As Filed with the Securities and Exchange Commission on March , 1997
Registration No. 333-18295
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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COLONIAL DOWNS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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Virginia 7948 54-1826807
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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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)
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Copies to:
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J. Warren Gorrell, Jr., Esq. L. Charles Long, Jr., Esq. Emanuel Faust, Jr., Esq.
Bruce W. Gilchrist, Esq. James L. Weinberg, Esq. Howard S. Jatlow, Esq.
HOGAN & HARTSON L.L.P. HIRSCHLER, FLEISCHER, DICKSTEIN SHAPIRO MORIN &
555 Thirteenth Street, N.W. WEINBERG, COX & ALLEN OSHINSKY LLP
Washington, D.C. 20004-1109 701 East Byrd Street 2101 L Street, N.W.
(202) 637-5600 Richmond, VA 23219 Washington, D.C. 20037
(804) 771-9500 (202) 785-9700
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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>
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.
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<PAGE>
SUBJECT TO COMPLETION, DATED MARCH , 1997
PROSPECTUS
4,250,000 Shares
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
anticipated to open and begin live racing on or prior to September 1, 1997. The
Company also holds licenses for three SWFs, of which the first opened in
February 1996, the second opened in December 1996, and the third is planned to
open in June 1997, 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 and at least $19.9 million of the net proceeds will
be used to pay costs under a construction contract with an affiliate 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 Class A
Common Stock has been approved for inclusion in The Nasdaq National Market
subject to notice of issuance.
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, which initially
will represent approximately 69% of the ordinary voting power of all outstanding
shares of common stock of the Company, 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)
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<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 $625,000 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."
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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]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
CLASS A COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF
CLASS A COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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 prior to the closing date of this offering (the
"Convertible Subordinated Note") is not converted, and (iv) is set forth
to reflect the Reorganization described herein, which became effective on March
12, 1997, 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 anticipated to open and begin live racing on or prior to
September 1, 1997. The Track's initial racing season is expected to consist of
30 days of live thoroughbred racing and up to 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."
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3
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The Company currently holds licenses for three SWFs: a 15,000 square
foot facility that opened in Chesapeake, Virginia in February 1996, a 19,700
square foot facility that opened in Richmond in December 1996 and a 13,500
square foot facility to be constructed in Hampton. 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 three more SWFs. 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 March 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 seek permission 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
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 live 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, which management fee will represent approximately 10% of
the Company's revenues from wagering. 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
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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 National 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 and 450,820 shares of Class B Common Stock
issuable upon the conversion of the Convertible Subordinated Note at a
conversion price per share of 122% of the initial public offering price.
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 --
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Direct operating expenses
Direct expense of import
simulcasting..................... 4,582 --
Other direct operating expenses 2,691 --
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Total direct operating expenses..... 7,273 --
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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)
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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)........ 3,555,847 --
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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)
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6
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Year Ended
December 31, 1996
--------------------------------
Other Data:
EBITDA(5)..................................... $ (184)
Net cash provided (absorbed) by:
Operating activities....................... 327
Investing activities....................... (3,999)
Financing activities....................... 4,122
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
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(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 the
$5.1 million of debt actually outstanding at December 31, 1996, and
elimination of interest expense thereon, 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.
EBITDA is not a measurement under generally accepted accounting principles
and may not be comparable to other similarly titled measures presented by
other companies. 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
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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 on or prior to September
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 prior to 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 guaranteed minimum purse
amounts and debt service in respect of its loans 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 September 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.
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 results of operations, liquidity or
financial condition. See "Business-- Legal Proceeding."
The Company has received from the Virginia Racing Commission race days
for 1997 commencing on June 29, 1997. However, the Company has experienced
construction delays since receiving the race days. Accordingly, the Company will
seek an amendment to its race days for 1997 from the Virginia Racing Commission,
but there can be no assurance that such amendment will be granted, or if
granted, that the schedule as amended will be consistent with the Track's
anticipated opening date.
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. The
Company intends to ask the Virginia Racing Commission to extend the July 17
deadline because of certain construction delays the Company has experienced.
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 three such facilities: a
Chesapeake SWF, which has operated since February 1996, a Richmond SWF which
opened in December 1996; and a Hampton SWF, which is scheduled to open before
July 1, 1997. In March 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
Brunswick SWF 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.
<PAGE>
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 or the Virginia Harness Horse
Association, as the case may be, 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). The Company's estimate of
the land's fair market value is not based on an independent appraisal.
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, when it is expected he will devote no more than two days per
month to the business of the Company. 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, although he is expected to devote only one-third of his
time to the business of the Company, and O. James Peterson, III, the Company's
President and Chief Operating Officer. Messrs. Jacobs and Peterson will enter
into employment agreements 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 anticipated to open on or prior to September 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 $27,075,000 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 currently estimated
cost or consistent with the Company's development schedule. See "Certain
Transactions." Construction expenditures not covered by this contract are
estimated to be $4.9 million for Track fixtures, furniture and equipment, $1.8
million in professional fees, $1.4 million for water, sewer and road expenses,
and $0.6 million for Track opening expenses. The Company anticipates that, as of
the consummation of this Offering, the Company will have paid approximately $4.9
million of expenses associated with the construction, equipping and furnishing
of the Track.
<PAGE>
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,
Laurel Park and Rosecroft Raceway 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."
<PAGE>
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, the Maryland Jockey Club has agreed to seek permission to cease live
thoroughbred racing at Pimlico Race Course and Laurel Park 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 express 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 subsequently disapproves of such action, it may penalize the Maryland
Jockey Club in a variety of ways, including denying race days 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."
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 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 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
and take other action to manage its thoroughbred meet.
<PAGE>
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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<PAGE>
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."
15
<PAGE>
THE COMPANY
Colonial Downs Holdings is a Virginia corporation organized in November
1996 to pursue opportunities for wagering and horse racing in Virginia. The
Company holds the only unlimited licenses to own and operate a horse racetrack
with pari-mutuel wagering in Virginia and is the only entity 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, Richmond and Hampton SWFs and Stansley Racing holds
the operator's licenses for those facilities. 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, received licenses in February 1997
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
anticipated to open and begin live racing on or prior to September 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. Prior to the Reorganization described
below, Stansley Management Corp. ("SMC") and CD Entertainment Ltd. each owned
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. Prior to the Reorganization, SMC was owned 68% by Arnold W.
Stansley and 30% by James M. Leadbetter, with the balance held by two other
individuals and Mr. Stansley also owned 70% of the outstanding capital stock of
Stansley Racing and Mr. Leadbetter owned the remaining 30% of the outstanding
capital stock. 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, a transaction was consummated on March 12, 1997 in which Colonial
Downs Holdings became a holding company for Colonial LP and Stansley Racing
pursuant to an Agreement and Plan of Reorganization (the "Plan of
Reorganization"). Pursuant to the Reorganization, Colonial Downs Holdings
acquired a 99% limited partner interest in Colonial LP from SMC (which was
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 acquired a 1% general partner interest in
Colonial LP. The Virginia Racing Commission 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 owns, 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.
16
<PAGE>
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(3).......... $33.3 61.7%
Acquisition, renovation and equipping
of SWFs.................................. 6.3 11.7
Payment of interim financing owed to
certain shareholders(4).................. 7.2 13.3
Funding of purse accounts(5).............. 2.2 4.1
Working capital........................... 4.7 8.7
Management fees(6)........................ 0.3 0.5
------- -----
Total $ 54.0 100.0%
======= =====
</TABLE>
----------------------
(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. Prior to 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 $3.5 million of interim financing will be repaid
from the proceeds of the Credit Facility.
(3) Includes $29.5 million due Norglass, Inc., an affiliate of the
Company, under a construction agreement and a $125,000 deferred
consulting fee due to Premier One Development Co., an affiliate
of Mr. Jacobs.
<PAGE>
(4) 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 and the proceeds of the Convertible
Subordinated Note, 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."
(5) 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.
(6) Deferred management fees due to Stansley Racing.
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................. 327
Investing activities................. (3,999)
Financing activities................. 4,122
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 the $5.1
million of debt actually outstanding at December 31, 1996, and elimination
of interest expense thereon, 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. EBITDA is
not a measurement under generally accepted accounting principles and may
not be comparable to other similarly titled measures presented by other
companies. 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 anticipated to occur on or prior to September
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 managing the 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 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 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 and take other action 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. Although the Maryland
Racing Commission's express 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 subsequently
disapproves of such action, it may penalize the Maryland Jockey Club in a
variety of ways, including denying race days or imposing monetary fines. If in
the future the Maryland Racing Commission discourages the cessation of
thoroughbred racing at Pimlico Race Course or Laurel Park during the Company's
meets, 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 on such races (representing approximately 2% of the Company's revenues
from total simulcast wagering) 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 with the purse accounts. Contributions to the
purse accounts 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 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 December 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)
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.
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 total 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 22.3% of total revenues), (ii) host fees
paid for import simulcast races of $1.0 million (approximately 11.7% of total
revenues), (iii) management fees paid to the Maryland Jockey Club of $0.7
million (approximately 8.2% of total revenues), (iv) pari-mutuel taxes paid the
Commonwealth of Virginia and its localities of $0.9 million (approximately 10.6%
of total revenues), (v) breeders fund fees of $0.4 million (4.7% of total
revenues), (vi) salaries and payroll expense of $1.2 million (approximately
14.1% of total revenues), and (vii) other direct operating expenses of $2.9
million, consisting of such items as utilities, maintenance, leases,
advertising, legal, accounting and supplies (approximately 34.0% of total
revenues).
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 on or prior to September 1, 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.
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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 $0.3 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 $2.2 million from the proceeds of this
Offering into the horsemen's purse accounts. CD Entertainment Ltd., Arnold W.
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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. In addition to the funds provided by 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.
Diversified Opportunities Group Ltd. ("Diversified"), an affiliate of Mr.
Jacobs, will deliver prior to the consummation of the Offering a $6.5 million
irrevocable letter of credit to be used by the Company to meet its current
funding requirements and CD Entertainment Ltd. will keep in place $3.5 million
of existing financing. It is expected that the $6.5 million letter of credit
will be replaced by a $10 million credit facility from either an institutional
lender or by Diversified prior to the opening of the Track and such $3.5 million
of existing financing will be repaid from such credit facility. Although the
Company has not yet signed a firm commitment letter for such financing with an
institutional lender, pursuant to an Agreement for Provision of Credit,
Diversified has agreed to provide the Company guarantees, a pledge of its assets
or other forms of security to assist the Company in securing such financing. If
the Company is unable to obtain such financing, Diversified has agreed to loan
the Company $10 million. Diversified's obligations are guaranteed by Mr. Jacobs.
For a description of the principal terms of such letter of credit and financing,
see "Description of Certain Indebtedness--Credit Facility."
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 or the Credit Facility, the liens will be released
and will be replaced by liens securing the Company's obligations under the
Credit Facility. 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 net
proceeds of approximately $54 million. The Company has projected the capital
expenditures required to complete the construction of the Track to be $33.3
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 the proceeds of this Offering, the
Convertible Subordinated Note and the Credit Facility or interim letter of
credit, 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, consisting of guaranteed
aggregate annual purses of $4.5 million and $2.5 million, respectively (see
"Business -- Purse Structure and Guarantees"), based on the opening schedule of
the additional SWFs. The Company has included in the use of such proceeds an
amount of $2.2 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.
The Company has outstanding five letters of credit. 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, an affiliate of Mr. Jacobs has issued
on behalf of the Company letters of credit aggregating $1.8 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 may be drawn
upon by the VaHBPA or VHHA to fund such accounts by March 31, 1997 pursuant to
the terms of certain SWF agreements between the Company and the VaHBPH and VHHA,
respectively. 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. 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 total wagers 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 received in February 1997
the necessary licenses to own and operate a third SWF in Hampton. The Company
expects to apply in March 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 Brunswick County expires 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 for the Brunswick County SWF in a timely manner. There can
be no assurance that the licenses will be obtained for this facility 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, 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 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 anticipated to be completed on or prior to September 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 one or more 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 fast mile times. The
Company believes that the times recorded on its 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 net revenues (proposed to be 47.5% for the Company, 47.5% for the
Track's purse account and 5% for the Virginia Breeders' Fund), the setting of a
schedule of purse amounts, preparation of conditions for races, reconciliation
of any over or under payment of purse amounts, the number of Virginia-bred races
to be run at each meet, the availability of stalls and track facilities during
and after meets, and the sharing of revenues, if any, from television (other
than simulcasting) or radio broadcasts of races run at the Track. 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 Virginia Racing Commission has previously approved a schedule of
race days for 1997 that provides for a thoroughbred meet from June 29 to August
15, 1997 with 30 days of racing and a 50 day harness racing meet scheduled from
late September through November 1997.
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The Company plans to seek the Virginia Racing Commission's approval to amend
such dates to coincide with the anticipated opening of the Track on or before
September 1, 1997. For the thoroughbred meet, post times during the week will be
between 3:30 and 5:30 p.m. and post times on weekends will be at 1:00 p.m. Few
racetracks in the eastern time zone offer twilight thoroughbred racing, and as a
consequence, the Company expects to be able to sell its weekday twilight
simulcast signal to a number of other tracks, out-of-state SWFs, casinos and
other gaming establishments. 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. There can
be no assurance that the Commission will grant the Company's request to amend
its race days, or that if such approval is granted, that the approved race day
schedule will be consistent with the Track's anticipated opening date.
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 September 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.
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 are stabled at Laurel Park,
Pimlico Race Course and Bowie Training Center in Maryland each year, making it
among the nation's largest year-round thoroughbred racing operations, 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.
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; however, the Company expects to request
an amendment to such dates to coincide with the Track's anticipated opening on
or before September 1, 1997. 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 race days, or otherwise. If the Maryland Jockey Club
cannot, or elects not to, cease thoroughbred racing 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 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, Laurel Park and Rosecroft Raceway 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, legislation legalizing slot machines at Maryland
racetracks and SWFs is pending before the Maryland legislature, 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 case was dismissed by order entered February 20, 1997, in which the judge
found that Ms. Pearsall and the Association lacked standing to challenge the
Virginia Racing Commission's actions. Ms. Pearsall and the Association filed a
motion to vacate the court's order, which motion was denied by order dated March
12, 1997. Ms. Pearsall and the Association have 30 days from the date of the
order in which to file an appeal.
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 results of operations,
liquidity or financial condition.
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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
David C. Grunenwald Director
Robert H. Hughes Director, Vice President and Chief
Financial Officer
Arnold W. Stansley Director and
Secretary
O. James Peterson, III President and Chief
Operating 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
$65,000, 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,
provided that, in the case of Mr. Peterson, the Company will be required to
compensate him during such one year period at 50% of his base salary. 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. In addition,
concurrently with the closing of this Offering, the Company intends to grant
options under the Stock Option Plan for an aggregate of 162,000 shares of Class
A Common Stock, at an exercise price equal to the initial public offering price
in this Offering, which options generally will vest over a five-year period.
Such grants are expected to include options for 70,000 shares to employees and
options for 92,000 shares to nonemployees, including grants to the following
directors and executive officers: Stephen Peskoff (50,000 shares), Jeffrey
Jacobs (20,000 shares), and David Grunenwald, Robert Hughes, Hugh Mellon,
Michael Salmon, Gilbert Short and Brett Stansley (10,000 shares each).
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 Company, 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 consummation of this Offering,
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 upon consummation of this Offering.
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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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 December 31, 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 $27,075,000. An additional
estimated $2,425,000 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
In connection with CD Entertainment Ltd.'s acquisition of a 50%
interest in Colonial LP in 1995, the Company entered into 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 Track and 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 (i) gross sales equal to 15%
for the Track for the months in which live racing is conducted at the Track, and
(ii) 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 for the Track
for the months in which live racing is not conducted at the Track and at each
SWF. The Company is responsible
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for site-related expenses such as updating, refurbishing, equipping, and
repairing the Track and 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
the Track and each applicable SWF, with the option to extend the agreement for a
five (5) year period but in no event beyond February 17, 2011. In addition,
within six months prior to the expiration of the initial term with respect to
the Track or 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 termination fee
equal to six (6) times the annual net operating cash flow of Virginia
Concessions LLC under the agreement for the most recent twelve (12) month
period, calculated in accordance with generally accepted accounting principles
consistently applied.
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
Prior to the consummation of this Offering, CD Entertainment Ltd.,
a principal stockholder of the Company, will acquire the Convertible
Subordinated Note for $5,500,000. See "Description of Certain Indebtedness --
Convertible Subordinated Note."
Provision of Credit
Pursuant to an Agreement for Provision of Credit, 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 prior to the consummation of
this offering, which may be drawn upon at any time, and CD Entertainment Ltd.
has agreed to leave $3.5 million of indebtedness outstanding. 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 terms
of 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 that 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 (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 issued 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 received
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 previously owned one half of
Colonial LP) and Stansley Racing, which shares he has held since September 1993
and June 1994, respectively. James M. Leadbetter received 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 other
individuals each received 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 owned 50% of
the partnership interests of Colonial LP, received 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 acquired a 1% general partnership interest in
Colonial LP for nominal consideration in connection with the Reorganization.
Also in connection with the Reorganization, Mr. Stansley conveyed
10,408 shares of Class A Common Stock, and Mr. Leadbetter conveyed 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 conveyed 8,673 shares of Class A Common
Stock, and Mr. Leadbetter conveyed 3,827 shares of Class A Common Stock, to
an affiliate of a financial advisor that assisted in the application for the
Track's 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 of their shares in aggregate (210,000 from Mr. Stansley and 90,000
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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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(8)
----- ------------ ----------------------------- -----------------
Class A Class B Class A Class B All
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
CD Entertainment Ltd. (1) 300,000(2) 1,950,820(3) 6.0% 72.2% 29.2% 54.3%
Jeffrey P. Jacobs (4) 300,000(2) 1,950,820(3) 6.0 72.2 29.2 54.3
Arnold W. Stansley....... 490,919(5) 510,000 9.8 22.7 13.8 18.7
James M. Leadbetter...... 216,581(6) 225,000 4.3 10.0 6.1 8.3
Stephen Peskoff(7)....... 15,000 -- 0.3 -- 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)............... 597,719 2,460,820 12.0% 91.1% 39.7% 69.7%
</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) Represents 300,000 shares of Class A Common Stock which may be acquired upon
the exercise of options to be issued by Messrs. Stansley and Leadbetter.
(3) 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).
(4) Represents the shares owned by CD Entertainment Ltd.
(5) Includes 210,000 shares that will be subject to an option in favor of
CD Entertainment Ltd.
(6) Includes 90,000 shares that will be subject to an option in favor of
CD Entertainment Ltd.
(7) Represents shares owned by Underhill Investment Corp., an affiliate of
Mr. Peskoff.
(8) 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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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 became effective on March 4, 1997, 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 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, with respect to which holders of
Class B Common Stock will be entitled to one vote per share.
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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 Acquisitions 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 disinterested shareholders and the Board of Directors.
Pursuant to Section 13.1-646 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) or 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
Prior to 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 up to 450,820 shares of 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. Diversified, an affiliate of Mr.
Jacobs, will deliver prior to the consummation of the Offering a $6.5 million
irrevocable letter of credit to be used by the Company to meet its current
funding requirements and CD Entertainment Ltd. will keep in place $3.5 million
of existing financing. It is expected that the $6.5 million letter of credit
will be replaced by a $10 million credit facility from either an institutional
lender or by Diversified prior to the opening of the Track. The Company has
entered into a non-binding letter of intent with a commercial bank 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 and be secured by
a first lien on all or substantially all of the Company's assets. 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. 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 monthly, 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. Interest on, and terms of repayment of,
amounts drawn under the $6.5 million letter of credit or amounts loaned by
Diversified with respect to the Credit Facility shall be identical. 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 by Diversified prior to closing, and to repay
approximately $3.5 million of interim financing provided by CD Entertainment
Ltd.
47
<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 (as amended, effective in April 1997), a person who
holds Restricted Shares that were acquired from the Company or an affiliate of
the Company at least one year 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 two 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
one year, 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.
Until the distribution of the Class A Common Stock is completed, rules
of the Securities and Exchange Commission may limit the ability of the
Underwriters and certain selling group members to bid for and purchase the Class
A Common Stock. As an exception to these rules, the Representative is permitted
to engage in certain transactions that stabilize the price of the Class A Common
Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Class A Common Stock.
If the Underwriters create a short position in the Class A Common Stock
in connection with the Offering (i.e., if they sell more shares of Class A
Common Stock than are set forth on the cover page of this Prospectus), the
Representative may reduce that short position by purchasing Class A Common Stock
in the open market. The Representative may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
The Representative may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the Representative
purchases shares of Class A Common Stock in the open market to reduce the
Underwriters' short position or to stabilize the price of the Class A Common
Stock, it may reclaim the amount of the selling concession from the Underwriters
and selling group members who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Class A Common
Stock. In addition, neither the Company nor any of the Underwriters makes any
representation that the Representative will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
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
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, except for the
Reorganization described in Note 1,
which is as of March 12, 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--stockholders
(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--stockholders......... (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 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........................ 327,429 (159,744) (18,648)
---------- ---------- ---------
Investing activities
Purchases of property and equipment......... (5,770,758) (436,570) (223,240)
Increase in purses due horsemen............. 1,957,683 - -
Investment in other assets.................. (186,332) (483,649) (199,343)
---------- ---------- ---------
Net cash absorbed by investing activities..... (3,999,387) (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) - -
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..... 4,721,776 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 $ - $ -
---------- ---------- ---------
Capital lease obligations incurred............ $ 39,483 $ - $ -
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
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, respectively. Prior to the Reorganization
(defined below), Stansley Management Corp. ("SMC") and CD Entertainment Ltd.
each owned 50% of the Partnership. CD Entertainment Ltd. is beneficially owned
by Jeffrey P. Jacobs, and Gary L. Bryenton and Jeffrey P. Jacobs as Trustees.
Also prior to the Reorganization, SMC was owned 68% by Arnold W. Stansley and
30% by James M. Leadbetter, with the balance held by two other individuals; and
Mr. Stansley owned 70% of the outstanding capital stock of SRC with Mr.
Leadbetter owning the remaining 30%. 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 became a holding company for the
Partnership and SRC pursuant to an Agreement and Plan of Reorganization
("Reorganization"). Pursuant to the Reorganization, CD Holdings acquired, 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 acquired a 1% general partner interest
in the Partnership.
As a result of the Reorganization, the Company owns, directly or
through its wholly-owned subsidiaries, the ownership and operating licenses for
the racetrack and the Chesapeake, Richmond, and Hampton Satellite Wagering
Facilities ("SWFs"); the property for the Richmond 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 received 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. The
Company will bear all expenses associated with the management and operation of
the thoroughbred meet. Under the agreement, approximately $739,000 of costs were
incurred through December 31, 1996.
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-Viginia Racing
Circuit, Inc. and the Maryland Jockey Club if the Maryland Jockey Club cannot,
or elects not to, cease live 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 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.
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 racetrack and certain ancillary activities. The land
will be recorded at fair value, which the Company estimates to be approximately
$5,000,000 (unaudited), due to the contribution being made from an
independent third party. Conveyance will occur upon the completion of the IPO at
which time the land will be recorded as a refundable advance with an offset to a
liability account. The refundable deposit will be reclassified to land, and the
corresponding liability will be reclassified to contributed capital when the
likelihood for reversion is remote, which will be when the company completes
the racing facility and has shown the ability to conduct live racing during
the next three years.
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 Notes 1 and 7).
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 Ltd. 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 shareholder CD Entertainment
Ltd., 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 shareholder James M. Leadbetter, is engaged
as the general contractor to construct the racetrack and related facilities in
New Kent County, Virginia. The original contract value with Norglass, Inc. for
the facilities (which does not include approximately $8.1 million for certain
equipment, furniture, fixtures and infrastructure improvements and professional
fees) 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 September 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, CD Entertainment Ltd., 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).
Upon consummation of the IPO, the Company will enter into a five-year
consulting agreement with Arnold Stansley. Under the agreement, Mr. Stansley
will receive $75,000 annually.
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>
10. Income Taxes
If the consolidated group of companies had been treated as a "C"
corporation for income tax purposes for the three years presented, no income tax
expense would have been recorded due to the net operating losses incurred.
Pro forma deferred tax assets and liabilities of the Company, assuming
conversion to a "C" corporation, are as follows at December 31, 1996:
Deferred tax assets
Licensing costs............... $160,000
Net operating losses.......... 164,000
Accrued management fees....... 80,000
--------
404,000
Deferred tax liabilities
Property and equipment........ (28,000)
--------
Net deferred tax asset prior
to valuation allowance......... 376,000
Less valuation allowance (376,000)
--------
--
========
F-16
<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 transactions 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
===============================================================================
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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................................... 4,750
Nasdaq Stock Market fee........................... 10,000
Blue Sky fees and expenses........................ 65,000
Printing.......................................... 75,000
Transfer agent's fees and expenses................ 5,000
Attorneys' fees and expenses...................... 375,000
Accountants' fees and expenses.................... 70,000
Miscellaneous..................................... 3,958
-------
Total ................................ $625,000
=======
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,
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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 7 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 $5 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:
On March 12, 1997, the Company issued 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.
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Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit Number Description
+1.1 Form of Underwriting Agreement
+2.1 Agreement of Reorganization dated February 12, 1997
+3.1 Amended and Restated Articles of Incorporation of Colonial
Downs Holdings, Inc.
+3.2 Amended and Restated By-laws of Colonial Downs Holdings, Inc.
+4.1 Stock certificate representing Colonial Downs Holdings, Inc.
Common Stock
+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 Amended and Restated 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 Forms of Employment Agreements
+10.11 Form of Stansley Consulting Agreement
+10.12 Amended and Restated Promissory Note to CD Entertainment Ltd.
+10.13 Agreement for Interim Financing
+10.14 Registration Rights Agreement
+10.15 Form of Amended and Restated 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
=============
+ 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.
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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.
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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 March, 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 March 14, 1997
- -------------------------- and Chief Executive Officer
Jeffrey P. Jacobs
/s/ Arnold W. Stansley* Secretary and Director March 14, 1997
- --------------------------
Arnold W. Stansley
/s/ Robert H. Hughes Director and
- -------------------------- Chief Financial Officer March 14, 1997
Robert H. Hughes
/s/ Michael D. Salmon Controller March 14, 1997
- --------------------------
Michael D. Salmon
* By Jeffrey P. Jacobs,
Attorney-in-Fact
Director March 14, 1997
- --------------------------
David C. Grunenwald
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EXHIBIT INDEX
Exhibit Number Description Page Number
- -------------- ----------- -----------
+1.1 Form of Underwriting Agreement
+2.1 Agreement of Reorganization dated February 12, 1997
+3.1 Amended and Restated Articles of Incorporation of Colonial
Downs Holdings, Inc.
+3.2 Amended and Restated By-laws of Colonial Downs Holdings, Inc.
+4.1 Stock certificate representing Colonial Downs Holdings, Inc.
Common Stock
+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 Amended and Restated 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 Forms of Employment Agreements
+10.11 Form of Stansley Consulting Agreement
+10.12 Amended and Restated Promissory Note to CD Entertainment Ltd.
+10.13 Agreement for Interim Financing
+10.14 Registration Rights Agreement
+10.15 Form of Amended and Restated 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
=============
+ Filed previously
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
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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
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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: _______________
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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: _______________
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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
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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.
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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
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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.
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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.
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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
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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
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SCHEDULE D
RESOLVED, That the Board of Directors of Chesapeake Forest Products Company
ratifies and confirms the provisions of a Development Agreement dated as of
October 16, 1996, by and between Colonial Downs, L.P. and Delmarva Properties,
Inc. (the "Agreement"), to the extent that such Agreement provides for the
Company to (a) execute and deliver the necessary applications and requests for
all of the permits and approvals necessary to construct, use and maintain water
and sanitary sewer lines as provided in the Agreement, (b) convey real estate
designated in the Agreement as the Track Parcel, (c) convey all of the easements
required to construct water and sanitary sewer lines and Roads (as designated in
the Agreement) and to dedicate those portions of the Remaining Land (as
designated in the Agreement) required by the County of New Kent and/or the
Virginia Department of Transportation with respect to the Loop Road (as
designated in the Agreement), and (d) to take any other action to be taken by
the Company pursuant to the Agreement.
The undersigned, J.P. Causey Jr., Secretary of Chesapeake Forest Products
Company, does hereby certify that the foregoing is a true and correct copy of a
resolution adopted by unanimous consent of the Board of Directors of the Company
as of October 16, 1996, and that such resolution has not been modified, and
remains in full force and effect, as of this date.
WITNESS my hand and the seal of the Company this 23rd day of October, 1996.
______________________________
Secretary
SEAL
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SCHEDULE E
RESOLVED, That the Board of Directors of Chesapeake Forest Products Company
ratifies and confirms the provisions of a Development Agreement dated as of
October 16, 1996, by and between Colonial Downs, L.P. and Delmarva Properties,
Inc. (the "Agreement"), to the extent that such Agreement provides for the
Company to (a) execute and deliver the necessary applications and requests for
all of the permits and approvals necessary to construct, use and maintain water
and sanitary sewer lines as provided in the Agreement, (b) convey real estate
designated in the Agreement as the Track Parcel, (c) convey all of the easements
required to construct water and sanitary sewer lines and Roads (as designated in
the Agreement) and to dedicate those portions of the Remaining Land (as
designated in the Agreement) required by the County of New Kent and/or the
Virginia Department of Transportation with respect to the Loop Road (as
designated in the Agreement), and (d) to take any other action to be taken by
the Company pursuant to the Agreement.
The undersigned, J.P. Causey Jr., Secretary of Chesapeake Forest Products
Company, does hereby certify that the foregoing is a true and correct copy of a
resolution adopted by unanimous consent of the Board of Directors of the Company
as of October 16, 1996, and that such resolution has not been modified, and
remains in full force and effect, as of this date.
WITNESS my hand and the seal of the Company this 23rd day of October, 1996.
______________________________
Secretary
SEAL
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
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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
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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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<PAGE>
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.
15
<PAGE>
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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<PAGE>
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.
17
<PAGE>
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
19
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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"
20
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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.
22
<PAGE>
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
<PAGE>
EXHIBIT A
PLAN FOR RACETRACK
[OMITTED]
<PAGE>
EXHIBIT B
RIGHT ENTRY AND INDEMNIFICATION AGREEMENT
This Right of Entry is granted and this Indemnification Agreement is made
as of the 1st day of January, 1995, by and between CHESAPEAKE FOREST PRODUCTS
COMPANY, a Virginia Corporation ("Chesapeake"), DELMARVA PROPERTIES, INC., a
Virginia Corporation ("Delmarva"), and COLONIAL DOWNS, L.P., a Virginia limited
partnership ("Colonial Downs").
Recitals:
R-1 Chesapeake and Delmarva are the owners of 345.0 acres of land lying in
New Kent County, Virginia, lying south of Interstate Highway 64 and east of
State Route 155 ("the Property"), as generally shown on plat of survey dated
12/01/94, made by Resource International, Ltd., which plat of survey is attached
hereto to be read as a part hereof. Said plat of survey is subject to future
revisions, and is attached hereto for purposes of general information.
R-2 Colonial Downs and its affiliate, Stansley Racing Corp., hold an
Owner's License and Operator's License, respectively, to develop, construct,
maintain and operate a horse racing track and appurtenant facilities on the
Property, issued by the Virginia Racing Commission on the 12th day of October,
1994.
<PAGE>
Property to a predecessor in interest to Colonial Downs by deed on a date to be
determined ("the Conveyance Date"), upon terms and conditions previously
represented to Colonial Downs or its predecessors in interest.
R-4 Chesapeake and Delmarva have agreed to grant to Colonial Down certain
rights in the Property prior to the Conveyance Date, and Colonial Downs has
agreed to save Chesapeake and Delmarva harmless from loss or damage resulting
from Colonial Down's exercise of such rights, upon the terms and conditions
contained herein.
R-5 It is in Chesapeake's and Delmarva's interests to have Colonial Downs
developing the Property as a racetrack adjacent to other lands owned by
Chesapeake and Delmarva.
W I T N E S S E T H :
That for and in consideration of the above, and in further consideration of
the covenants and condition contained below, the parties agree and represent as
follows:
1. License and Right of Entry Chesapeake and Delmarva have granted and
hereby grant to Colonial Downs, its agents, representives, employees,
engineers, surveyors and
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<PAGE>
Property to inspect, examine, survey and make test borings, soil tests,
environmental tests and such other tests and surveys as Colonial Downs may deem
necessary or desirable; to clear, grade, construct and install erosion and
sediment control devices and drainage facilities; to move construction trailers
onto the Property; and, to perform such other site work as may be necessary to
prepare the site for the construction of a horse racing track and appurtenant
facilities. The parties agree that: (i) no improvements shall be made to the
Property beyond those site preparation and other matters specified above without
the prior written consent of Chesapeake and Delmarva; (ii) all future site
preparation work prior to the conveyance date shall be in accordance with plans
approved in writing by Chesapeake and Delmarva prior to commencement of work;
(iii) that site preparation and other work on the Property performed by Colonial
Downs through December 31, 1994, has been and is hereby consented to and
approved by Delmarva and Chesapeake; and (iv) Chesapeake and Delmarva have
heretofore approved, and do hereby confirm such approval, Colonial Downs
timbering the Property and using the proceeds derived therefrom to reimburse
part of the costs of clearing and grading the Property for a race track.
Further, Delmarva and Chesapeake agree to neither unreasonably withhold nor
delay such approval when requested by Colonial Downs, provided such request is
accompanied by appropriate explanatory documents.
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<PAGE>
a. Term. This right of entry shall commence upon execution of this
agreement by all parties and shall expire on the earlier to occur of the
following: (i) the Conveyance Date; (ii) July 1, 1995; or (iii) cancellation of
this Agreement by any party. The July 1, 1995 date aforesaid may be extended by
a simple amendment to this agreement if executed by all three parties hereto.
b. Cancellation. This Agreement may be canceled by any party at any
time for cause by giving written notice to the other parties the manner set
forth herein at least three (3) business days in advance of the effective date
of the cancellation. For purposes of this Agreement, "cause" includes, but is
not limited to, final revocation of Colonial Downs' owner's and/or operator's
licenses by the Virginia Racing Commission.
c. No Damage, Restoration of Property. In its exercise of this rights
granted hereby, Colonial Downs covenants that it will not damage the Property
nor commit waste thereon. The parties agree that site preparation work as
approved in advance by Chesapeake and Delmarva shall not be considered or deemed
to be waste or damage. Upon the expiration of this right of entry, any changes
in the character of the Property caused by Colonial Downs through the exercise
of rights granted herein will
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<PAGE>
be left as is secured by Colonial Downs, as Chesapeake and Delmarva reasonably
deem appropriate and as is necessary to preservice and protect the Property.
Colonial Downs shall have no obligation to restore any changes to the Property
occurring (i) through December 31, 1994, or (ii) subsequent to December 31, 1994
as a result of site preparation work agreed to in this Agreement or subsequently
approved in advance by Chesapeake and Delmarva. Colonial Downs shall also have
no obligation to restore the Property if this right of entry terminates due to
the conveyance of the Property to Colonial Downs.
d. Test Results. Upon the expiration of this right of entry for any
reason other than conveyance of the Property to Colonial Downs, Colonial Downs
will furnish to Chesapeake and Delmarva the results of all tests performed on
the property, including but not limited to copies of all reports, surveys,
assessments, data compilations, et cetera, all at no cost to Chesapeake or
Delmarva.
2. Indemnification. Colonial Downs does agree with Chesapeake and
Delmarva to forever fully protect, defend and save harmless Chesapeake, Delmarva
(including their respective directors, officers, employees, agents, contractors,
assigns, and successors) from and against all loss, costs, damages and
reasonable attorney's fees which Chesapeake and Delmarva may suffer, expend or
incur under, by reason of, or in consequence of
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<PAGE>
the granting of or exercise of this right of entry, including but not limited to
loss due to personal injury, death or property damage.
3. General Provisions.
a. Binding On Successors. This Agreement is binding upon the
successors and assigns of the parties.
b. No Assignment. This Agreement may not be assigned in whole or in
party by Colonial Downs.
c. Entire Agreement. This document contains the entire agreement
between the parties with respect to the subject matter hereof and may not be
amended, modified or altered except by written agreement signed by all parties.
This Agreement supplants, supersedes and cancels any and all prior rights of
entry and indemnification agreements (but not other agreements) between the
parties with respect to the Property.
d. Application and Construction of Agreement. This Agreement is to
be applied, construed, or interpreted under the laws of the Commonwealth of
Virginia.
e. Due Authority. Each person executing this agreement on behalf of
his respective corporation or limited
-6-
<PAGE>
partnership represents that he acts with the full knowledge and upon direction
of his corporation or partnership, as the case may be, and with the express and
unreserved authority of his corporation or partnership,
f. Notices. Any and all notices required, permitted or desired to
be sent hereunder shall be sent either by U.S. Mail, certified, return receipt
requested, postage prepaid, or by recognized overnight courier service (such
as, for example, FedEx) with chargers prepaid or prebilled, to the following
parties at the following addresses:
Chesapeake and Joel K. Mostrom
Delmarva: Delmarva Properties, Inc.
14th and Lee Streets
P.O. Box 1700
West Point, VA 23181
with a copy to: James H. Hudson III, Esq.
Hudson & Bondurant, P.C.
826 East Main Street
P.O. Box 231
West Point, VA 23181
Colonial Downs: c/o Arnold Stansley
Raceway Park
5700 Telegraph Road
Toledo, Ohio 43612
with a copy to: L. Charles Long, Jr.
Hirschler, Fleischer, Weinberg, Cox
& Allen a Professional Corp.
(if by mail) P.O. Box 500
Richmond, Virginia 23204-5000
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<PAGE>
(or if by courier) Federal Reserve Bank Building
15th Floor
701 East Byrd Street
Richmond, Virginia 23219
Any party may provide alternative addresses to the others pursuant to the
provisions of this paragraph.
Witness the following signatures as of the day, month and year first
written above.
CHESAPEAKE FOREST PRODUCTS
COMPANY
By: /s/ Joel K. Mostrom
------------------------
Title: Vice President, Delmarva Properties, Inc.
Agent U/A dated May ??, 1993
DELMARVA PROPERTIES, INC.
By: /s/ Joel K. Mostrom
------------------------
Title: Vice President, Delmarva Properties, Inc.
Agent U/A dated May 18, 1993
COLONIAL DOWNS, L.P., a Virginia
limited partnership
By: /s/ Arnold Stansley
------------------------
General Partner
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<PAGE>
FIRST AMENDMENT TO RIGHT OF
ENTRY AND INDEMNIFICATION AGREEMENT
THIS FIRST AMENDMENT TO RIGHT OF ENTRY AND INDEMNIFICATION AGREEMENT is
made as of this 1st day of July, 1995, by and between CHESAPEAKE FOREST PRODUCTS
COMPANY, a Virginia corporation, DELMARVA PROPERTIES, INC., a Virginia
corporation and COLONIAL DOWNS, L.P., a Virginia limited partnership.
WHEREAS, the parties are parties to a Right of Entry and
Indemnification Agreement, dated January 1, 1994 (the "Agreement");
WHEREAS, the Agreement provides that it shall expire upon the earlier
to occur of: (i) the Conveyance Date (as defined in the Agreement); (ii) July 1,
1995; or (iii) cancellation of this Agreement by any party; and
WHEREAS, the Agreement further provides that the July 1, 1995 date
aforesaid may be extended by a simple amendment to the Agreement if executed by
all three parties hereto.
NOW, THEREFORE, in consideration for the mutual promises and covenants
contained herein and in the Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. Amendment. Section 1(a) of the Agreement is deleted in its entirety
and replaced with the following:
a. Term. This right of entry shall commence upon execution of this
agreement by all parties and shall expire on the earlier to occur of the
following: (i) the Conveyance Date; (ii) December 31, 1995; or (iii)
cancellation of this Agreement by any party. The December 31, 1995 date
aforesaid may be extended by a simple amendment to this agreement if
executed by all three parties hereto.
2. Ratification of the Agreement. Except as amended in Section 1
hereof, the Agreement is hereby ratified and confirmed and shall remain in full
force and effect.
IN WITNESS WHEREOF, each of the parties hereto have caused
<PAGE>
this instrument to be executed as of the day, month and year first written above
in its name to due authority.
CHESAPEAKE FOREST PRODUCTS
COMPANY
By: /s/ Joel K. Mostrom
----------------------------
Vice President, Delmarva Properties, Inc.
Agent U/A dated May 18, 1993
DELMARVA PROPERTIES, INC.
By: /s/ Joel K. Mostrom
----------------------------
Vice President, Delmarva Properties, Inc.
Agent U/A dated May 18, 1993
COLONIAL DOWNS, L.P., a Virginia
limited partnership
By: Stansley Management Corp., its
General Partner
By: /s/ Brett L. Stansley
-----------------------------
Brett L. Stansley
Vice President
<PAGE>
SECOND AMENDMENT TO RIGHT OF
ENTRY AND INDEMNIFICATION AGREEMENT
THIS SECOND AMENDMENT TO RIGHT OF ENTRY AND INDEMNIFICATION AGREEMENT
is made as of this 31st day of December, 1995, by and between CHESAPEAKE FOREST
PRODUCTS COMPANY, a Virginia corporation, DELMARVA PROPERTIES, INC., a Virginia
corporation, and COLONIAL DOWNS, L.P., a Virginia limited partnership.
WHEREAS, the parties are parties to a Right of Entry and
Indemnification Agreement, dated as of January 1, 1994, as amended by a First
Amendment, dated as of July 1, 1995 (as so amended, the "Agreement");
WHEREAS, the Agreement provides that it shall expire upon the earlier
to occur of: (i) the Conveyance Date (as defined in the Agreement); (ii)
December 31, 1995; or (iii) cancellation of this Agreement by any party; and
WHEREAS, the Agreement further provides that the December 31, 1995 date
aforesaid may be extended by a simple amendment to the Agreement if executed by
all three parties hereto.
NOW, THEREFORE, in consideration for the mutual promises and covenants
contained herein and in the Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. Amendment. Section 1(a) of the Agreement is deleted in its entirety
and replaced with the following:
a. Term. This right of entry shall commence upon execution of this
agreement by all parties and shall expire on the earlier to occur of the
following: (i) the Conveyance Date; (ii) July 1, 1996; or (iii)
cancellation of this Agreement by any party. The July 1, 1996 date
aforesaid may be extended by a simple amendment to this agreement if
executed by all three parties hereto.
2. Ratification of the Agreement. Except as amended in Section 1
hereof, the Agreement is hereby ratified and confirmed and shall remain in full
force and effect.
IN WITNESS WHEREOF, each of the parties hereto have caused
<PAGE>
this instrument to be executed as of the day, month and year first written above
in its name to due authority.
CHESAPEAKE FOREST PRODUCTS
COMPANY
By:
----------------------------
Vice President, Delmarva Properties, Inc.
Agent U/A dated May 18, 1993
DELMARVA PROPERTIES, INC.
By:
----------------------------
Vice President
Agent U/A dated May 18, 1993
COLONIAL DOWNS, L.P., a Virginia
limited partnership
By: Stansley Management Corp., its
General Partner
By:
-----------------------------
Brett L. Stansley
Vice President
<PAGE>
THIRD AMENDMENT TO RIGHT OF
ENTRY AND INDEMNIFICATION AGREEMENT
THIS THIRD AMENDMENT TO RIGHT OF ENTRY AND INDEMNIFICATION AGREEMENT
is made as of this 30th day of June, 1996, by and between CHESAPEAKE FOREST
PRODUCTS COMPANY, a Virginia corporation, DELMARVA PROPERTIES, INC., a Virginia
corporation and COLONIAL DOWNS, L.P., a Virginia limited partnership.
WHEREAS, the parties are parties to a Right of Entry and
Indemnification Agreement, dated as of January 1, 1994, as amended by a First
Amendment, dated as of July 1, 1995, and a Second Amendment, dated as of
December 31, 1995 (as so amended, the "Agreement");
WHEREAS, the Agreement provides that it shall expire upon the earlier
to occur of: (i) the Conveyance Date (as defined in the Agreement); (ii)
July 1, 1996; or (iii) cancellation of this Agreement by any party; and
WHEREAS, the Agreement further provides that the July 1, 1996 date
aforesaid may be extended by a simple amendment to the Agreement if executed by
all three parties hereto.
NOW, THEREFORE, in consideration for the mutual promises and covenants
contained herein and in the Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. Amendment. Section 1(a) of the Agreement is deleted in its entirety
and replaced with the following:
a. Term. This right of entry shall commence upon execution of this
agreement by all parties and shall expire on the earlier to occur of the
following: (i) the Conveyance Date; (ii) January 1, 1997; or (iii)
cancellation of this Agreement by any party. The January 1, 1997 date
aforesaid may be extended by a simple amendment to this agreement if
executed by all three parties hereto.
2. Ratification of the Agreement. Except as amended in Section 1
hereof, the Agreement is hereby ratified and confirmed and shall remain in full
force and effect.
IN WITNESS WHEREOF, each of the parties hereto have caused
<PAGE>
this instrument to be executed as of the day, month and year first written above
in its name to due authority.
CHESAPEAKE FOREST PRODUCTS
COMPANY
By:
----------------------------
Vice President, Delmarva Properties, Inc.
Agent U/A dated May 18, 1993
DELMARVA PROPERTIES, INC.
By:
----------------------------
Vice President
Agent U/A dated May 18, 1993
COLONIAL DOWNS, L.P., a Virginia
limited partnership
By: Stansley Management Corp., its
General Partner
By:
-----------------------------
Brett L. Stansley
Executive Vice President
<PAGE>
FOURTH AMENDMENT TO RIGHT OF
ENTRY AND INDEMNIFICATION AGREEMENT
THIS FOURTH AMENDMENT TO RIGHT OF ENTRY AND INDEMNIFICATION AGREEMENT
is made as of this 16th day of October, 1996, by and between CHESAPEAKE FOREST
PRODUCTS COMPANY, a Virginia corporation, DELMARVA PROPERTIES, INC., a Virginia
corporation and COLONIAL DOWNS, L.P., a Virginia limited partnership.
WHEREAS, the parties are parties to a Right of Entry and
Indemnification Agreement, dated as of January 1, 1994, as amended by a First
Amendment, dated as of July 1, 1995, and a Second Amendment, dated as of
December 31, 1995, and a Third Amendment, dated as of June 30, 1996 (as so
amended, the "Agreement");
WHEREAS, the Agreement provides that it shall expire upon the earlier
to occur of: (i) the Conveyance Date (as defined in the Agreement); (ii) January
1, 1997; or (iii) cancellation of this Agreement by any party; and
WHEREAS, the Agreement further provides that the January 1, 1997 date
aforesaid may be extended by a simple amendment to the Agreement if executed by
all three parties hereto.
NOW, THEREFORE, in consideration for the mutual promises and covenants
contained herein and in the Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. Amendment. Section 1(a) of the Agreement is deleted in its entirety
and replaced with the following:
a. Term. This right of entry shall commence upon execution of this
agreement by all parties and shall expire on the earlier to occur of the
following: (i) the Conveyance Date; (ii) the expiration or termination of a
Development Agreement, dated as of the date hereof, between Delmarva
Properties, Inc. and Colonial Downs, L.P.; or (iii) cancellation of this
Agreement by any party. The expiration date aforesaid may be extended by a
simple amendment to this agreement if executed by all three parties hereto.
2. Ratification of the Agreement. Except as amended in Section 1
hereof, the Agreement is hereby ratified and confirmed and shall remain in full
force and effect.
IN WITNESS WHEREOF, each of the parties hereto have caused
<PAGE>
this instrument to be executed as of the day, month and year first written above
in its name to due authority.
CHESAPEAKE FOREST PRODUCTS
COMPANY
By:
----------------------------
President, Delmarva Properties, Inc.
Agent U/A dated May 18, 1993
DELMARVA PROPERTIES, INC.
By:
----------------------------
President
Agent U/A dated May 18, 1993
COLONIAL DOWNS, L.P., a Virginia
limited partnership
By: Stansley Management Corp., its
General Partner
By:
-----------------------------
Brett L. Stansley
Executive Vice President
<PAGE>
EXHIBIT C
OPTION PROPERTY
That certain piece or parcel of land containing approximately 73 acres located
in New Kent County, Virginia, and designed as the "Option Property" on the Road
Plan attached as Exhibit E to the Development Agreement to which this Exhibit C
is attached.
<PAGE>
EXHIBIT D
MAP OF PROPERTY
[OMITTED]
<PAGE>
EXHIBIT E
ROAD PLAN
[OMITTED]
<PAGE>
EXHIBIT F
SURVEY OF PROPERTY
[OMITTED]
<PAGE>
EXHIBIT G
PROPOSED WATER AND WASTEWATER FACILITIES
Delmarva Properties, Inc. will construct a central water system and turn it over
to New Kent County to own and operate. The water system will be comprised of one
deep well into the Potomac Aquifers; a well pump capable of pumping 800 gpm
against approximately 300' TDH; a 250,000 gallon elevated storage tank; and a
12" diameter water line to Colonial Downs' backside (southern) property line.
The Virginia Department of Health ("VDH") requires storage in the amount of
one-half day's potable water demand, which for Colonial Downs would require
storage of approximately 75,000 gallons. The fire flow demand for Colonial
Downs, as determined by the Grandstand, is 2,200 gpm for 120 minutes, or 264,000
gallons. As requested by Colonial Downs, a standard sized 250,000 gallon
storage tank will be provided to address its fire suppression water storage
requirements.
Delmarva Properties, Inc. will construct a wastewater treatment system and turn
it over to New Kent County to own and operate. In the initial phase of
wastewater treatment, the race track will be the only user. Therefore, the
initial phase of plant construction will be to construct one of the approved
aerated lagoons, a chlorine disinfection system, and a pump station and force
main to transfer the treated wastewater to the ponds in the interior of the race
track for reuse as irrigation water. The single aerated lagoon will have the
capacity to treat up to approximately 200,000 GPD to the current required
treatment limits for reuse.
The existing VPDES permit must be amended to allow for the reuse of the treated
wastewater at the race track. The amended permit will also include the
requirements for the construction of the holding pond and the allowable
application areas for the treated wastewater.
<PAGE>
EXHIBIT G (Continued)
ROAD DESCRIPTIONS
Entrance Road: A four-lane divided road section with curb and gutter built to
V.D.O.T. specifications for a design speed of 45 M.P.H.
Loop Road: A four-lane divided road section with curb and gutter built to
V.D.O.T. specifications for a design speed of 45 M.P.H.
Maintenance Road: A two-lane road section with open drainage constructed to a
mutually agreed upon level of service with a dust free travel surface.
<PAGE>
EXHIBIT H
WATER AND WASTEWATER ANALYSIS
[OMITTED]
<PAGE>
EXHIBIT I
FORM OF DEED FOR PROPERTY
[INCLUDED AS EXHIBIT 10.3 TO REGISRATION STATEMENT]
<PAGE>
EXHIBIT J
RESOLVED, That the Board of Directors of Chesapeake Forest Products Company
ratifies and confirms the provisions of a Development Agreement dated as of
October 16, 1996, by and between Colonial Downs, L.P. and Delmarva Properties,
Inc, (the "Agreement"), to the extent that such Agreement provides for the
Company to (a) execute and deliver the necessary applications and requests for
all of the permits and approvals necessary to construct, use and maintain water
and sanitary sewer lines as provided in the Agreement, (b) convey real estate
designated in the Agreement as the Track Parcel, (c) convey all of the easements
required to construct water and sanitary sewer lines and Roads (as designated in
the Agreement) and to dedicate those portions of the Remaining Land (as
designated in the Agreement) required by the County of New Kent and/or the
Virginia Department of Transportation with respect to the Loop Road (as
designated in the Agreement), and (d) to take any other action to be taken by
the Company pursuant to the Agreement.
The undersigned, J.P. Causey Jr., Secretary of Chesapeake Forest Products
Company, does hereby certify that the foregoing is a true and correct copy of a
resolution adopted by unanimous consent of the Board of Directors of the Company
as of October 16, 1996, and that such resolution has not been modified, and
remains in full force and effect, as of this date.
WITNESS my hand and the seal of the Company this 23rd day of October, 1996.
--------------------------
Secretary
SEAL
Exhibit 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Colonial Downs Holdings, Inc.
Providence Forge, Virginia
As independent certified public accountants, we hereby consent to the use of our
report dated February 10, 1997, except for the Reorganization described in Note
1, which is as of March 12, 1997 (and to all references to our Firm) included in
or made a part of this registration statement.
BDO Seidman, LLP
Richmond, Virginia
March 14, 1997
