse schedule and shall pay purses during such race meet within
the total amount established by Colonial Downs. By mutual written agreement of
Manager and Colonial downs, appropriate adjustments may be made during the meet
to the purse schedule and total purses if warranted by factors such as the
Handle during the meet.
2.2 Simulcasting and Audio-Visual. Manager shall be responsible for
and, subject to the provisions of this Section 2.2, have authority with respect
to the following functions generally performed by the Simulcast and/or
Audio-Visual Departments of a major racetrack for the live thoroughbred meets at
the Racetrack:
a. Negotiating-contracts on behalf of Colonial Downs for the sale of
simulcast signals of races run at the Racetrack, including both
full cards and individual races, for wagering, both on a
commingled and non-commingled basis, in any jurisdiction outside
Virginia. Colonial Downs shall have the right to participate in,
and Manager will keep Colonial Downs fully informed of the status
of, the negotiation of any such contract. Manager shall not have
the authority to bind Colonial Downs to any such contract unless
Colonial Downs, in its sole and absolute discretion, approves such
contract.
b. Liaison with contractors for the above-mentioned services;
c. Developing and providing program information;
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d. Liaison with the pari-mutuel department of the Racetrack regarding
post times and scheduling of races;
e. Liaison with the Racing Department regarding program information
and scheduling; and
f. Coordinating with Colonial Downs the dissemination of information
to the on and off-track betting network in Virginia, Maryland and
other jurisdictions.
2.3 Development of OTB Facilities. Colonial Downs has retained and
hereby retains Manager to consult with Colonial Downs with respect to the
development of all OTB Facilities in Virginia. Colonial Downs and Manager agree
that, if legally permitted, it is desirable to establish one or more OTB
facilities to serve the citizens of Northern Virginia. However, Colonial Downs
recognizes that possible locations for OTB Facilities could overlap and compete
with wagering sites in Maryland utilized by Maryland Jockey Club. Colonial Downs
and Manager both desire to maximize the likelihood of success of the
Maryland-Virginia racing circuit, and to avoid oversaturation and inefficiencies
of operations in the Greater Washington, D.C. Metropolitan Area market, which
includes Northern Virginia and Suburban Maryland. Consequently, if Colonial
Downs elects to develop OTB Facilities at locations in Northern Virginia which
Manager believes are not consistent with the foregoing, Manager shall be under
no obligation to support such development and may, in its discretion, oppose the
development of such OTB Facilities. Manager shall provide such management
services to Colonial Downs in the development of the OTB Network as Colonial
Downs may from time to time reasonably request.
2.4 Management of OTB Facilities. Colonial Downs shall have the right
and authority to manage the OTB Facilities, subject to the terms and conditions
of this Agreement. Manager shall provide such management services to Colonial
Downs in the operation of the OTB Facilities as are specifically set forth in
Section 2.2 and elsewhere in this Agreement and as Colonial Downs may from time
to time reasonably request.
2.5 Totalizator Contractor. Colonial Downs and Manager agree that it is
desirable to use the same contractor for totalizator services in both Virginia
and Maryland a d to utilize one hub for all wagering in both jurisdictions if
(i) it is in the respective economic interests of each party to do so, (ii) it
is permissible under the laws of both Virginia and Maryland, and (iii) it is not
prohibited by either the Virginia or Maryland Racing Commission. Provided,
however, that Colonial Downs shall have the sole right and authority to select
the totalizator contractor to be utilized by the Racetrack and the OTB
Facilities, and to negotiate the contract to be entered into by Colonial Downs
for totalizator equipment and services, including hubbing services, subject to
Section 3.6 hereof.
2.6 Virginia Thoroughbred Horsemen's and Breeders' Associations.
Manager shall have the right and authority to participate in all discussions and
negotiations with all organizations representing the Virginia thoroughbred
horsemen and breeders. Manager shall have the right to approve those
organizations to be recognized by Colonial Downs as the
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representatives of those groups and to approve all contracts or understandings
with such organizations, which approval shall not be unreasonably withheld or
delayed.
2.7 General Authority of Manager. In furtherance of its duties under
this Section 2, Manager shall have the right to arrange, supervise, coordinate,
develop and direct the activities delegated to it under this Agreement. Manager
shall recommend to Colonial Downs all contracts, other than those specifically
addressed elsewhere herein, that are necessary or desirable to equip or
otherwise prepare the Racetrack for, and to conduct, thoroughbred operations.
Except as has been approved in advance by Colonial Downs in a capital or
operating budget or other written document, or as is otherwise set forth in this
Agreement, Manager shall have no authority to contract for and in the name of
Colonial Downs or to cause Colonial Downs to enter into any contract, agreement
or arrangement with any person, firm or entity. Colonial Downs reserves and
retains all such authority subject only to Owner's obligations to provide the
facilities, equipment, personnel and working capital reasonably necessary to
permit Manager to fulfill its responsibilities under this Section 2.
2.8 Obligations of Manager. Manager accepts the engagement under this
Agreement and agrees to act with reasonable prudence and reasonable diligence in
the performance of its duties and responsibilities. Notwithstanding any other
provision of this Agreement, Manager shall be obligated to perform its duties,
responsibilities and obligations only to the extent that current funds are made
or caused to be made available by Colonial Downs to Manager. Subject to the
terms of this Agreement, Manager shall have the right to enter into agreements
with its affiliates or with unaffiliated third parties in performing its duties
under this Agreement, provided that such agreements with affiliates are
disclosed to Colonial Downs in advance and are not less favorable to Colonial
Downs than would have been reasonably available from comparably experienced and
competent independent third parties in arm's length transactions.
2.9 Supervision. Manager, on behalf of Colonial Downs and at the
expense of Owner, shall hire, promote, discharge and supervise the work of all
staff utilized by Manager directly in connection with the performance of its
duties hereunder (the "Thoroughbred Staff"). The Thoroughbred Staff shall
include those positions set forth on Schedule I attached hereto, as the same may
from time to tim be amended by the mutual agreement of Colonial Downs and
Manager. All matters pertaining to the employment, training, conduct,
supervision, compensation, promotion and discharge of the Thoroughbred Staff
shall be the responsibility of Manager. Owner shall pay directly the wages,
salaries, benefits and other costs and expenses of employment of all members of
the Thoroughbred Staff who are not employed by Maryland Jockey Club. Such
amounts shall be established by Manager with the approval of Colonial Downs
which shall not be unreasonably withheld or delayed. In addition, Colonial Downs
shall reimburse Maryland Jockey Club in the manner hereinafter set forth for
employees of Maryland Jockey Club providing services to Colonial Downs hereunder
as part of the Thoroughbred Staff.
SECTION 3
COOPERATION BETWEEN COLONIAL DOWNS
AND MARYLAND JOCKEY CLUB
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3.1 Establishment of Maryland-Virginia Thoroughbred Circuit. Manager
shall cause Maryland Jockey Club to take the following action in order to
provide for the establishment of a Maryland-Virginia circuit for thoroughbred
horses:
3.1.1 Racing Dates. Commencing with the first full year of
thoroughbred operations at the Racetrack, Maryland Jockey Club shall apply to
the Maryland Racing Commission to all w it to cease racing in Maryland for the
period from mid-June through mid-October, in order to provide a supply of
thoroughbred horses to maximize the likelihood of a successful thoroughbred meet
of approximately 102 days at the Racetrack during such period.
3.1.2 Encouragement of Maryland Horsemen to Race in Virginia.
Maryland Jockey Club shall use its reasonable best efforts to encourage
thoroughbred horsemen who normally race in Maryland during the aforesaid period
to race in Virginia during Colonial Downs' thoroughbred meet. Maryland Jockey
Club may, but shall not be required to, expend any of its own funds in that
regard.
3.2 Virginia Racing Dates. Colonial Downs shall apply to the Commission
for thoroughbred racing in Virginia on such dates and days of the week as are
designated by Manager, are consented to by Colonial Downs, which consent shall
not be unreasonably withheld or delayed, and are consistent with the racing
dates to be sought in Maryland pursuant to Section 3.1 above. Colonial Downs
shall not apply for any thoroughbred racing dates which would overlap with
thoroughbred racing dates in Maryland without the prior written consent of
Maryland Jockey Club. If the Maryland Racing Commission refuses to permit the
establishment of the Virginia-Maryland circuit, or if Maryland Jockey Club is
otherwise unable to establish the Virginia-Maryland Circuit, each substantially
in the manner contemplated in Colonial Downs' application to the Commission for
the Licenses and herein, subject to the rights of Colonial Downs under Section
8.1.6 hereof, Colonial Downs shall consult with Maryland Jockey Club as to the
thoroughbred race dates to be sought in Virginia and may, if reasonably
necessary, apply for overlapping race dates.
3.3 Stabling of Horses. Colonial Downs shall, and Manager shall cause
Maryland Jockey Club to, cooperate with each other in keeping open the stable,
dormitory and other backstretch areas of their respective racetracks during such
times of the year as may be reasonably necessary or appropriate to help assure a
sufficient quantity of horses for a Maryland-Virginia thoroughbred racing
circuit. Such cooperation shall include but not be limited to keeping open the
backstretch areas of the Racetrack for stabling and training of thoroughbred
horses during times of the year when live harness racing is not being conducted
there and, in the reasonable opinion of Manager, such action is necessary for
the benefit of thoroughbred racing at the Racetrack; provided, however, in no
event shall Colonial Downs be required hereunder to keep open its backstretch
areas for periods more than thirty (30) days prior to its meets, during its
meets and fourteen (14) days following its meets.
3.4 Exchange of Simulcast Racing Programs. Colonial Downs shall, and
Manager shall cause Maryland Jockey Club to, exchange simulcast racing programs
on the following basis:
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3.4.1 During the period when there is no live thoroughbred racing
at the Racetrack, Manager shall cause Maryland Jockey Club to make its Maryland
live thoroughbred race signals available to Colonial Downs and its network of
OTB Facilities in Virginia for simulcast pari-mutuel wagering in Virginia.
3.4.2 During the period when there is live thoroughbred racing at
the Racetrack, Colonial Downs shall make its Virginia live thoroughbred race
signals available to Maryland Jockey Club and its Maryland off-track betting and
intertrack facilities for simulcast pari-mutuel wagering in Maryland.
3.4.3 No charge shall be imposed by Maryland Jockey Club or
Colonial Downs for the aforesaid exchange of simulcast signals. Each such entity
shall, however, be responsible for all costs of receiving and distributing the
simulcast signal of the other's races within its network (including without
limitation the cos s of downlinks, decoders and related equipment) and charges
for long distance data and other telephone lines, totalizator and other services
and equipment.
3.5 Joint Contracts for Certain Equipment and Services. Colonial Downs
and Manager both desire to maximize the benefits of the two-state circuit for
racing and betting between Virginia and Maryland. Colonial Downs and Manager
both recognize that s ch benefits might be maximized by Colonial Downs and
Manager jointly bidding, negotiating and awarding for the Racetrack, Laurel Park
and Pimlico Race Course, and the off-track betting facilities in Virginia and
Maryland, various contracts for services purchased from independent contractors
which are common to both Virginia and Maryland. Colonial Downs and Manager shall
cooperate with each other and jointly bid such contracts if Colonial Downs and
Manager each believes it is in their respective best interests to do so and
neither party shall be liable to the other for its decision to not agree to
jointly bid such contracts.
3.6 Service Contracts. The parties recognize that there are various
simulcast and totalizator services related to wagering on live and simulcast
races at the Racetrack and the OTB Facilities that are not required to be
provided by Manager to Colonial Downs pursuant to this Agreement. These services
include reconciliations, telephone lines for transmittal of data and voice
communications, satellite downlinks, uplinks and decoders, signal fees, and
other "hub" and totalizator services (collectively, "simulcast services"). If
Colonial Downs desires to contract with a third party or parties for all or any
portion of such simulcast services, it shall advise Manager and Manager shall
have the right, but not the obligation, to submit a bid to Colonial Downs
setting forth the terms and conditions under which Manager would provide such
simulcast services to Colonial Downs, either alone or in conjunction with
another party or parties (including but not limited to a totalizator
contractor). Colonial Downs shall have the right to solicit bids from other
parties for such simulcast services. Colonial Downs will advise Manager if it
has received a bid from a qualified third party or parties for such simulcast
services that Colonial Downs is prepared to accept and will provide Manager a
true and complete copy of such bid. Manager shall have the right, within three
(3) business days after receipt of such copy, or such longer period as the
parties may agree, to elect to match all of the terms and provisions
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of such bid and to be awarded the contract therefor either alone or in
conjunction with another party (including but not limited to a totalizator
contractor). Recognizing that different equipment manufacturers generally
utilize different equipment, Manager's aforesaid election to match another bid
may include use of substantially equivalent, rather than identical, equipment
that contained in the bid being matched. If Manager does not make such election
to match, Colonial Downs shall be free to award such contract to such third
party on the aforesaid terms and provisions.
SECTION 4
COMPENSATION OF MANAGER
4.1 Management Fee. As compensation for the management and consulting
services under this Agreement, Owner shall pay Manager a fee ( Management Fee"),
equal to two percent (2%) of the gross amounts wagered ("Handle") in the
Commonwealth of Virginia, whether at the Racetrack, at the OTB Facilities or in
any other form (including but not limited to account, telephone and home
wagering) on all races run live in Virginia, or received by simulcast in
Virginia excluding only (1) Handle wagered at the Racetrack on live harness
races conducted by Colonial Downs at the Racetrack; and (2) Handle generated at
racetracks, offtrack betting facilities or in any other form licensed to persons
or entities other than Colonial Downs and in which Colonial Downs or any of its
affiliates has no ownership, financial or other interest. Provided, however,
that there shall also be excluded Handle generated at any racetrack in addition
to the Racetrack licensed by the Commission to persons or entities other than
Colonial Downs (as well as at off-track betting facilities licensed to such
other racetrack licensee or licensees) in which an affiliate of Colonial Downs
has a passive, non-controlling interest so long as such interest was not
designed or intended to circumvent this Agreement.
4.2 Payment of Management Fee. Owner shall pay the Management Fee
monthly on or before the seventh (7th) day of each month based on the Handle
report generated by the totalizator system for the immediately preceding month.
After the audited financial statemen s of Owner are completed for a fiscal year,
Manager shall receive from or reimburse Owner, or Owner shall have the right to
offset against future payments to Manager, any amount necessary for the Manager
to have received the correct Management Fee for such fiscal year.
4.3 Payment of Expenses. All of the expenses of the development,
construction, operation, maintenance and repair of the Racetrack and the OTB
Facilities, including without limitation all costs and expenses of the live
thoroughbred meet and the OTB Facilities, whether contracted for by Colonial
Downs or Manager (in accordance with the terms of this Agreement), shall be
borne and paid for timely by Owner. Such costs and expenses shall include all
direct and indirect costs and expenses (including but not limited to the
reimbursement of Maryland Jockey Club salary expenses provided for in Section
4.4 below), other than general overhead of the Maryland Jockey Club, incurred by
Manager in performing services under and in accordance with this Agreement. In
the event Manager pays any such expenses on behalf of Colonial Downs, it shall
be promptly reimbursed therefor by Owner.
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4.4 Reimbursement of Maryland Jockey Club Salary Expenses. Owner shall
promptly reimburse Maryland Jockey Club for the pro rata share of all salaries
including but not limited to base salary, bonuses consistent with practices or
programs of Maryland Jockey Club (which were disclosed to Colonial Downs in
writing prior to the date of this Agreement), fringe benefits, health and
welfare expenses, and workers' compensation and unemployment insurance premiums
and the employer's share of payroll taxes) of all employees of Maryland Jockey
Club involved in providing services to Manager or Colonial Downs under this
Agreement as part of the Thoroughbred Staff. Such employees shall not include
Joseph A. DeFrancis or Martin Jacobs, or their respective successors as the two
principal executive officers of Maryland Jockey Club. Such employees shall be
limited to individuals filling the positions set forth in Schedule I as the same
may be amended from time to time by mutual agreement of Colonial Downs and
Manager. It is the intent of Colonial Downs and Manager that many of the members
of the Thoroughbred Staff will be year-round Maryland Jockey Club employees who
will have their Maryland duties or responsibilities reduced or changed as the
result of the cessation of live thoroughbred racing in Maryland because of the
Maryland-Virginia racing circuit and the conduct of live thoroughbred racing at
the Racetrack. Manager shall advise Colonial Downs annually as to the specific
employees of Maryland Jockey Club who will be involved in providing such
services. The aforesaid pro rata share shall be computed by Manager in good
faith based on that portion of such employees' entire working time spent on
providing services to Colonial Downs. Such share shall be one-third (1/3) unless
(1) otherwise agreed or (2) the total number of days of live thoroughbred racing
days at the Racetrack increases or decreases, in which event an appropriate
adjustment shall be negotiated by Colonial Downs and Manager in good faand
Jockey Club shall made not less often than monthly, within seven (7) days after
receipt by Owner of an invoice therefor.
4.5 Possible Deferment of Management Fee. Notwithstanding any other
provision of this Section 4, payment of the Management Fee may be deferred in
the following circumstances and only on the following terms and conditions:
4.5.1 Construction of Outer Turf Track. If after exercise of
Owner's reasonable best efforts Owner is unable to obtain the funds necessary to
construct the outer turf track system within the time required by the
Commission, either through equity, debt or cash flow from operations, then
payment of a portion of the Management Fee to Manager may be deferred as
provided below. However, such deferral may be made only to the extent funds
generated through equity, debt or cash flow from operations (thoroughbred,
harness, off-track betting or otherwise) are needed to cover construction costs
for the outer turf track system.
4.5.2 Insufficient Revenues. If Owner's revenues are
insufficient to cover operating expenses during any of the first three (3) years
of operations of the Racetrack, payment of up to seventy-five percent (75%) of
the Management Fee for that year may be deferred but only to the limited extent
needed to cover operating expenses other than the Management Fee. Colonial Downs
shall advise Manager (1) at leas sixty (60) days prior to the beginning of
Owner's fiscal year if Owner's projected revenues are insufficient to cover its
projected operating expenses for such fiscal year, and (2) immediately if its
then current revenues from all sources are insufficient to meet its actual
operating expenses. In such event, Colonial Downs may defer the
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Management Fee payable to Manager by the amount necessary to meet Owner's
operating expenses as aforesaid, but not more than seventy-five percent (75%) of
the Management Fee otherwise payable for that year. Colonial Downs and Manager
shall thereafter review the financial results of Owner on a quarterly basis and
make such adjustments as are possible to the Management Fee being paid to
Manager based upon the operating results of Owner, it being the intention of the
parties that such deferral of payment of a portion of the Management Fee shall
continue only for such period and to such extent as is necessary to permit Owner
to meet its operating expenses.
4.5.3 Certain Definitions. As used in this section 4.5: "revenues"
means gross revenues of Owner from all sources, whether thoroughbred, harness,
offtrack betting or otherwise; "operating expenses" means all of Colonial Downs'
cash expenses of operations of the Racetrack and the OTB Facilities and does not
include non-cash items such as depreciation and amortization, non-operating
expenses such as debt service, and any fees, compensation, dividends,
distributions or other payments to Owner, General Partner or Operator or any of
their respective affiliates, other than reasonable salaries for work actually
performed; and "cash flow from operations" means Owner's revenues less operating
expenses, as defined above.
4.5.4 Interest on Deferrals. If payment of any portion of the
Management Fee is deferred pursuant to this section 4.5, such payment shall be
made by Owner at the earliest possible time (and prior to the payment of any
fees, compensation, dividends, distributions or other payments to Owner, General
Partner or Operator or any of their respective affiliates other than reasonable
salaries for work actually performed) together with interest thereon, computed
at the prime rate charged by Owner's principal bank, from the date the payment
became due until it is actually made.
4.5.5 No Deferral of Expenses. In no event shall payment or
reimbursement of expenses of Manager or Maryland Jockey Club pursuant to this
Agreement be deferred.
4.5.6 Income Taxes on Deferrals. Colonial Downs shall use its
best efforts to structure any deferral of payment of the Management Fee in such
fashion that Manager is not required to pay any income taxes thereon until such
fee is actually received by Manager; and in no event shall Colonial Downs claim
a deduction, accrual or charge on any income tax return for any portion of the
Management Fee that has not been paid. Colonial Downs shall consult with Manager
on the structure of any such deferral and shall implement any such structure
which Manager reasonably requests.
4.6 Possible Reduction in Fee. The Management Fee payable by Owner to
Manager under Section 4.1 shall be reduced from two percent (2%) of Handle to
one percent (1%) of Handle in the event (i) expanded non-pari-mutuel gaming
activities are authorized and conducted in Maryland with contributions from such
activities made to thoroughbred purses before they are authorized and conducted
in Virginia, and (ii) solely as a result of such contributions to purses, the
average daily overnight thoroughbred purses paid at Laurel Park and Pimlico Race
Course are greater by fifty percent (50%) or more than the average daily
overnight thoroughbred purses that may be paid by Colonial Downs. The aforesaid
reduction shall
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terminate and the Management Fee shall revert to being two percent (2%) of
Handle at such time as expanded non-pari-mutuel gaming activities comparable to
those in Maryland are authorized and conducted in Virginia.
SECTION 5
TERM OF AGREEMENT
5.1 Term. The term of this Agreement shall commence and be effective as
of the date hereof and shall continue in effect for as long as Colonial Downs
(or any successors or transferees, as provided in Sections 5.2 and 5.3) owns,
controls or operates, directly or indirectly, any of the Licenses and/or the OTB
Licenses, unless terminated earlier in accordance with this Agreement, provided,
however, that if Colonial Downs surrenders or otherwise voluntarily abrogates
any of the Licensees and/or the OTB Licenses and Colonial Downs (or any
successors or transferees, as provided in Sections 5.2 and 5.3) continues to own
the Racetrack, this Agreement shall continue in full force and effect. In no
event shall the term of this Agreement continue beyond fifty (50) years after
the effective date hereof.
5.2 Sale. Merger or Other Transfer. In the event of any sale of all or
substantially all of the assets of Owner or Operator (or of any successor or
successors), or any merger or other business combination of Owner or Operator
(or of any successor or successors) with any other entity, this Agreement shall
continue in full force and effect. Owner and Operator (or any successor or
successors) shall, as a condition of such transaction, require the buyer or
other acquirer or transferee to be bound by this Agreement as fully as if named
herein.
5.3 Sale of Licenses. In the event of any sale or other transfer of any
of the Licenses or the OTB Licenses, this Agreement shall also continue in full
force and effect. Colonial Downs (or any successor or successors) shall, as a
condition of such transaction, require the buyer or other transferee to be bound
by this Agreement as fully as if named herein.
5.4 Loss of Licenses
5.4.1 Abandonment of Licenses. In the event Colonial Downs
determines to abandon either of the Licenses, Colonial Downs shall, if Manager
so requests, assign and transfer such license or licenses to Manager without
recourse. Colonial Downs and Manager shall execute and deliver to each other all
documents as may be reasonably necessary to accomplish the foregoing. Such
assignment or transfer shall be subject to such approval of the Commission as
may be necessary. For the purposes hereof, the word "abandon" shall mean the
intention to cease all business operations with respect to such license or
licenses for a period of more than one (1) year.
5.4.2 Revocation of Licenses. In the event the award of either
of the Licenses is revoked or otherwise nullified by the Commission or a court
of competent jurisdiction, Manager shall have the right to apply for any such
license in its own name and in its own behalf without any obligation or
liability to Colonial Downs hereunder. Provided, however, that in the event
Manager makes such application as aforesaid, this Agreement shall automatically
terminate and
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be of no further force and effect and neither Colonial Downs nor Manager shall
have any further rights or obligations hereunder, except for any obligation
incurred prior to such termination.
5.5 Option to Buy-Out Term. Notwithstanding any other provision of this
Agreement, Colonial Downs shall have the right, at any time after twenty-five
(25) years following the effective date of this Agreement, to buy out Manager's
entire interest under this Agreement for the then remaining term. Colonial Downs
shall give Manager written notice of the exercise of such right and the closing
of the purchase and sale shall take place at the principal office of Manager not
later than sixty (60) days after the giving of notice. The purchase price shall
be an amount equal to the product of seventeen (17) times the average gross
amount paid and/or payable to Manager as its Management Fee (excluding expense
reimbursement) during the three (3) full calendar years immediately preceding
the date of closing. At the closing, (i) the purchase price shall be paid in
full by Colonial Downs to Manager in immediately available funds, without
offset; (ii) the parties shall execute and deliver general mutual releases
excluding therefrom only any specifically alleged claims theretofore properly
asserted and submitted under this Agreement; and (iii) the parties shall execute
and deliver such additional documents and instruments as may be reasonably
necessary to effectuate the purchase by Colonial Downs and sale by Manager.
SECTION 6
BOOKS, RECORDS, ACCOUNTING, AND REPORTS
6.1 Records and Accounting. Colonial Downs shall keep or cause to be
kept appropriate books and records with respect to the business of Owner,
including both the Racetrack and the OTB Facilities, which shall at all times be
kept at the principal office of Owner in Virginia. Such books shall be
maintained for financial reporting purposes on the accrual basis, in accordance
with generally accepted accounting principles and applicable law, including but
not limited to the rules and regulations of the Commission. Manager shall
provide Colonial Downs, on a timely basis with such information as it has and
Colonial Downs needs to maintain such books and records with respect to the
thoroughbred racing meets.
6.2 Reports.
6.2.1 Annual Statements. As soon as reasonably practicable
after the end of each fiscal year, but not later than (90) days after the end of
the fiscal year, Colonial Downs shall deliver to Manager reports containing
audited financial statements for Owner for such fiscal year, presented on the
accrual basis, including a balance sheet and statements of income and cash
flows. The financial statements shall be audited by a recognized national or
regional firm of certified public accountants selected by Colonial Downs and
acceptable to the Commission.
6.2.2 Monthly and Quarterly Statements. Colonial Downs shall
deliver to Manager unaudited statements prepared in a similar format to the
annual statements of Owner as follows: (1) monthly statements within twenty (20)
days after the end of each month, or such
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shorter period in which provided to lenders; and (2) quarterly statements within
thirty (30) days after the end of each fiscal quarter, or such shorter period in
which provided to Lenders.
6.2.3 Annual Budgets. Colonial Downs shall provide Manager not
later than sixty (60) days before commencement of each fiscal year a budget in
reasonable detail as to all income and expenses and all capital expenditures of
Owner. Manager shall within thirty (30) days thereafter provide Colonial Downs
its comments and suggestions thereon. Colonial Downs and Manager shall cooperate
with each other and resolve in good faith any disagreements in the budget
prepared by Colonial Downs and the suggestions made by Manager which relates to
Manager's responsibilities under this Agreement.
6.2.4 Other Information. Colonial Downs may release
information concerning the operations of the Racetrack and the OTB Facilities to
the Commission and to any financial institution or other person that has loaned
or may loan funds to Owner. Colonial Downs may also release such information to
any other person for reasons reasonably related to the business and operations
of the Racetrack and the OTB Facilities, as determined by Colonial Downs, in its
sole discretion, or as required by law or regulation of the Commission or by any
other regulatory body. Maryland Jockey Club may release such information
concerning the Racetrack and the thoroughbred meet to the Maryland Racing
Commission, the Maryland Horsemen's and Breeders' associations and its lenders,
and, with Owner's prior consent which shall not be unreasonably withheld or
delayed, to any other person for any reasonable purpose.
6.3 Right of Inspection and Review. Manager, its representatives,
accountants, attorneys and agents shall have the absolute right to enter upon
any part of the Racetrack at all reasonable times for any reasonable purpose and
with reasonable notice, including but not limited to examining or inspecting
Owner's books and records relating to the Racetrack or the OTB Facilities.
SECTION 7
GENERAL COVENANTS OF COLONIAL DOWNS AND MANAGER
7.1 Insurance. Owner shall maintain in full force and effect, at its
sole cost and expense, at all times liability, property, automobile and other
vehicle, crime, workers compensation and all other insurance customarily
maintained by first-class racetracks with limits, coverages, deductibles,
policies and carriers reasonably acceptable to Owner and Manager. Owner shall
provide Manager annually with certificates of insurance evidencing the required
coverages and providing for Manager to be sent all notices of cancellation. The
following provisions shall be applicable to such insurance:
7.1.1 Liability Insurance. Manager shall be an additional
named insured on all liability insurance carried by or on behalf of Owner and
such insurance shall contain cross-liability and severability of interests
provisions.
7.1.2 Property Insurance. Manager shall be an additional named
insured on all property insurance carried in relation to physical loss of or
damage to property of Owner, or of
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Manager, as Manager's interests may appear, including but not limited to fire
and extended coverage insurance, all-risk insurance and loss of use insurance.
Such insurance shall include the property of Manager, if any, used in connection
with performance of its duties hereunder (provided that Manager gives timely
notice to the carrier of its acquisition of such property and the full value
thereof) and shall include a waiver of the insurer's right of subrogation
against any named insured.
7.2 Exculpation.
7.2.1 Manager shall perform its duties under this Agreement
with ordinary prudence and in a manner consistent with normal business practices
in similar circumstances. Manager shall have no liability whatsoever to Owner,
General Partner or Operator, or any limited partner, stockholder or other owner
of any such entity, for any loss caused by any act of Manager or by the failure
of Manager to do any act, notwithstanding the fact that the loss arises out of
the negligence or a mistake in judgment of Manager, provided that Manager,
acting in good faith, reasonably believed that the action or lack of action
giving rise to the loss was in the best interests of Owner, General Partner or
Operator, as the case may be. Such exculpation from liability shall not,
however, apply to any loss which arises out of or involves the gross negligence,
willful misconduct or bad faith of Manager, or results from willful violation by
Manager of a material provision of this Agreement. As used in Sections 7.2 and
7.3, "Manager" shall include that entity and its affiliates, including but not
limited to Laurel Racing Association Limited Partnership and The Maryland Jockey
Club of Baltimore City, Inc., and its and their respective stockholders,
partners, officers, directors and employees.
7.2.2 Notwithstanding any other provision of this Agreement,
Colonial Downs shall be solely responsible for, and Manager shall have no
responsibility for, Colonial Downs' entering into any agreement not recommended
by or opposed by Manager and Manager shall not be considered to be in breach of
this Agreement or otherwise prejudiced by failing to provide or perform any
management or consulting service which Colonial Downs has not asked Manager to
provide or perform or as to which Colonial Downs has disregarded Manager's
advice.
7.3 Indemnity of Manager.
7.3.1 Owner shall indemnify and save Manager completely
harmless in respect of, and at Manager's request shall defend Manager and its
stockholders, directors, officers, agents and employees, against any action,
cause of action, suit, debt, liability, cost, expense, penalty, claim or demand
whatsoever, including reasonable fees and expenses of counsel, brought by any
person at law or in equity, arising in connection with the performance or
failure of performance by Manager of any and all of its duties or obligations
under this Agreement. The foregoing shall not be applicable if it is proven that
Manager's gross negligence, willful misconduct, bad faith, or willful violation
of a material provision of this Agreement resulted in the liability unless
Manager's conduct was covered by Section 7.2.2 above.
7.3.2 This indemnity shall continue notwithstanding the
termination of this Agreement with respect to any act or occurrence preceding
such termination. In no event shall
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this indemnity apply to any action, cause of action, suit, debt, liability,
cost, expense, penalty, claim or demand which is insured for the full amount of
such claim or which is caused by (1) the gross negligence, willful misconduct or
bad faith of Manager or (2) any action taken by Manager in willful violation of
a material provision of this Agreement.
7.3.3 No person who shall be engaged as an independent
contractor by Manager shall be considered an employee or agent for the purposes
of Section 7.3.
7.4 Indemnity of Colonial Downs.
7.4.1 Manager shall indemnify and save Colonial Downs
completely harmless in respect of, and at Colonial Downs' request shall defend
Colonial Downs and its respective general partner, limited partners,
stockholders, directors, agents and employees against any action, cause of
action, suit, debt, liability, cost, expense, penalty, claim or demand
whatsoever, including reasonable fees and expenses of counsel, brought by any
person at law or in equity, arising as a result of any action or decision by
Manager taken or made or purportedly taken or made in violation of this
Agreement, and if and only to the extent proven to have been caused by the gross
negligence, willful misconduct or bad faith of Manager or willful violation by
Manager of a material provision of this Agreement. The foregoing is subject to
Section 7.4.2 below and Section 7.2.2 above.
7.4.2 This indemnity shall continue notwithstanding the
termination of this Agreement with espect to any act or occurrence preceding
such termination. In no event shall the indemnity provided under section 7.4.1.
apply to any action, cause of action, suit, debt, liability, cost, expense,
penalty, claim or demand which is insured for the full amount of such claim or
which is caused by (1) the gross negligence, willful misconduct or bad faith of
Colonial Downs or (2) any action taken by Colonial Downs in willful violation of
a material provision of this Agreement.
7.5 No Other Agreements. This Agreement, together with another
agreement of even date herewith entered into between Colonial Downs and Manager,
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior oral and written discussions and
understandings. Acceptance of, or acquiescence in, a course of performance
rendered under this Agreement shall not be relevant or admissible to determine
the meaning of this Agreement even though the accepting or acquiescing party has
knowledge of the nature of the performance and an opportunity to make objection.
No representations, understandings or agreements have been made or relied upon
in making of this Agreement other than those specifically set forth herein.
7.6 Independent Activities. Notwithstanding the existence of this
Agreement, Colonial Downs and Manager, and each of their respective affiliates
(including but not limited to Raceway Park, Trinity Meadows, Laurel Park and
Pimlico Race Course and their respective stockholders, partners, directors,
officers and employees) may engage in whatever activities each such party may
choose without having or incurring any obligation to offer any interest in any
such activities to the other party unless they relate to racing or off-track
betting in Virginia.
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Manager agrees, subject to the provisions of Section 5.4.2, to not apply for or
otherwise obtain a license(s) to own or operate a pari-mutuel horse racing
facility or pari-mutuel horse racing off-track betting parlors in the
Commonwealth of Virginia as long as this Agreement is in effect. This Agreement
shall be applicable to all license(s) to own or operate a pari-mutuel horse
racing facility or pari-mutuel horse racing off-track betting parlors in
Virginia sought by Colonial Downs, its subsidiaries or its affiliates
controlling, controlled by or under common control with Colonial Downs as long
as this Agreement is in effect. Colonial Downs agrees to not apply for or
otherwise obtain a license(s) to own or operate a pari-mutuel horse racing
facility or pari-mutuel horse racing off-track betting parlors in the State of
Maryland as long as this Agreement is in effect. Except as set forth above,
neither this Agreement nor any activity undertaken pursuant hereto shall prevent
Colonial Downs and Manager, or their respective affiliates, from engaging in
such activities, or require participation in such activities by the other party.
As a material part of the consideration hereof, each party hereto hereby waives,
relinquishes and renounces any such right of or claim to participation in any
such activities.
SECTION 8
TERMINATION
8.1 Termination by Owner. Notwithstanding any other provision of this
Agreement, Owner shall have the right but not the obligation to terminate this
Agreement on the occurrence of any of the following events:
8.1.1 The filing against Manager of a petition in bankruptcy
or other similar proceeding under law for relief of debtors, or the involuntary
appointment of a receiver, custodian, liquidator or trustee in bankruptcy of the
property of Manager, and such petition or appointment is not vacated or
discharged within one hundred twenty (120) calendar days after the filing or
making thereof.
8.1.2 Manager, without the knowledge of Owner, violates any
material provision of any material federal, state or local law or regulation
relating to the development, construction or operation of the Racetrack and/or
the OTB Facilities and fails to cure (or diligently pursue the cure of) the
violation within thirty (30) days following receipt of notice from the
governmental agency of such violation.
8.1.3 Owner is unable within the period required by the
Commission to raise sufficient funds to complete the development and
construction of the Racetrack and does not subsequently do so.
8.1.4 The licenses of Owner and/or Operator from the
Commission to own and operate the Racetrack are permanently revoked, permanently
withdrawn or otherwise no longer available to Owner or Operator for any reason.
8.1.5 The license or other required approval of Manager or any
of its affiliates from the Commission to manage the thoroughbred meet and/or be
a consultant to or provide management services to the OTB Facilities, as
provided in this Agreement, is permanently
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revoked, withdrawn or otherwise no longer permanently available for any reason
and such revocation, withdrawal or other unavailability is upheld on appeal, or
any applicable appeal time has expired without an appeal having been filed by
Manager.
8.1.6 Either the Commission or the Maryland Racing Commission
refuses to authorize Colonial Downs and/or Maryland Jockey Club to participate
in the proposed Virginia-Maryland circuit and/or requires Colonial Downs and/or
Maryland Jockey Club to conduct a thoroughbred meet on dates which substantially
overlap with the thoroughbred meets of the other. Notwithstanding the foregoing,
the parties recognize that there may be periods when either or both aforesaid
racing commissions require Colonial Downs and/or Maryland Jockey Club to conduct
overlapping thoroughbred meets on a temporary basis which shall not constitute a
basis for termination, it being the parties' intent that termination under this
section be allowed only in the event that the ability of the parties to operate
the Virginia-Maryland circuit is frustrated for other than a temporary period.
8.2 Termination by Manager. Notwithstanding any other provision of this
Agreement, Manager shall have the right but not the obligation to terminate this
Agreement on the ccurrence of any of the following events:
8.2.1 The filing against Owner and/or Operator of a petition
in bankruptcy or other similar proceeding under law for relief of debtors, or
the involuntary appointment of a receiver, custodian, liquidator or trustee in
bankruptcy of the property of Owner and/or Operator, and such petition or
appointment is not vacated or discharged within one hundred twenty (120)
calendar days after the filing or making thereof.
8.2.2 Colonial Downs, without the knowledge of Manager,
violates any material provision of any material federal, state or local law or
regulation relating to the development, construction or operation of the
Racetrack and/or any of the OTB Facilities and fails to cure (or diligently
pursue the cure of) the violation within thirty (30) days following receipt of
notice from the governmental agency of such violation.
8.2.3 Owner is unable within the period required by the
Commission to raise sufficient funds to complete the development and
construction of the Racetrack and does not subsequently do so.
8.2.4 The Commission revokes, withdraws or suspends either of
the Licenses and such action is upheld on final appeal or the time in which to
file an appeal has expired without an appeal having been filed.
8.3 Effect of Termination. Upon termination of this Agreement,
Colonial Downs shall:
8.3.1 Assume any contracts which may have been entered into by
Manager in its own name relating to the development or operation of the
Racetrack or the OTB Facilities if such contracts have been entered into in the
ordinary and customary course of business and in
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accordance with the provisions of this Agreement and, to the extent required
under this Agreement, indemnify Manager against any liability by reason of
anything done or required to be done under any such contract by Manager after
the effective date of such termination.
8.3.2 Pay for and indemnify Manager against the cost of all
services, materials and supplies, if any, which may have been ordered by Manager
in the ordinary and normal course of business and either (1) with the knowledge
and consent of Colonial Downs or (2) in accordance with a budget approved or
established by Owner. Upon such termination, Manager shall execute and deliver
to Colonial Downs such documents of transfer and assignment as may be required
to vest in owner all of Manager's rights under any and all contracts required to
be assumed by Colonial Downs under this 6.3.
8.3.3 Pay Manager any unpaid portion of the Management Fee,
including without limitation any portion deferred and reimburse Maryland Jockey
Club as provided in Section 4.
SECTION 9
MISCELLANEOUS PROVISIONS
9.1 Notices. Any notices by either party to the other shall be in
writing and shall be delivered personally or deposited in the U.S. Mail by
certified mail or sent via Federal Express, return receipt requested, prepaid
and addressed as follows and sent as well by facsimile transmission to the
telefax number as follows:
To Colonial Downs: Colonial Downs L.P
P.O. Box 173
New Kent, Virginia 23124
Facsimile: 804-966-2086
Telephone: 804-966-7223
with copies to: Ronald J. Tice, Esq.
Eastman & Smith
One SeaGate, 24th Floor
P.O. Box 10032
Toledo, Ohio 43699-0032
Facsimile: 419-247-1777
Telephone: 419-241-6000
James L. Weinberg, Esq.
Hirschler, Fleischer, Weinberg, Cox & Allen
The Federal Reserve Bank Building
701 East Byrd Street
Richmond, Virginia 23219
Facsimile: 804-644-0957
Telephone: 804-771-9527
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To Manager: c/o The Maryland Jockey Club
Route 198 and Racetrack Road
P. O. Box 130
Laurel, MD 20725
Facsimile: 410-792-4877
Telephone: 301-725-0400
with a copy to: Martin Jacobs, Esq.
Galland, Kharasch, Morse & Garfinkle, P.C.
Canal Square
1054 - 31st Street, N.W.
Washington, D.C. 20007
Facsimile: 202-342-5219
Telephone: 202-342-5237
Any party may at any time change the address for notices to it by delivering or
mailing, as aforesaid, a notice to the other party stating the change and
setting forth the changed address. The effective date of any notice shall be the
date it is personally delivered or three (3) days after it is deposited in the
U.S. Mail in accordance with the provisions of this Section.
9.2 No partnership or Joint Venture. Nothing contained in this
Agreement shall constitute or be construed to be or create a partnership or
joint venture between Colonial Downs and Manager and, except as specifically set
forth herein or otherwise agreed in writing, neither shall have the power or
authority to bind or obligate the other.
9.3 Modification and Changes. This Agreement may not be changed or
modified except by another agreement in writing signed by the parties hereto.
9.4 Headings. The Section numbers and headings contained herein are for
convenience of reference only and are not intended to define, limit or describe
the scope or intent of any provision of this Agreement.
9.5 Binding Agreement; Assignment. This Agreement shall be binding upon
and inure to the benefit of each party hereto, and its respective successors and
assigns. This Agreement may not be assigned by any party without the prior
written consent of the other party hereto, which consent shall not be
unreasonably withheld.
9.6 Governing Law. This Agreement shall be deemed to have been made and
shall be construed and interpreted in accordance with the laws of the
Commonwealth of Virginia Jurisdiction and venue over any dispute arising
hereunder shall be deemed to be exclusively in Richmond, Virginia.
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9.7 Attorneys' Fees. Except as otherwise provided herein, in the event
of any dispute arising out of or concerning the terms hereof, the prevailing
party in such dispute shall be entitled to recover its reasonable attorneys'
fees and other costs incurred in enforcing its rights hereunder.
9.8 Arbitration. In the event of any disputes or differences arising
out of this Agreement, which the parties have been unable to resolve after
reasonable efforts to do so, either party may refer the dispute or difference
for final settlement by arbitration in accordance with the following procedures:
9.8.1 By the Commission. The party so desiring to refer the matter
shall request the Commission to arbitrate the dispute or difference by a panel
comprised by either one (1) or three (3) of its members, as its Chairman shall
designate, in accordance with such rules as the Chairman of the Commission
determines, including, but not limited to, the Commerical Arbitration Rules of
the American Arbitration Association (the "AAA") in effect on the date of this
Agreement.
9.8.2 By Another Arbitrator. If the Commission declines to arbitrate
the dispute or difference, the arbitration shall be conducted by a single
arbitrator designated by the Chairman of the Commission; and if the Chairman
declines to designate an arbitrator, the arbitration shall be conducted by a
single arbitrator selected by Colonial Downs and Manager in accordance with the
aforesaid rules of the AAA.
9.8.3 General. The arbitration shall take place in Richmond, Virginia,
unless the parties otherwise mutually agree. The arbitration award shall be
final, binding and conclusive on the parties, and not subject to any appeal. No
party nor the arbitrator may disclose the existence or results of any
arbitration hereunder except as may be necessary in litigation to enforce the
award or as may be required by the Commission. Judgment upon the award rendered
may be entered in any court having jurisdiction, or application may be made to
such court for judicial recognition of the award or any order of enforcement
thereof, as the case may be. This Section 9.8 shall not be construed to limit
the right of either party to apply to a court of competent jurisdiction for
other equitable relief to preserve the status quo or prevent irreparable harm.
Unless the arbitrator otherwise so determines and provides in the arbitration
award, (1) costs of the arbitration incurred jointly by the parties (including
hearing reporting fees, rental of a hearing room and all AAA fees, costs and
services charges) and of the arbitrator shall be shared equally by the parties,
except that hearing postponement or cancellation fees charges by AAA or the
arbitrator shall be borne exclusively by the canceling or postponing party; and
(2) each party shall bear its own costs and expenses incurred by that party in
connection with arbitration, including without limitation each party's own
travel expenses, hearing witness expenses and attorney's fees.
9.9 Force Majeure. If at any time during the term hereof it becomes
necessary in Colonial Downs' reasonable opinion to cease operation of the
Racetrack or any portion thereof in order to protect the Racetrack and/or the
health, safety, and welfare of the guests, invitees, and/or employees of the
Racetrack for a period of time or permanently for reasons of force majeure such
as, but not limited to, acts of war, insurrection, civil strife and commotion,
serious labor unrest,
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inclement weather, or acts of God, then in such event Colonial Downs may close
and cease operation of all or part of the Racetrack, reopening and commencing
operation when Colonial Downs reasonably deems that such may be done without
jeopardy to the Racetrack, its guests, invitees, and employees. Either Colonial
Downs or Manager may terminate this Agreement upon thirty (30) days' written
notice if the conditions that caused the interruption of business at the
Racetrack have not ceased or improved sufficiently after the end of one hundred
eighty (180) days to permit the operation of the Racetrack in accordance with
the provisions of this Agreement. Provided, however, that the Agreement shall
continue in full force and effect as to OTB facilities, if any, which continue
to be licensed to Colonial Downs and continue to be operated. If within the next
following period of one hundred eighty (180) days Owner reopens the Racetrack,
Manager may by written notice to Owner reactivate this Agreement, whereupon it
shall be in full force and effect as if not terminated.
9.10 Limitation of Liability. Anything contained herein to the contrary
notwithstanding, neither Colonial Downs nor any of its respective general
partner, limited partners, stockholders, directors, officers, employees or
agents shall be liable to Manager or to any of its affiliates or their
respective general partner, limited partners, stockholders, directors, officers,
employees and agents for (1) the failure of Colonial Downs to obtain or retain
incenses for the Racetrack and for all or a portion of the permitted OTB
Facilities or (2) the failure, for any reason, of Colonial Downs to raise the
capital necessary to construct, or to construct, the Racetrack and related
facilities (including the outer turf track).
9.11 Action of General Partner and Operator. Wherever in this Agreement
an obligation is imposed on Owner, and it is within the power of the General
Partner and/or the Operator to cause such obligation to be performed, then
General Partner and/or the Operator shall take such action.
9.12 Restructuring of Owner. All revenues generated and expenses
incurred, directly or indirectly, from the ownership and operation of the
Racetrack and the OTB facilities, or in any other manner from the use by
Colonial Downs of the Licenses and the OTB Licenses, shall be accounted for as
revenues and expenses of Owner. No distributions or payments shall be made by
Owner to Operator or General Partner or any of their affiliates except for (i) a
reasonable management fee to Operator for management services actually rendered
by and on behalf of Owner; and (ii) distributions to the General Partner of its
proportionate share of partnership distributions from Owner. Colonial Downs
shall not pay management fees or salaries to Operator, General Partner and any
of their affiliates in excess of an aggregate of $500,000 annually without the
prior consent of Manager, which shall not be unreasonably withheld, unless Owner
has reserved or otherwise has available to it sufficient funds to ensure that
the compensation and reimbursement of expenses due Manager and Maryland Jockey
Club hereunder will be paid in full in a timely manner. If there is any
restructuring of Colonial Downs after the date of this Agreement, the effect of
which could be to divert revenues generated by the Racetrack or the OTB
Facilities, or the Licenses or the OTB Licenses to Operator, General Partner or
any other person or entity, Operator, General Partner and such other person or
entity shall be jointly and severally responsible with Owner for the obligations
of Owner to Manager
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hereunder and such other person or entity shall become a party to this Agreement
to reflect the aforesaid responsibility.
9.13 Interpretation. Colonial Downs and Manager acknowledge and agree
that this Agreement has been jointly prepared by the parties hereto and, in the
event of any dispute among or between the parties, this Agreement or any
provision hereof shall not be construed against any of the parties as the party
drafting this Agreement or that provision.
IN WITNESS WHEREOF, each of the parties through its respective duly
authorized representatives has executed and delivered this Agreement effective
as of April 22, 1996.
COLONIAL DOWNS, L.P.
By: Stansley Management Corp., its
general partner
By: /s/ Arnold W. Stansley
----------------------
Arnold W. Stansley, President
STANSLEY MANAGEMENT CORP.
By: /s/ Arnold W. Stansley
----------------------
Arnold W. Stansley, President
STANSLEY RACING CORP.
By: /s/ Arnold W. Stansley
----------------------
Arnold W. Stansley, President
MARYLAND-VIRGINIA RACING CIRCUIT, INC.
By: /s/ Joseph A. DeFrancis
-----------------------
Joseph A. DeFrancis, President
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SCHEDULE I
AUTHORIZED THOROUGHBRED STAFF
1. General Manager for Thoroughbred Meets
2. Chief of Operations
3. Liaison between Management and Horsemen's and Breeders' Associations and
Jockeys and Jockeys' Association
4. Track Superintendent and his assistant
5. All personnel reasonably required in the Racing Department including but
not limited to the following:
a. Race Secretary
b. Assistant Race Secretary
c. Clerk of Course
d. Paddock and Patrol Judges
e. Clerk of Scales Man
f. Stall Superintendent
g. Starter
h. Assistant Starters
i. Gate Crew
j. Jockeys Valets and Color and Numbers Man
k. Identifier
l. Equibase chart caller and other program data personnel
6. Up to three (3) secretaries for front office management and up to three
(3) secretaries for Racing Department
7. Director of Simulcasting and Audio Visual and his assistants
8. Announcer
<PAGE>
MARYLAND-VIRGINIA RACING CIRCUIT, INC.
P. O. BOX 130
LAUREL, MARYLAND 20725
April 22, 1996
Colonial Downs, L.P.
Stansley Management Corp.
Stansley Racing Corp.
P. O. Box 173
New Kent, Virginia 23124
Gentlemen:
This letter has reference to the Management and Consulting Agreement
(the "Agreement") being entered into contemporaneously with execution by all
parties of this side letter. (Terms defined in the Agreement that are used
herein with initial capital letters have the meanings so given.) In addition to
the matters set forth in the Agreement, the parties have also agreed as follows:
1. Manager will not directly or indirectly oppose the development or
operation of one (1) OTB Facility within the municipal boundaries
of either the City of Manassas or the City of Manassas Park.
2. In the event there is authorized in Virginia at any time during the
term of the Agreement any additional form of gaming permitted at or
in connection with the Racetracks and/or any of the OTB Facilities
other than pari-mutuel wagering on live or simulcast horse racing,
Colonial Downs and Manager will negotiate in good faith with each
other as to the appropriate sharing by them of the benefits
thereof. The foregoing shall not, however, preclude any person
owning an interest in any of the parties to the Agreement or in the
respective parents of the parties from participating in any such
additional form of gaming other than at or in connection with the
Racetrack and/or any of the OTB Facilities.
3. Under the letter of intent previously agreed between Colonial Downs
and Autotote for totalization services (the "Autotote Contract"),
Colonial Downs has the right to cancel, effective December 31,
1998, by paying Autotote $125,000. Colonial Downs agrees that
during 1998, it will solicit bids from other parties, including
Manager, for all "simulcast services," as defined in Section 3.6 of
the Agreement. The aforesaid payment to Autotote shall be borne by
Colonial Downs and shall not be a cost or other factor to be
considered in comparing the bids to be solicited and the contracts
to be awarded for simulcast services.
4. The parties recognize that at the present time, Autotote, Amtote,
and United Tote have available "substantially equivalent"
totalization equipment, as such term is used in Section 3.6 of the
Agreement.
<PAGE>
5. The Agreement and this side letter together constitute the entire
understanding and agreement between the parties.
Please confirm your agreement to the foregoing by executing this letter
in the place indicated below.
Sincerely,
MARYLAND-VIRGINIA RACING CIRCUIT, INC.
By: /s/ Joseph A. DeFrancis
-----------------------
Joseph A. DeFrancis, President
So Agreed:
COLONIAL DOWNS, L.P.
By: Stansley Management Corp., its general partner
By: /s/ Arnold W. Stansley
----------------------
Arnold W. Stansley, President
STANSLEY MANAGEMENT CORP.
By: /s/ Arnold W. Stansley
----------------------
Arnold W. Stansley, President
STANSLEY RACING CORP.
By: /s/ Arnold W. Stansley
----------------------
Arnold W. Stansley, President
PERFORMANCE GUARANTEE AGREEMENT
This PERFORMANCE GUARANTEE AGREEMENT is entered into as of this 1st day
of January, 1995 by and between the VIRGINIA RACING COMMISSION, a Commission of
the Commonwealth of Virginia, ("Commission") and COLONIAL DOWNS, L.P., a
Virqinia limited partnership ("Colonial Downs")
RECITALS
WHEREAS, Pursuant to its "Case Decision Regardinq Licensure for the
Ownership and Operation of a Horse Racing Facility" of October, 1994 (the
"Award"), the Commission awarded to Colonial Downs, an owner's license and to
Stansley Racing Corp., a Virginia corporation ("Stansley Racing"), an operator's
license to, respectively, own and operate a horse racing facility (sometimes,
the "Track") in New Kent County, Virginia; and
WHEREAS, paragraph 109 of the Award obliges Colonial Downs to:
. . . furnish, not later than January 1, 1995, a performance
guarantee of not less than one million dollars ($1,000,000) in form and
manner acceptable to the Commission, upon the occurrence of any of the
following:
a. Failure to construct, complete and open for the racing the
facilities by December 1, 1995.
b. Failure to construct, complete and open for racing the outer turf
course by June 1, 1997.
Forfeiture shall not be required if the occurrences 1 subparagraphs a.
or b. above result solely from an act of God, act of war, terrorism or
other force majeure, which cause is beyond the control of the licensee;
WHEREAS, the Virginia Jockey Club, a rejected applicant for an owner's
and operator's license, has appealed (the "Appeal") the Award, and such Appeal
is pending; and
WHEREAS, the parties desire by this Agreement to establish the terms
and conditions pursuant to which the Commission shall be entitled to draw, as
liquidated damages, monies from the performance guarantee Sum, as such term is
defined herein.
AGREEMENT:
NOW THEREFORE, in consideration of the Award, the above recitals, the
mutual covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Colonial Downs and the Commission agree as follows:
<PAGE>
A. The Guarantee
Colonial Downs is held and firmly bound unto the Commission in the sum
of ONE MILLION AND NO/100 Dollars ($1,000,000.00) (the "Sum") as its performance
guarantee, from which liquidated damages shall be paid, as provided herein, to
the Commission upon the occurrence of any of the followinq:
1. Failure to construct, complete and open the Track for racing,
consistent with the architectural drawings approved by the Commission, within
fourteen (14) months of the date that the Appeal (or other attempted appeals or
appeals which may be filed) of the Award are finally concluded by an
unappealable decision, or are settled, or upon the expiration of all applicable
time periods for filing an appeal or further appeal (such date shall be referred
to as the Appeal Conclusion Date"); or
2. Failure to construct, complete and open the outer turf course, with
such modifications as may be approved by the Commission in its sole discretion
(the "Turf Course"), for racing within thirty-two (32) months of the Appeal
Conclusion Date.
The occurrence of the events described in subparagraphs 1 or 2 above
shall constitute a "Default" hereunder, except as otherwise provided in Section
C herein.
B. Liquidated Damaqes
The parties agree that time is of the essence with regard to opening
the Track and the Turf Course for racing and Colonial Downs acknowledges that
its failure to complete the Track and the Turf Course within the time periods
set forth herein will result in significant damages to the Commonwealth of
Virginia, including but not limited to lost tax revenues and fees. Colonial
Downs' acknowledges further that such damages are difficult to determine, but
are nonetheless real. Accordingly, for each day after the deadlines specified in
Section A above, and subject to the allowable delays specified in Section C
hereof, that Colonial Downs fails to complete and open the Track or the Turf
Course, as the case may be, for racing, the Commission shall be entitled to a
payment of $5,000 per day, up to an aggregate amount equal to the Sum, as
liquidated damages. Colonial Downs agrees that such per day liquidated damages
are reasonable, and not a penalty, based upon the facts and circumstances as of
the date hereof with due regard to future expectations. Colonial Downs hereby
expressly waives, and releases the Commission from, all claims and defenses to
the effect that the liquidated damages are unreasonable, are a penalty, or
constitute anything other than a reasonable, bargained for determination of
liquidated damages.
C. Allowable Delays.
1. A Default shall not be deemed to have occurred and payment of
liquidated damages shall not be required if the delays specified in
Subparagraphs 1 or 2 of Section A of this Agreement, or either of them, occur
solely as a result of the following cause or causes,
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individually or in combination, and such cause or causes are beyond the ability
of Colonial Downs to overcome through the exercise of reasonable diligence:
a. Acts of God;
b. Delay caused by acts or neglect of the Commission or the
Commonwealth in issuing required permits or other
administrative approvals regarding Colonial Downs' facility;
c. Acts of war or terrorism;
d. Strikes or labor disputes affecting the Track or Turf Course:
e. Materially adverse weather conditions at the Track Site not
reasonably anticipated;
f. Fire or other unavoidable casualties at the Track Site;
g. Colonial Downs' inability to obtain materials or
unavailability of specified materials where there are no
reasonable substitutes available or no alternative methods or
means available of obtaining such materials on a timely basis;
h. Construction delays caused by subsurface or otherwise
concealed physical conditions at the Track site differing
materially from those indicated in the plans and
specifications, or from those originally encountered, which
were not ascertainable by Colonial Downs prior to the Award;
i. Delays authorized or consented to in writing by the
Commission, which authorization or consent is in the
Commission's sole, unfettered discretion to grant or deny;
j. Delays attributable to legal actions initiated by Colonial
Downs to require Delmarva Properties, Inc. or Chesapeake
Forest Products, Co. to deliver the real estate for the Track
to Colonial Downs following the Appeal Conclusion Date,
provided that Colonial Downs has taken all actions reasonably
available to it, including the filing and aggressive
prosecution of legal action, to compel Delmarva Properties or
Chesapeake Forest Products, Co. to deliver such real estate
sufficiently in advance of the time periods set forth in
Section A of this Performance Guarantee Agreement to allow
Colonial Downs to comply with such time periods;
k. Delays caused solely by the failure of any governmental
agency, department, or organization to timely issue building
permits or other construction-related permits that could not
be secured prior to the date hereof or to timely perform
inspections that cannot be completed prior to construction on
matters necessary for the proper
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execution and completion of the work necessary to build or
complete the Track or Turf Course, provided that Colonial
Downs has taken all actions reasonably available to it,
including the filing and aggressive prosecution of legal
action, to compel such agencies, departments, or organizations
to issue such permits and to timely perform such inspections
sufficiently in advance of the time periods set forth in
Section A of this Performance Guarantee Agreement to allow
Colonial Downs to comply with such time periods;
1. Delays caused solely by the failure of the Commonwealth of
Virginia, New Kent County, Virginia, Virginia Power, or
Chesapeake Corporation and its subsidiaries to construct,
complete, and/or maintain facilities ancillary to the Track
(such as roads or other related infrastructure) which are
necessary for Colonial Downs or Stansley Racing to fulfill
their respective obligations under the Award, provided that
Colonial Downs has taken all actions reasonably available to
it, including the filing and aggressive prosecution of legal
action, to compel such entities to construct, complete and/or
maintain such facilities sufficiently in advance of the time
periods set forth in Section A of this Performance Guarantee
Agreement to allow Colonial Downs to comply with such time
periods.
The deadlines specified in Section A of this Agreement shall be
suspended for each day that a delay specified in this Section C occurs and
continues, provided that Colonial Downs exercises all reasonable diligence
during such time to overcome the delay.
2. Colonial Downs' claim, if any, for a suspension of the deadline for
the reasons set forth in this Section C must be made in writing to the
Commission not more than five days after Colonial Downs has notice of the delay
(the "Initial Claim"). Thereafter, Colonial Downs must submit a report (the
"Initial Report") providing full details and supporting documentation with
regard to the cause of the delay within 15 days of the Initial Claim to the
Commission. If either the Initial Claim or the Initial Report is not filed with
the Commission in writing within the time periods specified, the claim for delay
shall be waived. If the cause for the delay is a continuing one, then only one
claim is necessary, provided that Colonial Downs shall provide the Commission
with written reports regarding the status of the delay and all efforts being
made to overcome the delay every seven days following the Initial Report.
Colonial Downs' Initial Report and all subsequent reports shall include an
estimate of the probable effect of the delay on the progress of the work and the
projected schedule for opening the Track and the Turf Course.
D. Form of the Performance Guarantee
1. Letters of Credit. The Sum shall be in the form of two irrevocable
letters of credit (the "Irrevocable Letters of Credit") in favor of the
Commission, drawn on banks acceptable to the Commission. Copies of the
Irrevocable Letters of Credit are attached hereto as Exhibit A.
2. Drawinq on the Sums. Pursuant to the terms hereof, the Commission
shall be entitled to draw upon the Irrevocable Letters of Credit as liquidated
damages upon the occurrence
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<PAGE>
or continuance of a Default, after accounting for allowable delays under Section
C hereof, and the giving of five days prior written notice to Colonial Downs of
the Commission's intention to draw down such amounts. Five days after giving
such notice, and provided that Colonial Downs has not delivered a written
objection to the Commission and the issuers of said letters of credit during
such period, the Commission shall be entitled to recover such liquidated damages
by drawing the amount thereof from the Irrevocable Letters of Credit in such
order and in such manner as the Commission in its sole discretion shall decide,
including but not limited to drawing such liquidated damages from time to time
as any Default continues, or in one lump sum upon completion of the Track and
the Turf Course after any such Default. If Colonial Downs objects to the
Commission's intention to draw down such amounts, the parties shall meet within
ten (10) days of the date of such objection to resolve their differences In the
event the parties are unable to resolve their differences within such ten-day
period, the Commission may draw down the liquidated damages from the letters of
credit for each day of the claimed delay as provided herein, and in the event
Colonial Downs provides written notice of its intention to file a declaratory
judgment action regarding the dispute, the Commission shall hold such funds in
escrow for ten days or until there is a final resolution of such action,
whichever occurs later.
E. Miscellaneous
1. Disputes. In the event an action is filed to construe, interpret or
enforce this Agreement or any provision or section thereof, or to declare the
parties' rights and/or obligations hereunder, including but not limited to an
action to determine whether the Track is properly complete and open for racing,
an action to determine whether a basis of delay claimed by Colonial Downs
constitutes an allowable delay and as set forth in Section C hereof, or an
action to determine whether the Commission may properly draw down the
Irrevocable Letters of Credit as provided in Section D hereof and to the extent
the Commission substantially prevails in such action, the Commission shall be
entitled to reimbursement of its attorney's fees and costs from Colonial Downs,
which amount shall be in excess of and in addition to the Sum.
2. Definitions. The terms of this Performance Guarantee shall have the
definitions ascribed to them in the Award, except for those terms specifically
defined herein.
3. Award Rescinded. If, as a result of any appeal of the Award, the
Award is overturned or rescinded by a court or by the Commission at the
direction of a court such that the licenses granted by the Award shall no longer
be held by Colonial Downs or Stansley Racing, as the case may be, this
Performance Guarantee shall thereupon automatically become null and void and the
Sum and any collateral on deposit with the Commission in respect of the Sum
shall thereupon be returned promptly to Colonial Downs.
4. Severability. To the extent any provision of this Agreement is
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement, which shall remain in full force and effect.
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5. Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the Commonwealth of Virginia without giving effect
to the conflict of laws principles thereof.
6. Entire Agreement/Modification. This Agreement constitutes the entire
agreement between the parties relating to the Performance Guarantee as required
by Paragraph 109 of the Award and sets forth in their entirety the obligations
and duties of the parties with respect thereto. This Agreement may not be
modified unless the modification is set forth in writing signed by all parties
hereto.
7. Binding Effect. All of the terms of this Agreement shall be binding
upon, and inure to the benefit of and be enforceable by the respective heirs,
successors and assigns of the Commission and Colonial Downs.
8. Execution and Counterparts. This Agreement may be executed in two or
more counterparts, which when so executed shall constitute one in the same
Agreement.
9. Full Authority. Each signatory hereto warrants, represents and
agrees that such signatory has all necessary authority to agree and enter into
this Agreement.
WITNESS the following signatures:
COLONIAL DOWNS, L.P.,
a Virginia limited partnership
By: Stansley Management Corp.,
its general partner
By: /s/ Arnold W. Stansley
----------------------
Arnold W. Stansley, President
Receipt of the sum is hereby acknowledged and the terms of the above
Performance Guarantee are hereby approved and agreed to.
VIRGINIA RACING COMMISSION
By: /s/ John H. Shenefield
----------------------
Name:
Title:
<PAGE>
EXHIBIT A
Form of Letter of Credit
<PAGE>
Citizens and Farmers Bank
IRREVOCABLE STANDBY LETTER OF CREDIT
BENEFICIARY: DATE: DECEMBER 30, 1994
VIRGINIA RACING COMMISSION
P. O. BOX 1123
RICHMOND, VA 23208 AMOUNT: $500.000.00 U.S.
LETTER OF CREDIT NUMBER: 95.01
APPLICANT:
STANSLEY MANAGEMENT CORP. EXPIRATION DATE:
A VIRGINIA LIMITED PARTNERSHIP DECEMBER 30, 1995
GENERAL PARTNER OF 2:00 P.M. EST
COLONIAL DOWNS, L.P.
A VIRGINIA LIMITED PARTNERSHIP
DEAR LADY AND GENTLEMEN:
WE HEREBY AUTHORIZE THE VIRGINA RACING COMMISSION ("VRC") TO DRAW ON US FOR THE
ACCOUNT OF STANSLEY MANAGEMENT CORP. AND/OR COLONIAL DOWNS, L.P., UP TO AN
AGGREGATE AMOUNT OF FIVE HUNDRED THOUSAND U.S. DOLLARS ($500,000.00), AVAILABLE
BY YOUR DRAFTS AT SIGHT ACCOMPANIED BY CERTIFICATION OF VRS THAT COLONIAL DOWNS,
L.P. IS IN DEFAULT AS DEFINED IN THE PERFORMANCE GUARANTEE BETWEEN COLONIAL
DOWNS, L.P. AND THE VRC DATED AS OF DECEMBER 30, 1994, AND THAT SUCH DEFAULT HAS
NOT BEEN CURED WIT1HIN FIVE (5) DAYS OF WRITTEN NOTICE OF SUCH DEFAULT TO
COLONIAL DOWNS, L.P. THIS LETTER OF CREDIT IS IRREVOCABLE AND UNCONDITIONAL.
THIS LETTER OF CREDIT WILL BECOME OPERATIVE DECEMBER 30, 1994.
WE HEREBY FURTHER AGREE THAT:
A. DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS OF THIS LETTER OF
CREDIT WILL BE HONORED IF PRESENTED AT OUR OFFICE LOCATED AT EIGHTH AND
MAIN STREETS, WEST POINT, VIRGINIA 23181, ON OR BEFORE DECEMBER 30,
1995 AT 2:00 P.M.
B. FUNDS AVAILABLE UNDER THIS LETTER OF CREDIT SHALL BE PAID BY US IN SUCH
AMOUNTS AND AT SUCH TIMES AS DETERMINED BY THE VRC,
8
<PAGE>
PROVIDED THAT THE AMOUNT DRAWN SHALL NOT EXCEED THE AGGREGATE AMOUNT
SPECIFIED HEREIN. CHECKS WILL BE MADE PAYABLE TO "VIRGINlA RACING
COMMISSION".
C. WE SHALL HAVE NO RIGHT, DUTY, OBLIGATION, OR RESPONSIBILITY TO EVALUATE
THE PERFORMANCE OR NONPERFORMANCE OF THE UNDERLYING PERFORMANCE
GUARANTEE BETWEEN COLONIAL DOWNS, L.P. AND VRC.
D. IT IS A CONDITION OF THIS LETTER OF CREDIT THAT IT WILL BE SUCCEEDED BY
UP TO FOUR (4) SUCCESSIVE TWELVE (12) MONTH LETTERS OF CREDIT, ISSUED
UPON THE SAME TERMS AND CONDITIONS, UNLESS TEN (10) DAYS PRIOR TO THE
EXPIRATION DATE, WE NOTIFY VRC IN WRITING BY CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, THAT WE ELECT NOT TO RENEW THIS LETTER OF CREDIT FOR
SUCH ADDITIONAL PERIOD.
E. UPON RECEIPT BY YOU OF SUCH NOTICE OF NONRENEWAL OR IN THE EVENT OF A
DEFAULT, YOU MAY DRAW HEREUNDER BY MEANS OF YOUR DRAFTS ON US, AT
SIGHT, ACCOMPANIED BY YOUR WRITTEN CERTIFICATION THAT YOU HAVE NOT
RELEASED LIABILITY UNDER THE AFORESAID PERFORMANCE GUARANTEE AND THAT
COLONIAL DOWNS, L.P. IS IN DEFAULT UDDER THE TERMS OF THE PERFORMANCE
GUARANTEE (CITING THE INCIDENT OF DEFAULT) OR THAT THE FAILURE TO ISSUE
A SUCCESSIVE LETTER OF CREDIT WILL CONSTITUTE A DEFAULT UNDER THE TERMS
OF THE PERFORMANCE GUARANTEE.
F. EXCEPT SO FAR AS OTHERWISE EXPRESSLY STATED HEREIN, THIS LETTER OF
CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY
CREDITS, INTERNATIONAL CHAMBER OF COMMERCE, IN EFFECT ON THE DATE OF
ISSUANCE. THE AMOUNT OF ANY DRAFT DRAWN HEREUNDER MUST BE ENDORSED ON
THE REVERSE SIDE HEREOF. ALL DRAFTS MUST BE MARKED "DRAWN UNDER
CITIZENS AND FARMERS BANK LETTER OF CREDIT NUMBER 95.01 DATED DECEMBER
30, 1994., AND BE ACCOMPANIED BY THE ORIGINAL LETTER OF CREDIT.
SINCERELY,
CITIZENS AND FARMS BANK,
By: _________________________________
Gari B. Sullivan
Senior Vice President
9
<PAGE>
NATIONAL CITY BANK
IRREVOCABLE STANDBY LETTER
OF CREDIT NUMBER NC 5758
DATE OF ISSUE: DECEMBER 30, 1994 EXPIRATION DATE: 12/31/95
AMOUNT: USD500,000.00 2:00 P.M. EST
BENEFICIARY:
VIRGINIA RACING COMMISSION
P. O. BOX 1123
RICHMOND, VA 23208
APPLICANT:
STANSLEY MANAGEMENT CORP., GENERAL PARTNER OF COLONIAL DOWNS, L.P.
GENTLEMEN:
WE HEREBY AUTHORIZED THE VIRGINIA RACING COMMISSION ("VRC") TO DRAW ON US FOR
THE ACCOUNT OF STANSLEY MANAGEMENT CORP., GENERAL PARTNER OF COLONIAL DOWNS,
L.P. UP TO AN AGGREGATE AMOUNT OF FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
(USD500,000.00), AVAILABLE BY YOUR DRAFTS DRAWN AT SIGHT ON NATIONAL CITY BANK,
NORTHWEST ACCOMPANIED BY THE CERTIFICATION OF VRC FINDING THAT COLONIAL DOWNS,
L.P. IS IN DEFAULT AS DEFINED IN THE PERFORMANCE GUARANTEE BETWEEN COLONIAL
DOWNS, L.P. AND THE VRC DATED AS OF DECEMBER 30, 1994, AND THAT SUCH DEFAULT HAS
NOT BEEN CURED WITHIN FIVE (5) DAYS FOLLOWING RECEIPT OF WRITTEN NOTICE BY VRC
OF SUCH DEFAULT TO COLONIAL DOWNS, L.P. THIS LETTER OF CREDIT IS IRREVOCABLE AND
UNCONDITIONAL.
THIS LETTER OF CREDIT WILL BECOME OPERATIVE DECEMBER 30, 1994.
WE HEREBY FURTHER AGREE THAT:
A. DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS OF THIS LETTER OF
CREDIT WILL BE HONORED IF PRESENTED AT OUR OFFICE LOCATED AT OUR OFFICE
AT 405 MADISON AVENUE, TOLEDO, OHIO 43604 ON OR BEFORE DECEMBER 31,
1995 AT 2:00 P.M.
B. FUNDS AVAILABLE UNDER THIS LETTER OF CREDIT SHALL BE PAID BY US IN SUCH
AMOUNTS AND AT SUCH TIMES AS DETERMINED BY THE VRC, PROVIDED THAT THE
AMOUNT DRAWN SHALL NOT EXCEED THE AGGREGATE AMOUNT SPECIFIED HEREIN.
CHECKS WILL BE MADE PAYABLE TO "VIRGINlA RACING COMMISSION".
10
<PAGE>
C. WE SHALL HAVE NO RIGHT, DUTY, OBLIGATION, OR RESPONSIBILITY TO EVALUATE
THE PERFORMANCE OR NONPERFORMANCE OF THE UNDERLYING PERFORMANCE
GUARANTEE BETWEEN COLONIAL DOWNS, L.P. AND VRC.
D. IT IS A CONDITION OF THIS LETTER OF CREDIT THAT IT WILL BE SUCCEEDED BY
UP TO FOUR (4) SUCCESSIVE TWELVE (12) MONTH LETTERS OF CREDIT, ISSUED
UPON THE SAME TERMS AND CONDITIONS, UNLESS TEN (10) DAYS PRIOR TO THE
EXPIRATION DATE, WE NOTIFY VRC IN WRITING BY CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, THAT WE ELECT NOT TO RENEW THIS LETTER OF CREDIT FOR
SUCH ADDITIONAL PERIOD.
E UPON RECEIPT BY YOU OF SUCH NOTICE OF NONRENEWAL OR IN THE EVENT OF A
DEFAULT, YOU MAY DRAW HEREUNDER BY MEANS OF YOUR DRAFTS ON US, AT
SIGHT, ACCOMPANIED BY YOUR WRITTEN CERTIFICATION THAT YOU HAVE NOT
RELEASED LIABILITY UNDER THE AFORESAID PERFORMANCE GUARANTEE AND THAT
COLONIAL DOWNS, L P. IS IN DEFAULT UDDER THE TERMS OF THE PERFORMANCE
GUARANTEE (CITING THE INCIDENT OF DEFAULT) OR THAT THE FAILURE TO ISSUE
A SUCCESSIVE LETTER OF CREDIT WILL CONSTITUTE A DEFAULT UNDER THE TERMS
OF THE PERFORMANCE GUARANTEE.
F. EXCEPT SO FAR AS OTHERWISE EXPRESSLY STATED HEREIN, THIS LETTER OF
CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY
CREDITS, INTERNATIONAL CHAMBER OF COMMERCE, IN EFFECT ON THE DATE OF
ISSUANCE. THE AMOUNT OF ANY DRAFT DRAWN HEREUNDER MUST BE ENDORSED ON
THE REVERSE SIDE HEREOF. ALL DRAFTS MUST BE MARKED "DRAWN UNDER
CITIZENS AND FARMERS BANK LETTER OF CREDIT NUMBER 95.01 DATED DECEMBER
30, 1994., AND BE ACCOMPANIED BY THE ORIGINAL LETTER OF CREDIT.
REGARDS,
NATIONAL CITY BANK, NORTHWEST
By: ________________________________
Todd D. Meyers
Vice President
THIS DEED is made this ___ day of ________, 199_, by and between
CHESAPEAKE FOREST PRODUCTS COMPANY, a Virginia corporation, and DELMARVA
PROPERTIES, INC., a Virginia Corporation, (collectively, Grantors), and STANSLEY
MANAGEMENT CORP., a Virginia corporation, (Grantee):
W I T N E S S E T H:
That for and in consideration of the sum of TEN DOLLARS, ($10.00), and
other good and valuable consideration, receipt and sufficiency whereof in full
is hereby acknowledged, the Grantors do hereby grant, bargain, sell and convey
with SPECIAL WARRANTY OF TITLE, but subject to the rights, reservations,
restrictions, and conditions contained herein, unto the Grantee, the following
described property, to-wit:
SEE SCHEDULE A ATTACHED
This conveyance is made subject to:
Rights, reservations, restrictions, conditions and easements as they
may appear of record affecting the premises.
The restrictions contained in Schedule B attached hereto.
The reconveyance rights contained in Schedule C attached hereto.
This conveyance is authorized by resolutions of the Boards of Directors
of Chesapeake Forest Products Company and Delmarva Properties, Inc., attached
hereto as Schedule D and Schedule E, respectively.
The rights, reservations, restrictions, and conditions contained herein
shall run with the land and shall bind the successors and assigns of the parties
hereto. By its execution of
<PAGE>
this deed, the Grantee evidences its acceptance of and consent to the rights,
reservations, restrictions, conditions and easements contained herein.
IN WITNESS WHEREOF, Chesapeake Forest Products Company has caused this
deed to be executed and delivered on its behalf by Jack C. King, its Vice
President. Delmarva Properties, Inc. has caused this deed to be executed and
delivered on its behalf by David I. Clay, its Vice President, and Stansley
Management Corp. has caused this deed to be executed and accepted on its behalf
by Arnold W. Stansley, its President.
CHESAPEAKE FOREST PRODUCTS
COMPANY
By: _____________________________
Joel K. Mostrom, President,
Delmarva Properties, Inc., Agent
U/A dated May 18, 1993
DELMARVA PROPERTIES, INC.
By: _____________________________
Joel K. Mostrom, President
2
<PAGE>
COLONIAL DOWNS, L.P., a Virginia
limited partnership
By: Stansley Management Corp., a
Virginia corporation, a
general partner
By: _____________________________
Title:___________________________
By: CD Entertainment Ltd., an Ohio
limited liability company, a
general partner
By: _____________________________
Title:___________________________
STATE OF VIRGINIA,
COUNTY OF KING WILLIAM, to-wit:
The foregoing instrument was acknowledged before me this ___ day of
_______, 1996, by Joel K. Mostrom, President of Delmarva Properties, Inc., as
agent for Chesapeake Forest Products Company, a Virginia corporation, on
behalf of the corporation under agreement dated May 18, 1993.
----------------------------------
Notary Public
My commission expires: _______________
3
<PAGE>
STATE OF VIRGINIA
COUNTY OF KING WILLIAM, to-wit:
The foregoing instrument was acknowledged before me this ____ day of
________, 1996, by Joel K. Mostrom, President of Delmarva Properties, Inc., a
Virginia corporation, on behalf of the Corporation.
----------------------------------
Notary Public
My commission expires: _______________
STATE OF ___________
CITY/COUNTY OF _____________, to-wit:
The foregoing instrument was acknowledged before me this ___ day of
________, 1996, by ______________________, ________________ of Stansley
Management Corp., a Virginia corporation, a general partner of Colonial Downs,
L.P., a Virginia limited partnership, on behalf of the partnership.
----------------------------------
Notary Public
My commission expires: _______________
4
<PAGE>
STATE OF ___________
CITY/COUNTY OF _____________, to-wit:
The foregoing instrument was acknowledged before me this ___ day of
________, 1996, by ______________________, ________________ of CD Entertainment
Ltd., an Ohio limited liability company, a general partner of Colonial Downs,
L.P., a Virginia limited partnership, on behalf of the partnership.
----------------------------------
Notary Public
This deed prepared by:
James H. Hudson, III
Hudson and Bondurant, P.C.
Attorneys at Law
826 Main Street
P. O. Box 231
West Point, Virginia 23181.
Consideration: $___________
Grantee's address:
Post Office Box 456
Providence Forge, VA 23140
5
<PAGE>
SCHEDULE A
All that certain tract or parcel of land lying and being in Cumberland District,
New Kent County, Virginia, containing 345.0 acres, more or less, as depicted on
"A Compiled Plat of a Parcel of Land Lying South of I-64, New Kent County",
dated 12/01/94, made by Resource International, Ltd., signed by Howard B.
Weatherford, III, Land Surveyor, a true copy of which is attached hereto and
recorded herewith, and which is incorporated herein by reference for a complete
and accurate description of the land conveyed hereby.
Together with a non-exclusive easement of right of way typically 60 feet in
width over, under and across the "60' Ingress/Egress Easement" as depicted on
the aforesaid plat for the purposes of ingress to and egress from the subject
land and State Route 155, as well as the placement of utilities to serve the
subject land.
Being a portion of the land conveyed to Delmarva Properties, Inc. by Julia
Richardson Shannon and Howell F. Shannon, Jr., her husband, by deed dated
November 24, 1992, recorded in the Clerk's Office, Circuit Court of New Kent
County, Virginia in Deed Book 186, at page 369; and
Further being a portion of the land conveyed to Chesapeake Forest Products
Company by Chesapeake Corporation by deed dated January 1, 1990, recorded in the
Clerk's Office aforesaid in Deed Book 167, at page 308.
6
<PAGE>
SCHEDULE B
RESTRICTIONS
The following restrictions shall be read as a part of a certain deed
dated the ___ day of _________, 199__, from Chesapeake Forest Products Company
and Delmarva Properties, Inc., to Stansley Management Corp. conveying 345.0
acres of land in Cumberland District, New Kent County, Virginia ("the
Property"), and shall be binding upon the successors and assigns of Stansley
Management Corp. and shall inure to the benefit of the successors and assigns of
Chesapeake Forest Products Company and Delmarva Properties, Inc.
1. The Property shall be used for development, construction,
maintenance and operation of a first class horse race track and appurtenant
facilities in accordance with Owner's and Operator's Licenses issued by the
Virginia Racing Commission ("the Commission") on October 12, 1994 ("the
Licenses"), and any other use approved in writing by Delmarva Properties, Inc.
The standard for the Grantors' determination that the Grantee is operating a
"first class horse race track" will be the Grantee's compliance with the terms
and conditions of the Licenses as determined by the Commission.
2. It is the intention of the Grantors to develop and/or market the
Grantors' real property adjacent to the Property. To that end, the Grantors
reserve the following rights with respect to the Property:
a. Upon written notice to the Grantee, the Grantors, their
successors, assigns, employees, agents and contractors, reserve the
right to enter upon the Property from time to time, during normal
business hours, as necessary in connection with the development of
adjacent properties and for the purpose of inspecting the Property to
ensure that the Property is used for maintenance and operation of a
first class horse race track and appurtenant facilities in accordance
with the Licenses. Any such entry upon the Property by Grantors shall,
however, be effected strictly in conformity with security rules and
regulations imposed by the Virginia Racing Commission or by the owner
or operator of the racetrack on the Property.
b. The Grantors, their successors and assigns, reserve the
right to locate general easements for location, construction and
maintenance of underground utilities
7
<PAGE>
and drainage, where necessary, upon the Property, provided such
easements are reasonably placed so as not to adversely affect the
Grantee's use of the Property and in fact do not adversely affect the
Grantee's use of the Property. The Grantor shall consult with the
Grantee prior to locating, installing or relocating such easements and
utilities to insure that same will not adversely affect the Grantee's
use of the Property.
3. The Grantee shall comply with all zoning and environmental laws and
regulations, and shall use reasonable commercial efforts to obtain and will
thereafter maintain all permits and licenses required for the development,
construction, maintenance and operation of a first class horse race track and
appurtenant facilities upon the Property.
4. The development, construction, maintenance and operation of a horse
race track and appurtenant facilities on the Property shall in no way create a
partnership or joint venture relationship between the Grantors and the Grantee.
5. All exterior site plans and architectural designs proposed by the
Grantee, its successors and assigns, for the horse race track and appurtenant
facilities, including proposed uses, all plans for allowed offsite improvements
(including but not limited to road design and construction), and any amendments
or modifications thereto making any material deviation in design, layout or
appearance, must be approved by the Grantors in writing in advance of any site
preparation or construction of any onsite or allowed offsite improvements which
approval shall not be unreasonably conditioned, withheld or delayed. All
proposed amendments and modifications that are reasonably consistent with the
architectural style of, and quality of materials used in, the improvements
approved by the Virginia Racing Commission for the Property shall be approved by
Grantors. Any request for approval from Grantee to Grantors shall be in writing,
shall be sent to the attention of the president of Delmarva Properties, Inc. at
its most current address of record with the Virginia State Corporation
Commission and shall be deemed approved if Grantors do not provide Grantee with
written notice of disapproval within thirty days after Grantors' receipt of the
request. All improvements and facilities by the Grantee, its successors and
assigns, whether onsite or as allowed off-site, shall be constructed and
maintained in accordance with such approved exterior plans and architectural
designs. Approval of site plans and architectural designs referred to in this
section 5 shall be enforceable only by Grantors.
6. THE PROPERTY IS CONVEYED TO THE GRANTEE AS IS, WHERE IS, WITHOUT ANY
REPRESENTATIONS OR WARRANTIES EXCEPT AS EXPRESSLY STATED HEREIN.
8
<PAGE>
SCHEDULE C
RECONVEYANCE RlGHTS, ETC.
The following shall be read as a part of a certain deed dated the ___
day of ______, 199__, from Chesapeake Forest Products Company and Delmarva
Properties, Inc., to Stansley Management Corp. conveying 345.0 acres of land in
Cumberland District, New Kent County, Virginia ("the Property"), and shall be
binding upon the successors and assigns of Stansley Management Corp. and shall
inure to the benefit of the successors and assigns of Chesapeake Forest Products
Company and Delmarva Properties, Inc.
I. Reconveyance Rights.
The interest conveyed by this deed is a fee simple determinable
interest. The Property is conveyed to the Grantee only for so long as:
1. The Grantee continues to be the holder of the Owner's and Operator's
Licenses issued by the Commission on October 12, 1994, as the same may be
renewed or reissued by the Virginia Racing Commission from time to time ("the
Licenses") and strictly complies, as determined by the Commission, with the
provisions of the Licenses as they may be amended from time to time by the
Commission; and
2. The Grantee uses the Property only for a primary, first class horse
race track and appurtenant facilities in accordance with the Licenses. The
standard for the Grantors' determination that the Grantee is operating a "first
class horse race track" will be the Grantee's compliance with the terms and
conditions of the Licenses, as determined by the Commission; and
3. The Grantee is not in violation of any of the covenants contained in
Schedule B of this deed.
In the event that the Grantee violates any of the above requirements,
the Grantors, or either of them, shall have the following rights: Upon notice by
the Grantors, or either of them, to the Grantee, the Grantee shall convey the
Property to the Grantors or their assigns, without consideration except as
hereinafter recited, and at no cost to the Grantors. Waiver of this right when
it shall at any time accrue shall not constitute a waiver of any subsequent
right to require reconveyance when it shall accrue. Nothing contained herein
shall require the Grantors, or either of them, to request or accept such
reconveyance.
9
<PAGE>
II. Subordination of Reconveyance Rights.
The provisions of the foregoing paragraphs to the contrary
notwithstanding Grantors agree to subordinate their reconveyance rights to the
lien of any first deed of trust on the Property securing to a lender or lenders
("the Lender") repayment of indebtedness for funds that will be used to
construct the horse racing track, appurtenant facilities, and Grantee's
facilities related to the horse racing track and Grantee's related satellite
pari-mutuel wagering facilities, provided that and to the extent that:
1. The proceeds of such financing are actually used for improvements to
the Property to construct the horse racing track, appurtenant facilities, and
Grantee's facilities related to the horse racing track, and to Grantee's related
satellite pari-mutuel wagering facilities; and
2. The Lender (i) agrees to give the Grantors written notice of any
default by the obligors under the note(s) and associated financing documents
("the Obligors") and a period of fifteen (15) days within which the Grantors
shall have the right (but not the obligation) to cure such default before the
Lender may initiate foreclosure proceedings with respect to the Property; (ii)
the Lender agrees to give the Grantors fourteen (14) days' prior written notice
of any foreclosure sale or similar proceeding with respect to the Property, and
(iii) the Lender consents in writing to the reconveyance of the Property to the
Grantors and the assumption by the Grantors, on a non-recourse basis, of the
indebtedness secured by the deed of trust and, if the maturity of such
indebtedness has been accelerated at the time of such non-recourse assumption,
that the Lender shall recast the amortization of such indebtedness to that which
existed prior to acceleration.
III. Relinquishment of Reconveyance Rights.
The provisions of the foregoing paragraphs to the contrary
notwithstanding, the Grantors agree that, if the horse racing track is completed
in accordance with the plans previously approved by Delmarva Properties, Inc.
within the time period required by the Virginia Racing Commission, and if the
Property is (a) open to the public and operated as a primary, first class horse
race track and appurtenant facilities for three (3) years in accordance with the
Owner's License, the Operator's license and the laws of the Commonwealth of
Virginia, as determined by the Virginia Racing Commission after the expiration
or termination of all appeals by the Grantee, and (b) the Grantee is not in
default under any of its financial obligations under the first Deed of Trust on
the Property, as determined by the Lender, or obligations to Grantors, the
Grantors will relinquish their reconveyance rights as set out in this Schedule
C, in which event the Grantee's interest in the Property shall be converted to a
fee simple absolute subject, however, to restrictions and conditions imposed in
this deed and other restrictions and conditions appearing of record affecting
the Property. If the Virginia Racing
10
<PAGE>
Commission has not revoked the Licenses during the three-year period, Colonial
Downs shall be deemed to have satisfied the requirements of clause (a) above.
Upon fulfillment of the foregoing preconditions, the Grantors will, upon
request, execute and deliver to the Grantee a document, in recordable form,
relinquishing the reconveyance rights reserved in this Schedule C.
09/11/96
11
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT ("Agreement") is made as of this ____ day of
_____________, 1996, between COLONIAL DOWNS, L.P., a Virginia limited
partnership ("Colonial Downs"), and DELMARVA PROPERTIES, INC., a Virginia
corporation ("Delmarva").
Recitals
A. Delmarva and Chesapeake Forest Products Company ("Chesapeake
Forest") each own a portion of, and are the developers of, approximately 3,165
acres of land in New Kent County, Virginia. Chesapeake Forest and Delmarva have
agreed to convey, in the aggregate, approximately 345 acres of the property to
Colonial Downs for use as a race track.
B. The parties hereto desire to provide for the orderly and mutually
beneficial development of their respective projects, all as more particularly
set forth below.
Agreement
In consideration of the sum of ten dollars ($10.00) cash in hand paid
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Definitions. The following capitalized terms shall have the meanings
set forth below:
1.1 Agreement: This Agreement, together with the exhibits and
other documents, illustrations and drawings attached hereto or incorporated
herein by reference.
1.2 Approved Plans: The plans, specifications, drawings and
elevations of the Track Project attached hereto as Exhibit A.
1.3 Construction Costs: All soft and hard costs incurred in
connection with the designated project, including (i) the cost of all
applications, permits, approvals, letters of credit, bonds, insurance,
professional fees (surveying, engineering and legal), construction management
fees paid to non-affiliates, and inspection fees, (ii) the costs of all
clearing, site preparation, excavation, materials and construction, (iii) the
cost of all necessary off-site easements and dedications, and (iv) all other
costs required by contracts or plans and
1
<PAGE>
specifications which are necessary to obtain state and County approvals.
1.4 County: New Kent County, Virginia.
1.5 Effective Date: The date this Agreement is executed by the
last party to execute this Agreement as evidenced by the date following each
party's signature. If no date is inserted following a party's signature, that
party shall be deemed to have executed this Agreement on the date set forth in
the first paragraph of this Agreement.
1.6 Entrance Road: The proposed road generally located between
points ER1 and ER2 on the Road Plan, including the curb, gutter, storm sewer,
signage, traffic signalization, landscaping, lighting and irrigation facilities
appurtenant to that road, and together with the acceleration and deceleration
lanes along the Loop Road.
1.7 Entry Agreement: The Right of Entry and Indemnification
Agreement dated as of January 1, 1995, among Colonial Downs, Delmarva and
Chesapeake Forest, as subsequently amended and extended, a copy of which is
attached hereto as Exhibit B and incorporated herein by this reference.
1.8 Lines: The Water Lines and the Sanitary Sewer Lines,
collectively.
1.9 Loop Road: The proposed road generally located between
points LR1 and LR2 on the Road Plan, including the curb, gutter, storm sewer,
landscaped median, signage, traffic signalization, landscaping, lighting and
irrigation facilities appurtenant to that road, and together with the
acceleration and deceleration lanes facilitating access to and from State Route
155.
1.10 Maintenance Road: The proposed road generally located
between points MR1 and MR2 on the Road Plan, including the curb, gutter, storm
sewer, signage, traffic signalization, landscaping, lighting and irrigation
facilities appurtenant to that road, and together with the acceleration and
deceleration lanes facilitating access to and from the Loop Road.
1.11 Option Property. The property described in Exhibit C
attached hereto and incorporated herein by this reference.
1.12 Parcels. The Track Parcel and the Remaining Land.
1.13 Property: The real property owned by Chesapeake Forest
and Delmarva containing approximately 3,165 acres of land
2
<PAGE>
located in New Kent County, Virginia and generally shown on Exhibit D attached
hereto.
1.14 Remaining Land: The Property less the Track Parcel.
1.15 Roads: The Loop Road, the Entrance Road and the
Maintenance Road, collectively.
1.16 Road Plan: Shall refer to the general drawing of the
Property attached hereto as Exhibit E.
1.17 Sanitary Sewer Lines: All lines, pipes, pump stations,
treatment facilities, improvements or construction of any nature necessary to
provide a fully operational, "turnkey" sanitary sewer system providing sanitary
sewer service and gray water service in at least the capacities set forth in the
Water/Sewer Analysis.
1.18 Survey: The Survey attached hereto as Exhibit F dated
October 15, 1996, entitled "A Compiled Plat of a Parcel of Land Lying South of
I-64, New Kent, Virginia" prepared by Resource International, Inc.
1.19 Track Parcel: That certain parcel of land generally
described on the Survey.
1.20 Track Project: The horse racing track, grandstand, barns
and related facilities that Colonial Downs proposes to construct on the Track
Parcel.
1.21 Utilities and Road Specifications: Shall refer to Exhibit
G attached hereto.
1.22 VDOT: Virginia Department of Transportation.
1.23 Water Lines: All lines, pipes, improvements or
construction of any nature necessary to provide a fully operational, "turnkey"
water system providing potable water service in at least the capacities set
forth in the Water/Sewer Analysis.
1.24 Water/Sewer Analysis: Shall refer to Exhibit H attached
hereto and entitled "Colonial Downs, Water Supply & Wastewater Disposal
Analysis, Summary of Seasonal Needs, August 20, 1996 (10:33)".
2. Construction of Sanitary Sewer and Water Lines.
2.1 Sanitary Sewer Lines.
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2.1.1 To Track Project. Delmarva shall construct the
Sanitary Sewer Line to Point A as shown on the Road Plan extending ten feet
beyond the boundary line of the Track Parcel according to plans and
specifications to be reviewed by Colonial Downs and Delmarva and approved by the
County. The Sanitary Sewer Lines shall be designed substantially in accordance
with the specifications set forth in the Utilities and Road Specifications.
Delmarva shall prepare and/or obtain all plans, permits, approvals, bonds,
letters of credit and easements required for that work and shall perform such
work in accordance with all applicable laws, regulations and ordinances.
Colonial Downs shall be responsible for the extension of sanitary sewer service
from Point A to the improvements on the Track Parcel. Colonial Downs
acknowledges that, due to the proposed location of the Sanitary Sewer Lines and
the topography of the Track Parcel, Colonial Downs will be required to install
at its expense pumping equipment to transmit sewage from the improvements on the
Track Parcel to the waste water treatment plant to be constructed by Delmarva
generally in the location shown on the Road Plan.
2.1.2 Easements and Capacity. The Sanitary Sewer
Lines shall provide the Track Project with the minimum capacities set forth in
the Water/Sewer Analysis. Delmarva shall grant to the County, and shall cause
Chesapeake Forest to convey to the County, such temporary and permanent
easements for the construction, use and maintenance of the Sanitary Sewer Lines
as shall be reasonably required by the County.
2.1.3 Completion Date. Delmarva shall use reasonable
and diligent efforts to cause the Sanitary Sewer Lines to be fully operational
by June 1, 1997, and shall use reasonable efforts to have the Sanitary Sewer
Lines accepted by the County for operation and perpetual maintenance by June 1,
1997.
2.2 Water Lines.
2.2.1 To Track Project. Delmarva shall construct the
Water Lines to Point B as shown on the Road Plan extending ten feet beyond the
boundary line of the Track Parcel according to plans and specifications to be
reviewed by Colonial Downs and Delmarva and approved by the County. The Water
Lines shall be designed substantially in accordance with the specifications set
forth in the Utilities and Road Specifications. Delmarva shall prepare and/or
obtain all plans, permits, approvals, bonds, letters of credit and easements
required for that work and shall perform such work in accordance with all
applicable laws, regulations and ordinances.
2.2.2 Easements and Capacity. The Water Lines shall
provide the Track Project with the minimum capacities set forth in the
Water/Sewer Analysis. Delmarva shall grant to the
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County, and shall cause Chesapeake Forest to grant to the County, such temporary
and permanent easements for the construction, use and maintenance of the Water
Lines as shall be reasonably required by the County.
2.1.3 Completion Date. Delmarva shall use reasonable
and diligent efforts to cause the Water Lines to be fully operational by June 1,
1997, and shall use reasonable and diligent efforts to have the Water Lines
accepted by the County for operation and perpetual maintenance by June 1, 1997.
If requested by Colonial Downs, Delmarva shall provide the Track Project with a
temporary water supply for irrigation purposes; provided, however, Delmarva
shall not be required to provide such facilities prior to February 1, 1997.
2.2.4 Fire Flow Pump. Any pump station required on
the Track Parcel to service the fire suppression system serving the Track
Project shall be installed by Colonial Downs at no expense to Delmarva. If
requested by Colonial Downs, Delmarva shall permit Colonial Downs to expand the
capacity of Delmarva's water storage and/or pumping facilities to satisfy in
whole or in part the fire suppression needs of the Track Parcel. Delmarva shall
have no responsibility for the Construction Costs of such expansion work. The
completion date for the Water Lines shall be extended for a period of time equal
to any delay caused by Colonial Downs' request for an elevated water storage
facility.
2.3 Construction Costs and User Fees for Water and Sanitary
Sewer Lines.
2.3.1 Reimbursement Amount. Colonial Downs shall
reimburse Delmarva for one hundred percent (100%) of the Construction Costs of
the Water Lines and the Sanitary Sewer Lines, but not to exceed a total cost to
Colonial Downs of Four Hundred Eighty-Five Thousand and No/100 Dollars
($485,000.00) with respect to the Sanitary Sewer Lines and Five Hundred Thousand
and No/100 Dollars ($500,000.00) with respect to the Water Lines for a total
combined cost to Colonial Downs of Nine Hundred Eighty-Five Thousand and No/100
Dollars ($985,000.00) (the "Reimbursement Amount").
2.3.2 Conditions to First Disbursement. As a
condition to Colonial Downs' obligation to make any disbursement of the
Reimbursement Amount to Delmarva, all of the following conditions shall have
been satisfied: (a) Colonial Downs shall have received written confirmation from
the County or other evidence acceptable to Colonial Downs and its lender that
the County has approved the construction plans for the Lines and that all
permits and approvals required for the construction of the Lines have been
issued by the local and state governmental agencies having jurisdiction over the
same, and (b) Colonial
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Downs shall have received an itemized construction budget illustrating in such
detail as may be reasonably required by Colonial Downs, its lender and title
insurance company, the total Construction Costs for the Lines.
2.3.3 Procedure for Interim Disbursements. The
Reimbursement Amount shall be paid by Colonial Downs to Delmarva in monthly
disbursements. As a condition to each disbursement, Colonial Downs shall have
received: (i) lien waivers evidencing payment in full through the date for which
payment is requested in a form required by Colonial Downs and its title
insurance company from all contractors and vendors providing labor and/or
materials, (ii) an updated cost breakdown showing the actual cost of the work
completed in a dollar amount and as a percentage of the total estimated
Construction Costs for the Lines; and (iii) written confirmation from Delmarva's
engineer or architect that the work, materials and supplies for which payment is
sought have been installed in an acceptable manner and that the percentage of
work completed and materials supplied does not exceed the percentage of the sum
of the Reimbursement Amount previously disbursed by Colonial Downs to Delmarva,
the retainage held by Colonial Downs and the disbursement requested by Delmarva.
Disbursements will be made by Colonial Downs on or before the fifteenth (15th)
day of the month following the month in which all of the conditions to the
disbursement have been satisfied. The 25th day of each month shall be deemed the
end of the month for the purposes of this Paragraph 2.3.3. Each disbursement
shall be subject to a ten percent (10%) retainage as to all Construction Costs.
2.3.4 Final Disbursement. As a condition to Colonial
Down's final disbursement of the Reimbursement Amount (including any retainage),
the following conditions shall have been satisfied: (a) the Lines shall have
been completed with no punchlist work yet to be performed unless funds to pay
for the cost of such work are available to Colonial Downs by means of a letter
of credit, bond, retainage or other assurance acceptable to Colonial Downs and
its lender; (b) Colonial Downs shall have received written evidence reasonably
acceptable to Colonial Downs and its lender that the County has performed all of
the necessary inspections for the acceptance of the Lines, that the results of
all such inspections were acceptable to the County (except for the punchlist
items bonded as provided above), and that the requirement, if any, for a
maintenance bond or letter of credit has been satisfied; and (c) Colonial Downs
shall have received final lien waivers and/or final releases of liens and
evidence of payment in full as to the Track Property from all contractors and
vendors providing labor and/or materials for the construction of the Lines.
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2.3.5 User Fees. Colonial Downs shall use reasonable
and diligent efforts to negotiate and enter into service agreements with the
County for the use of the Lines prior to the completion dates set forth in
Paragraphs 2.1.3 and 2.2.3. Except for the Construction Costs reimbursed by
Colonial Downs to Delmarva pursuant to Paragraph 2.3.1, Colonial Downs shall not
be required to pay any additional connection fees, Construction Costs or user
fees to Delmarva or Chesapeake Forest with respect to the Lines.
3. Construction of Roads.
3.1 Construction and Dedication of Roads. Colonial Downs shall
construct the Loop Road, the Entrance Road and the Maintenance Road and
acceleration and deceleration lanes according to plans and specifications to be
approved by Colonial Downs, Delmarva and, to the extent required, the County
and/or VDOT, as appropriate. Notwithstanding anything to the contrary contained
in Exhibit E, Colonial Downs shall be required to install curb and gutter within
the first 200 feet of the Entrance Road extending from the Loop Road. Delmarva
shall make, and shall cause Chesapeake Forest to make, such dedications of
rights of way and other easements, without charge, as are required by the County
and/or VDOT, as appropriate, for the construction of the Loop Road and
acceleration and deceleration lanes, including, without limitation storm water
drainage easements. Alternatively, if requested by Colonial Downs, Delmarva
shall grant to Colonial Downs, and shall cause Chesapeake Forest to grant to
Colonial Downs, easements for the construction, use and maintenance of the Loop
Road and acceleration and deceleration lanes, including, without limitation,
storm water drainage easements, to accommodate Colonial Downs' construction and
use of the Loop Road prior to the dedication thereof to the County and/or VDOT,
as appropriate.
3.2 Construction Costs for Roads.
3.2.1 Reimbursement of Road Construction Costs.
Delmarva shall reimburse Colonial Downs for fifty percent (50%) of the
Construction Costs of the Loop Road (the "Road Reimbursement Amount"), not to
exceed a total cost to Delmarva of Seven Hundred Fifty Thousand and No/100
Dollars ($750,000.00), provided, however, that Colonial Downs shall have no
obligation to reimburse Delmarva and/or Chesapeake Forest for the cost or value
of any dedications and easements that Delmarva is required to grant or cause to
be granted pursuant to this Agreement. In addition, Delmarva shall be solely
responsible for the cost of any upgrades for curb and gutter within the Loop
Road up to a maximum of One Hundred Thousand and No/100 Dollars ($100,000.00),
which shall be added to the Road Reimbursement Amount.
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3.2.2 Conditions to First Disbursement. As a
condition to Delmarva's obligation to make any disbursement of the Road
Reimbursement Amount to Colonial Downs, all of the following conditions shall
have been satisfied: (a) Delmarva shall have received written confirmation from
the County and/or VDOT, as appropriate, or other evidence acceptable to Delmarva
that the County and/or VDOT, as appropriate, has approved the construction plans
for the Roads and that all permits and approvals required for the construction
of the Roads have been issued by the local and state governmental agencies
having jurisdiction over the same; and (b) Delmarva shall have received an
itemized construction budget illustrating in such detail as may be reasonably
required by Delmarva the total Construction Costs for the Roads.
3.2.3 Procedure for Interim Disbursements. The Road
Reimbursement Amount shall be paid by Delmarva to Colonial Downs in monthly
disbursements. As a condition to each disbursement, Colonial Downs shall have
received: (i) lien waivers evidencing payment in full through the date for which
payment is requested in a form required by Delmarva from all contractors and
vendors providing labor and/or materials, (ii) an updated cost breakdown showing
the actual cost of the work completed in a dollar amount and as a percentage of
the total estimated Construction Costs for the Roads; and (iii) written
confirmation from Colonial Downs' engineer or architect that the work, materials
and supplies for which payment is sought have been installed in an acceptable
manner and that the percentage of work completed and materials supplied does not
exceed the percentage of the sum of the Road Reimbursement Amount previously
disbursed by Delmarva to Colonial Downs, the retainage held by Delmarva, and the
disbursement amount requested by Colonial Downs. Disbursements will be made by
Delmarva on or before the fifteenth (15th) day of the month following the month
in which all of the conditions to the disbursement have been satisfied. The 25th
day of each month shall be deemed the end of the month for the purposes of this
Paragraph 3.2.3. Each disbursement shall be subject to a ten percent (10%)
retainage as to all Construction Costs.
3.2.4 Final Disbursement. As a condition to
Delmarva's final disbursement of the Road Reimbursement Amount (including any
retainage), the following conditions shall have been satisfied: (a) the Roads
shall have been completed with no punchlist work yet to be performed unless
funds to pay for the cost of such work are available to Delmarva by means of a
letter of credit, bond, retainage or other assurance acceptable to Delmarva; (b)
Delmarva shall have received written evidence reasonably acceptable to Delmarva
that the County and/or VDOT, as appropriate, has performed all of the necessary
inspections for the acceptance of the Loop Road, that the results of all such
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inspections were acceptable to the County and/or VDOT, as appropriate (except
for the punchlist items bonded as provided above), and that the requirement, if
any, for a maintenance bond or letter of credit has been satisfied; and (c)
Delmarva shall have received final lien waivers and/or final releases of liens
and evidence in payment in full as to the Remaining Property from all
contractors and vendors providing labor and/or materials for the construction of
the Roads.
3.3 Credit for Prior Costs. Colonial Downs acknowledges that
Delmarva has previously incurred costs for clearing and laying a temporary road
base for a portion of the Roads. Delmarva's obligation to pay the Road
Reimbursement Amount shall be reduced by an amount equal to Ninety Five Thousand
and No/100 Dollars ($95,000.00) (the "Credit Amount") subject to Delmarva
providing Colonial Downs with reasonably acceptable evidence of the amount of
costs incurred by Delmarva. The Credit Amount shall be applied to the first
payment of Construction Costs for the Roads due from Delmarva to Colonial Downs.
3.4 Completion. Colonial Downs shall complete paving of the
wearing course of the Roads and use reasonable and diligent efforts to cause the
Loop Road to be accepted by the County and/or VDOT, as appropriate, for
perpetual maintenance by December 31, 1998.
3.5 Access Easements. Promptly following written request from
Colonial Downs to Delmarva, Delmarva shall convey to Colonial Downs, and shall
cause Chesapeake Forest to grant to Colonial Downs, temporary, non-exclusive
easements for vehicular and pedestrian ingress and egress over and across the
area containing the Loop Road from State Route 155 to the Entrance Road and the
Maintenance Road and permanent, exclusive easements for vehicular and pedestrian
ingress and egress over and across the area containing the Entrance Road and the
area containing the Maintenance Road from the Loop Road to the Track Parcel.
4. Additional Easements for Utilities.
4.1 Conditions to Grant. When and as required to develop all
or any portion of the Parcels, Delmarva and Colonial Downs shall promptly grant
to each other, utility companies, the County, and/or VDOT, as appropriate, and
Delmarva shall cause Chesapeake Forest to grant, temporary easements and rights
of way for the construction of utilities and storm water drainage facilities
(surface and subsurface) and perpetual easements for the maintenance, use and
operation of such utilities and facilities under and across the Parcels for the
provision of all necessary utilities and storm water drainage facilities
(surface and subsurface), including, without limitation, easements and
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rights of way for the extension of water, sanitary sewer, storm water drainage
(surface and subsurface), gas, electricity and telephone service; provided,
however, that (a) no easement shall be located under any building or any other
structure now or hereafter located on or intended to be located upon the
Parcels, and no easements shall unreasonably impair the use being or to be
conducted thereon, (b) the exact location and terms upon which any such easement
affecting the Parcels is granted, other than as specifically set forth herein,
shall be consistent with the existing or anticipated development of the affected
Parcel and shall be subject to the prior written approval of the owner of the
affected Parcel, which approvals shall not be delayed or withheld unreasonably,
and (c) no stormwater generated off of the Track Parcel shall be required to be
retained on the Track Parcel.
4.2 Confirmatory Documents. Delmarva and Colonial Downs agree
to execute, and Delmarva shall cause Chesapeake Forest to execute, such
additional documents as may be reasonably necessary to effect the intent of this
Paragraph 4 or to indicate that as to any specific portion of the Parcels over
which all required easements have been granted that its right to require
additional easements over said Parcels is of no further force and effect.
4.3 Electric Service. Delmarva shall provide, and shall cause
Chesapeake Forest to provide, Virginia Power or any other power company
providing the Property with electric service with such easements as shall be
reasonably required by the power company to extend, provide and maintain
electrical service to the Track Project in adequate capacity for the Track
Project.
5. Description and Conveyance of Track Parcel.
5.1 Title. Delmarva shall convey the Track Parcel to Colonial
Downs or its designee by a special warranty deed in the form attached hereto as
Exhibit I (the "Deed"), free and clear of all liens, encumbrances, restrictions
and easements, except as provided in this Agreement.
5.2 Taxes. General real estate taxes and special assessments
relating to the Track Parcel payable during the year in which the transfer
occurs shall be prorated as of the date of transfer, except that Delmarva shall
be responsible for all roll back taxes assessed against the Track Parcel,
whether or not due and owing at the date of transfer to Colonial Downs. If the
transfer shall occur before the actual taxes and special assessments payable
during such year are known, the apportionment of taxes shall be upon the basis
of taxes for the Property payable during the immediately preceding year,
provided that, if the taxes and special assessments payable during the year in
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which the transfer occurs are thereafter determined to be more or less than the
taxes payable during the preceding year (after any appeal of the assessed
valuation thereof is concluded), Delmarva and Colonial Downs shall promptly (but
no later than such determination except in the case of an ongoing tax protest)
adjust the proration of such taxes and special assessments and Delmarva or
Colonial Downs, as the case may be, shall pay to the other any amount required
as a result of such adjustment and this covenant shall not merge with the deed.
If by March 31, 1997, Colonial Downs has not requested that Delmarva convey the
Track Parcel to Colonial Downs, and there is then no default by Delmarva under
this Agreement, Colonial Downs shall reimburse Delmarva for the general real
estate taxes accruing against the Track Parcel beginning April 1, 1997 and
continuing until this Agreement is terminated or the Track Parcel conveyed to
Colonial Downs in accordance with Paragraphs 5.1 and 5.5.
5.3 Tax Parcel. If at the date of transfer the Track Parcel
does not constitute a separate tax parcel, each party shall either pay to the
County the taxes due and payable with respect to their respective Parcels for
the remainder of the tax year or escrow sufficient funds with a title insurance
company or other escrow agent acceptable to Delmarva and Colonial Downs.
5.4 Owner's Affidavit. Delmarva shall deliver, and shall cause
Chesapeake Forest to deliver, to Colonial Downs, together with the deed, an
affidavit for the benefit of Colonial Downs, its lender and its title insurer,
satisfactory to all of them (the "Affidavit"), stating, inter alia that (a) no
right to a mechanic's or materialman's lien has accrued with respect to the
Track Parcel as a result of any act or omission by Delmarva or Chesapeake
Forest, and (b) there are no outstanding leases or agreements with regard to, or
other parties in or entitled to possession of, the Track Parcel.
5.5 Date of Transfer. Delmarva shall convey the Track Parcel
to Colonial Downs within five (5) days after Colonial Down's written request to
convey the Track parcel.
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5.6 Maintenance of Track Property. From and after the
Effective Date and until the earlier to occur of the termination of this
Agreement or Colonial Downs' acquisition of the Track Parcel, Delmarva agrees
that it will (i) not modify or change the physical condition of the Track
Parcel, excluding, however, any modifications made by Colonial Downs; (ii) not
mortgage or encumber any part of the Track Parcel or permit Chesapeake Forest to
do so; (iii) not become a party to any new licenses, leases, contracts or
agreements of any kind relating to the Track Parcel or permit Chesapeake Forest
to do so; (iv) provide Colonial Downs promptly upon receipt with copies of all
notices and correspondence received from any governmental authorities or
agencies thereof with respect to the Track Parcel and cause Chesapeake Forest to
do so; and (v) not seek to change or permit any change to the current zoning of
the Track Parcel, unless such rezoning is to a classification consistent with
the proposed Track Project and approved by Colonial Downs.
6. Signage Easements. Promptly following written request from Colonial
Downs to Delmarva, Delmarva shall grant to Colonial Downs, and shall cause
Chesapeake Forest to grant to Colonial Downs, permanent, non-exclusive
landscaping, irrigation, lighting and signage easements at the intersections of
the Loop Road and State Route 155, the Loop Road and the Entrance Road and the
Loop Road and the Maintenance Road. The location of the easements and the terms
of the instruments granting such easements shall be mutually agreed to by
Delmarva and Colonial Downs.
7. Pre-Transfer Rights.
7.1 Construction Work. In addition to the other rights
conferred upon Colonial Downs pursuant to section 1 of the Entry Agreement,
Colonial Downs, its duly authorized agents and employees, shall be entitled to
access to the Property for the purpose of commencing the construction of the
Track Project; provided, however, no such work shall commence until the
appropriate permits have been issued by the County. The execution of this
Agreement by Delmarva constitutes the consent of Delmarva and Chesapeake Forest,
as required by the Entry Agreement, to such entry and construction.
7.2 Extension of Entry Agreement. Simultaneously with the
execution of this Agreement, Delmarva and Colonial Downs shall enter into an
amendment to the Entry Agreement extending the term thereof for a period
consistent with the term of this Agreement.
7.3 Contractor's Trailers. Delmarva shall permit, and shall
cause Chesapeake Forest to permit, the trailers owned by Colonial Downs and its
contractors located near the intersection of the Loop Road and State Route 155
to remain in that location
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from the date of this Agreement to the date of completion of the Track Project,
provided, however, such trailers shall be removed no later than December 31,
1997.
7.4 Reconveyance of Timber Rights. To the extent the Entry
Agreement conveyed to Colonial Downs any timber rights with respect to the Track
Parcel, Colonial Downs hereby reconveys such rights to Delmarva.
7.5 Additional Land. If the Track Parcel, as improved in
accordance with the Approved Plans (as the same may be modified as provided
herein), does not satisfy any applicable site-coverage ratio requirement or
pervious/impervious surface requirements, Delmarva shall convey, and shall cause
Chesapeake Forest to convey to Colonial Downs, such additional contiguous land
as shall be required to satisfy those requirements. In no event shall such
additional land exceed fifteen (15) acres in the aggregate. If by December 31,
1998, Colonial Downs has not determined the need for such additional land and
provided Delmarva with a written request for the conveyance of such property,
Delmarmva's obligation to convey such land, and to cause Chesapeake Forest to
convey such Land to Colonial Downs, shall terminate.
8. Option to Purchase.
8.1 Conditions to Option. Colonial Downs may desire to obtain
the Option (as defined below) to purchase the Option Property. As a condition to
Colonial Downs' exercise of the Option, Colonial Downs shall have first accepted
the Option by notifying Delmarva of its acceptance of the Option and paying to
Delmarva and Chesapeake Forest a single option fee equal to Twenty Five Thousand
and No/100 Dollars ($25,000.00) (the "Option Fee"). The Option Fee shall be
non-refundable except in the event of default by Delmarva under this Agreement
or in the event of a default by Delmarva or Chesapeake Forest under the Option
Agreement (as defined below), but shall be applied to the Option Purchase Price
at closing. If Colonial Downs has not accepted the Option in accordance with
this Paragraph 8.1 on or before sixty (60) days after the Effective Date, the
Option shall be null and void.
8.2 Terms of Option Agreement. If Colonial Downs accepts the
Option, Colonial Downs, Delmarva and Chesapeake Forest shall enter into an
option agreement in recordable form setting forth the following provisions and
such other provisions as shall be agreed to by the parties thereto (the "Option
Agreement").
8.2.1 Exercise of Option. Subject to the conditions
set forth below, Colonial Downs shall have the right
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and option, at its sole discretion, to purchase the Option Property (the
"Option") by delivering to Delmarva written notice of its intent to purchase the
Option Property. If Colonial Downs exercises such option, Delmarva shall convey
the Option Property to Colonial Downs or its designee by General Warranty Deed
with English Covenants of Title, subject to utility easements and dedications
required by this Agreement, zoning proffers imposed in accordance with Paragraph
8.2.2 below and "Permitted Exceptions", but free and clear of any monetary
liens. Colonial Downs shall pay to Delmarva and Chesapeake Forest the total sum
of Twenty Five Thousand and No/100 Dollars ($25,000.00) per gross acre (the
"Option Purchase Price") subject to verification by a survey obtained by
Colonial Downs. The Option Property shall be conveyed to Colonial Downs within
thirty (30) days after the date of receipt of Colonial Downs's notice. However,
in no event shall closing occur later than December 31, 1997.
8.2.2 Maintenance of Option Property. From and after
the date of Colonial Downs' acceptance of the Option in accordance with
Paragraph 8.1 and until the earlier to occur of (a) Colonial Downs' failure to
accept the Option, or (b) the termination of the Option, but in no event later
than Colonial Downs' acquisition of the Option Property, Delmarva agrees that it
will (i) at its expense, maintain the Option Property in its present order and
condition, and deliver the Option Property at closing in substantially the
condition it is in on the Effective Date (by way of example and not by way of
limitation, Delmarva shall not permit or conduct any timbering of the Option
Property); (ii) not mortgage or encumber any part of the Option Property or
permit Chesapeake Forest to do so; (iii) not become a party to any new licenses,
leases, contracts or agreements of any kind relating to the Option Property or
permit Chesapeake Forest to do so; (iv) provide Colonial Downs promptly upon
receipt with copies of all notices and correspondence received from any
governmental authorities or agencies thereof with respect to the Option Property
and cause Chesapeake Forest to do so; and (v) not seek to change or permit any
change to the current zoning of the Option Property, unless such rezoning is to
a business classification approved by Colonial Downs,
8.2.3 Inspection Period. The Option Agreement shall
provide that Colonial Downs and its agents shall have the right during the term
of the agreement to enter the Option Property for the purpose of conducting
inspections, tests and surveys thereof.
8.2.4 Title and Survey Exceptions. The Option
Agreement shall provide for a sixty (60) day title and survey review period
during which Colonial Downs may report title and survey defects to Delmarva;
provided, however, that the review period shall not extend beyond December 31,
1997. Delmarva shall
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have the right, but not the obligation, to cure such defects. If Delmarva is
unable to cure such defects or if Delmarva elects not to cure such defects,
Colonial Downs shall have the right to terminate the Option Agreement. Delmarva
shall notify Colonial Downs in writing of Delmarva's intent to cure or not to
cure the title and survey defects. Title and survey exceptions not objected to
by Colonial Downs shall be deemed to be Permitted Exceptions.
8.2.5 Termination of Option. The Option shall
automatically terminate upon November 30, 1997.
8.2.6 Recordation. The Option Agreement or a
memorandum thereof may be recorded by any party thereto. The costs of
recordation shall be borne by the recording party.
8.2.7 Release. If the Option Agreement is recorded
and Colonial Downs does not exercise the Option prior to the termination date of
the Option, Colonial Downs shall provide Delmarva with a duly executed and
notarized instrument in recordable form evidencing the termination of the
Option.
9. Project Documents. During the term of this Agreement, Delmarva shall
make available to Colonial Downs copies of all environmental reports, wetlands
delineation plans, wetlands disturbance permits, topographic studies, soils
studies, utilities studies and plans, discharge permits, and water and sewer
agreements to the extent in Delmarva's or Chesapeake Forest's possession or
control and relevant to the Track Parcel or Roads.
10. Design and Completion of Track Project. Delmarva hereby approves
the Track Project as reflected in the Approved Plans. Any material deviation in
the design, layout or appearance of the Track Project as depicted in such
Approved Plans shall be subject to Delmarva's consent, which consent shall not
be unreasonably withheld, conditioned or delayed. Such consent shall be deemed
granted if Delmarva provides no response to Colonial Downs within thirty (30)
days after Colonial Downs requests such consent. Colonial Downs shall
substantially complete the construction of the Track Project as shown on the
Approved Plans by December 31, 1998.
11. Use. The Deed provides that the Track Parcel may be used for
certain purposes and for other uses agreed to by Delmarva in writing. This
Paragraph 11 shall constitute Delmarva's consent to use the Track Parcel for the
following additional uses: horse shows, horse sales, polo matches, other equine
related events, croquette matches, bicycle races, concerts, antique shows, and
balloon races and/or balloon shows.
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12. Representations and Warranties.
12.1 By Delmarva. Delmarva represents and warrants for the
benefit of Colonial Downs that:
12.1.1 Brokers. Neither Delmarva nor Chesapeake
Forest has dealt with any broker or agent, real estate or otherwise, with regard
to the Track Parcel such that any broker or agent is or will be entitled to a
commission upon the conveyance of the Track Parcel to Colonial Downs.
12.1.2 Organization and Power. Delmarva and
Chesapeake Forest are corporations duly formed and validly existing under the
laws of the Commonwealth of Virginia and have all requisite power and authority
to own their respective properties and to carry on their businesses as now
conducted and to enter into this Agreement and perform their respective
obligations hereunder.
12.1.3 Authorization and Execution. This Agreement
has been duly executed and delivered by Delmarva, constitutes the valid and
binding agreement of Delmarva and is enforceable against Delmarva in accordance
with its terms.
12.1.4 Non-contravention. To the best of Delmarva's
knowledge, there is no agreement which has or may have any material adverse
effect on (a) Delmarva's ability to obtain the necessary permits and approvals
to construct the Sanitary Sewer Lines and the Water Lines in accordance with
this Agreement, (b) the County's decision to accept the Lines for perpetual
maintenance if constructed in accordance with this Agreement, (c) Colonial
Downs' ability to obtain the necessary permits and approvals to construct the
Roads in accordance with this Agreement, or (d) the County's decision to accept
the Loop Road for perpetual maintenance if constructed in accordance with this
Agreement. Colonial Downs acknowledges that a conditional use permit ("CUP")
affects the Trade Parcel. Delmarva makes no representation that the CUP permits
the use of the Track Parcel for any uses described in Paragraph 11 other then a
horse racetrack.
12.1.5 Obligations of Chesapeake Forest. There are no
agreements between Delmarva and Chesapeake Forest and no agreements between
Chesapeake Forest and any other person or entity that would have a material
adverse effect on (a) Delmarva's ability to cause Chesapeake Forest to execute
and deliver the necessary applications and requests for all of the permits and
approvals necessary to construct, use and maintain the Lines in accordance with
this Agreement, (b) Delmarva's ability to cause Chesapeake Forest to convey the
Track Parcel to Colonial Downs in accordance with this Agreement, (c) Delmarva's
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ability to cause Chesapeake Forest to convey all of the easements required to
construct the Lines and the Roads and to dedicate those portions of the
Remaining Land required by the County and/or VDOT with respect to the Loop Road,
and (d) Delmarva's ability to cause Chesapeake Forest to take any other action
designated to be taken by Chesapeake Forest pursuant to this Agreement. Delmarva
is authorized to enter into this Agreement on behalf of Chesapeake Forest
pursuant to the consent attached hereto as Exhibit J, which consent has not been
modified or revoked.
12.1.6 Offsite Dedications and Easements. No offsite
easements or dedications are required to construct, operate and maintain the
Lines or Roads as contemplated by this Agreement. For the purposes of this
Paragraph 12.1.6, offsite easements or dedications shall refer to any easements
on, over, through, across or under property other than the Remaining Land or
dedications of land other than portions of the Remaining Land.
12.2 By Colonial Downs. Colonial Downs represents and warrants
for the benefit of Delmarva that:
12.2.1 Organization and Power. Colonial Downs is a
limited partnership duly formed and validly existing under the laws of the
Commonwealth of Virginia and has all requisite power and authority to own its
properties and to carry on its business as now conducted and to enter into this
Agreement and perform its obligations hereunder.
12.2.2 Authorization and Execution. This Agreement
has been duly executed and delivered by Colonial Downs, constitutes the valid
and binding agreement of Colonial Downs and is enforceable against Colonial
Downs in accordance with its terms.
12.2.3 Real Estate Agents. Colonial Downs has not
dealt with any broker or agent, real estate or otherwise, with regard to the
Track Parcel such that any broker or agent is or will be entitled to a
commission upon the conveyance of the Track Parcel to Colonial Downs.
13. Indemnification.
13.1 By Delmarva. Delmarva agrees to indemnify, defend and
hold harmless Colonial Downs from and against any and all claims, actions, loss,
damages, liability and expense, including, without limitation, reasonable
attorneys' fees and costs arising out of any breach under this Agreement,
including, without limitation, its representations or warranties contained in
Paragraph 12.1 of this Agreement, except to the extent caused by Colonial Downs.
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13.2 By Colonial Downs. Colonial Downs agrees to indemnify
defend and hold harmless Delmarva from and against any and all claims, actions,
loss, damages, liability and expense, including, without limitation, attorneys'
fees and costs arising out of any breach under this Agreement, including,
without limitation, its representations or warranties contained in Paragraph
12.2 of this Agreement, except to the extent caused by Delmarva.
14. Completion Rights.
14.1 Colonial Downs's Right to Complete Sanitary Sewer Lines
and Water Lines. If by any applicable date, subject to Unavoidable Delays, the
Lines have not been substantially completed and accepted by the County for
perpetual maintenance, Colonial Downs shall have the right, but not the
obligation, to take all actions and perform all of the work necessary to
complete the Lines and have the Lines accepted by the County for perpetual
maintenance. Colonial Downs shall provide Delmarva with fifteen (15) days notice
prior to commencing any such work. Within thirty (30) days after demand,
Delmarva shall reimburse Colonial Downs for all reasonable Construction Costs
incurred by Colonial Downs in performing the foregoing in excess of the
Reimbursement Amount, except to the extent that reimbursement for such
Construction Costs is actually made available to Colonial Downs through the
proceeds from bonds, other surety posted with the County or retainage. If
Colonial Downs constructs or completes any portion of the Lines, Colonial
Downs's reimbursement to Delmarva for the construction of such infrastructure
shall be reduced by the Construction Costs for that portion of the
infrastructure constructed or completed by Colonial Downs.
14.2 Delmarva's Right to Complete Roads. If by any applicable
date, subject to Unavoidable Delays, the Loop Road has not been substantially
completed and accepted by VDOT for perpetual maintenance, Delmarva shall have
the right, but not the obligation, to take all actions and perform all of the
work necessary to complete the Loop Road and have the Loop Road accepted by VDOT
for perpetual maintenance. Delmarva shall provide Colonial Downs with fifteen
(15) days notice prior to commencing any such work. Within thirty (30) days
after demand, Colonial Downs shall reimburse Delmarva for all reasonable
Construction Costs incurred by Delmarva in performing the foregoing in excess of
the Road Reimbursement Amount, except to the extent that reimbursement for such
Construction Costs is actually made available to Delmarva through the proceeds
from bonds, other surety posted with the County and/or VDOT or retainage. If
Delmarva constructs or completes any portion of the Loop Road, Delmarva's
reimbursement to Colonial Downs for the
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construction of such infrastructure shall be reduced by the Construction Costs
for that portion of the infrastructure constructed or completed by Delmarva.
15. Suspension of Work. If either party fails to make, in a timely
manner, any payment or reimbursement of Construction Costs to the party
obligated to construct infrastructure pursuant to this Agreement (for example,
and not by way of limitation, the construction of the Roads), the party
obligated to construct the infrastructure may suspend such construction
activities after first giving written notice to the party obligated to make the
payment that the required payment has not been made. If the required payment has
not been made within ten (10) days after such notice, the party obligated to
construct the infrastructure may suspend some or all of its construction
activities. The suspension may continue until the required payment is made. The
completion date for the infrastructure shall be extended for the period during
which the work is suspended.
16. Mechanic's Liens. If any mechanic's or materialman's lien shall be
filed against the property of the owner of either Project or any portion thereof
based upon any act of any other party to this Agreement, or its agents,
employees, contractors or subcontractors, such party shall immediately remove
such lien by bonding, deposit or payment. If the party whose act or whose
agents', employees', contractors' or subcontractors' actions resulted in such
lien being filed has not removed the lien within thirty (30) days after notice
to the party, the owner of the Project affected by the lien may pay the amount
of such lien or discharge the same by deposit and the amount so paid or
deposited shall be paid by the other party upon demand, together with reasonable
attorney's fees and costs.
17. Notices. All notices and other communications required or permitted
to be given hereunder shall be in writing and shall be deemed given and received
(a) when received if telecopied, (b) upon deposit in the United States Mail if
sent by regular mail or by certified or registered mail, (c) upon deposit with
Federal Express or a comparable overnight delivery service or (d) when received
if delivered by hand, to:
Colonial Downs: Colonial Downs
3610 North Courthouse Road
Providence Forge, Virginia 23140
Attention: President
with a copy to: Mr. David Grunenwald
Jacobs Entertainment, Inc.
1231 Main Avenue
Cleveland, Ohio 44113
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with a copy to: James L. Weinberg, Esquire
Hirschler, Fleischer, Weinberg, Cox &
Allen
701 East Byrd Street, 16th Floor (23219)
P.O. 500
Richmond, Virginia 23218-0500
Delmarva: Delmarva Properties
c/o Chesapeake Corporation
14th and Lee Streets
West Point, Virginia 23181
Attention: Mr. Joel Mostrom
with a copy to: James H. Hudson, III, Esquire
Hudson and Bondurant, P.C.
P.O. Box 231
826 Main Street
West Point, Virginia 23181
or such other address as shall be provided to the sender at least 10 days prior
to the effective date of the change of address.
18. Cooperation. Each party hereto shall execute in a reasonably timely
manner, and Delmarva shall cause Chesapeake Forest to execute, such documents,
applications and requests and shall take such other actions as are reasonably
requested by the other party in connection with the study and development of the
Remaining Land and the development of the Track Project. In addition, each party
hereto shall cooperate with the other party and timely provide the other party
with accurate and complete information to enable the other party to prepare
plans, submit applications and take such actions as may be reasonably necessary
to further the development of the Remaining Land and the Track Project.
19. Unavoidable Delays. Each person or entity from time to time subject
to the terms of this Agreement shall be excused from performing any obligation
or undertaking provided for herein, other than for the payment of money or the
granting of easements or dedication of rights of way, for such period as such
performance is prevented, delayed, retarded or hindered by fire, earthquake,
flood, explosion, adverse weather conditions, riot and insurrection, mob
violence, sabotage, inability to procure (or general shortage of) labor,
equipment, facilities, materials or supplies in the open market, failure of
transportation, strike, lockout, action of any labor union, laws or orders of
governmental authorities, default by the other party to this Agreement or any
other cause not in the reasonable control of the party prevented, delayed,
retarded or hindered thereby, which events or conditions are generally referred
to as "force majeure"
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conditions or occurrences, including reasonable delays for adjustment of
insurance proceeds in the event of an insured casualty (collectively,
"Unavoidable Delays").
20. No Joint Venture. Neither party hereto shall be construed as or
deemed to be a partner, joint venturer or associate of the other party in the
conduct of its business, such relationships being expressly disclaimed by the
parties hereto, for themselves, their successors and assigns.
21. Binding Agreement. The provisions of this Agreement shall be deemed
to be covenants running with the land and shall bind the successor owners of the
Track Parcel and the Remaining Land howsoever such interests are obtained;
provided, however, that no successor shall obtain any of the rights conferred
upon the parties hereto unless assigned in accordance with Paragraph 22. Either
party may record in the Clerk's Office of the Circuit Court of New Kent County,
Virginia, a memorandum of this Agreement. Each party shall execute such
memorandum at the other party's request. The party desiring to record this
Agreement or the memorandum shall bear the recordation costs therefor.
22. Assignment. Subject to the limitations set forth below, Colonial
Downs and Delmarva may each assign all or portions of their respective rights
hereunder (for example, and not by way of limitation, the right to approve the
plans for the Roads, and the right to approve amendments to or the termination
of, this Agreement) to a single legal entity respectively. This Agreement is not
intended to confer any rights upon successor owners of developed lots or parcels
absent an express assignment in accordance with this Paragraph. Neither Colonial
Downs nor Delmarva shall assign their respective rights and obligations under
this Agreement without the other party's prior written consent, which shall not
be unreasonably withheld, conditioned or delayed; provided, however, that
nothing contained herein shall prohibit the assignment of a party's rights and
obligations hereunder to an entity controlled by the assigning party or to an
entity under common ownership and control with the assigning party. The
foregoing restriction on assignment shall terminate as to a party upon the
satisfaction or termination of such party's obligations under this Agreement to
construct any improvements and make any reimbursements or other payments to the
other party. No assignment shall relieve Colonial Downs or Delmarva from their
respective obligations hereunder.
23. Applicable Law. This Agreement shall be construed, performed and
enforced in accordance with the laws of the Commonwealth of Virginia.
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24. Entire Agreement; Modification. This Agreement contains the entire
agreement between the parties hereto relating to the subject matter hereof and
supersedes all prior and contemporaneous negotiations, understandings and
agreements, written or oral, between the parties hereto. This Agreement shall
not be amended or modified and no waiver of any provision hereof shall be
effective unless set forth in a written instrument executed by Colonial Downs
and Delmarva. No amendment or termination of this Agreement shall require the
consent of any tenant of all or any portion of the Remaining Land or the Track
Project whether or not Colonial Downs, Chesapeake Forest or Delmarva retain
title to any portion or portions thereof.
25. Litigation. If either party commences an action against the other
party, whether at law or in equity, arising out of or in connection with this
Agreement, the prevailing party shall be entitled to have and recover from the
losing party reasonable attorney's fees and costs of the suit.
26. No Third Party Beneficiaries. Except as expressly provided in this
Agreement with respect to the successors and assigns of the parties hereto,
nothing contained in this Agreement shall be deemed to establish any rights of
any third parties against the parties hereto, it being the intent that the
rights and obligations set forth herein are those of the parties alone with no
third party beneficiary rights intended.
27. Counterparts. This Agreement may be executed in any number of
identical counterparts, any or all of which may contain the signatures of less
than all of the parties, and all of which shall be construed together as a
single instrument.
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WITNESS the following signatures:
Colonial Downs: COLONIAL DOWNS, L.P., a Virginia limited
partnership
By: Stansley Management Corp. a
Virginia corporation, a
general partner
By: /s/ Arnold W. Stansley
-----------------------
Title: President
Date: 10/16/96
By: CD Entertainment Ltd., an Ohio limited
liability company, a
general partner
By: Jeffrey P. Jacobs
----------------------
Title: President
Date: 10/16/96
Delmarva: DELMARVA PROPERTIES, INC., a Virginia corporation
By: Joel Mostrum
----------------------
Title:
Date: 10/16/96
Exhibits
Exhibit A - Approved Plans
Exhibit B - Entry Agreement (as amended) Exhibit C - Option Property Exhibit D -
Property Exhibit E - Road Plan Exhibit F - Survey Exhibit G - Utilities and Road
Specifications Exhibit H - Water/Sewer Analysis Exhibit I - Special Warranty
Deed
Exhibit J - Consent of Directors for Chesapeake Forest
23
WAGERING HUB AGREEMENT
This Agreement is entered into as of January 31, 1996, by and between Pocono
Downs, Inc. a Pennsylvania Corporation with mailing address at 1280 Highway 315,
Wilkes-Barre, Pennsylvania, ("PD"), and Colonial Downs, L.P., a limited
partnership, with mailing address at Post Office Box 456, Providence Forge,
Virginia, 23140, ("CD"), the Parties to this Agreement.
RECITALS
WHEREAS PD regularly conducts wagering at its racetrack in Plains,
Pennsylvania and at its off-track locations, on horse races run live at Pocono
Downs racetrack and on horse races run at other tracks and simulcast to Pocono
Downs Racetrack and PD's off-track locations; and
WHEREAS CD is preparing to conduct similar operations in the Commonwealth
of Virginia; and
WHEREAS, PD has agreements in force with numerous racetracks under which PD
receives simulcasts of horse races upon which it conducts wagering and combines
its wagering through telephone lines into a common pool ("Common Pool Wagering")
with the pools of the racetracks at which such simulcasts originate ("Sending
Tracks"); and
WHEREAS Autotote, Inc. ("Tote") is currently supplying labor, equipment,
supplies and services to PD ("Tote System") in order to meet all of PD's
totalizator requirements related to its wagering operations including Common
Pool Wagering: and
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WHEREAS, PD and CD are of the opinion that the combination of wagering
conducted by CD with wagering conducted by PD will lead to cost saving to each
through increased purchasing power and system efficiencies; and
WHEREAS, CD desires to retain the services of PD to process Common Pool
Wagering from Sending Tracks and other wagering at the facilities of CD and PD
is willing to provide such services to CD, on the terms and subject to the
conditions hereof.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
the parties hereto, intending to be legally bound, do hereby agree as follows:
1. CD contracted with Tote to provide equipment and services as required to
process wagering at all wagering locations operated by CD. The contract for such
equipment and services provides and Tote has otherwise agreed to down-loading
all wagering information to the Tote System at PD in a format that is compatible
with and acceptable to Tote. PD and CD agree to the use of the Tote system at PD
to receive and process all wagering generated at facilities operated by CD. PD
and CD will each take whatever action is necessary to secure the services of
Tote to receive and process such wagers Totalizator service at locations
operated by CD as well as costs associated with down-loading of CD's wagering
information to the Tote System at PD (if any), and processing of that
information by Tote (if any), will be the sole responsibility of CD.
2. CD agrees to establish and maintain all telecommunications required to
transmit wagering information between PD and CD including equipment, lines,
back-up systems and voice and data communications when required
("Telecommunications"). All costs for such Telecommunications shall be borne by
CD.
3. PD agrees to establish and maintain the necessary Telecommunications between
PD and the Sending Tracks whose racing programs are being wagered on at PD and
its wagering locations and/or at CD and its wagering locations. The costs
related to such Telecommunications will be allocated as follows:
A. The anticipated schedule for Common Pool Wagering by PD on Sending
Tracks' simulcasts for 1996 is attached hereto as Exhibit "A". No guarantee
exists that the current racetracks, simulcast schedule and license fees will not
vary from time to time. PD agrees that all costs related to the
Telecommunications required to support this schedule, as amended from time to
time, will be the sole responsibility of PD, and that
2
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CD shall have the option of making use of such Telecommunications during periods
scheduled by PD at no cost to CD.
B. If CD or PD elects to conduct wagering on simulcast racing programs from
Sending Tracks not previously scheduled by PD, then PD shall establish and
maintain the Telecommunications required to support the additionally scheduled
programming, and all costs related to such Telecommunications shall be the sole
responsibility of the Party to this Agreement (PD or CD) which elected to
initiate the additional programming. If PD or CD subsequently elect to make use
of the same Telecommunications being paid for by the other Party to this
Agreement, it may do so, but fifty percent of all costs of such
Telecommunications thereafter shall be allocated to each Party sharing the
system.
4. PD shall make the necessary arrangements with Tote to secure all information
and reports necessary in order to accomplish the following:
A. A Summary Reconciliation Report for CD wagering on each simulcast
program showing a breakdown by CD wagering location shall be prepared daily and
transmitted by Fax to CD. Exhibit "B" hereto is an example of such report based
on a wagering program conducted at PD locations. The Summary Reconciliation
Report for CD will contain similar information as it pertains to CD daily
wagering operations at its locations.
B. A Mutuels Settlement report for CD wagering on each simulcast program
shall be prepared daily and transmitted to CD by Fax. Exhibit "C" hereto is an
example of such a report based on a wagering program at PD. The Mutuels
Settlement Report will contain similar information as it pertains to CD daily
wagering operations at its locations.
5. PD and CD agree to use their best efforts to secure the most advantageous
rates available ("Simulcast Fee") to be paid to Sending Tracks for the right to
simulcast racing programs for the purpose of conducting wagering on the races
and combining the wagering into common parimutuel pools. Each party to this
Agreement intending to conduct parimutuel wagering on a simulcast racing program
shall sign a separate Simulcast Fee agreement with the Sending Track. Each such
Simulcast Fee agreement shall establish the fiduciary relationship between the
parties to that agreement for all fees and other liabilities generated as a
result of wagering or other activities undertaken pursuant to such agreement.
Prior to conducting wagering on a simulcast signal from any Sending Track, CD
agrees to furnish PD with a copy of the applicable Simulcast Fee agreement
between CD and the Sending Track.
A. PD and CD agree that they will notify each Sending Track for which PD
may act as a Hub for CD wagering that all payments on account of netted
obligations generated by CD and/or the Sending Track as a result of such
wagering will be paid to PD and then
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by PD to the respective party, either CD or the Sending Track, and that CD and
the Sending Track shall consider any such obligation by the Sending Track to CD
or by CD to the Sending Track satisfied by such payment to PD, but that unless
and until such payment is made to PD, all such obligations shall be and remain
the obligations of CD and the Sending Track to each other.
B. It is clearly understood by the Parties to this Agreement that PD will
act as a hub for the purpose of assembling wagers for transmissions to and
inclusion in wagering pools of various Sending Tracks on behalf of itself, CD,
and other parties; that PD will act as a clearing house to calculate and report
liabilities between the parties generated as a result of such wagering and to
transfer payments between the parties to satisfy such liabilities; but that PD's
liability in all such transactions is limited to its fiduciary responsibility in
the handling of the cash and credit transactions between the parties. With
respect to wagering activities, it is agreed that PD shall have no
responsibility whatsoever for any liability generated as a result of wagering
conducted at any location other than a location operated by PD.
C. It is intended that Simulcast Fees will be negotiated on behalf of both
parties to this Agreement, and that the same fee will apply to both Parties
whenever possible. However, it is accepted that special conditions of a regional
nature may require that separate terms will exist in some cases. At any time
that such circumstances occur, it is agreed by the Parties hereto that each
Party shall be fully informed in writing of the special circumstances that
exist. At the time of execution of this Agreement, it is understood that an
agreement exists between the Maryland Jockey Club ("MJC") and CD which will
result in a variation in the Simulcast Fee charged by MJC to PD and to CD. The
essential terms of that agreement are shown as Exhibit D to this Agreement
indicating the intention of the Parties as to how the reconciliation will be
handled in the hub accounting.
6. PD shall maintain facsimile equipment and access to alternate telephone lines
and shall make reasonable effort to transmit wagering information to pools of
the Sending Track by alternate means in the event of a Telecommunications or
other system failure. However, if a wager accepted by CD is included in the
appropriate wagering pool of the Sending Track, as a result of a
Telecommunications or other system failure, or for any other reason, such wager
shall be treated as having been booked by CD into a CD pool and CD shall be
solely responsible for any liability related to the acceptance of such wager.
7. Except as otherwise expressly set forth herein, no fees shall be payable by
CD to PD for the services to be performed by PD hereunder. By executing this
Agreement, PD acknowledges that it expects to be compensated for the services
provided to CD hereunder through increased purchasing power with Sending Tracks
and system efficiencies with Tote.
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8. TERM
The initial term of this Agreement shall commence on and as of the date the
services are first performed by PD for any facility of CD and shall continue
until December 31, 1996. This Agreement shall thereafter be automatically
renewed for additional one (1) year terms on the terms and provisions hereof
unless either party gives written notice to the other party of its intention to
not renew this Agreement at least thirty (30) days prior to the expiration date
of the initial term hereof or any renewal term thereafter.
9. MODIFICATION; TERMINATION.
This Agreement may be modified or terminated at any time by the written
agreement of the parties hereto. Either party may terminate this Agreement upon
two (2) business days' advance written notice to the other party, if:
A. the other party ceases active business for other than a temporary
period;
B. The other party becomes insolvent, files or has filed against it a
petition in bankruptcy, has a receiver appointed for its assets or makes a
general assignment for the benefit of its creditors; or
C. the other party breaches any material term of this Agreement and fails
to cure such breach within five (5) business days following written notice from
the other party.
CD may terminate this Agreement immediately if PD fails or is unable to for
any reason to provide the services to CD required under this Agreement for a
period of seven (7) days.
10. MISCELLANEOUS PROVISIONS.
A. Notices. Any notice hereunder shall be deemed sufficiently given by one
party to another if in writing and delivered at the addresses set forth below or
at such other address as any party may furnish. Notice shall be deemed delivered
(i) upon actual delivery, if delivery is made in person by courier or by
facsimile transmission (acknowledgment requested), or (ii) on the third day
after deposit in the United States Mail if in a sealed envelope, registered or
certified, with postage prepaid, addressed to the person to whom such notice is
being given.
5
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TO PD:
Pocono Downs, Inc.
1280 Highway 315
Wilkes-Barre, PA 18702
Telephone Number (717) 825-6681
Fax Number (717) 823-9407
TO CD:
Colonial Downs
P.O. Box 456
Providence Forge, VA 23140
Telephone Number (804) 966-7223
Fax Number (804) 966-2086
B. Captions. The captions of the sections and paragraphs in this Agreement
are inserted for convenience only and shall not affect the construction or
interpretation thereof.
C. Counterparts. This Agreement and all amendments hereto may be executed
in several counterparts and each counterpart shall constitute a duplicate
original of the same instrument. A photocopy of a fully executed original shall
also be considered a duplicate original for all purposes.
D. Severability. Any provision hereof prohibited by or unlawful or
unenforceable under any applicable law of any jurisdiction shall as to such
jurisdiction be ineffective without affecting any other provision of this
Agreement or the enforcement thereof in any other jurisdiction.
E. Waivers; Remedies. A waiver by one party of a breach by the other party
shall not be considered a waiver of all subsequent breaches by the noncomplying
party. The parties hereto shall have all remedies for breach of this Agreement
available to them provided by law or equity.
F. Third Parties. Nothing in this Agreement, whether expressed or implied,
is intended to confer any rights or remedies under or by reason of this
Agreement on any
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<PAGE>
persons other than the parties, the Virginia Racing Commission, and the
Pennsylvania Harness Racing Commission and their respective successors and
permitted transferees and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
party to this Agreement, nor shall any provision give any third person any right
of subrogation or action over or against any party to this Agreement.
G. Time. The parties expressly agree that time is of the essence of the
Agreement.
H. Status. In performing the services for CD hereunder, PD is and for all
purposes shall be deemed to be an independent contractor, and not an employee,
agent, partner or joint-venturer of or with CD. Except as expressly set forth
herein, neither party shall have the authority to act on behalf of or in the
name of the other party without the written consent of such party.
I. Entire Agreement. This Agreement and the Exhibits attached hereto
represent the entire agreement of the parties with respect to the subject matter
hereof, superseding all prior agreements or understandings between the parties,
whether written or oral.
J. Approval by Virginia Racing Commission. This Agreement and the rights
and obligations of CD hereunder are subject to the approval of the Virginia
Racing Commission.
11. FURTHER ASSURANCES. Each of the parties agrees to execute and deliver any
and all further agreements, documents or instruments necessary to effectuate
this Agreement and the transactions referred to herein or contemplated hereby or
reasonably requested by another party to perfect or evidence its rights
hereunder. Each party will promptly notify the other parties of any information
delivered to or obtained by such party which would prevent the consummation of
any transactions contemplated by this Agreement, or would indicate a breach of
this Agreement by any party.
(The following page is the signature page.)
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IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the day
and year first above written.
POCONO DOWNS, INC.,
By: /s/ Joseph B. Banks
-----------------------
Joseph B. Banks, President
COLONIAL DOWNS, L.P.
By: /s/ Arnold W. Sransley
------------------------
Arnold W. Stansley, President
Stansley Management Corp.,
its General partner
8
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EXHIBIT A
Anticipated schedule for Common Pool Wagering by PD on Sending Tracks simulcasts
for 1996.
<PAGE>
EXHIBIT B
A Summary Reconciliation Report for CD Wagering
<PAGE>
EXHIBIT C
A Mutuels Settlement Report for CD Wagering
<PAGE>
EXHIBIT D
Colonial Downs and the Maryland Jockey Club have agreed to exchange simulcast
signals without a fee to the sending track.
AGREEMENT
THIS AGREEMENT is entered into by and between COLONIAL DOWNS,
L.P., a Virginia limited partnership ("Colonial Downs"), and VIRGINIA HARNESS
HORSE ASSOCIATION ("VHHA"), a Virginia not-for-profit corporation.
WHEREAS, Colonial Downs and its affiliate, Stansley Racing
Corp. ("SRC"), have been granted licenses by the Virginia Racing Commission (the
"VRC") to own and operate (i) a pari-mutuel horse racing facility in New Kent
County, Virginia (the "Racetrack"); and (ii) Satellite Wagering Facilities
("SWFs") in the cities of Chesapeake and Richmond, Virginia;
WHEREAS, Colonial Downs and SRC intend to apply for licenses
to own and operate four (4) additional SWFs in Virginia, or such greater number
as may be authorized by law;
WHEREAS, The VHHA is a trade association composed of owners
and trainers (hereinafter the "VHHA Members") of standardbred race horses;
WHEREAS, The VHHA's purpose is to develop and maintain
programs and other services for its members, employees and others who will
engage in harness racing at Colonial Downs Racetrack;
WHEREAS, after having engaged in good faith negotiations, the
parties hereto desire to bring about a closer and more understanding
relationship among horsemen, the VHHA Members, the VHHA, Colonial Downs and the
public; and
WHEREAS, Colonial Downs and VHHA have agreed on the
allocation between Colonial Downs and VHHA of certain revenues received by
Colonial Downs on pari-mutuel wagering on out-of-state standardbred horse races
simulcast at the SWFs and now desire to set forth their agreement herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, the parties agree as follows:
1. Exclusive Representative. During the term of this
Agreement, the VHHA shall be the exclusive representative of the members of its
organization with respect to all matters set forth in this Agreement and any
subsequent negotiations contemplated by this Agreement.
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2. Term of Agreement. Unless modified or terminated as
provided herein, this Agreement shall remain in effect until December 31, 1998,
and shall be automatically renewed for successive one (1) year renewal terms;
provided, however, that in the event the parties have not entered into a
contract to cover live racing (the "Live Racing Agreement") for the first live
race meet, this Agreement shall terminate automatically on the day prior to the
scheduled opening day of the first live standardbred race meet.
3. Scope of Agreement. This Agreement shall be applicable to
revenue generated from pari-mutuel wagering on simulcast standardbred races
(other than simulcast broadcasts of live races held at the Racetrack) at all
wagering facilities owned and operated by Colonial Downs in Virginia during the
term of this Agreement. The parties acknowledge and agree that one of the
fundamental purposes of this Agreement, and of the opening and operation of SWFs
by Colonial Downs shall be to establish and fund the Standardbred Partner
Account (as defined herein).
4. SWF Revenue Division.
(a) A portion of the revenue generated from
pari-mutuel wagering on simulcast standardbred races (other than simulcast
broadcasts of live races held at the Racetrack) at the SWFs and the Racetrack
(the "SWF Standardbred Handle") shall be devoted to funding the Standardbred
Partner Account (as defined herein) and shall be paid as provided in
subparagraphs 4(b) and 4(c).
(b) The Initial Period: February 17, 1996--December
31, 1997. With respect to the period from February 17, 1996, to December 31,
1997, ("the Initial Period"), Colonial Downs shall pay into the Standardbred
Partner Account the Standardbred Legislated Percentage (as defined herein) and
Five Percent (5%) of the SWF Standardbred Handle, subject to the following
adjustments:
(i) If the sum (the "Sum") of (A) Five
Percent (5%) of the SWF Standardbred Handle plus (B)
the total amount of the net percentage of the pools
generated by live standardbred horse racing at the
Racetrack (including simulcasts thereof at Colonial
Downs SWFs) which is required to be paid to the
participants in the race meetings at the Racetrack
(the "Standardbred Legislated Percentage") for the
Initial Period is less than Two Million Five Hundred
Thousand Dollars ($2,500,000), Colonial Downs shall
pay into the Standardbred Partner Account the
difference between Two Million Five Hundred Thousand
Dollars ($2,500,000) and the Sum; provided, (1)
one-half (1/2) shall be a grant from Colonial Downs
to the Standardbred Partner Account; and (2) one-half
(1/2) of such
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difference shall be regarded as a loan by Colonial
Downs to the Standardbred Partner Account, bearing
interest at the rate of One Percent (1%) multiplied
by the number of SWFs in operation at the end of each
calendar year when interest shall be calculated up to
a maximum amount of Six Percent (6%) per annum, from
December 31, 1997, until paid, and payable in
Forty-Eight (48) equal monthly installments of
interest and principal, commencing the later of
January 1, 2001, or when at least Six (6) SWFs are in
operation.
(ii) If the Sum of (A) Five Percent (5%) of
the SWF Standardbred Handle plus (B) the total amount
of the Standardbred Legislated Percentage for the
Initial Period is greater than Two Million Five
Hundred Thousand Dollars ($2,500,000), there shall be
paid to Colonial Downs from the amount of said Sum
exceeding Two Million Five Hundred Thousand Dollars
($2,500,000) an amount up to the sum of the (1) VHHA
share (as calculated in accordance with Schedule A)
of the Difference between the Applicable Owners
Budgeted After-Tax Net Income and the Owners Actual
After-Tax Net Income (all as defined and calculated
in accordance with Schedule A hereto) and (2) the
Variable Income Threshold (as defined and calculated
in accordance with Schedule A hereto) (the VHHA share
of the Difference between the Applicable Owners
Budgeted After-Tax Net Income and the Owners Actual
After-Tax Net Income and the Variable Income
Threshold shall collectively be referred to as the
"Threshold"). For any amount of said excess remaining
in the Standardbred Partner Account after the payment
to Colonial Downs of the Threshold, one-half (1/2)
shall remain in the Standardbred Partner Account and
one-half (1/2) shall be paid to Colonial Downs. After
the foregoing calculations and payments have been
made and taken into account, any remaining Owner's
Actual After-Tax Income in excess of the Threshold
shall be paid one-half (1/2) to the Standardbred
Partner Account and one-half (1/2) to Colonial Downs.
(c) Second Year: January 1, 1998--December 31, 1998. With
respect to the period from January 1, 1998, to December 31, 1998 (the "Second
Year"), Colonial Downs shall pay to the Standardbred Partner Account Five
Percent (5%) of the SWF Standardbred Handle and the Standardbred Legislated
Percentage, subject to the following adjustments:
(i) If the Sum of (A) Five Percent (5%) of the SWF
Standardbred Handle plus (B) the total amount of the
Standardbred Legislated Percentage
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for the Second Year is less than Two Million Five Hundred
Thousand Dollars ($2,500,000), Colonial Downs shall pay into
the Standardbred Partner Account the difference between Two
Million Five Hundred Thousand Dollars ($2,500,000) and the
Sum; provided, (1) one-half (1/2) shall be a grant from
Colonial Downs to the Standardbred Partner Account; and (2)
one-half (1/2) of such Difference shall be regarded as a loan
by Colonial Downs to the Standardbred Partner Account, bearing
interest at the rate of One Percent (1 %) multiplied by the
number of SWFs in operation at the end of each calendar year
when interest shall be calculated up to a maximum amount of
Six Percent (6%) per annum, from December 31, 1998, until
paid, and payable in Forty-Eight (48) equal monthly
installments of interest and principal, commencing the later
of January 1, 2001, or when at least Six (6) SWFs are in
operation.
(ii) If the Sum of (A) Five Percent (5%) of the SWF
Standardbred Handle plus (B) the total amount of the
Standardbred Legislated Percentage for the Second Year is
greater than Two Million Five Hundred Thousand Dollars
($2,500,000), the amount of said Sum exceeding Two Million
Five Hundred Thousand Dollars ($2,500,000) shall be shared in
a ratio of Ten Percent (10%) to the Standardbred Partner
Account and Ninety Percent (90%) to Colonial Downs until
Colonial Downs receives an amount from the Standardbred
Partner Account up to the Threshold (as calculated in
accordance with Schedule A). For any amount of said excess
remaining in the Standardbred Partner Account after the
payment to Colonial Downs of the Threshold, one-half (1/2)
shall remain in the Standardbred Partner Account and one-half
(1/2) shall be paid to Colonial Downs. After the foregoing
calculations and payments have been made and taken into
account, any remaining Owner's Actual After-Tax Income in
excess of the Threshold shall be paid one-half (1/2) to the
Standardbred Partner Account and one-half (1/2) to Colonial
Downs.
5. Live Race Meets. It is the stated intent of the parties to
conduct annual live race meets at the Racetrack commencing in 1997. For the
years 1997 and 1998, the parties intend to conduct live race meets of not less
than Fifty (50) days of live racing in each year. The parties intend to increase
the number of live race days each year so long as the integrity of the purses
can be maintained. The actual length of any live standardbred race meet shall be
determined by the VRC; however, the parties agree to request the VRC to permit
such number of days of live racing as the parties shall agree upon, but in any
event not less than Fifty (50) days of live standardbred racing at the Racetrack
for 1997 and 1998, and to permit, for each year thereafter, such number of days
of live racing as the parties shall agree upon; provided, if the parties are
unable to agree, Colonial Downs shall submit to the VRC its requested number of
days of live racing and
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shall also simultaneously convey to the VRC the request for days of live racing
of the VHHA.
6. Standardbred Partner Account.
a. Structure of Account. Colonial Downs will maintain
a separate bank account denominated the "Standardbred Partner Account" and all
sums and amounts payable to the VHHA under this Agreement, and interest,
earnings or credits generated thereon shall be deposited into that Account
within Forty-Eight (48) hours (Saturdays, Sundays and national holidays
excluded) after receipt by Colonial Downs. The Standardbred Partner Account as
provided herein and the investment or deposit schedules for said account
maintained by Colonial Downs during the term of this Agreement shall be subject
to examination at any reasonable time upon at least one (1) day's notice by the
President of the VHHA or the President's nominee. All withdrawals, debits or
pledges of the sums deposited in or credited to the Standardbred Partner Account
and all other transactions with respect to said Account shall require two (2)
signatures--one on behalf of the VHHA by one of such persons as the VHHA shall
authorize in writing and one on behalf of Colonial Downs by one of such persons
as Colonial Downs shall authorize in writing. Colonial Downs shall take all
reasonable actions necessary to protect such account from the claims of its
creditors.
(b) Deposits into the Standardbred Partner Account.
On the date this Agreement is signed by the parties, Colonial Downs shall
deposit in the Standardbred Partner Account the following: (1) an irrevocable
letter of credit with a face amount equal to the sum of (x) 2.5% of the SWF
Standardbred Handle from February 17, 1996, to the date of said signature (the
"Initial Amount") and (y) an amount equal to interest on the Initial Amount at
the rate of 6% per annum with interest calculated through the date of said
signature as though said 2.5% of the daily SWF Standardbred Handle from February
17 until said date of signing had been deposited Forty-Eight (48) hours
(Saturdays, Sundays, and national holidays excepted) after its receipt by
Colonial Downs; and (2) a Promissory Note with a face amount equal to Two and
One-Half Percent (2.5%) of the SWF Standardbred Handle from February 17, 1996,
to the date of said signature, bearing interest at the rate of Six Percent (6%)
per annum with interest calculated through the date of said signature as though
said percentage of the daily SWF Standardbred Handle from February 17, 1996
until said date of signature had been deposited Forty-Eight (48) hours
(Saturdays, Sundays and national holidays excepted) after its receipt by
Colonial Downs and calculated on the face amount from the date of said signature
until the Note Payment Date. In addition, Colonial Downs shall deposit in the
Standardbred Partner Account said percentage of the daily SWF Standardbred
Handle from the date of said signature until the Note Payment Date by depositing
its Revolving Promissory Note with a balance due from time to time in an amount
equal to the then total amount of said percentage from the date of signature,
together with interest thereon secured by an irrevocable letter of credit issued
by a commercial bank in an amount not less than the total amount of said
interest and principal
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calculated to be outstanding thirty (30) days from the date of issuance of the
letter of credit, bearing interest at the rate of Six Per Cent (6%) calculated
as though the required percentage of the daily SWF Standardbred Handle had been
deposited forty-eight (48) hours (Saturdays, Sundays and national holidays
excepted) after its receipt by Colonial Downs. The Note Payment Date for both of
said Promissory Notes shall be December 15, 1996, or at such earlier time as
Colonial Downs shall certify to the VHHA in writing that satisfactory financing
to enable it to complete construction of the Racetrack and up to four (4)
additional SWFs has been closed.
(c) Guaranteed Payments to the Horsemen's Purse
Account. Upon commencement of live racing at the Racetrack, there shall be
transferred from the Standardbred Partner Account to the account from which
purses shall be directly paid (the "Standardbred Horsemen's Purse Account"), at
the conclusion of each day of live racing at the Racetrack, an amount equal to
the required standardbred purse for that day of racing. The Standardbred Purse
Account shall be established and maintained as provided in the Live Racing
Agreement.
(d) Balance of Standardbred Partner Account. Any
amounts remaining in the Standardbred Partner Account after satisfying the
payment requirements of paragraph 6(c) shall be retained in the Standardbred
Partner Account to the credit of the VHHA, to be applied toward the Purse for
the next race meet, payment to the VHHA for services rendered to horsemen (in
the amount of two percent (2%) of the net amount, after all adjustments, paid to
the Standardbred Partner Account with respect to the Initial Period and all
annual periods thereafter), payment of any loans made by Colonial Downs pursuant
to paragraph 4 or as otherwise required by paragraph 4 of this Agreement. The
mechanics for monthly withdrawals of payments to the VHHA for services rendered
to horsemen shall be reflected in the banking resolutions governing the
Standardbred Partner Account.
(e) Interest and Earnings. All interest or earnings
whatsoever on the amounts paid to the Standardbred Partner Account shall accrue
solely to the benefit of the Standardbred Partner Account. All funds deposited
to the Standardbred Partner Account shall be invested in an interest bearing
account which provides market rates of return, or government or bank securities,
and Colonial Downs shall provide all reasonable assurances of the security of
the investments made.
(f) Accountings. Colonial Downs shall provide to the
VHHA (i) within Forty-Eight (48) hours of the close of each business day
(Saturdays, Sundays and national holidays excluded) of operation, daily
statistics respecting wagering on standardbred racing, and the amounts deposited
in or credited to the Standardbred Partner Account, at each SWF then in
operation (the "SWF Operations"); (ii) within Forty-Five (45) days of the end of
each calendar quarter, a report of the SWF Operations for the
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previous calendar quarter, certified by the chief financial officer or other
appropriate official of Colonial Downs; and (iii) within Ninety (90) days of the
end of each calendar year, an audited report of the SWF Operations, certified by
the independent certified public accountant for Colonial Downs. Any other
reports or information provided the VHHA by Colonial Downs from time to time
respecting the SWF Operations shall, if requested by the VHHA, be certified by
the chief financial officer or other appropriate official of Colonial Downs.
7. Setting of Standardbred Partner Account Contribution in
Renewal Years. On or before March 15 of each renewal year, Colonial Downs will
provide to the VHHA its budgeted income statement for the current calendar year.
Such budget will include the anticipated SWF standardbred percentage to be
applied by Colonial Downs to the SWF Standardbred Handle necessary to achieve
the budgeted net after-tax income for Colonial Downs for such year, as well as
any proposed adjustments in Schedule A, taking into account all relevant
factors, including the estimated total amount of the Standardbred Legislated
Percentage for the next race meet. Colonial Downs shall propose any change in
the percentage of the SWF Standardbred Handle and/or guaranteed contribution
which it believes is appropriate. The VHHA will review Colonial Downs' proposal
to determine if funds sufficient to guarantee a quality live race meet at the
Racetrack will be available. If the amount proposed by Colonial Downs for its
contribution to the Standardbred Partner Account is deemed inadequate by the
VHHA, the VHHA may propose such adjustments as it deems appropriate. In such
event, Colonial Downs and the VHHA shall negotiate in good faith any adjustment
to the Standardbred Partner Account contribution, observing the following
principles:
(a) The financial arrangements between the parties
for any prior period are not precedential and the current financial results of
Colonial Downs shall be the basis for the financial arrangements between the
parties on a year-to-year basis.
(b) The VHHA must be assured of the ability to offer
competitive purses for racing at the Racetrack which will attract quality
standardbred racing and permit race meets of at least Fifty (50) days of racing
per year.
(c) Colonial Downs must realize a net after-tax
return consistent with Schedule A hereto.
If the parties are unable to reach agreement with respect to the contribution to
the Standardbred Partner Account within Sixty (60) days after the VHHA's receipt
of Colonial Downs' proposal, then the existing provisions of this Agreement
shall continue in effect, but either party may thereafter terminate this
Agreement with Thirty (30) days' written notice to the other party.
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8. Out-Of-State Simulcasting. During the term of this
Agreement, the VHHA for and on behalf of its members, and as authorized
representative of its members for interstate simulcasting purposes, consents and
authorizes Colonial Downs to negotiate and contract with simulcast facilities,
including off-track wagering facilities, located outside Virginia, for the
conduct of off-track wagering at the Racetrack and the SWFs. The foregoing
consent and authorization shall constitute all consents required from the VHHA
for simulcast wagering under the Interstate Horse Racing Act of 1978, Public Law
95-515, and all simulcast wagering shall conform to the Interstate Horse Racing
Act of 1978, Public Law 95-515. This paragraph does not apply to simulcast of
racing at the Racetrack which is covered in the Live Racing Agreement between
the parties.
9. Representations and Warranties.
(a) VHHA. In addition to the representations and
warranties contained elsewhere in this Agreement, VHHA warrants, represents to,
and covenants with Colonial Downs that:
(i) This Agreement has been approved by the
Board of the VHHA in the Commonwealth of Virginia as
authorized by the Bylaws of the VHHA.
(ii) This Agreement is valid and enforceable
according to its terms.
(iii) During the term of this Agreement, the
VHHA warrants and agrees that its officers and
directors will take all reasonable action within
their powers to ensure that all VHHA Members in the
Commonwealth of Virginia, their employees and other
related personnel comply with the terms of this
Agreement and to prevent, temporary or permanent
cessation or suspension of live racing at the
Racetrack and wagering on any simulcast race at any
SWF in Virginia owned and operated by Colonial Downs.
The parties acknowledge and agree that the foregoing
shall not apply to any termination of this Agreement
arising from the VHHA's refusal to enter into the
Live Racing Agreement as provided in Section 2
hereof, after good faith efforts by each party to
reach such agreement.
(iv) During the term of this Agreement, the
VHHA and Colonial Downs shall seek a share of the SWF
Standardbred Handle only through good faith
negotiation between the parties and shall not
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engage in or support, directly or indirectly, any
action to influence the Virginia Racing Commission or
the Governor of Virginia or the Virginia Legislature
to establish by rule, regulation, commission order,
executive order, statute, amendment of statute, or
otherwise, a contribution to the VHHA of a percentage
of the SWF Standardbred Handle.
(v) This Agreement will be made available for review
by VHHA Members, and all other licensed owners,
trainers, employees, and personnel, at the VHHA
office.
(b) Colonial Downs. Colonial Downs warrants, represents to and
covenants with the VHHA that:
(i) This Agreement has been approved by the General
Partners of Colonial Downs.
(ii) This Agreement is valid and enforceable
according to its terms.
(iii) During the term of this Agreement, Colonial
Downs warrants and agrees that its partners and officers will
take all reasonable action within their powers to ensure that
Colonial Downs and its partners, officers, employees and other
related personnel comply with the terms of this Agreement and
to prevent, temporary or permanent cessation or suspension of
live racing at the Racetrack and wagering on any simulcast
race at any SWF in Virginia owned and operated by Colonial
Downs.
10. Governmental Approval. Nothing contained in this Agreement
shall be construed as requiring either party to perform any term or terms when
such performance is contrary to law or requires prior governmental approval;
provided, however, both parties shall use their best efforts to obtain
governmental approval if such is required.
11. Right to Terminate. Either party may terminate this
Agreement upon the other party's failure to substantially perform as required
under this Agreement and such failure continues for thirty (30) days following
the date when a notice of default detailing the perceived failure to perform is
received by a party pursuant to paragraph 15. Such termination shall not
constitute an election of remedy nor shall it constitute a waiver of a party's
other remedies in law or equity.
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12. Indemnification. Each party agrees that it shall indemnify
and save harmless the other party, its respective Board of Directors or General
Partners, and its respective agents, representatives, employees, officers and
directors, their successors and assigns, and all persons acting by, through,
under or in concert with any of them, from and against any and all demands,
liabilities, losses, costs, damages or expenses of whatever nature or kind,
including fees of attorneys and all other expenses, arising out of or in any way
related to or occasioned by any theft, embezzlement, loss or misuse of funds
deposited by Colonial Downs in the Standardbred Partner Account or paid by
Colonial Downs to the Standardbred Horsemen's Purse Account or to the VHHA,
arising from the willful or negligent act or omission of such party, or its
employees or authorized agents.
13. Further Assurances. The VHHA and Colonial Downs shall
execute such assignments, instruments, and documents and shall give such further
assurances, as may be necessary to accomplish the purpose and intent of this
Agreement.
14. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
15. Notices. All notices, requests, demands or other
communications as may be required by this Agreement shall be in writing and, if
mailed, shall be by certified mail, return receipt requested, and shall be
deemed to have been given when received by personal delivery or otherwise. For
all purposes of this Agreement, the following are the addresses of the parties:
Colonial Downs: Jeffrey P. Jacobs, President
CD Entertainment, Ltd.
General Partner, Colonial Downs, L.P.
425 Lakeside Avenue
Cleveland, Ohio 44113
Arnold W. Stansley, President
Stansley Management Corp.,
General Partner, Colonial Downs, L.P,
P.O. Box 456
3610 N. Courthouse Road
Providence Forge, Virginia 23124
Copy to: James L. Weinberg, Esq.
Hirschler, Fleischer, Weinberg, Cox & Allen
The Federal Reserve Bank Building
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701 East Byrd Street
P. O. Box 500
Richmond, Virginia 23219
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VHHA: R. C. Dunnavant, Jr., D.V.M., President
Virginia Harness Horse Association
Route 40, Box 418
Kenbridge, Virginia 23944
Copy to: Gregg A. Scoggins, Esq.
McGuire, Woods, Battle & Boothe, L.L.P.
One James Center
901 East Cary Street
Richmond, Virginia 23219-4030
16. Waivers. No waiver of any breach of this Agreement or any
terms hereof shall be effective unless such waiver is claimed. No waiver of any
breach shall be deemed to be a waiver of any other or any subsequent breach.
17. Applicable Law. This Agreement is being executed and
delivered in the Commonwealth of Virginia and shall be construed and enforced
without regard to its conflict of laws provisions.
18. Severability. If any provision of this Agreement is
declared invalid by any tribunal, or becomes invalid or inoperative by operation
of law, the remaining provisions of this Agreement shall not be effected thereby
and shall remain in full force and effect.
19. Entire Agreement, Modification. This is the entire
agreement between the parties and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof. No modification, variation or amendment of this Agreement
or of any exhibit attached hereto shall be effective unless such modification,
variation or amendment is in writing and has been signed by the parties hereto.
20. Effective Date, Contingencies. This Agreement shall become
effective upon the last to occur of the following events:
(a) Approval of this Agreement by the Board of
Directors of the VHHA;
(b) Written certification by Colonial Downs to the
VHHA that Colonial Downs has secured satisfactory financing to enable it to
complete construction of the Racetrack and up to Four (4) additional SWFs and
that Jeffrey P. Jacobs will remain involved as a principal of Colonial Downs.
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If the last of said events has not occurred by December 15, 1996, each party
shall thereafter have the termination rights provided in paragraph 11.
21. Contribution to Shenandoah Valley County Fair. Colonial
Downs agrees to make the following contribution in each of the years 1997 and
1998:
To the VHHA, to be used to support purses at harness races
held at the Shenandoah Valley County Fair in Woodstock,
Virginia, Ten Thousand Dollars ($10,000).
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
23rd day of October, 1996.
VIRGINIA HARNESS HORSE COLONIAL DOWNS, L. P.
ASSOCIATION
By: /s/ R. C. Dunnavant, Jr. By: /s/ Arnold W. Stansley
------------------------- -----------------------
Arnold W. Stansley, President
Title: Stansley Management Corp., a
------------------------ General Partner, and
By: /s/ Jeffrey P. Jacobs
-----------------------
Jeffrey P. Jacobs, President
CD Entertainment, Ltd., a
General Partner
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SCHEDULE A
I. DEFINITIONS
Applicable Owners Budgeted After-Tax Net Income:
Sec. 4(b)(ii)--$1,000,000
Sec. 4(c)(ii)--$3,000,000
Owners Actual After-Tax Net Income:
The amount calculated under Section II(A) below.
Variable Income Threshold:
The amount reflected on Exhibit 1 attached hereto. To the extent that
actual average handle differs from the projected handle levels in
Exhibit 1, Colonial Downs shall use the same methodology reflected in
Exhibit 1 to calculate the Variable Income Threshold based on actual
handle. If fees payable to the Virginia-Maryland Racing Circuit, Inc.
pursuant to the Management and Consulting Agreement, dated as of April
22, 1996 (the "Management and Consulting Agreement"), among Colonial
Downs, Stansley Management Corp., Stansley Racing Corp. and
Maryland-Virginia Racing Circuit, Inc. are reduced, the Variable Income
Threshold shall be adjusted in a manner consistent with adjustments
made under Colonial Downs' arrangements with the Virginia Horsemen's
Benevolent and Protective Association, Inc.
II. CALCULATIONS
A. Owners Actual After-Tax Net Income
1. The amount that Colonial Downs would report, under
generally accepted accounting principles, had the
entire sum of the SWF Handle for Standardbred races
times 5% plus the Legislated Percentage plus a
comparable calculation for Thoroughbred races been
treated as an expense in determining net income. This
amount is subject to possible adjustments discussed
in Section III, below.
2. The tax rate to be utilized in calculating both the
Applicable Owners Budgeted After-Tax Net Income and
the Owners Actual After-Tax Net Income assumes that
Colonial Downs is taxed as a corporation.
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If Colonial Downs is not subject to taxation as a
corporation, a tax effect will be calculated as if it
were a corporation. The tax rate utilized will
include all taxes based on income, including federal,
state and local taxes.
B. Sharing
1. It is agreed that the amount necessary, if any, to
increase the Owners Actual After-Tax Net Income up to
the Applicable Owners Budgeted After-Tax Net Income
will be shared by the Standardbred and the
Thoroughbred funds.
2. The sharing relationship will be a percentage
calculated as follows:
a. Standardbred Share
(i) The sum of all handles wagered on all
Standardbred races at all SWFs divided
by the sum of all handles wagered on
all Standardbred and Thoroughbred races
at all SWFs.
b. Thoroughbred Share
(i) The sum of all handles wagered on all
Thoroughbred races at all SWFs divided
by the sum of all handles wagered on
all Thoroughbred and Standardbred races
at all SWFs.
c. It is agreed that the sum of the percentages
in Section II(B)(2)(a)(i) and Section
II(B)(2)(b)(i) equals 100%.
3. A separate accounting will be maintained by breed, of
all revenues and expenses pertaining to the live meet
for that breed. For any revenues and expenses not
clearly allocable to either breed, a reasonable
allocation will be made. The resulting income or
loss, by breed, will be directly allocated to that
breed in determining funding responsibility under
Section II(B)(4) following.
4. Once each group has contributed its share towards the
Applicable Owners Budgeted After-Tax Net Income, any
remaining amount will be shared equally with Colonial
Downs as per Sec. 4(b)(ii) and 4(c)(ii).
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III. AGREED-UPON OPERATING PARAMETERS
A. As an incentive to maximize financial results for the
Standardbred and the Thoroughbred constituencies,
Colonial Downs agrees to certain limitations on
expenses in the calculation of the Owners Actual
After-Tax Net Income.
B. Some costs and expenses are not controllable and will
not be subject to these limitations. These include:
1. Legislated Amounts
a. State and local taxes based on the handle
b. Sales taxes
c. Admissions taxes
d. Real and personal property taxes
e. Breeders Fund contributions
2. Contractual Amounts--Contracts in effect at the date
of the signing of this Agreement, including the
Concession Agreement, will remain not subject to
these limitations, unless they are significantly
modified. These also include:
a. Host fees
b. SWF real estate rent
c. Interest on debt
Fees attributable to the Management and Consulting
Agreement shall not be included as an expense in the
calculation of the Owners Actual After-Tax Net
Income.
3. New contracts, or existing contracts that are
significantly modified, will be subject to
consultation and advice from the VHHA. Any related
party contracts require the matching of the best
terms of three independent quotes.
4. Other -- To be reported in accordance with generally
accepted accounting principles, utilizing the straight
line method:
a. Depreciation
b. Amortization
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C. Controllable costs and expenses will be subject to maximum
limitations. Each SWF will be subject to the following
percentage limitations on subject costs and expenses based on
its annualized total revenues as follows:
Maximum
Annualized Allowable
Total Revenue Percentage
------------- ----------
From: To:
----- ---
$ 3,465,000 $ 4,621,000 41.98%
4,621,000 5,776,000 35.64%
5,776,000 6,931,000 31.84%
6,931,000 8,086,000 29.30%
8,086,000 9,318,000 27.49%
9,318,000 10,483,000 26.22%
10,483,000 11,648,000 26.21%
11,648,000 12,813,000 24.38%
Over 12,813,000 23.69%
In determining the maximum allowable percentage applicable to each SWF for the
initial year, total revenue will be divided by the actual number of days that
the SWF was open prior to December 31, 1997 and multiplied by 365 to determine
the appropriate Annualized Total Revenue.
In determining the maximum allowable percentage applicable to each SWF for the
second year, total revenue will be divided by the actual number of days that the
SWF was open during 1998 and multiplied by 365 to determine the appropriate
Annualized Total Revenue.
The applicable maximum allowable percentage will be multiplied by each SWF's
actual total revenue to determine the maximum allowable costs and expenses for
that facility for each year. That result will be compared to the actual sum of
all includible expenses to determine the variances, both positive and negative.
The variances for all of the SWFs will be accumulated to determine the net
variance, either positive or negative.
D. Race Track Operations
As no operating history exists to determine an appropriate
Maximum Allowable Percentage for the race track operation, it
is agreed that no adjustment, either positive or negative,
will be made for the initial year. The
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actual operating results for the first year will determine the
appropriate percentage to be utilized for the second year,
subject to possible agreed-upon adjustments due to changes in
circumstances, such as the number of days of live racing.
E. Corporate Overhead
As the initial period will contain 22.5 months of operations
and will involve a phase-in of certain expenses, the parties
agree to review, discuss and reach an agreement as to the
appropriate amount.
It is agreed that the corporate overhead amount for purposes
of calculating a limitation is the greater of 2.5% of the
total revenue or $1,356,182 for the second year.
F. Calculation of Total Variance
For each of the two years, the variances, both positive and
negative, from the individual calculations in C, D and E
above, will be combined. If the net variance reflects a
savings when compared to allowable costs and expenses, no
adjustment is required. Both the Standardbred Partner Account
and Colonial Downs will have already benefited by the cost
savings under the 50/50 sharing relationship described in
II(B)(4), above. If the net variances reflect excess costs and
expenses, that variance will be multiplied by 50% for the
first period calculation. Subsequent to the completion of the
first period, the parties will agree on a formula for
adjustment based on the first period results that will be
utilized in year 2. This amount will then be applied as a
reduction of expenses in determining the Owners Actual After
Net Income, in Section II(A)(1) above.
G. Review of Calculations
Colonial Downs will perform the above-outlined calculations
and prepare a report that will be submitted to VHHA for their
review, questions and comments. If VHHA elects to engage
advisors as part of this process, they may do so at their own
cost. Colonial Downs will be cooperative in providing
information and responding to questions or comments. If
Colonial Downs and the VHHA are unable to reach agreement as
to the calculations, the parties will select an independent
firm to arbitrate the issues. The cost of the arbitrator will
be shared equally by both organizations.
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SCHEDULE 1
Variable Income Threshold Calculation
[Attach Bob Hughes Chart]
AGREEMENT
THIS AGREEMENT is entered into by and between COLONIAL DOWNS, L.P., a
Virginia limited partnership ("Colonial Downs"), and VIRGINIA HORSEMEN'S
BENEVOLENT AND PROTECTIVE ASSOCIATION, INC. ("VaHBPA"), a Virginia
not-for-profit corporation.
WHEREAS, Colonial Downs and its affiliate, Stansley Racing Corp.
("SRC"), have been granted licenses by the Virginia Racing Commission (the
"VRC") to own and operate (i) a pari-mutuel horse racing facility in New Kent
County, Virginia (the "Racetrack"); and (ii) Satellite Wagering Facilities
("SWFs") in the cities of Chesapeake and Richmond, Virginia;
WHEREAS, Colonial Downs and SRC intend to apply for licenses to own and
operate four (4) additional SWFs in Virginia, or such greater number as may be
authorized by law;
WHEREAS, the VaHBPA is a trade association composed of owners and
trainers (hereinafter the "VaHBPA Members") of thoroughbred race horses;
WHEREAS, the VaHBPA has developed and will maintain programs and other
services for its members, employees and others who will engage in racing at
Colonial Downs Racetrack;
WHEREAS, The parties hereto desire to bring about a closer and more
understanding relationship among horsemen, the VaHBPA Members, the VaHBPA,
Colonial Downs and the public; and
WHEREAS, Colonial Downs and VaHBPA have agreed on the allocation
between Colonial Downs and VaHBPA of certain revenues received by Colonial Downs
on pari-mutuel wagering on simulcast thoroughbred horse races at the SWFs and
now desire to set forth their agreement herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties agree as follows:
1. Exclusive Representative. During the term of this Agreement, the
VaHBPA shall be the exclusive representative of the members of its organization
with respect to all matters set forth in this Agreement.
2. Term of Agreement. Unless modified or terminated as provided herein,
this Agreement shall remain in effect until December 31, 1998, and shall be
automatically renewed for successive one (1 ) year renewal terms; provided,
however, that this Agreement shall terminate automatically on the day prior to
the scheduled opening day of the first 1997 live thoroughbred race meet in the
event the parties shall have not entered into a contract for live racing for the
first live race meet.
<PAGE>
3. Scope of Agreement. This Agreement shall be applicable to revenue
generated from pari-mutel wagering on simulcast thoroughbred races (other than
simulcast broadcasts of races held at the Racetrack) at all SWFs owned and
operated by Colonial Downs in Virginia during the term of this Agreement. The
parties acknowledge and agree that one of the fundamental purposes of this
Agreement, and of the opening and operation of SWFs by Colonial Downs shall be
to establish and fund the Thoroughbred Partner Account.
4. SWF Revenue Division.
(a) A portion of the revenue generated from pari-mutel
wagering on simulcast thoroughbred races (other than simulcast broadcasts of
races held at the Racetrack) at the SWFs (the "SWF Thoroughbred Handle") shall
be devoted to funding of the Thoroughbred Partner Account (as defined herein)
and shall be paid as provided in subparagraphs 4(b) and 4(c).
(b) The Initial Period: February 17, 1996--December 31, 1997.
With respect to the period from February 17, 1996, to December 31, 1997, ("the
Initial Period"), Colonial Downs shall pay into the Thoroughbred Partner Account
Five and One Quarter Percent (5.25%) of the SWF Thoroughbred Handle and the
Thoroughbred Legislated Percentage (as defined herein), subject to the following
adjustments:
(i) If the sum (the "Sum") of (A) Five and
One-Quarter Percent (5.25%) of the SWF Thoroughbred Handle,
plus (B) the total amount of the net percentage of the pools
generated by live thoroughbred horse racing at the Racetrack
(including simulcasts thereof at Colonial Downs SWFs) which is
required to be paid to the participants in the race meetings
at the Racetrack (the "Thoroughbred Legislated Percentage")
for the Initial Period is less than Four Million Five Hundred
Thousand Dollars ($4,500,000), Colonial Downs shall pay into
the Thoroughbred Partner Account the difference between Four
Million Five Hundred Thousand Dollars ($4,500,000) and the
Sum; provided, one-half (1/2) of such difference shall be
regarded as a loan by Colonial Downs to the Thoroughbred
Partner Account, bearing interest at the rate of Six Percent
(6%) from December 31, 1997, until paid, and payable in
Forty-Eight (48) equal monthly installments of interest and
principal, commencing June 15,2001; and, one-half (1/2) shall
be a grant from Colonial Downs to the Thoroughbred Partner
Account.
(ii) If the Sum of (A) Five and One-Quarter Percent
(5.25%) of the SWF Thoroughbred Handle plus (B) the total
amount of the Thoroughbred Legislated Percentage for the
Initial Period is greater than Four Million Five Hundred
Thousand Dollars ($4,500,000) there shall be paid to Colonial
Downs from the Thoroughbred Partner Account from the amount of
said Sum exceeding Four Million Five Hundred Thousand Dollars
($4,500,000) an amount up to the VaHBPA share (as calculated
in accordance with Schedule A) of the Difference between the
Applicable Owners Budgeted After-Tax Net Income and the Owners
Actual After-Tax Net Income (all as defined and calculated in
accordance with
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Schedule A hereto) or the excess is exhausted and any amount
of said excess remaining after the said payment to Colonial
Downs, together with the amount of said Difference if
positive, shall be paid one-half (1/2) to the Thoroughbred
Partner Account and one-half (1/2) to Colonial Downs.
(c) Second Year: January 1, 1998--December 31, 1998. With
respect to the period from January 1, 1998, to December 31, 1998 (the "Second
Year"), Colonial Downs shall pay to the Thoroughbred Partner Account Five and
One-Quarter Percent (5.25%) of the SWF Thoroughbred Handle and the Thoroughbred
Legislated Percentage, subject to the following adjustments:
(i) If the Sum of (A) Five and One-Quarter Percent
(5.25%) of the SWF Thoroughbred Handle plus (B) the total
amount of the Thoroughbred Legislated Percentage for the
Second Year is less than Four Million Five Hundred Thousand
Dollars ($4,500,000), Colonial Downs shall pay into the
Thoroughbred Partner Account the difference between Four
Million Five Hundred Thousand Dollars ($4,500,000) and the
Sum; provided, one-half (1/2) of such difference shall be
regarded as a loan by Colonial Downs to the Thoroughbred
Partner Account, bearing interest at the rate of Six Percent
(6%) from December 31,1998, until paid, and payable in
Forty-Eight (48) equal monthly installments of interest and
principal, commencing June 15, 2002; and, one-half (1/2) shall
be a grant from Colonial Downs to the Thoroughbred Partner
Account.
(ii) If the Sum of (A) Five and One-Quarter Percent
(5.25%) of the SWF Thoroughbred Handle plus (B) the total
amount of the Thoroughbred Legislated Percentage for the
Second Year is greater than Four Million Five Hundred Thousand
Dollars ($4,500,000), the amount of said Sum exceeding Four
Million Five Hundred Thousand Dollars ($4,500,000) shall be
shared in a ratio of Ten Percent (10%) to the Thoroughbred
Partner Account and Ninety Percent (90%) to Colonial Downs
until Colonial Downs receives an amount from the Thoroughbred
Partner Account up to the VaHBPA share (as calculated in
accordance with Schedule A) of the Difference between the
Applicable Owners Budgeted After-Tax Net Income and the Owners
Actual After-Tax Net Income (all as defined and calculated in
accordance with Schedule A hereto) or the excess is exhausted
and any amount of such excess remaining after Colonial Downs
has received such amount, together with the amount of said
Difference if positive, shall be paid One-Half (1/2) to the
Thoroughbred Partner Account and One-Half (1/2) to Colonial
Downs.
5. Live Race Meets. It is the stated intent of the parties to conduct
annual live race meets at the Racetrack commencing in 1997. For the years 1997
and 1998, the parties intend to conduct live race meets of not less than Thirty
(30) days of live racing in each year; however, the parties will continue to
work together to expand the days of live racing in said years to Forty (40) days
to include a mid-price purse meet, to the extent practicable. The parties intend
to increase the number of live race days each year so long as the integrity of
the purses can be maintained.
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The actual length of any live thoroughbred race meet shall be determined by the
VRC; however, the parties agree to request the VRC to permit such number of days
of live racing as the parties shall agree upon, but in any event not less than
Thirty (30) days of live thoroughbred racing at the Racetrack for 1997 and 1998,
and to permit, for each year thereafter, such number of days of live racing as
the parties shall agree upon; provided, if the parties are unable to agree,
Colonial Downs shall submit to the VRC its requested number of days of live
racing and shall also simultaneously convey to the VRC the request for days of
live racing of the VaHBPA.
6. Thoroughbred Partner Account.
(a) Structure of Account. Colonial Downs will maintain a
separate bank account denominated the "Thoroughbred Partner Account" and all
sums and amounts payable to the VaHBPA under this Agreement, and interest,
earnings or credits generated thereon shall be deposited into that Account
within Forty-Eight (48) hours (Saturdays, Sundays and national holidays
excluded) after receipt by Colonial Downs. The Thoroughbred Partner Account as
provided herein and the investment or deposit schedules for said account
maintained by Colonial Downs during the term of this Agreement shall be subject
to examination at any reasonable time upon at least one (1) days' notice by the
President of the VaHBPA or the President's nominee. All withdrawals, debits or
pledges of the sums deposited in or credited to the Thoroughbred Partner Account
and all other transactions with respect to said Account shall require two (2)
signatures--one on behalf of the VaHBPA by one of such persons as the VaHBPA
shall authorize in writing and one on behalf of Colonial Downs by one of such
persons as Colonial Downs shall authorize in writing.
(b) Deposits into the Thoroughbred Partner Account. On the
date this Agreement is signed by the parties, Colonial Downs shall deposit in
the Thoroughbred Partner Account its Promissory Note with a face amount equal to
Five and One-Quarter Percent (5.25%) of the SWF Thoroughbred Handle from
February 17, 1996, to the date of said signature, bearing interest at the rate
of Six Percent (6%) per annum with interest calculated through the date of said
signature as though said percentage of the daily SWF Thoroughbred Handle from
February 17 until said date of signature had been deposited forty-eight (48)
hours (Saturdays, Sundays and national holidays excepted) after its receipt by
Colonial Downs and calculated on the face amount from the date of said signature
until the Note Payment Date. In addition, Colonial Downs shall deposit in the
Thoroughbred Partner Account said percentage of the daily SWF Thoroughbred
Handle from the date of said signature until the Note Payment Date by depositing
its Revolving Promissory Note with a balance due from time to time in an amount
equal to the then total amount of said percentage from the date of signature,
together with interest thereon secured by a letter of credit issued by a
commercial bank in an amount not less than the total amount of said interest and
principal calculated to be outstanding thirty (30) days from the date of
issuance of the letter of credit, bearing interest at the rate of Six Per Cent
(6%) calculated as though the required percentage of the daily SWF Thoroughbred
Handle had been deposited forty-eight (48) hours (Saturdays, Sundays and
national holidays excepted) after its receipt by Colonial Downs. The Note
Payment Date for both of said Promissory Notes shall be December 15, 1996, or at
such earlier time as Colonial Downs shall certify to the VaHBPA in
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writing that satisfactory financing to enable it to complete construction of the
Racetrack and up to four (4) additional SWFs has been closed.
(c) Guaranteed Payments to the Horsemen's Purse Account. Upon
commencement of live racing at the Racetrack, there shall be transferred from
the Thoroughbred Partner Account to the account from which purses shall be
directly paid (the "Thoroughbred Horsemen's Purse Account"), at the conclusion
of each day of live racing at the Racetrack, an amount equal to the required
thoroughbred purse for that day of racing.
(d) Balance of the Thoroughbred Partner Account. Any amounts
remaining in the Thoroughbred Partner Account after satisfying the payment
requirements of paragraph 6(c) shall be retained in the Thoroughbred Partner
Account to the credit of the VaHBPA, to be applied toward the Purse for the next
race meet, payment to the VaHBPA for services rendered to horsemen, (in the
amount of One and One-Half Percent (1.5%) of the net amount, after all
adjustments, paid to the Thoroughbred Partner Account with respect to the
Initial Period and all annual periods thereafter), payment of any loans made by
Colonial Downs pursuant to paragraph 4 or as otherwise required by paragraph 4
of this Agreement.
(e) Interest and Earnings. All interest or earnings whatsoever
on the amounts paid to the Thoroughbred Partner Account shall accrue solely to
the benefit of the Thoroughbred Partner Account. All funds deposited to the
Thoroughbred Partner Account shall be invested in an interest bearing account
which provides market rates of return, or government or bank securities, and
Colonial Downs shall provide all reasonable assurances of the security of the
investments made.
(f) Accountings. Colonial Downs shall provide to the VaHBPA
(i) within Forty-Eight (48) hours of the close of each business day (Saturdays,
Sundays and national holidays excluded) of operation, daily statistics
respecting wagering on thoroughbred racing, and the amounts deposited in or
credited to the Thoroughbred Partner Account, at each SWF then in operation (the
"SWF Operations"); (ii) within Forty-Five (45) days of the end of each calendar
quarter, a report of the SWF Operations for the previous calendar quarter,
certified by the chief financial officer or other appropriate official of
Colonial Downs; and (iii) within Ninety (90) days of the end of each calendar
year, an audited report of the SWF Operations, certified by the independent
certified public accountant for Colonial Downs. Any other reports or information
provided the VaHBPA by Colonial Downs from time to time respecting the SWF
Operations shall, if requested by the VaHBPA, be certified by the chief
financial officer or other appropriate official of Colonial Downs.
7. Setting of Thoroughbred Partner Account Contribution in Renewal
Years. On or before March 15 of each renewal year, Colonial Downs will provide
to the VaHBPA its budgeted income statement for the current calendar year. Such
budget will include the anticipated SWF thoroughbred percentage to be applied by
Colonial Downs to the SWF Thoroughbred Handle necessary to achieve the budgeted
net after-tax income for Colonial Downs for such year, as well as any proposed
adjustments in Schedule A, taking into account all relevant factors including
the estimated total amount of the Thoroughbred Legislated Percentage for the
5
<PAGE>
next race meet. Colonial Downs shall propose any change in the percentage of the
SWF Thoroughbred Handle and/or guaranteed contribution which it believes is
appropriate. The VaHBPA will review Colonial Downs' proposal to determine if
funds sufficient to guarantee a quality live race meet at the Racetrack will be
available. If the amount proposed by Colonial Downs for its contribution to the
Thoroughbred Partner Account is deemed inadequate by the VaHBPA, the VaHBPA may
propose such adjustments as it deems appropriate. In such event, Colonial Downs
and the VaHBPA shall negotiate in good faith any adjustment to the Thoroughbred
Partner Account contribution, observing the following principles:
(a) The financial arrangements between the parties for any
prior period are not precedential and the current financial results of Colonial
Downs shall be the basis for the financial arrangements between the parties on a
year-to-year basis.
(b) The VaHBPA must be assured of the ability to offer
competitive purses for racing at the Racetrack which will attract quality
thoroughbred racing and permit race meets of at least Thirty (30) days of
racing.
(c) Colonial Downs must realize a net after-tax return
consistent with Schedule A hereto.
If the parties are unable to reach agreement with respect to the contribution to
the Thoroughbred Partner Account within Sixty (60) days after the VaHBPA's
receipt of Colonial Downs' proposal, then the existing provisions of this
Agreement shall continue in effect, but either party may thereafter terminate
this Agreement by Thirty (30) days' written notice to the other party.
8. Out-Of-State Simulcasting. During the term of this Agreement, the
VaHBPA for and on behalf of its members, and as authorized representative of its
members for interstate simulcasting purposes, consents and authorizes Colonial
Downs to negotiate and contract with simulcast and receiving facilities,
including off-track wagering facilities, located outside Virginia, for the
conduct of off-track wagering at the Racetrack and the SWFs. The foregoing
consent and authorization shall constitute all consents required from the VaHBPA
for simulcast wagering under the Interstate Horse Racing Act of 1978, Public Law
95-515, and all simulcast wagering shall conform to the Interstate Horse Racing
Act of 1978, Public Law 95-515. This paragraph does not apply to simulcast of
racing at the Racetrack which is covered in the Live Racing Agreement between
the parties.
9. Representations and Warranties.
(a) VaHBPA. In addition to the representations and warranties
contained elsewhere in this Agreement, VaHBPA warrants, represents to, and
covenants with Colonial Downs that:
(i) This Agreement has been approved by the Board of
the VaHBPA in the Commonwealth of Virginia as authorized by
the bylaws of the VaHBPA.
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(ii) This Agreement is valid and enforceable
according to its terms
(iii) During the term of this Agreement, the VaHBPA
warrants and agrees that its officials will take all
reasonable action within their powers to ensure that all
VaHBPA Members in the Commonwealth of Virginia, their
employees and other related personnel comply with the terms of
this Agreement and to prevent, temporary or permanent
cessation or suspension of live racing at the Racetrack and
wagering on any simulcast race at any SWF in Virginia owned
and operated by Colonial Downs.
(iv) During the term of this Agreement, the VaHBPA
and Colonial Downs, L.P., shall seek a share of the SWF
Thoroughbred Handle only through good faith negotiation
between the parties and shall not engage in or support,
directly or indirectly, any action to influence the Virginia
Racing Commission or the Governor of Virginia or the Virginia
Legislature to establish by rule, regulation, commission
order, executive order, statute, amendment of statute, or
otherwise, a contribution to the VaHBPA of a percentage of the
SWF Thoroughbred Handle.
(v) This Agreement will be made available for review
by VaHBPA Members, and all other licensed owners, trainers,
employees, and personnel, at the VaHBPA office.
(b) Colonial Downs. Colonial Downs warrants, represents to and
covenants with the VaHBPA that:
(i) This Agreement has been approved by the General
Partners of Colonial Downs.
(ii) This Agreement is valid and enforceable
according to its terms.
(iii) During the term of this Agreement, Colonial
Downs warrants and agrees that its partners and officers will
take all reasonable action within their powers to ensure that
Colonial Downs and its partners, officers, employees and other
related personnel comply with the terms of this Agreement and
to prevent, temporary or permanent cessation or suspension of
live racing at the Racetrack and wagering on any simulcast
race at any SWF in Virginia owned and operated by Colonial
Downs.
10. Governmental Approval. Nothing contained in this Agreement shall be
construed as requiring either party to perform any term or terms when such
performance is contrary to law or requires prior governmental approval;
provided, however, both parties shall use their best efforts to obtain
governmental approval if such is required.
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11. Right to Terminate. Either party may terminate this Agreement upon
the other party's failure to substantially perform as required under this
Agreement and such failure continues for thirty (30) days following the date
when a notice of default detailing the perceived failure to perform is received
by a party pursuant to paragraph 15. Such termination shall not constitute an
election of remedy nor shall it constitute a waiver of a party's other remedies
in law or equity.
12. Indemnification. Each party agrees that it shall indemnify and save
harmless the other party, its respective Board of Directors or General Partners,
and its respective agents, representatives, employees, officers and directors,
their successors and assigns, and all persons acting by, through, under or in
concert with any of them, from and against any and all demands, liabilities,
losses, costs, damages or expenses of whatever nature or kind, including fees of
attorneys and all other expenses, arising out of or in any way related to or
occasioned by any theft, embezzlement, loss or misuse of funds deposited by
Colonial Downs in the Thoroughbred Partner Account or paid by Colonial Downs to
the Thoroughbred Horsemen's Purse Account or to the VaHBPA, arising from the
willful or negligent act or omission of such party, or its employees or
authorized agents.
13. Further Assurances. The VaHBPA and Colonial Downs shall execute
such assignments, instruments, and documents and shall give such further
assurances, as may be necessary to accomplish the purpose and intent of this
Agreement.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
15. Notices. All notices, requests, demands or other communications as
may be required by this Agreement shall be in writing and, if mailed, shall be
by certified mail, return receipt requested, and shall be deemed to have been
given when received by personal delivery or otherwise. For all purposes of this
Agreement, the following are the addresses of the parties:
Colonial Downs: Jeffrey P. Jacobs, President
CD Entertainment, Ltd.
General Partner, Colonial Downs, L.P.
425 Lakeside Avenue
Cleveland, Ohio 44113
Arnold W. Stansley, President
Stansley Management Corp.,
General Partner, Colonial Downs, L.P,
P.O. Box 456
3610 N. Courthouse Road
Providence Forge, Virginia 23124
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Copy to: James L. Weinberg, Esq.
Hirschler, Fleischer, Weinberg, Cox & Allen
The Federal Reserve Bank Building
701 East Byrd Street, 15th floor
P.O. Box 500
Richmond, Virginia 23219
VaHBPA: C. B. Payne, President
VaHBPA
38 Garrett Street
Warrenton, Virginia 22186
Copy to: David M. Cook, Esq.
Manley, Burke, Lipton & Cook
225 West Court Street
Cincinnati, Ohio 45202
16. Waivers. No waiver of any breach of this Agreement or any terms
hereof shall be effective unless such waiver is claimed. No waiver of any breach
shall be deemed to be a waiver of any other or any subsequent breach.
17. Applicable Law. This Agreement is being executed and delivered in
the Commonwealth of Virginia and shall be construed and enforced in accordance
with its laws other than conflict of laws provisions thereunder.
18. Severability. If any provision of this Agreement is declared
invalid by any tribunal, or becomes invalid or inoperative by operation of law,
the remaining provisions of this Agreement shall not be effected thereby and
shall remain in full force and effect.
19. Entire Agreement, Modification. This is the entire agreement
between the parties and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
No modification, variation or amendment of this Agreement or of any exhibit
attached hereto shall be effective unless such modification, variation or
amendment is in writing and has been signed by the parties hereto.
20. Effective Date, Contingencies. This Agreement shall become
effective upon the last to occur of the following events:
(a) Approval of this Agreement by the Board of Directors of
the VaHBPA;
(b) Written certification by Colonial Downs to the VaHBPA that
Colonial Downs has secured satisfactory financing to enable it to complete
construction of the Racetrack and up to Four (4) additional SWFs and that
Jeffrey P. Jacobs will remain involved as a principal of Colonial Downs.
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If the last of said events has not occurred by December 15, 1996, each party
shall thereafter have the termination rights provided in paragraph 11.
21. Contingent Contributions. Colonial Downs agrees, in each case
contingent upon its contribution being matched by the MARYLAND JOCKEY CLUB in
full at the time when made, to make the following contributions in each of the
years 1997 and 1998:
(a) To the MARIAN duPONT SCOTT REGIONAL VETERINARY CENTER,
Twenty Thousand Dollars ($20,000) (total contribution with matching amount will
be Forty Thousand Dollars ($40,000) in each of said years).
(b) To the POINT-TO-POINT VIRGINIA CHAMPIONSHIP AWARD, Five
Thousand Dollars ($5,000) (total contribution with matching amount will be Ten
Thousand Dollars ($10.000) in each of said years).
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
____ day of ___________, 1996.
VIRGINIA HORSEMEN'S BENEVOLENT COLONIAL DOWNS, L.P.
PROTECTIVE ASSOCIATION. INC.
By: /s/ C. B. Payne By: /s/ Arnold W. Stansley
--------------------- ------------------------
Title: President Arnold W. Stansley, President
Stansley Management Corp., a
General Partner, and
AND: /s/ Jeffrey P. Jacobs
--------------------
Jeffrey P. Jacobs, President
CD Entertainment, Ltd., a
General Partner
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SCHEDULE A
I. DEFINITIONS
Applicable Owners Budgeted After-Tax Net Income
Sec. 4(b)(ii)--$1,000,000
Sec. 4(c)(ii)--$3,000,000
Owners Actual After-Tax Net Income
The amount calculated under Section II(A) below
II. CALCULATIONS
A. Owners Actual After-Tax Net Income
1. The amount that Colonial Downs would report, under
generally accepted accounting principles, had the
entire sum of the SWF Handle for Thoroughbred races
times 5.25%, plus the Legislated Percentage, plus a
comparable calculation for Standardbred races been
treated as an expense in determining net income. This
amount is subject to possible adjustments discussed
in Section III, below.
2. The tax rate to be utilized in calculating both the
Applicable Owners Budgeted After-Tax Net Income and
the Owners Actual After-Tax Net Income assumes that
Colonial Downs is taxed as a corporation. If Colonial
Downs is not subject to taxation as a corporation, a
tax effect will be calculated as if it were a
corporation. The tax rate utilized will include all
taxes based on income, including federal, state and
local taxes.
B. Sharing
1. It is agreed that the amount necessary, if any, to
increase the Owners Actual After-Tax Net Income up to
the Applicable Owners Budgeted After-Tax Net Income
will be shared by the Thoroughbred and the
Standardbred funds.
2. The sharing relationship will be a percentage
calculated as follows:
a. Thoroughbred Share
(i) The sum of all handles wagered on all
Thoroughbred races at all SWFs divided by the sum of
all handles wagered on all Thoroughbred and
Standardbred races at all SWFs.
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b . Standard bred Share
i. The sum of all handles wagered on all
Standardbred races at all SWFs divided by the sum of
all handles wagered on all Thoroughbred and
Standardbred races at all SWFs.
c. It is agreed that the sum of the percentages
in Section II(B)(2)(a)
(i) and Section II (B)(2)(b)(i) equals
100%.
3. A separate accounting will be maintained by breed, of
all revenues and expenses pertaining to the live
meet. For any revenues and expenses not clearly
allocable to either breed, a reasonable allocation
will be made. The resulting income or loss, by breed,
will be directly allocated to that breed in
determining funding responsibility under Section
II(B)(4) following.
4. Once each group has contributed its share towards the
Applicable Owners Budgeted After-Tax Net Income, any
remaining amount will be shared equally with Colonial
Downs as per Sec. 4(b)(ii) and 4(c)(ii).
III. AGREED-UPON OPERATING PARAMETERS
A. As an incentive to maximize financial results for the
Thoroughbred and the Standardbred constituencies, Colonial
Downs agrees to certain limitations on expenses in the
calculation of the Owners Actual After-Tax Net Income.
B. Some costs and expenses are not controllable and will not be
subject to these limitations. These include:
1. Legislated Amounts
a. State and local taxes based on the handle
b. Sales taxes
c. Admissions taxes
d. Real and personal property taxes
e. Breeders Fund contributions
2. Contractual Amounts--Contracts in effect at the date
of the signing of this Agreement, including the
Concession Agreement, will remain not subject to
these limitations, unless they are significantly
modified. These also include:
a. Maryland Jockey Club fees
b. Host fees
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c. SWF real estate rent
d. Interest on debt
3. New contracts, or existing contracts that are
significantly modified, will be subject to
consultation and advice from the VaHBPA. Any related
party contracts require the matching of the best
terms of three independent quotes.
4. Other -- To be reported in accordance with generally
accepted accounting principles, utilizing the
straight line method:
a. Depreciation
b. Amortization
C. Controllable costs and expenses will be subject to maximum
limitations. Each SWF will be subject to the following
percentage limitations on subject costs and expenses based on
its annualized total revenues as follows:
Maximum
Annualized Allowable
Total Revenue Percentage
------------- ----------
From: To:
----- ---
$ 3,465,000 $ 4,621,000 41.98%
4,621,000 5,776,000 35.64%
5,776,000 6,931,000 31.84%
6,931,000 8,086,000 29.30%
8,086,000 9,318,000 27.49%
9,318,000 10,483,000 26.22%
10,483,000 11,648,000 25.21%
11,648,000 12,813,000 24.38%
Over 12,813,000 23.69%
In determining the maximum allowable percentage applicable to each SWF for the
initial year, total revenue will be divided by the actual number of days that
the SWF was open prior to December 31, 1997 and multiplied by 365 to determine
the appropriate Annualized Total Revenue.
In determining the maximum allowable percentage applicable to each SWF for the
second year, total revenue will be divided by the actual number of days that the
SWF was open during 1998 and multiplied by 365 to determine the appropriate
Annualized Total Revenue.
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The applicable maximum allowable percentage will be multiplied by each SWF's
actual total revenue to determine the maximum allowable costs and expenses for
that facility for each year. That result will be compared to the actual sum of
all includable expenses to determine the variances, both positive and negative.
The variances for all of the SWFs will be accumulated to determine the net
variance, either positive or negative.
D. Race Track Operations
As no operating history exists to determine an appropriate Maximum
Allowable Percentage for the race track operation, it is agreed that no
adjustment, either positive or negative, will be made for the initial
year. The actual operating results for the first year will determine
the appropriate percentage to be utilized for the second year, subject
to possible agreed-upon adjustments due to changes in circumstances,
such as the number of days of live racing.
E. Corporate Overhead
As the initial period will contain 22.5 months of operations and will
involve a phase-in of certain expenses, the parties agree to review,
discuss and reach an agreement as to the appropriate amount.
It is agreed that the corporate overhead amount for purposes of
calculating a limitation is the greater of 2.5% of the total revenue or
$1,356,182 for the second year.
F. Calculation of Total Variance
For each of the two years, the variances, both positive and negative,
from the individual calculations in C, D and E above, will be combined.
If the net variance reflects a savings when compared to allowable costs
and expenses, no adjustment is required. Both the Thoroughbred Partner
Account and Colonial Downs will have already benefited by the cost
savings under the 5050 sharing relationship described in II(B)(4),
above. If the net variances reflect excess costs and expenses, that
variance will be multiplied by 50% for the first period calculation.
Subsequent to the completion of the first period, the parties will
agree on a formula for adjustment based on the first period results
that will be utilized in year 2. This amount will then be applied as a
reduction of expenses in determining the Owners Actual After Net
Income, in Section II(A)(1) above.
G. Review of Calculations
Colonial Downs will perform the above-outlined calculations and prepare
a report that will be submitted to VaHBPA for their review, questions
and comments. If VaHBPA elects to engage advisors as part of this
process, they do so at their own cost. Colonial Downs will be
cooperative in providing information and responding to questions or
comments. If Colonial Downs and the VaHBPA are unable to reach
agreement as to the calculations, the parties will select an
independent firm to arbitrate the issues. The cost of the arbitrator
will be shared equally by both organizations.
14
FORM OF CONVERTIBLE SUBORDINATED NOTE
$3,000,000 Providence Forge, Virginia
February __, 1997
FOR VALUE RECEIVED, the adequacy of which is hereby acknowledged,
Colonial Downs Holdings, Inc., a Virginia corporation with its principal office
located at 3610 N. Courthouse Road, Providence Forge, Virginia 23140 (the
"Maker"), hereby promises to pay to the order of CD Entertainment Ltd. (the
"Holder"), with its principal office located at 1231 Main Avenue, Cleveland,
Ohio 44113, the principal sum of Three Million Dollars ($3,000,000), or so much
thereof as shall have been advanced by the Holder at any time and not hereafter
repaid, together with interest thereon from the date hereof until payment in
full at the Charged Rate (as defined below).
1. Payment of Principal. All principal outstanding hereunder shall be due in one
payment, in full, on February 29, 2000. Principal of and interest on this Note
are payable in lawful money of the United States of America at the Holder's
address stated above, or at such other place as the Holder shall designate to
the Maker in writing.
2. Interest.
a. For purposes of this Note, the following terms shall have the
meanings given them in this Subsection a.:
i. "Adjusted Eurodollar Rate." For each calendar month until
this Note is paid in full, the rate (rounded upward, if
necessary, to the next one hundredth of one percent)
determined by dividing the Eurodollar Rate for such Interest
Period by 1.00 minus the Eurodollar Reserve Percentage:
ii. "Eurodollar Business Day." A day (other than a Saturday,
Sunday, or legal holiday) on which banks are open for business
in New York City and on which there is trading by and between
banks in United States dollar deposits in the interbank
Eurodollar market.
iii. "Eurodollar Rate." For each calendar month, the interest
rate per annum (rounded upward, if necessary, to the next
one-sixteenth of one percent) at which United States dollar
deposits are offered to First Bank National Association (the
"Bank") in the interbank Eurodollar market two (2) Eurodollar
Business Days prior to the first day of such calendar month
for delivery in immediately available funds on the first day
of such month and in an amount approximately equal to the
outstanding principal amount of the Note and for a thirty (30)
day maturity; provided, that in lieu of determining the rate
in the foregoing manner, the Holder may substitute the per
annum Eurodollar rate (LIBOR) for United States dollars
displayed on the Telerate Systems, Inc. screen, page 3750 (or
other applicable page) on the first day of such calendar
month.
iv. "Eurodollar Reserve Percentage." As of any day that
percentage (expressed as a decimal) which is in effect on such
day, as prescribed by the Federal Reserve Board for
determining the maximum reserve requirement (including any
basic, supplemental, or emergency reserves) for a member bank
of the Federal Reserve System, with deposits comparable in
amount to those held by the Bank, in respect of "Eurocurrency
Liabilities" as such term is defined in Regulation D of the
Federal Reserve Board. The rate of interest applicable to the
outstanding principal balance of the Note shall be adjusted
automatically on and as of the effective date of any change in
the Eurodollar Reserve Percentage.
<PAGE>
b. This Note shall bear interest on the unpaid principal amount as a
variable rate per annum equal to the sum of (1) the Adjusted Eurodollar Rate,
plus two (2) percent (2.00%) (the "Charged Rate"). The Charged Rate shall be
adjusted monthly on the first day of each calendar month and each change in the
Charged Rate shall result immediately, without notice or demand of any kind, in
a corresponding change in the interest rate under the Note. Interest shall be
payable on the last day of each calendar quarter and, in the event of a
permitted prepayment, on the date of such prepayment. The Holder shall provide
the Maker with notice of the Charged Rate periodically in order to permit the
Maker to make timely payments hereunder.
c. Any amount not paid when due under this Note, whether at the date
scheduled for payment or earlier upon acceleration, shall bear interest until
paid in full at a rate per annum equal to the Charged Rate, plus four (4)
percent (4.00%) (the "Default Rate").
3. Facility Fee. The Maker shall pay to the Holder an annual facility fee (the
"Facility Fee") equal to one-quarter (1/4) of one percent (1%) of the amount of
principal outstanding hereunder. The Facility Fee shall be due and payable to
the Holder on the date hereof and on the same day of each subsequent year until
this Note is paid in full.
4. Security. This Note is to be secured by a second deed of trust on
the Maker's racetrack facility located in New Kent County, Virginia.
5. Subordination.
a. The payment of principal and interest on this Note (including, for
all purposes of these subordinate terms, all premiums and other amounts payable
on or in respect thereof) is expressly made subordinate and subject in right of
payment to the prior payment of indebtedness for the construction and completion
of the Maker's racetrack in New Kent County, Virginia, and the acquisition,
construction, renovation and equipping of satellite wagering facilities, among
other uses, incurred by the Maker in conjunction with a public offering of the
Maker's stock (such indebtedness, the "Senior Indebtedness").
b. In the event of (i) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relating to the Maker or to its creditors as
such, or to its assets, or (ii) any liquidation, dissolution or other winding up
of the Maker, whether partial or complete and whether voluntary or involuntary
and whether involving insolvency or bankruptcy, or (iii) any assignment for the
benefit of creditors or any other marshalling of assets and liabilities of the
Maker, then and in any such event the holders of the Senior Indebtedness, shall
be entitled to receive payment in full of all amounts due or to become due on or
in respect of all Senior Indebtedness before the Holder shall be entitled to
receive any payment on account of this Note.
c. In the event and during the continuation of any default in the
payment when due of any principal of or interest on or any other amount payable
in respect of any Senior Indebtedness, unless and until such payment shall have
been made, then no payment shall be made by the Maker, on or in respect of this
Note.
6. Prepayment. Subject to Paragraph 7(c), the Maker may prepay this Note at any
time upon thirty (30) days' prior written notice to the Holder at a price equal
to the principal amount outstanding hereunder, plus interest accrued thereon
through the date of such prepayment.
7. Covenants. So long as any indebtedness under this Note remains outstanding,
the Maker shall not, without the prior written consent of the Holder:
a. authorize, issue, or enter into any agreement providing for the
issuance (contingent or otherwise) of (i) any notes or debt securities
containing equity features (including, without limitation, any notes or debt
securities convertible into or exchangeable for capital stock or other equity
securities issued in connection with the issuance of capital stock or other
equity securities or containing profit participation features) or (ii) any
capital stock or other equity securities (or any securities convertible into or
exchangeable for any capital stock or other equity securities); provided that
the Maker may, without the Holder's consent, issue up to an aggregate of 100,000
shares of its common stock;
b. merge or consolidate with any person or permit any subsidiary to
merge or consolidate with any person (other than a wholly owned subsidiary);
provided that a subsidiary may merge with another person so long as after such
merger, the Maker owns at least 80% of the (i) capital stock of the surviving
corporation possessing the right to vote for the election of directors and (ii)
number of shares of the common stock of the surviving corporation then
outstanding;
c. sell, lease, or otherwise dispose of, or permit any subsidiary to
sell, lease, or otherwise dispose of, more than 50% of the consolidated assets
of the Maker and its subsidiaries (computed on the basis of book value,
determined in accordance with generally accepted accounting principles
consistently applied, or fair market value);
<PAGE>
d. issue or sell any shares of the capital stock, or rights to acquire
shares of the capital stock, of any subsidiary to any person (other than the
Holder or a permitted assignee of the Holder) if immediately after such issuance
or sale, the Maker owns less than 80% of the (i) capital stock possessing the
right to vote for the election of directors and (ii) the number of shares of the
common stock of any subsidiary then outstanding;
e. liquidate, dissolve, or effect a recapitalization or reorganization
in any form of transaction (including, without limitation, any reorganization
into a limited liability company or into partnership or other noncorporate
form); or
f. make any amendment to the Articles of Incorporation or the Maker's
bylaws or file a resolution of the Board of Directors with the Virginia State
Corporation Commission containing any provisions which would increase the number
of authorized shares of common stock of the Maker or adversely affect or
otherwise impair the rights of the Holder under the Agreement.
8. Conversion.
a. All or any portion of the unpaid principal balance shall be
convertible into shares of Class B Common Stock of the Maker, $.01 par value per
Share (the "Class B Common Stock") at any time upon the election of the Holder,
subject to obtaining the approval, if any is required, of the Virginia Racing
Commission (the "Commission"). The number of shares of Class B Common Stock into
which this Note may be converted ("Conversion Shares") shall be determined by
dividing the amount of the then-unpaid principal balance of this Note and
accrued interest thereon, as specified in the notice described in Subsection
8.c. below for conversion, by 105% of the initial public offering price per
share of the Maker's Class A Common Stock (the "Conversion Price").
b. Any Conversion Shares shall have the registration rights set forth
in the Registration Agreement among the Maker, the Holder, and certain
shareholders of the Maker dated of even date herewith.
c. Holder may convert all or any portion of the unpaid principal
balance of this Note into Conversion Shares at any time prior to maturity of
this Note or upon notice of the Maker's intent to prepay this Note. Before the
Holder shall be entitled to convert this Note into Conversion Shares, it shall
give written notice by mail, postage prepaid, to the Maker at its principal
corporate office, of the election to convert the same. Such notice shall state
therein the date, which shall be within thirty (30) days of the date of such
notice, on which such conversion shall occur. The Maker at its own expense shall
issue and deliver at such office to the Holder of this Note a certificate or
certificates for the number of Conversion Shares to which the Holder of this
Note shall be entitled. At the time such certificates are issued, accrued
interest on the amount of principal shall be paid by the Maker to the Holder.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of conversion specified in such written notice, and the
Holder of this Note shall be treated for all purposes as the record holder of
such Conversion Shares. To the extent that the entire unpaid balance of this
Note is not being converted in Conversion Shares, the Maker of this Note shall
credit the Note on its books to the extent of the principal being converted by
the Holder into Conversion Shares.
d. No fractional share of Class B Common Stock shall be issued upon
conversion of this Note. In lieu of the Maker issuing any fractional share to
the Holder upon the conversion of this Note, the Maker shall pay, in cash, to
the Holder the amount of outstanding principal that is applicable to such
fractional share.
e. At its expense, the Maker shall, as soon as practicable thereafter,
issue and deliver to such the Holder at such principal office a certificate or
certificates for the number of Conversion Shares to which the Holder shall be
entitled upon such conversion (bearing such legends as are required by
applicable state and federal securities and other laws in the opinion of counsel
to the Maker), together with any other securities and property to which the
Holder is entitled upon such conversion under the terms of this Note, including
a check payable to the Holder for any cash amounts payable as described above
and for all amounts accrued as of the date of conversion. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date specified in such notice, and on and after such date the Holder of this
Note entitled to receive the Conversion Shares shall be treated for all purposes
as the record holder of such Conversion Shares. Upon conversion of this Note and
delivery of the check described above, the Maker shall be forever released from
all its obligations and liabilities under this Note to the extent of the amount
of unpaid principal and accrued interest thereon that the Holder has elected to
convert into Conversion Shares.
<PAGE>
9. Conversion Price Adjustments
a. In the event the Maker should at any time or from time to time after
the date of issuance hereof fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Class A Common Stock or Class B Common
Stock (collectively, the "Common Stock") or the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such dividend distribution, split
or subdivision if no record date is fixed), the Conversion Price of this Note
shall be appropriately decreased so that the number of Conversion Shares
issuable upon conversion of this Note shall be increased in proportion to such
increase of outstanding shares.
b. If the number of shares of Common Stock outstanding at any time
after the date hereof is decreased by a combination of the outstanding shares of
Common Stock, then, following the record date of such combination, the
Conversion Price for this Note shall be appropriately increased so that the
number of Conversion Shares issuable on conversion hereof shall be decreased in
proportion to such decrease in outstanding shares.
c. In the event of (i) any taking by the Maker of a record of the
holders of any class of securities of the Maker for the purpose of determining
the holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or (ii) any capital reorganization of
the Maker, any reclassification or recapitalization of the capital stock of the
Maker or any transfer of all or substantially all of the assets of the Maker to
any other person or any consolidation or merger involving the Maker, or (iii)
any voluntary or involuntary dissolution, liquidation, or winding up of the
Maker, the Maker will mail to the Holder of this Note a notice specifying (A)
the date on which any such record is to be taken for the purpose of such
dividend, distribution, or right, and the amount and character of such dividend,
distribution, or right, (B) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation, or
winding up is expected to become effective and the record date of determining
stockholders entitled to vote thereon, and (C) the new Conversion Price after
giving effect to the adjustment event, which new Conversion Price shall
represent an appropriate increase or decrease in the Conversion Price to
preserve the proportionate amount of Conversion Shares. Such notice shall be
mailed at least twenty (20) days prior to the date described in clause (A) or
(B) above.
d. The Maker shall at all times reserve and keep available out of its
authorized but unissued shares of Class B Common Stock such number of shares
that are solely for the purpose of effecting the conversion of the Note into
such number of Conversion Shares as shall from time to time be sufficient to
effect the conversion of the Note; and if at any time the number of authorized
but unissued shares of Class B Common Stock shall not be sufficient to effect
the conversion of the entire outstanding principal amount of this Note, in
addition to such other remedies as shall be available to the Holder of this
Note, the Maker will use its best efforts to take such corporate action as may,
in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Class B Common Stock to such number of shares as shall be
sufficient for such purposes.
10. Events of Default. "Events of Default" whenever used herein means any one or
more of the following defaults shall have occurred and be continuing (whatever
the reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law pursuant to any judgment, decree,
or order of any court or any order, rule, or regulation of any administrative or
governmental body):
a. Default in the payment of any installment of interest, the Facility
Fee, the principal of this Note, or any other amount payable hereunder when such
payment becomes due and payable, whether at maturity, by acceleration or
otherwise, and such default shall continue unremedied for a period of fifteen
(15) days;
b. Default in the performance or breach of any other agreement,
covenant, or warranty of the Maker contained in this Note, and such default or
breach shall continue unremedied for a period of thirty (30) days after the date
on which written notice of such default or breach, requiring the Maker to remedy
the same, shall have been given to the Maker by the Holder, or such longer
period, provided that the default is of a nature that cannot be remedied within
thirty (30) days and the Maker has within the thirty (30) day period instituted
curative action and diligently and continuously pursues such action to
completion;
<PAGE>
c. The entry of a decree or order by a court having jurisdiction
adjudging the Maker as bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment, or composition of or
in respect of the Maker under federal bankruptcy laws or any similar federal or
state law for the relief of debtors ("Bankruptcy Law") or appointing a receiver,
liquidator, assignee, trustee, conservator, sequestrator, or assignee in
bankruptcy or insolvency of the Maker or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and such
decree or order shall have continued undischarged and unstayed for a period of
thirty (30) days;
d. The Maker shall commence a voluntary case or shall consent to the
entry of an order for relief in any involuntary case under Bankruptcy Law or
shall consent to the appointment of or taking possession by a receiver,
liquidator, custodian, sequestrator, trustee, or assignee of any substantial
part of its property, or shall make an assignment for the benefit of creditors,
or shall fail generally to pay its debts as they become due; or
e. There shall have occurred any circumstance or event which, upon the
lapse of time, the giving of notice, or both, would constitute an event of
default under the Senior Indebtedness of the Maker, except if the same is cured
or waived within any applicable grace period.
11. Remedies. If an Event of Default occurs and is continuing (unless waived in
writing by the Holder) then and in each and every case, unless the entire
principal of this Note already shall have become due and payable, the Holder
may, by a notice in writing to the Maker, declare the principal and the accrued
interest on this Note to be immediately due and payable. The principal and
accrued interest on this Note shall become and shall be immediately due and
payable upon such declaration.
12. Miscellaneous
a. The Maker hereby waives presentment, notice of dishonor, protest,
and diligence in bringing suit against the Maker. Acceptance by the Holder of
any payment which is less than the full amount then due and owing hereunder
shall not constitute a waiver of the Holder's right to receive payment in full
at such time or at any prior or subsequent time. The Maker consents that the
time of payment may be extended an unlimited number of times before or after
maturity without notice to the Maker, and that the Maker shall not be discharged
by reason of any such extension or extensions of time. No delay or omission on
the part of the Holder in exercising any right hereunder shall operate as a
waiver of such right or any other right under this Note. A waiver on any one
occasion shall not be construed as a bar to or waiver of any such right or
remedy on any future occasion.
b. Notwithstanding the foregoing, if at any time implementation of any
provision hereof shall cause the interest contracted for or charged herein and
collectible hereunder to exceed the applicable lawful maximum rate, then the
interest shall be limited to such lawful maximum.
c. The Maker shall be liable for any and all costs and expenses of
collection of the interest required to be paid hereunder, including, without
limitation, reasonable attorneys' fees, arising by virtue of an Event of
Default.
d. This Note shall be subject to and construed in accordance with the
laws of the Commonwealth of Virginia. If any provision herein shall be
unenforceable, such unenforceable provision shall not render the remaining
provisions hereof unenforceable or invalid.
e. This Note shall be binding upon the Maker and the Maker may not
assign its obligations hereunder without the prior written consent of the
Holder. The Holder may assign its rights hereunder, in whole or in part, to one
or more corporations, limited liability companies, partnerships, trusts, or
other entities which are under common control, or controlled through equity
ownership and/or voting control, by the Holder or Jeffrey P. Jacobs; it being
acknowledged that (i) any entity managed or controlled by Jacobs Entertainment
Ltd. ("JEL") or Jeffrey P. Jacobs, or (ii) any entity in which either JEL or
Jeffrey P. Jacobs is one of the trustees and/or one of the beneficiaries
constitutes common control.
COLONIAL DOWNS HOLDINGS, INC.
By: ___________________________________
Name:
Title:
FORM OF CONSULTING AGREEMENT
THIS AGREEMENT is made and entered into as of February __, 1997, by and
between ARNOLD W. STANSLEY ("Consultant") and COLONIAL DOWNS HOLDINGS, INC., a
Virginia corporation ("Holdings").
W I T N E S S E T H:
WHEREAS, Holdings' affiliates, Colonial Downs, L.P. ("Colonial Downs")
and Stansley Racing Corp. ("SRC"), hold licenses from the Virginia Racing
Commission to own and operate, respectively, a pari mutuel horse racing facility
in New Kent, Virginia (the "Racetrack") and satellite wagering facilities
("SWFs") in Chesapeake and Richmond, Virginia;
WHEREAS, Consultant is the founder of Colonial Downs, a stockholder in
Holdings, and is familiar with the businesses of Holdings, Colonial Downs, and
SRC, and knowledgeable about and respected in the horse racing industry; and
WHEREAS, Holdings desires to retain Consultant to assist Holdings,
Colonial Downs, and SRC in the conduct of their businesses and Consultant agrees
to render such consulting services to and on behalf of Holdings, Colonial Downs,
and SRC on the terms and subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which is acknowledged, the parties, intending to be legally bound,
agree as follows:
1. Retention. Holdings hereby retains the services of Consultant and
Consultant hereby agrees to render consulting services to and on behalf of
Holdings, Colonial Downs, and SRC, pursuant to and in accordance with the terms
and subject to the conditions hereof.
2. Term. The term of this Agreement shall commence on the date hereof
and shall continue for a period of five (5) years thereafter, unless otherwise
terminated in accordance with the provisions hereof.
3. Duties.
a. Consultant shall advise and assist Holdings, Colonial
Downs, and SRC in the conduct of their businesses at such time and in such
manner as Holdings and Consultant agree. Consultant shall report to and be under
the general direction of the chief executive officer of Colonial Downs (the
"CEO") or his designee. Consultant shall not, however, without the knowledge and
prior consent of the CEO or his designee, have any authority to act in the name
of or on behalf of Holdings, Colonial Downs, or SRC.
b. Consultant shall assist Holdings to the extent that
Holdings reasonably requests and Consultant agrees to do so.
c. Colonial Downs acknowledges that Consultant is actively
engaged in several other businesses and, unless Consultant otherwise agrees,
Consultant shall not be obligated to devote more than two (2) working days per
month (on an annualized basis) to the performance of services hereunder.
4. Best Efforts. Consultant agrees to perform all services that may be
required of and from him pursuant to the terms of this Agreement to the best of
his ability, experience, and talents.
5. Status. In the performance of his duties hereunder, Consultant shall
at all times be and be deemed to be an independent contractor and not an
employee of Holdings, Colonial Downs, or SRC.
<PAGE>
6. Consulting Fee. For all services to be rendered by Consultant under
this Agreement, Holdings shall pay to Consultant an annual fee of Seventy-Five
Thousand Dollars ($75,000.00) per year, payable in equal, quarterly installments
of Eighteen Thousand Five Hundred Dollars ($18,500.00), commencing April 1,
1997, and continuing on the first day of each calendar quarter thereafter during
the term hereof. The first payment hereunder shall be prorated in proportion to
the number of days from the date hereof to March 31, 1997 to the number of days
from January 1, 1997 to March 31, 1997.
The consulting fee payable to Consultant hereunder shall be in
addition to any compensation payable to Consultant by Holdings for Consultant's
services as vice chairman and a member of the board of directors of Holdings or
for services on any committee of the board to which Consultant may be appointed.
7. Working Facilities. To assist Consultant in the performance of his
duties hereunder, Holdings shall make available to Consultant such office space
and secretarial and clerical assistance as it customarily provides to directors,
substantial shareholders, and similar visiting dignitaries.
8. Expenses. Holdings will reimbursement Consultant for all reasonable
business expenses incurred by Consultant in the performance of Consultant's
duties that are specifically requested by Holdings hereunder. Such expenses
shall be in addition to any expenses incurred by Consultant as vice chairman and
a member of the board of directors of Holdings.
9. Confidential Information. All non-public information relating to or
used in the business and operations of Holdings (including, but not limited to,
marketing plans, business procedures, customer lists, trade secrets, sources of
supplies and materials, reports, memoranda, plans, documents, and the like)
provided by Holdings to the Consultant in connection with the performance of his
duties hereunder (such information, hereinafter "Confidential Information") is
and shall be the exclusive property of Holdings, provided such information is
not generally known in the horse racing industry. Except in the regular course
of the performance of his duties hereunder, or as Holdings may expressly
authorize or direct in writing, the Consultant shall not, during or after the
termination or expiration of this Agreement, copy, reproduce, disclose or
divulge to others, use or permit others to use any Confidential Information, or
any records or materials relating to any such Confidential Information. The
Consultant further covenants and agrees that that upon the termination or
expiration of this Agreement, if Holdings requests, he shall deliver any
Confidential Information in his possession to Holdings.
10. Covenant Not to Compete.
a. In consideration of the fees and benefits that he receives
pursuant to this Agreement, during the term of this Agreement and for one (1)
year thereafter, the Consultant hereby covenants and agrees that he will not,
without the prior written consent of Holdings, either alone or in partnership
with or in conjunction with any other person, firm, or corporation, whether as
principal, agent, or shareholder, in which Consultant holds a ten percent (10%)
or more equity interest, directly or indirectly, participate, carry on, conduct,
or be engaged in, or advise, any person, firm, corporation, or other legal
entity carrying on or engaging in the horse racing business in Virginia,
Maryland, West Virginia or North Carolina that competes with the business
conducted by Holdings on the date hereof. In addition, the Consultant shall not
seek to induce any of Holdings' employees to leave Holdings' employment to work
for any entity with which he is affiliated. Notwithstanding the foregoing,
Holdings acknowledges and approves the Consultant's participation in the
management of Raceway Park in Toledo, Ohio and Trinity Meadows in Forth Worth,
Texas and agrees that the broadcast of simulcast racing from such racetracks (or
any other racetracks in which Consultant acquires an interest) to the area
subject to this Section 10 shall not constitute a breach of this Section 10.
b. The Consultant recognizes that Holdings' remedies at law
may be inadequate to protect itself against a breach of this provision, and
therefore agrees that injunctive or other equitable relief shall be an
appropriate remedy for breach of this covenant not to compete, and shall be a
remedy in addition to any and all other remedies available to Holdings.
c. The parties agree that if the restrictions of this Section
10 are determined by any court of competent jurisdiction, at the time of
enforcement, to be unreasonable as to the duration, scope or area of
restriction, then such restrictions should be applied only to such activities
and territory and only for such period of time as the court determines to be
reasonable in light of all circumstances then existing.
11. Indemnification. To the fullest extent permitted by law, Consultant
shall be indemnified and held harmless by Holdings from all liabilities and
expenses reasonably incurred by him arising from any claims or proceedings in
which he may be involved or threatened by reason of his performing consulting
services for Holdings, Colonial Downs, or SRC hereunder or in his capacity as
vice chairman and a director of Holdings. Holdings shall provide Consultant with
directors and officers liability insurance coverage, which shall include
Consultant's duties under this Agreement, in amounts not less than that provided
to other members of the Board and/or officers of Holdings.
<PAGE>
12. Tax Status. Payments of consulting fees to Consultant hereunder
shall be considered income from personal services performed by Consultant and,
for tax purposes, shall be deductible by Holdings as compensation paid for
services rendered. To the extent permitted by law, Holdings shall not be
required to deduct, and shall not provide for deduction, from Consultant's
compensation for social security, withholding taxes, federal, state, county, and
city payroll taxes, federal or state unemployment deposits, or any other similar
taxes, deposits, and payments. Consultant shall be solely responsible for making
any payments of estimated or withholding taxes and other taxes and deposits as
required by law. Each party agrees to report the consulting fees paid to
Consultant hereunder for income tax purposes in a manner consistent with the
provisions of this Section 12.
13. Termination. This Agreement may be terminated prior to the
expiration date hereof as follows:
a. at the option of Holdings, if Consultant breaches any
provision of this Agreement and fails to cure such breach within thirty (30)
days following receipt of written notice from Holdings;
b. at the option of Consultant, if Holdings breaches any
provision of this Agreement and fails to cure such breach within thirty (30)
days following receipt of written notice from Consultant;
c. upon the written agreement of the parties;
d. upon the death of Consultant; or
e. upon the bankruptcy or insolvency of Consultant or
Holdings.
Upon termination of this Agreement for the reasons set forth
in subparagraphs a. and b. above, Holdings or Consultant shall have all rights
and remedies available to it or him at law or in equity. Upon the termination of
this Agreement for the reasons set forth in subparagraphs c., d., and e. above,
neither party shall have any further rights, obligations, or liabilities under
this Agreement, except to the extent such rights, obligations, or liabilities
arose on or prior to the date of such termination.
14. Assignment. Consultant may assign this Agreement to a corporation,
limited liability company, or other entity (a "Company") owned by Consultant,
his spouse, and/or his children, provided such Company agrees in writing that
the services contracted for hereunder are the personal services of Consultant
and such Company may not provide any person other than Consultant to render such
services to and on behalf of Colonial Downs.
15. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if (i) hand delivered, (ii)
sent by facsimile transmission, acknowledgment of receipt requested, or (iii)
sent by certified mail, return receipt requested, to his residence, in the case
of Consultant, or to its principal business office, in the case of Holdings.
16. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach by such party. No waiver of any provision
of this Agreement shall be valid or effective unless in writing and signed by
the party sought to be charged therewith.
17. Severability. The invalidity or unenforceability of any provision
of this Agreement as applied to a particular occurrence or circumstance or
otherwise shall not affect the continued validity and enforceability or
applicability of any other provision of this Agreement.
18. Governing Law. This Agreement shall be governed, construed, and
enforced in accordance with the laws of the Commonwealth of Virginia without
regard to conflict of law provisions thereunder.
19. Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof and supersedes any
prior oral or written understandings relating thereto. No modification or
termination of any provision of this Agreement shall be valid or effective
unless in writing and signed by the party sought to be charged therewith.
20. Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and upon their heirs, executors, administrators,
personal representatives, successors, and assigns.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and date first above written.
COLONIAL DOWNS HOLDINGS, INC.
By: ____________________________________
Jeffrey P. Jacobs
Chairman of the Board and
Chief Executive Officer
Date: _______________________
CONSULTANT
----------------------------------------
Arnold W. Stansley
Date: _______________________
PROMISSORY NOTE
$3,000,000 July 14, 1996
Cleveland, Ohio
FOR VALUE RECEIVED, the undersigned, Colonial Downs, L.P., a Virginia
limited partnership ("Maker"), promises to pay, without offset, to the order of
CD Entertainment Ltd., an Ohio limited liability company doing business in
Virginia as CD Entertainment, Ltd. L.L.C., or its affiliate as may be designated
in writing (collectively, "Noteholder"), at 1231 Main Avenue, Cleveland,
Ohio 44113, or at such other place as Noteholder may designate in writing, the
principal sum of Three Million Dollars ($3,000,000) (or that portion of it
advanced by Noteholder), together with interest on the indebtedness evidenced by
this Note as hereinafter provided. One Million Dollars ($1,000,000) of the
indebtedness evidenced hereby was advanced by the Noteholder to the Maker prior
to the date of this Note.
1. Interest, Fees and Payment
(a) The outstanding principal indebtedness as evidenced by this Note shall
accrue interest from the date hereof or from the date of advance, as the case
may be, until paid in full at a variable rate per annum equal to the rate of
interest charged under that certain credit Agreement dated as of July 26, 1995
(the "Credit Agreement") by and between First Bank National Association and the
"Borrowe" thereunder. Currently, said interest rate is Libor plus 2%.
Interest rate changes will be effective for interest computation purposes as and
when the interest rate changes under the Credit Agreement. Interest accrued on
this Note shall be due and payable on the Ist day of each month commencing with
the month following the date of advance until the Maturity Date (as hereinafter
defined).
(b) Both the principal and interest hereof shall be payable in lawful money
of the
<PAGE>
United States of America, and immediately available funds to the Noteholder at
the address of Noteholder as set forth below. The principal of this Note and all
accrued but unpaid interest thereon shall be due and payable in full at the
earlier to occur of (i) January 31, 1998 or (ii) the completion of the Maker's
anticipated public offering of debt, which is expected to be in the amount of
$35,000,000 (such date being referenced to as the "Maturity Date").
(c) In addition to the payments of interest and principal due hereunder,
Maker shall also pay to the Noteholder any and all fees, costs and expenses
incurred by the Noteholder under the Credit Agreement by virtue of making the
loan evidenced by this Note. Noteholder shall provide Maker with a monthly
statement indicating the amount of any interest then due and payable together
with a summary of any such fees, costs and expenses.
2. PrePayment; Default
(a) Maker shall have the right from time to time to prepay all or any
portion of the unpaid principal hereof prior to demand, without premium or
penalty, by paying the principal amount of such prepayment and any interest
thereon accrued to the date of such prepayment.
(b) If default by the Maker in the payment of the indebtedness evidenced
hereby when and as the same shall become due and payable shall occur, the unpaid
principal and accrued interest thereon shall after the time of such default and
until paid in full bear interest at the rate of 18% per annum.
3. Security. Maker's obligation to pay the indebtedness evidenced hereby to the
Noteholder is secured by a certain Deed of Trust, Assignment of Rents and
Leases, and Security Agreement dated as of July 15, 1996, between Maker and the
Noteholder and David F. Belkowitz and James W. Theobald, Trustees.
2
<PAGE>
4. Miscellaneous
(a) No delay or omission by the Noteholder in exercising any rights or
power hereunder shall impair such right or power or be a waiver of any default
or an acquiescence therein. Any single or partial exercise of any such right or
power shall not preclude any other or further exercise thereof or the exercise
of any other right or power. No waiver shall be valid unless in writing, signed
by the Noteholder, and then only to the extent specifically set forth in such
writing. All remedies hereunder or by law afforded shall be cumulative and shall
be available to the Noteholder until the indebtedness evidenced hereby shall be
paid in full.
(b) All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if delivered by messenger, transmitted
by telex or telecopier (with receipt confirmed), or (in the case of domestic
communications) mailed by registered or certified mail, postage prepaid or sent
by overnight courier, as follows:
(i) If to the Noteholder:
At the most recent address
provided in writing by
the Noteholder to the Maker
(ii) If to the Maker:
Colonial Downs, L.P.
5700 Telegraph Road
Toledo, Ohio 43612
(c) This Note may be assigned by the Noteholder to an entity owned or
controlled by the Noteholder or Jeffrey P. Jacobs or an affiliate of either.
Except as set forth above, this Note may not be assigned by either party without
the prior written consent of the other party.
(d) This Note was executed in Cleveland, Cuyahoga County, Ohio and shall
be
3
<PAGE>
governed by and construed under the laws of the State of Ohio.
The Maker authorizes any attorney-at-law to appear in any court of record
In the State of Ohio or in any other state or territory of the United States
after the above indebtedness becomes due, whether by acceleration or
otherwise, to waive the issuing and service of process, to confess judgment
against the Maker, in favor of the Noteholder for the amount then appearing due,
together with costs of suit, and thereupon to waive all errors and all rights
of appeal and stays of execution.
- --------------------------------------------------------------------------------
WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU HAVE AGAINST THE CREDITOR, WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
- --------------------------------------------------------------------------------
COLONIAL DOWNS, L.P.
By: Stansley Management Corp.,
general partner
By: __________________________
Arnold Stansley, President
4
FORM OF CREDIT LINE PROMISSORY NOTE
up to $5,000,000 December 15, 1996
Cleveland, Ohio
FOR VALUE RECEIVED, the undersigned, Colonial Downs, L.P., a Virginia
limited partnership (the "Maker"), promises to pay, without offset, to the order
of CD Entertainment Ltd., an Ohio limited liability company doing business in
Virginia as CD Entertainment, Ltd. L.L.C., or its affiliate as may be designated
in writing (collectively, the "Noteholder"), at 1231 Main Avenue, Cleveland,
Ohio 44113, or at such other place as the Noteholder may designate in writing
the principal sum of up to Five Million Dollars ($5,000,000) (or that portion of
it advanced by the Noteholder), together with interest on the indebtedness
evidenced by this Note as hereinafter provided. The Maker shall be able to take
advances against the credit line up to the maximum amount of this Note. As an
alternative to drawing funds under this Note, the Maker may request that the
Noteholder provide letters of credit to be used by the Maker and the aggregate
amount of such letters of credit shall be deducted from the principal sum of
this Note upon which the Maker may draw.
1. Interest, Fees and Payment
(a) The outstanding principal indebtedness as evidenced by the Note
shall accrue interest from the date hereof or from the date of advance, as the
case may be, until paid in full at a variable rate of interest per annum equal
to the cost of funds to the Noteholder, as evidenced by documentation reasonably
satisfactory to the Maker. The initial rate of this Note shall be LIBOR plus
three percent (3%). Interest rate changes will be effective for interest
computation purposes as and when the Noteholder notifies the Maker of such
changes and provides reasonably satisfactory evidence of such change. Interest
accrued on the Note shall be due and payable on the first day of each month,
commencing with the month following the date of advance and until the Maturity
Date (as hereinafter defined).
(b) Both the principal and interest hereof shall be payable in lawful
money of the United States of America and immediately available funds to the
Noteholder at the address of the Noteholder as set forth below. The principal of
this Note and all accrued but unpaid interest thereof shall be due and payable
in full at the earlier to occur of (i) January 31, 1998 or (ii) the completion
of the Maker's anticipated public equity offering and placement of debt (such
date being referred to as the "Maturity Date").
(c) In addition to the payment of interest and principal due hereunder,
the Maker shall also pay to the Noteholder any and all reasonable fees, costs,
and expenses incurred by the Noteholder by virtue of making the loan evidenced
by this Note. The Noteholder shall provide the Maker with a monthly statement
indicating the amount of any interest then due and payable, together with a
summary of any such fees, costs and expenses.
2. Prepayment; Default
(a) The Maker shall have the right from time to time to prepay all or
any portion of the unpaid principal hereof prior to demand, without premium of
penalty, by paying the principal amounts of such prepayment and any interest
thereon accrued to the date of such prepayment.
(b) If default by the Maker in the payment of the indebtedness
evidenced hereby when and as the same shall become due and payable shall occur,
the unpaid principal and accrued interest thereon, shall after the time of such
default and until paid in full, bear interest at the rate of 18% per annum.
<PAGE>
3. Miscellaneous
(a) No delay or omission by the Noteholder in exercising any rights or
power hereunder shall impair such right or power or be a waiver of any default
or an acquiescence therein. Any single or partial exercise of any such right or
power shall not preclude any other or further exercise thereof or the exercise
of any other right or power. No waiver shall be valid, unless in writing, signed
by the Noteholder, and then only to the extent specifically set forth in such
writing. All remedies hereunder or by law afforded shall be cumulative and shall
be available to the Noteholder until the indebtedness evidenced hereby shall be
paid in full.
(b) All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if delivered by messenger,
transmitted by telex or telecopier (with receipt confirmed), or (in the case of
domestic communications) mailed by registered or certified mail, postage
prepaid, or sent by overnight courier, as follows:
(i) If to the Noteholder:
At the most recent address
provided in writing by
the Noteholder to the Maker
(ii) If to the Maker:
Colonial Downs, L.P.
3610 N. Courthouse Road
Providence Forge, Virginia 23140
(c) This Note may be assigned by the Noteholder to an entity owned or
controlled by the Noteholder or Jeffrey P. Jacobs or an affiliate of either.
Except as set forth above, this Note may not be assigned by either party without
the prior written consent of the other party.
(d) This Note was executed in Cleveland, Cuyahoga County, Ohio and
shall be governed by and construed under the laws of the State of Ohio.
The Maker authorizes any attorney-at-law to appear in any court of
record in the State of Ohio or in any other state or territory of the United
States after the above indebtedness becomes due, whether by acceleration or
otherwise, to waive the issuing and service of process, to confess judgment
against the Maker, in favor of the Noteholder for the amount then appearing due,
together with costs of suit, and thereupon to waive all errors and all rights of
appeal and stays of execution
- ------------------------------------------------------------------------------
WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU HAVE AGAINST THE CREDITOR, WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
- ------------------------------------------------------------------------------
COLONIAL DOWNS, L.P.
By: Stansley Management Corp., a general partner
By: __________________________________
Arnold W. Stansley, President
CD ENTERTAINMENT LTD., a general partner
By: _______________________________________
Jeffrey P. Jacobs
Jacobs Entertainment Ltd., its manager
FORM OF COLONIAL DOWNS HOLDINGS, INC.
1997 STOCK OPTION PLAN
1. PURPOSES. The purposes of the 1997 Stock Option Plan (the "Plan") are to
attract persons of training, experience, and ability to continue as employees,
directors, consultants, and/or associates of the Company, and to furnish
additional incentive to such persons, upon whose initiative and efforts the
successful conduct and development of the business of the Company largely
depends, by encouraging such persons to become owners of the common stock of the
Company.
Options granted hereunder may be either "Incentive Stock Options" as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"Non-qualified Stock Options," at the discretion of the Board and as reflected
in the terms of the written option agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Common Stock" shall mean the Class A Common Stock of the Company
(see Section 3 below).
(c) "Company" shall mean Colonial Downs Holding, Inc., and its
subsidiaries.
(d) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan or the Board
of Directors of the Company, if no Committee is appointed.
(e) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of sick leave, military
leave, or any other leave of absence approved by the Board.
(f) "Employee" shall mean any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(g) "Exchange Act" shall mean the Securities Exchange act of 1934, as
amended.
(h) "Incentive Stock Option" shall mean an Option intended to qualify
as an Incentive Stock Option within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
(i) "Non-employee Directors" shall be members of the Board meeting the
requirement of Rule 166-3, as amended from time to time, promulgated under the
Exchange Act.
(j) "Non-qualified Stock Option" shall mean a stock option not intended
to qualify as an Incentive Stock Option.
(k) "Option" shall mean a stock option granted pursuant to the Plan.
(l) "Optioned Stock" shall mean the Common Stock subject to an Option.
(m) "Optionee" shall mean an Employee or other person who receives an
Option.
(n) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) or the Internal Revenue Code of
1986, as amended.
(o) "Plan" shall mean this 1997 Stock Option Plan.
(p) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
<PAGE>
(q) "Subsidiary" shall mean a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986, as amended.
3. STOCK. Subject to the provisions of Section 11 of the Plan, the maximum
aggregate number of shares which may be optioned and sold under the Plan is
Three Hundred Thousand (300,000) shares of authorized, but unissued, or
reacquired, par value 0.01 per share, Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan has been terminated, become available for further
grant under the Plan.
4. ADMINISTRATION.
(a) Procedure. The Company's Board of Directors shall appoint a
committee (the "Committee") to administer the Plan. The Committee appointed by
the Board of Directors shall consist of not less than three (3) members of the
Board of Directors, two of whom shall be Non-employee Directors. The Committee
shall administer the Plan on behalf of the Board of Directors, subject to such
terms and conditions as the Board of Directors may prescribe. Once appointed,
the Committee shall continue to serve until otherwise directed by the Board of
Directors. From time to time, the Board of Directors may increase the size of
the Committee and appoint additional members thereof, remove members (with or
without cause), and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan; provided, however, that at no time shall a Committee of
less than three (3) members administer the Plan, at least two of whom shall be
Non-employee Directors.
(b) Powers of the Board. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options, in accordance with Section 422 of the Internal Revenue Code of 1986, as
amended, or to grant Non-qualified Stock Options; (ii) to determine, upon review
of relevant information and in accordance with Section 8(b) of the Plan, the
fair market value of the Company's Common Stock; (iii) to determine the exercise
price per share of Options to be granted, which exercise price shall be
determined in accordance with Section 8 of the Plan; (iv) to determine the
Employees and other persons to whom, and the time or times at which Options
shall be granted and the number of shares to be represented by each Option; (v)
to interpret the Plan; (vi) to prescribe, amend, and rescind rules and
regulations relating to the Plan; (vii) to determine the terms and provisions of
each Option granted (which need not be identical) and, with the consent of the
holder thereof, modify and amend each Option; (viii) to accelerate or defer
(with the consent of the Optionee) the exercise date of any Option; (ix) to
authorize any person to execute on behalf of the Company any instrument required
to effectuate the grant of an Option previously granted by the Board; and (x) to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
(c) Effect of the Board's Decision. All decisions, determinations, and
interpretations of the Board or any Committee shall be final and binding on all
Optionees and any other holders of any Options granted under the Plan.
5. ELIGIBILITY. Incentive Stock Options may be granted only to Employees.
Non-qualified Stock Options may be granted to Employees as well as non-employee
directors, associates, and consultants to the Company (subject to the
limitations set forth in Section 4) as determined by the Board or any Committee.
Any person who has been granted an Option may, if he is otherwise eligible, be
granted an additional Option or Options.
The Plan shall not confer upon any Optionee any right with respect to
continuation of employment by the Company, nor shall it interfere in any way
with his right or the Company's right to terminate his employment at any time.
No person shall be granted an option under the Plan unless such person
shall have first been presented with the most recent annual report on Form 10-K
of the Company, all quarterly reports on Form 10-Q of the Company since the most
recent 10-K, the most recent Annual Report to Shareholders of the Company, and
the most recent proxy material of the Company. Options may be issued to the same
person on more than one occasion.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to occur of
(i) its adoption by the Board of Directors, or (ii) its approval by vote of the
holders of a majority of the outstanding shares of the Company entitled to vote
on the adoption of the Plan. It shall continue in effect for a term of ten (10)
years from its effective date unless sooner terminated under Section 14 of the
Plan.
7. TERM OF OPTIONS. The terms of each option shall be no more than ten years
from the date of grant as determined by the Board of Directors but shall be
subject to earlier termination as subsequently provided; however, if an option
is granted to a person who, as of the date of grant, owns 10% or more of the
Company's common stock, the term of the option shall be no more than five years.
<PAGE>
8. EXERCISE PRICE AND CONSIDERATION.
(a) Price. The per Share exercise price for the Shares to be issued
pursuant to exercise of an option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, immediately before
the grant of such Incentive Stock Option, owns stock
representing more than ten percent (10%) of the voting power
of all classes of stock of the Company, or any Parent or
Subsidiary, the per Share exercise price shall be no less than
one hundred ten percent (110%) of the fair market value on the
date of grant.
(B) granted to any other Employee, the per share
exercise price shall be no less than one hundred percent
(100%) of the fair market value per Share on the date of
grant.
(ii) In the case of a Non-qualified Stock Option, the per
Share exercise price shall be determined by the Board of Directors or the
Committee on the date of grant.
(b) Fair Market Value Determination. In the case of Incentive Stock
Options, the fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the closing bid price of
the Common Stock for the date of grant, as reported in the Wall Street Journal
(or, if not so reported, as otherwise reported by the National Association of
Securities Dealers Automated Quotation [NASDAQ] System) or, in the event the
Common Stock is listed on a stock exchange, the fair market value per Share
shall be the closing price on such exchange on the date of grant of the Option,
as reported in the Wall Street Journal.
(c) Consideration. The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment, shall be
determined by the Board and may consist entirely of cash, check, promissory
note, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
option shall be exercised, or any combination of such methods of payment, or
such other consideration and method of payment for the issuance of Shares to the
extent permitted under the laws of the Commonwealth of Virginia. Additionally,
the Board may adopt customary "cashless exercise" provisions if deemed
appropriate.
9. EXERCISE OF OPTIONS.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 7(c) of the Plan.
Until the issuance, which in no event will be delayed more than thirty (30) days
from the date of the exercise of the Option (as evidenced by the appropriate
entry on the books of the Company or if a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a shareholder shall exist with respect
to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee with Respect to Non-qualified
Stock Options. Non-qualified Stock Options granted pursuant to the Plan may be
exercised notwithstanding the termination of the Optionee's status as an
Employee, director, or consultant, except as provided in the Plan or as provided
by the terms of the Stock Option Agreement.
<PAGE>
(c) Termination of Status as an Employee with Respect to Incentive
Stock Options. In the case of an Incentive Stock Option, if an Employee ceases
to serve as an Employee, he may, but only within thirty (30) days (or such other
period of time not exceeding three (3) months as is determined by the Board)
after the date he ceases to be an Employee of the Company, exercise his Option
to the extent that he was entitled to exercise it at the date of such
termination. To the extent he was not entitled to exercise the Option at the
date of such termination, or if he does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) Disability of Optionee. Notwithstanding the provisions of Section
9(c) above, in the event an Employee is unable to continue his employment with
the Company as a result of his total and permanent disability (as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended), he may, but
only within three (3) months (or such other period of time not exceeding twelve
(12) months as determined by the Board) from the date of disability, exercise
his Incentive Stock Option to the extent he was entitled to exercise it at the
date of such disability. To the extent that he was not entitled to exercise the
Incentive Stock Option at the date of disability, or if he does not exercise
such Incentive Stock Option (which he was entitled to exercise) within the time
specified herein, the Incentive Stock Option shall terminate.
(e) Death of Optionee. In the event of the death of an Optionee under
an Incentive Stock Option:
(i) during the term of the Option who is at the time of his
death an employee of the Company and who shall have been in Continuous Status as
an Employee since the date of grant of the Option, the Option may be exercised,
at any time within twelve (12) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance but only to the extent of the right to exercise that
would have accrued had the Optionee continued living one (1) month after the
date of death; or
(ii) within thirty (30) days (or such other period time not
exceeding three (3) months as is determined by the Board) after the termination
of Continuous Status as an Employee, the Option may be exercised, at any time
within three (3) months following the date of death, by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of a right to exercise that had accrued at
the date of termination.
10. NON-TRANSFERABILITY OF INCENTIVE STOCK OPTIONS. An Incentive Stock Option
may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in
any manner other than by will or by the laws of descent or distribution and may
be exercised, during the lifetime of the Optionee, only by the Optionee.
11. TRANSFERABILITY OF NON-QUALIFIED STOCK OPTIONS. All Non-qualified Options
granted pursuant to the Plan are transferable subject to compliance with the
Act, as amended, and any applicable state securities laws. Upon surrender of a
Non-qualified Option to the Company or at the office of its stock transfer
agent, if any, with the funds sufficient to pay any transfer tax, the Company
shall, without charge, execute and deliver a new Non-qualified Option in the
name of the assignee named in such instrument of assignment and the
Non-qualified Option shall promptly be canceled. The Non-qualified Option may be
divided or combined with other Non-qualified Options which carry the same rights
upon presentation thereof at the office of the Company or at the office of its
stock transfer agent, if any, together with a written notice specifying the
names and denominations in which new Non-qualified Options are to be issued and
signed by the Optionee thereof. The term "Option" as used herein includes any
Non-qualified Options into which Non-qualified Option may be divided or
exchanged.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized of issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split or the payment of a stock dividend with
respect to the Common Stock or another increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board whose determination
in that respect shall be final, binding and conclusive. Furthermore, any
distribution of assets by the Company except for cash dividends paid, shall be
considered the payment of a stock dividend for purposes of this Section 12.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class or securities convertible into shares of stock of any class,
shall effect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company,
or in the event of a proposed sale of all or substantially all of the assets of
the Company, or the merger of the Company with or into another corporation, the
Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board. The Board may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable.
<PAGE>
13. TIME FOR GRANTING OPTIONS. Each option granted under the Plan, unless
otherwise specifically indicated, shall be granted as of the date of the Board
of Directors' resolution conferring the option ("date of grant"), and the Board
of Directors shall notify the optionee of the grant in writing delivered in
duplicate by mail. The notification shall serve as the option agreement (the
"Stock Option Agreement") and shall contain a summary of the essential terms and
conditions of the Plan. Receipt of the notification shall be acknowledged by the
optionee on the duplicate copy, and by such acknowledgment, the optionee shall
agree that in consideration of such option he will abide by all the terms and
conditions of the Plan. The optionee shall return the duplicate copy to the
Company either by delivery in person or by mail. Any inconsistencies between the
terms of the Plan and the terms of the Stock Option Agreement shall be governed
by the terms of the Plan.
14. AMENDMENT AND TERMINATION OF THE PLAN. The Board of Directors may amend or
discontinue the Plan at any time provided that no unexercised option granted
under the Plan may be altered or canceled, except in accordance with its terms,
without the written consent of the optionee to whom the option has been granted.
15. CONDITIONS UPON ISSUANCE OF SHARES. The shares represented by this
Certificate have not been registered under the Securities Act of 1933 (the
"Act") and are "restricted securities" as that term is defined in Rule 144 under
the Act. The shares may not be offered for sale, sold, or otherwise transferred
except pursuant to an effective registration statement under the Act or pursuant
to an exemption from registration under the Act, the availability of which is to
be established to the satisfaction of the Company. Accordingly, shares shall not
be issued pursuant to the exercise of an Option unless the exercise of such
Option and the issuance and delivery of such Shares pursuant thereto shall
comply with all relevant provisions of law, including, without limitation, the
Act, the Exchange Act, the rules and regulations promulgated thereunder,
applicable state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
If any law or regulation of the Securities and Exchange Commission or
of any other body having jurisdiction shall require any action to be taken in
connection with the shares specified in an notice of election of an option
before the shares can be delivered to the optionee, then the date stated for
issuance of the shares shall be postponed until such action can be taken.
16. RESERVATION OF SHARES. The Company, during the term of this Plan, will at
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
17. NO RIGHTS AS SHAREHOLDER. An Optionee shall have no rights as a shareholder
with respect to any Shares covered by his Option until the date of the issuance
of a stock certificate to him for such Shares.
18. OTHER PROVISIONS. The Stock Option Agreement authorized under the Plan shall
contain such other provisions, including without limitation, restrictions upon
the exercise of the Option, as the Board of Directors of the Company shall deem
advisable. Any such Stock Option Agreement shall contain such limitations and
restrictions upon the exercise of the Option as shall be necessary in order that
such option will be an Incentive Stock Option as defined in Section 422 of the
Internal Revenue Code, as amended if an Incentive Stock Option is intended to be
granted.
<PAGE>
19. INDEMNIFICATION OF COMMITTEE. In addition to such other rights of
indemnification as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees actually and necessarily incurred
in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceedings, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such Board
member is liable for negligence or misconduct in the performance of his duties;
provided that within 60 days after institution of any such action, suit or
proceeding a Board member shall in writing offer the Company the opportunity, at
its own expense, to handle and defend the same.
20. APPLICATION OF FUNDS. The proceeds received by the Company from the sale of
Common Stock pursuant to Options will be used for general corporate purposes.
21. NO OBLIGATION TO EXERCISE OPTION. The granting of an Option shall impose no
obligation upon the Optionee to exercise such Option.
22. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect any
other stock option or incentive or other compensation plans in effect for the
Company or any Subsidiary, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees
and directors of the Company or any Subsidiary.
23. GOVERNING LAW. Options granted under the Plan shall be construed and shall
take effect in accordance with the laws of the Commonwealth of Virginia.
24. SINGULAR, PLURAL; GENDER. Whenever used herein, nouns in the singular shall
include the plural, and the masculine pronoun shall include the feminine gender.
25. HEADINGS, ETC., NO PART OF PLAN. Headings of articles and sections hereof
are inserted for convenience and reference; they constitute no part of the Plan.
Dated: February ___, 1997
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 financial statements)
Colonial Downs Holdings, Inc.
Providence Forge, Virginia
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement as amended, of our report dated February 10, 1997,
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
February 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations found on
pages F-3 through F-5 of the Company's Form S-1 for the periods indicated and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001027430
<NAME> Colonial Downs Holdings, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C> <C>
<PERIOD-TYPE> 12-mos 12-mos
<FISCAL-YEAR-END> Dec-31-1995 Dec-31-1996
<PERIOD-START> Jan-01-1995 Jan-01-1996
<PERIOD-END> Dec-31-1995 Dec-31-1996
<EXCHANGE-RATE> 1.000 1.000
<CASH> 330,066 1,379,884
<SECURITIES> 0 0
<RECEIVABLES> 0 38,519
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 330,066 1,765,476
<PP&E> 1,868,700 9,364,587
<DEPRECIATION> 3,060 126,167
<TOTAL-ASSETS> 3,142,042 12,176,490
<CURRENT-LIABILITIES> 1,919,253 7,690,724
<BONDS> 2,179,255 5,176,238
0 0
0 0
<COMMON> 30,000 30,000
<OTHER-SE> (354,829) 964,825
<TOTAL-LIABILITY-AND-EQUITY> 3,142,042 12,176,490
<SALES> 0 0
<TOTAL-REVENUES> 0 8,527,310
<CGS> 0 0
<TOTAL-COSTS> 318,235 8,995,827
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,252 183,118
<INCOME-PRETAX> (320,487) (645,415)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (320,487) (645,415)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (320,487) (645,415)
<EPS-PRIMARY> (0.11) (0.22)
<EPS-DILUTED> (0.11) (0.22)
</TABLE>
CONSENT OF PERSON TO BE ELECTED DIRECTOR
Pursuant to Section 13.1-675.E of the Code of Virginia of 1950, as
amended, the undersigned hereby evidences his prior consent to being elected a
director of Colonial Downs Holdings, Inc., a Virginia corporation (the
"Corporation"), to serve until the next annual meeting of the shareholders or
until his successor shall be duly elected and qualifies and consents to being
identified as being nominated to become a director of the Corporation in the
Corporation's Registration Statement filed on Form S-1 upon consummation of the
Corporation's initial public offering.
/s/ William J. Koslo, Jr.
-------------------------
William J. Koslo, Jr.
Date: 1/30/97
