SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File number 333-18295
COLONIAL DOWNS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1826807
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
10515 Colonial Downs Parkway
New Kent, Virginia 23124
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code:
(804) 966-7223
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock.
Class Outstanding at October 31, 1998
Class A Common Stock, $.01 par value 5,000,000
Class B Common Stock, $.01 par value 2,250,000
<PAGE>
COLONIAL DOWNS HOLDINGS, INC. AND SUBSIDIARIES
INDEX
Page Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets --
September 30, 1998 (unaudited) and December 31, 1997 3
Consolidated Statements of Earnings (Loss)--
Three and Nine Month Periods Ended
September 30, 1998 and 1997 (unaudited) 4
Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 1998 and 1997 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 9
Part II. Other Information
Item 1. Legal Proceedings 13
Item 3. Defaults Upon Senior Securities 13
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE>
Part I. Financial Information
COLONIAL DOWNS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------- ---------------------
<S> <C> <C>
Assets (unaudited)
Current assets
Cash and cash equivalents $ 1,295 $ 3,348
Horsemen's deposits 2,213 1,657
Accounts receivable 395 293
Prepaid expenses 622 497
Refundable income taxes 34 218
------------------- ---------------------
Total current assets 4,559 6,013
Property and equipment 62,554 61,275
Less accumulated depreciation and amortization 1,674 660
------------------- ---------------------
Net property and equipment 60,880 60,615
Other
Licensing costs, net of amortization 794 841
Miscellaneous 304 406
------------------- ---------------------
Total other 1,098 1,247
------------------- ---------------------
Total assets $ 66,537 $ 67,875
=================== =====================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 4,033 $ 9,276
Accounts payable - arbitration 4,083 2,402
Accrued expenses 1,166 637
Current maturities of long-term debt and capital
lease obligations 16,953 1,373
Deferred revenue 205 195
Purses due horsemen 1,915 1,597
------------------- ---------------------
Total current liabilities 28,355 15,480
Long-term liabilities
Long-term debt and capital lease obligations, net
of current maturities 97 9,890
Notes payable - related parties 5,500 5,500
Deferred income taxes 84 84
------------------- ---------------------
Total long-term liabilities 5,681 15,474
Stockholders' equity
Common stock
Class A, $.01 par value, 12,000,000 shares
authorized; 5,000,000 outstanding 50 50
Class B, $.01 par value, 3,000,000 shares
authorized; 2,250,000 shares outstanding 22 22
Additional paid in capital 37,842 37,842
Retained earnings (deficit) (5,413) (993)
------------------- ---------------------
Total stockholders' equity 32,501 36,921
------------------- ---------------------
Total liabilities and stockholders' equity $ 66,537 $ 67,875
=================== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COLONIAL DOWNS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
1998 1997 1998 1997
---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Revenues
Pari-mutuel and simulcasting
commissions $ 6,941 $ 5,959 $ 20,218 $ 15,631
Other 806 1,194 2,069 1,983
-------- -------- -------- --------
Total revenues 7,747 7,153 22,287 17,614
-------- -------- -------- --------
Operating expenses
Direct operating expenses
Purses, fees and pari-mutuel taxes 2,721 2,158 7,922 6,035
Simulcast and other direct expenses 4,701 3,663 13,276 8,284
Depreciation and amortization 411 185 1,299 392
-------- -------- -------- --------
Total direct operating expenses 7,833 6,006 22,497 14,711
Selling, general and administrative
expenses 941 1,262 2,770 2,145
-------- -------- -------- --------
Total operating expenses 8,774 7,268 25,267 16,856
-------- -------- -------- --------
Earnings (loss) from operations (1,027) (115) (2,980) 758
Other income (expense)
Interest expense (528) (32) (1,485) (116)
Interest income 14 268 45 707
-------- -------- -------- --------
Earnings (loss) before income taxes (1,541) 121 (4,420) 1,349
Income taxes -- 41 -- 367
-------- -------- -------- --------
Net earnings (loss) $ (1,541) $ 80 $ (4,420) $ 982
======== ======== ======== ========
Earnings per share data
Basic and diluted earnings per share $ (0.21) $ 0.01 $ (0.61) $ 0.16
======== ======== ======== ========
Weighted average number of shares
outstanding 7,250 7,250 7,250 6,051
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COLONIAL DOWNS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Operating activities
Net earnings (loss) $ (4,420) $ 982
Adjustments to net earnings (loss)
Depreciation and amortization 1,299 392
(Increase) in accounts receivable and other assets (180) (1,321)
Increase in accounts payable 951 2,484
Increase in accrued expenses and other 539 711
(Decrease) in horsemen's deposits and
purses (net) (238) --
-------- --------
Net cash (used in) provided by operating activities (2,049) 3,248
Investing activities
Purchases of property and equipment (1,279) (43,750)
(Decrease) increase in construction payables (4,512) 7,689
Investment in other assets -- (151)
-------- --------
Net cash used in investing activities (5,791) (36,212)
Financing activities
Proceeds from long-term debt and capital leases 6,325 5,561
Payments on long-term debt and capital leases (538) --
Net proceeds from stock offering -- 36,192
Funding of purse account promissory notes -- (1,546)
Payments on stockholders' advances and notes payable -- (1,638)
Proceeds from stockholder notes payable -- 2,051
-------- --------
Net cash provided by financing activities 5,787 40,620
-------- --------
Net (decrease) increase in cash and cash equivalents (2,053) 7,656
Cash and cash equivalents, beginning of year 3,348 1,380
-------- --------
Cash and cash equivalents, end of period $ 1,295 $ 9,036
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COLONIAL DOWNS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying consolidated financial
statements of Colonial Downs Holdings, Inc. (the "Company") have been
prepared in accordance with generally accepted accounting principles for
interim reporting, with applicable reporting regulations of the Securities
and Exchange Commission, and present fairly, in all material respects, the
Company's financial position as of September 30, 1998 and the results of
operations and the consolidated cash flows for the three and nine month
periods ended September 30, 1998 and 1997. All adjustments are of a normal,
recurring nature. The financial statements do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements and, accordingly, should be
read in conjunction with the consolidated financial statements and related
footnotes included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilutive
effect of securities that could share in earnings of an entity. At
September 30, 1998, there was no material dilutive effect on earnings
(loss) per share.
2. Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
-------------------- -------------------
<S> <C> <C>
Note payable to a Bank maturing June 2000, with
two one year extensions, bearing interest at a
variable rate (8.69% at September 30, 1998),
with a $1,000,000 principal payment due in
December 1998 and quarterly principal payments
of $500,000 commencing in April 1999,
collateralized by substantially all assets of
the Company and guaranteed by certain shareholders
and related parties. $ 10,000 $ 10,000
Convertible subordinated note payable to CD
Entertainment, Ltd., maturing March 2000, with
interest payable quarterly at a rate of 7.25%,
collateralized by a second deed of trust on the
racetrack facility. 5,500 5,500
Line of credit facility with a Bank, maturing June
2000, with two one year extensions, bearing
interest at a variable rate (ranging from 8.69% to
8.75% at September 30, 1998), collateralized by
substantially all assets of the Company and
guaranteed by certain shareholders and related
parties. 5,000 -
<PAGE>
Note payable to Diversified Opportunities, bearing
interest at 8.5%, maturing August 1999, convertible
into Class A and Class B common shares at a
conversion price of $1.625 per share. 1,000 -
Note payable to a Bank, maturing August 1999,
bearing interest at prime plus 1%, with monthly
principal payments of $15,000, collateralized by
certain fixed assets. 720 840
Note payable to an Insurance Company, maturing
October 1999, bearing interest at 6.83%, with
monthly payments of $8,622 including interest. 108 170
Installment notes and capitalized leases
collateralized by certain vehicles, machinery and
equipment, maturing at various dates through
September 2000, at interest rates ranging from 3%
to 9%. 222 253
------------------ ----------------------
22,550 16,763
Less current maturities 16,953 1,373
------------------ ----------------------
Long-term debt $ 5,597 $ 15,390
================== ======================
</TABLE>
As of June 30, 1998, the Company was in default under its $10 million note
and $5 million credit facility with PNC Bank (together, the "Credit
Facility"). Pursuant to the terms of the Credit Facility, the Company
covenants to maintain a net worth of $40 million (on a GAAP basis) at all
times after assigning a value of $5 million to the land on which the
racetrack facility is located. As of September 30, 1998, the Company was in
default of two additional covenants under its Credit Facility which require
the Company to maintain a ratio of Total Debt to EBITDA of no more than 1.7
to 1 and a ratio of EBITDA to Assumed Debt Service plus Capital
Expenditures of at least 3.5 to 1. PNC Bank has not delivered any notice of
such default. The Credit Facility is guaranteed by certain shareholders and
related parties. The Company is attempting to negotiate a waiver of the
defaults under the Credit Facility. A default on the Credit Facility may
result in cross defaults of other obligations of the Company, including
other bank loans.
3. Accounts payable--arbitration - Pursuant to the terms of the Company's
construction contract with Norglass, the general contractor engaged to
manage the construction of the Company's racetrack, the Company is
proceeding before the American Arbitration Association ("AAA"). In the
proceeding, the Company is seeking reimbursement for amounts paid directly
to subcontractors as well as elimination of the mechanic's lien placed by
Norglass against the Company. Approximately $1.9 million in construction
costs has been included in accounts payable--arbitration at September 30,
1998 and December 31, 1997.
In January 1998, the Company filed a demand for arbitration against
Maryland-Virginia Racing Circuit, Inc. ("MVRC") before the Virginia Racing
Commission, which demand was referred to an arbitrator in May 1998. In its
arbitration demand, the Company is challenging the amount of a management
fee claimed to be due to MVRC pursuant to a Management and Consulting
Agreement dated as of April 22, 1996. At September 30, 1998 and December
31, 1997, approximately $2.2 and $.5 million, respectively, has been
included in accounts payable --arbitration.
<PAGE>
4. In November 1998, the Company entered into an agreement with the Virginia
Horsemen's Benevolent and Protective Association, Inc. (the "VaHBPA") that
will allow the Company to borrow up to $500,000 from the joint purse
account of which the VaHBPA is a party. The loan will bear interest at the
greater of the rate paid on funds in the account into which purse
contributions are deposited or the Applicable Federal Rate as determined by
the Internal Revenue Service. Principal and interest are due on August 31,
1999. The loan is secured by a deed of trust on the Hampton Racing Center.
5. Certain reclassifications have been made in the prior year's financial
statements to conform to the September 30, 1998 presentation.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Overview
Colonial Downs Holdings, Inc. (the "Company") was organized to pursue
opportunities for horse racing and pari-mutuel wagering and through its
subsidiaries holds the only licenses to own and operate a racetrack and racing
centers ("Racing Centers") in Virginia. The Company currently operates Racing
Centers in Chesapeake, Richmond, Hampton, and Brunswick, and may apply for
licenses for up to two additional Racing Centers if suitable opportunities are
identified. The Company recently completed its first standardbred racing meet
which ran from April through July 1998 at its racetrack (the "Track") located in
New Kent County, Virginia. In addition, the Company's second thoroughbred meet
of twenty-five days commenced September 7, 1998 and ran through October 11,
1998, and included the inaugural Virginia Derby, a race for three-year-old
thoroughbreds with a purse of $250,000. The Company will conclude its first full
year of live racing in November 1998 by hosting the Breeders Crown, one of the
premier North American standardbred racing events.
Results of Operations
The following table presents the major components from the Company's
Consolidated Statements of Earnings (Loss) as a percent of total revenues:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Pari-mutuel and simulcasting commissions 89.6% 83.3% 90.7% 88.7%
Other 10.4 16.7 9.3 11.3
-------------- --------------- ------------- -------------
Total revenues 100.0 100.0 100.0 100.0
Direct operating expenses:
Purses, fees, and pari-mutuel taxes 35.1 30.2 35.5 34.3
Simulcast and other direct expenses 60.7 51.2 59.6 47.0
Depreciation and amortization 5.3 2.6 5.8 2.2
-------------- --------------- ------------- -------------
Total direct operating expenses 101.1 84.0 100.9 83.5
Selling, general, and administrative expenses 12.1 17.6 12.4 12.1
-------------- --------------- ------------- -------------
Total operating expenses 113.2 101.6 113.3 95.6
-------------- --------------- ------------- -------------
Earnings (loss) from operations (13.2) (1.6) (13.3) 4.4
Interest (expense) income (6.6) 3.3 (6.5) 3.3
-------------- --------------- ------------- -------------
Earnings (loss) before taxes (19.8%) 1.7% (19.8%) 7.7%
================ ============== ============== ============
</TABLE>
<PAGE>
Three months ended September 30, 1998 compared to three months ended
September 30, 1997
Total revenues for the third quarter of 1998 amounted to $7.7 million, up $.5
million (8%) from $7.2 million in the third quarter of 1997. The increase was
primarily attributable to $1.8 million in revenues from the operation of the
Hampton and Brunswick Racing Centers which opened in December 1997, and $150,000
in harness meet revenues. These increases were offset by a $400,000 reduction in
revenues at the Chesapeake Racing Center and a $1.0 million decrease in revenues
from the live thoroughbred meet compared to the same period in 1997. Excluding
the impact of the new Racing Centers, total revenues decreased by about $1.2
million, primarily reflecting lower attendance during the Track's second
thoroughbred meet as well as the anticipated effect of the new Hampton Racing
Center on the existing Chesapeake Racing Center, both of which attract customers
from the Tidewater region. Although revenues from the Chesapeake facility
decreased from the same period of the prior year, the combined operation of the
Chesapeake and Hampton Racing Centers increased revenue in the Tidewater region
by approximately $864,000.
Total operating expenses of $8.8 million for the third quarter of 1998 increased
$1.5 million (21%) from $7.3 million in the third quarter of 1997. The increase
primarily resulted from the operation of the Hampton and Brunswick Racing
Centers ($1.7 million) in the third quarter of 1998 versus no operations in the
same period of the prior year, offset by a reduction in expenses at the
Chesapeake and Richmond Racing Centers.
Due to the factors discussed above, the Company incurred a loss from operations
of $1.0 million compared to a loss of $115,000 in the third quarter of 1997. All
Racing Centers with the exception of Brunswick operated at a profit for the
third quarter of 1998. The combined earnings at the Richmond and Chesapeake
Racing Centers increased by approximately $295,000 compared to the same period
of the prior year. The Brunswick Racing Center operated at breakeven for the
quarter and at a profit for two months of the period.
Other expenses increased to $514,000 in the third quarter of 1998 compared to
income of $236,000 in the same period of the prior year. This change of $750,000
reflects the additional interest expense incurred from increased borrowings by
the Company to complete construction of the Track and Hampton and Brunswick
Racing Centers as well as the treatment of interest as an expense item in the
third quarter of 1998 versus as a capitalizable cost of construction in the same
period of the prior year. In addition, the Company earned interest on the
invested initial public offering proceeds during the same period in 1997.
Nine months ended September 30, 1998 compared to nine months ended
September 30, 1997
Total revenues for the nine months of 1998 amounted to $22.3 million, up $4.7
million (27%) from $17.6 million for the nine months of 1997. Approximately $5.9
million of this increase was attributable to the operation of the Hampton and
Brunswick Racing Centers which opened in December 1997. An additional increase
of $1.6 million resulted from revenues generated from the Company's inaugural
live harness racing meet held from April to July 1998. These increases were
offset by $1.8 million in lower revenues at the Richmond and Chesapeake Racing
Centers and $1.0 million in lower revenues from the Company's second
thoroughbred meet. Although revenues from the Chesapeake facility decreased from
the same period of the prior year, the combined operation of the Chesapeake and
Hampton Racing Centers increased revenue in the Tidewater region by
approximately $2.7 million.
<PAGE>
Total operating expenses of $25.3 million for the nine months of 1998 increased
$8.4 million (50%) from $16.9 million in the first nine months of 1997. The
increase primarily resulted from live harness racing variable costs as well as
fixed costs associated with the operation of the Company's racetrack ($5.4
million), which opened in September 1997, and the operation of the Hampton and
Brunswick Racing Centers ($5.7 million) for the nine months of 1998 versus no
operations in the same period of the prior year. Additionally, corporate
overhead increased $300,000, primarily due to increased professional fees.
Excluding the impact of the Track, the new Racing Centers, and increased
corporate overhead, operating expenses decreased by about $2.4 million compared
to the first half of 1997. This reduction is primarily due to the decrease in
variable costs associated with lower handle at the Chesapeake Racing Center
caused by the opening of the Hampton Racing Center as well as improved operating
efficiencies.
Due to the factors discussed above, the Company incurred a loss from operations
of $3.0 million compared to earnings of $758,000 in the first nine months of
1997. All Racing Centers with the exception of Brunswick operated at a profit
for the first nine months of 1998. Earnings from the Richmond and Chesapeake
Racing Centers increased by approximately $495,000 compared to the same period
of the prior year. Operations at the Brunswick facility have improved to
essentially breakeven since the operating hours were reduced in late April.
Other expenses increased to $1.4 million in the first nine months of 1998
compared to income of $591,000 in the same period of the prior year. This change
of $2.0 million reflects the additional interest expense incurred from increased
borrowings by the Company to complete construction of the Track and Hampton and
Brunswick Racing Centers as well as the treatment of interest as an expense item
in 1998 versus as a capitalizable cost of construction in the same period of the
prior year. In addition, the Company earned interest on the invested initial
public offering proceeds during the same period in 1997.
Liquidity and Capital Resources.
The Company's primary sources of liquidity and capital resources have been
proceeds from the initial public offering of the Company's stock, long-term
debt, and stockholder loans. As of June 30, 1998, the Company was in default
under its $10 million note and $5 million credit facility with PNC Bank
(together, the "Credit Facility"). Pursuant to the terms of the Credit Facility,
the Company covenants to maintain a net worth of $40 million (on a GAAP basis)
at all times after assigning a value of $5 million to the land on which the
Track is located. As of September 30, 1998, the Company was in default of two
additional covenants under its Credit Facility which require the Company to
maintain a ratio of Total Debt to EBITDA of no more than 1.7 to 1 and a ratio of
EBITDA to Assumed Debt Service plus Capital Expenditures of at least 3.5 to 1.
The Credit Facility is guaranteed by certain shareholders and related parties.
The Company is attempting to negotiate a waiver of the defaults as well as a
waiver of its $1.0 million principal payment due in December 1998. The Company
believes that its cash on hand, cash generated from operations, a $1.0 million
loan from a shareholder, and access to other capital and financial resources may
not be sufficient to cover its operating expenses and other cash requirements
for 1998. The Company has announced that it is preparing a restructuring plan
designed to address its liquidity and other financial concerns. This
restructuring plan may possibly include seeking protection under Chapter 11 of
the U.S. Bankruptcy Code.
Net cash used in operating activities totaled $2.0 million for the first nine
months of fiscal 1998, representing a $5.2 million decrease from $3.2 million
provided by operating activities in the first nine months of the prior year. The
decrease primarily reflected the Company's net loss of $4.4 million in the first
nine months of 1998 versus net earnings of $982,000 in the same period of the
prior year.
<PAGE>
Net cash used in investing activities totaled $5.8 million for the nine months
of 1998 and included property and equipment primarily for the completion of the
Track as well as the Hampton and Brunswick Racing Centers. Investing activities
were comprised of $1.3 million in capital expenditures for the nine months and
approximately $4.5 million related to the payment of construction payables
accrued at December 31, 1997. Net cash used in investing activities in the first
nine months of 1997 totaled $36.2 million, and reflected higher capital
expenditures related to constructing and preparing the Track for the inaugural
live meet in September 1997. The Company anticipates that its capital spending
in fiscal 1998 will approximate $1.6 million.
Net cash provided by financing activities was $5.8 million for the first nine
months of 1998. The Company borrowed $5 million on its line of credit facility
and financed $287,000 of its insurance premiums. Additionally, a stockholder of
the Company provided a $1 million loan with a term of one year, convertible
into Class A and Class B common shares at a conversion price of $1.625 per
share. The Company used most of its $5 million line of credit facility to pay
construction payables related to the completion of the Track and Hampton and
Brunswick Racing Centers as mentioned above.
The Company is currently assessing the impact of the year 2000 on the processing
of date-sensitive information by the Company's computerized information systems
and products purchased by the Company. The Company believes that its internal
information systems are either year 2000 compliant or will be so prior to the
year 2000 without incurring material costs. There can be no assurance, however,
that the Company will not experience unexpected costs and delays in achieving
year 2000 compliance for its internal information systems and current products,
which could result in a material adverse effect on the Company's future results
of operations.
Forward Looking Statements
This report contains forward-looking statements that inherently involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors. Statements regarding results of operations, the opening of additional
Racing Centers, the Company's expectations, hopes, intentions, beliefs,
strategies,and certain other statements contained in this report are
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 potential risks, uncertainties, and factors
include, but are not limited to, acts by parties outside the control of the
Company, including the Maryland Jockey Club and the Virginia Racing Commission,
political trends, the effects of adverse general economic conditions, and
governmental regulation, including licensing of additional Racing Centers. The
forward-looking statements contained herein speak only as of the date of this
report, and the Company assumes no obligation to update any such forward looking
statements.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
Norglass, Inc. Colonial Downs, L.P. (the "Partnership") is engaged in a
contract dispute under the Construction Agreement, dated February 10, 1997 (the
"Construction Contract"), between the Partnership and Norglass, Inc.
("Norglass"), the general contractor engaged to manage the construction of
Colonial Downs' racetrack. Pursuant to the terms of the Construction Contract,
the Partnership filed a demand for arbitration with the American Arbitration
Association ("AAA") against Norglass in November, 1997 to resolve its dispute.
In the proceeding, the Partnership challenges the validity of Norglass'
mechanic's lien for approximately $6.5 million and asserts a damage claim
against Norglass in an amount not less than $6.5 million. James Leadbetter, who
owns more than 5% of the Company's outstanding stock, is a shareholder of
Norglass, Inc. Hearings before the arbitration panel are scheduled to commence
prior to the end of the year.
Maryland-Virginia Racing Circuit, Inc. On January 8, 1998, Colonial
Downs filed a demand for arbitration against the Maryland-Virginia Racing
Circuit, Inc. ("MVRC") before the Virginia Racing Commission (the "Commission").
In its arbitration demand, Colonial Downs challenged the amount of the
management fee claimed to be due by MVRC pursuant to a Management and Consulting
Agreement, dated as of April 22, 1996 (the "Consulting Agreement"), between
Colonial Downs and MVRC. The arbitration is based upon the fact that the
demanded compensation under the Consulting Agreement has failed to consider
certain changed circumstances as well as the original intent of the parties.
Although the Commission initially declined Colonial Downs' request that it
arbitrate the dispute, the Commission in May, 1998 appointed John H. Shenefield,
the former chairman of the Commission, as the arbitrator to hear the dispute.
The arbitration is proceeding and is expected to be resolved in the next 45 to
90 days.
Item 3. Defaults Upon Senior Securities
As of June 30, 1998, the Company was in default under its $10 million
note and $5 million credit facility with PNC Bank (together, the "Credit
Facility"). Pursuant to the terms of the Credit Facility, the Company covenants
to maintain a net worth of $40 million (on a GAAP basis) at all times after
assigning a value of $5 million to the land on which the Track is located. PNC
Bank has not delivered notice of such default.
As of September 30, 1998, the Company was in default of two additional
covenants under its Credit Facility which require the Company to maintain a
ratio of Total Debt to EBITDA of no more than 1.7 to 1 and a ratio of EBITDA to
Assumed Debt Service plus Capital Expenditures of at least 3.5 to 1.
The Credit Facility is guaranteed by certain shareholders and related
parties. The Company is attempting to negotiate a waiver of the defaults. A
default on the Credit Facility may result in cross defaults of other obligations
of the Company, including other bank loans.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit:
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
Exhibit 10.36 Convertible Subordinated Note,
dated August 26, 1998 in
the principal amount of
$1 million issued to CD
Entertainment Ltd.
Exhibit 10.37 Deed of Trust, Assignment
of Rents and Leases, and
Security Agreement and
Assignment thereto to CD
Entertainment Ltd.
Exhibit 27 Financial Data Schedule
</TABLE>
b. Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Colonial Downs Holdings, Inc.
Date: November 16, 1998 /s/ Ian M. Stewart
------------------
Ian M. Stewart, Vice President, Chief
Operating Officer and Chief Financial Officer
CONVERTIBLE SUBORDINATED NOTE
$1,000,000 Providence Forge, Virginia
August 26, 1998
FOR VALUE RECEIVED, the receipt and adequacy of which is hereby
acknowledged, Colonial Downs Holdings, Inc., a Virginia corporation with its
principal office located at 10515 Colonial Downs Parkway, New Kent, VA 23214
(the "Maker"), hereby promises to pay to the order of CD Entertainment Ltd. (the
"Holder"), with its principal office located at 1231 Main Avenue, Cleveland,
Ohio 44113, the principal sum of ONE MILLION DOLLARS ($1,000,000), or so much
thereof as shall have been advanced by the Holder at any time and not hereafter
repaid, together with interest thereon from the date hereof until payment in
full.
1. Payment of Principal. All principal outstanding hereunder shall be due in one
payment, in full on the first anniversary of this Note (the "Maturity Date").
Principal of and interest on this Note are payable in lawful money of the United
States of America at the Holder's address stated above, or at such other place
as the Holder shall designate to the Maker in writing.
2. Interest.
a. All principal outstanding hereunder shall bear interest at a rate of
eight and five-tenths percent (8.5%) per annum. All interest accrued shall be
payable on the Maturity Date.
b. Any amount not paid when due under this Note, whether at the date
scheduled for payment or earlier upon acceleration, shall bear interest until
paid in full at a rate per annum equal to ten percent (10%).
3. Subordination.
a. The payment of principal and interest on this Note (including, for all
purposes of these subordinate terms, all premiums, if any, and other amounts
payable on or in respect thereof) is expressly made subordinate and subject in
right of payment to the prior payment of all indebtedness (including principal,
interest, premium, if any, and other amounts payable on or in respect thereof)
for those certain $10,000,000 Construction Loan and $5,000,000 Revolving Credit
Loan from PNC Bank, National Association to Colonial Downs, L.P., dated June 26,
1997, and any renewal, refunding, or extension of such indebtedness (such
indebtedness, the "Senior Indebtedness").
b. In the event of (i) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relating to the Maker or to its creditors as
such, or to its assets, or (ii) any liquidation, dissolution or other winding up
of the Maker, whether partial or complete and whether voluntary or involuntary
and whether involving insolvency or bankruptcy, or (iii) any assignment for the
benefit of creditors or any other marshalling of assets and liabilities of the
Maker, then and in any such event the holders of the Senior Indebtedness, shall
be entitled to receive payment in full of all amounts due or to become due on or
in respect of all Senior Indebtedness before the Holder shall be entitled to
receive any payment on account of this Note.
c. In the event and during the continuation of any default in the payment
when due of any principal of or interest on or any other amount payable in
respect of any Senior Indebtedness, unless and until such payment shall have
been made, then no payment shall be made by the Maker, on or in respect of this
Note.
4. Prepayment. Subject to Subsection 6.b., the Maker may prepay this Note at any
time upon thirty (30) days' prior written notice to the Holder at a price equal
to the principal amount outstanding hereunder, plus interest accrued thereon
through the date of such prepayment.
5. Covenants. So long as any indebtedness under this Note remains outstanding,
the Maker shall not, without the prior written consent of the Holder:
a. authorize, issue, or enter into any agreement providing for the
issuance (contingent or otherwise) of (i) any notes or debt securities
containing equity features (including, without limitation, any notes or debt
securities convertible into or exchangeable for capital stock or other equity
securities issued in connection with the issuance of capital stock or other
equity securities or containing profit participation features) or (ii) any
capital stock or other equity securities (or any securities convertible into or
exchangeable for any capital stock or other equity securities); provided that
the Maker may, without the Holder's consent, issue up to an aggregate of 100,000
shares of its Common Stock;
b. merge or consolidate with any person or permit any subsidiary to merge
or consolidate with any person (other than a wholly owned subsidiary); provided
that a subsidiary may merge with another person so long as after such merger,
the Maker or any of its consolidated subsidiaries directly or indirectly owns at
least 80% of the (i) capital stock of the surviving corporation possessing the
right to vote for the election of directors and (ii) number of shares of the
common stock of the surviving corporation then outstanding;
c. sell, lease, or otherwise dispose of, or permit any subsidiary to sell,
lease, or otherwise dispose of, more than 50% of the assets of the Maker and its
consolidated subsidiaries (computed on the basis of book value, determined in
accordance with generally accepted accounting principles consistently applied,
or fair market value);
d. issue or sell any shares of the capital stock, or rights to acquire
shares of the capital stock, of any subsidiary to any person (other than the
Holder or a permitted assignee of the Holder) if immediately after such issuance
or sale, the Maker or any of its consolidated subsidiaries directly or
indirectly owns less than 80% of the (i) capital stock possessing the right to
vote for the election of directors and (ii) the number of shares of the common
stock of any subsidiary then outstanding;
e. liquidate, dissolve, or effect a recapitalization or reorganization in
any form of transaction (including, without limitation, any reorganization into
a limited liability company or into partnership or other noncorporate form); or
f. make any amendment to the Articles of Incorporation or the Maker's
bylaws or file a resolution of the Board of Directors with the Virginia State
Corporation Commission containing any provisions which would increase the number
of authorized shares of common stock of the Maker or adversely affect or
otherwise impair the rights of the Holder.
6. Conversion.
a. All or any portion of the unpaid principal balance and all accrued and
unpaid interest shall be convertible into shares of Class B Common Stock of the
Maker, provided that to the extent there are insufficient shares of Class B
Common Stock, any remaining unpaid principal balance and/or accrued and unpaid
interest to be converted shall be convertible into shares of Class A Common
Stock (collectively, the "Common Stock") at any time upon the election of the
Holder, subject to obtaining the approval, if any is required, of the Virginia
Racing Commission. The number of shares of Common Stock into which this Note may
be converted ("Conversion Shares") shall be determined by dividing the amount of
the then-unpaid principal balance and accrued interest by $1.625 (the
"Conversion Price"). The maximum number of Conversion Shares into which this
Note may be converted is 667,692 subject to adjustment as provided in paragraph
7 below.
b. Holder may convert all or any portion of the unpaid principal balance
and accrued interest of this Note into Conversion Shares at any time prior to
maturity of this Note or upon notice of the Maker's intent to prepay this Note.
Conversion of this Note shall be effected by delivery of written notice by mail,
postage prepaid, or by carrier, to the Maker at its principal corporate office,
of the election to convert the same specifying the principal amount and/or
accrued interest of this Note being converted and the name in which the
certificates evidencing the Conversion Shares shall be issued, accompanied by
this Note. To the extent that the entire unpaid balance of this Note is not
being converted, the Maker and the Holder shall each credit the Note on its
books to the extent of the principal and/or accrued interest being converted by
the Holder into Conversion Shares.
c. No fractional share of Common Stock shall be issued upon conversion of
this Note. In lieu of the Maker issuing any fractional share to the Holder upon
the conversion of this Note, the Maker shall pay, in cash, to the Holder the
amount of outstanding principal and/or accrued interest that is applicable to
such fractional share.
d. At its expense, the Maker shall, as soon as practicable thereafter,
issue and deliver to the Holder at such principal office a certificate or
certificates for the number of Conversion Shares to which the Holder shall be
entitled upon such conversion (bearing such legends as are required by
applicable state and federal securities and other laws in the opinion of counsel
to the Maker), together with any other securities and property to which the
Holder is entitled upon such conversion under the terms of this Note, including
a check payable to the Holder for any cash amounts payable as described above.
Such conversion shall be deemed to have been made on the date of delivery of the
notice of conversion, and on and after such date the Holder of this Note
entitled to receive the Conversion Shares shall be treated for all purposes as
the record holder of such Conversion Shares. Upon conversion of this Note and
delivery of the check described above, the Maker shall be forever released from
all its obligations and liabilities under this Note to the extent of the amount
of unpaid principal and/or accrued interest that the Holder has elected to
convert into Conversion Shares.
7. Conversion Price Adjustments.
a. In the event the Maker should at any time or from time to time after
the date of issuance hereof fix a record date for the effectuation of a split or
subdivision of the outstanding shares of any class of its Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereafter referred to as "Common
Stock Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such dividend distribution, split
or subdivision if no record date is fixed), the Conversion Price of this Note
shall be appropriately decreased so that the number of Conversion Shares
issuable upon conversion of this Note shall be increased in proportion to such
increase of outstanding shares.
b. If the number of shares of Common Stock outstanding at any time after
the date hereof is decreased by a combination of the outstanding shares of
Common Stock, then, following the record date of such combination, the
Conversion Price for this Note shall be appropriately increased so that the
number of Conversion Shares issuable on conversion hereof shall be decreased in
proportion to such decrease in outstanding shares.
c. In the event of (i) any taking by the Maker of a record of the holders
of any class of securities of the Maker for the purpose of determining the
holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or (ii) any capital reorganization of
the Maker, any reclassification or recapitalization of the capital stock of the
Maker or any transfer of all or substantially all of the assets of the Maker to
any other person or any consolidation or merger involving the Maker, or (iii)
any voluntary or involuntary dissolution, liquidation, or winding up of the
Maker, the Maker will mail to the Holder of this Note a notice specifying (A)
the date on which any such record is to be taken for the purpose of such
dividend, distribution, or right, and the amount and character of such dividend,
distribution, or right, (B) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation, or
winding up is expected to become effective and the record date of determining
stockholders entitled to vote thereon, and (C) the new Conversion Price after
giving effect to the adjustment event, which new Conversion Price shall
represent an appropriate increase or decrease in the Conversion Price to
preserve the proportionate amount of Conversion Shares. Such notice shall be
mailed at least twenty (20) days prior to the date described in clause (A) or
(B) above.
d. The Maker shall at all times reserve and keep available out of its
authorized but unissued shares of Class B Common Stock such number of shares
that are solely for the purpose of effecting the conversion of the Note into
such number of Conversion Shares as shall from time to time be sufficient to
effect the conversion of the Note; and to the extent that there is an
insufficient number of shares of Class B Common Stock to effect the conversion
of the entire outstanding principal amount and accrued interest of this Note,
the Maker, upon the written request of Holder, will use its best efforts to take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Class B Common Stock to such
number of shares as shall be sufficient for such purposes. Additionally, if the
number of authorized but unissued shares of Class B Common Stock are
insufficient to effect the conversion of the Note at the time of the Conversion,
then Maker shall reserve shares of Class A Common Stock. Any adjustment pursuant
to this paragraph 7 shall be based upon the proportion that the maximum number
of Conversion Shares into which this Note was convertible immediately prior to
the event giving rise to such adjustment bears to the aggregate number of shares
of Common Stock (or issuable in respect of any Common Stock equivalents)
outstanding immediately prior to such event.
8. Events of Default. "Events of Default" whenever used herein means any one or
more of the following defaults shall have occurred and be continuing (whatever
the reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law, pursuant to any judgment,
decree, or order of any court or any order, rule, or regulation of any
administrative or governmental body):
a. Default in the payment of interest, the principal of this Note, or any
other amount payable hereunder when such payment becomes due and payable,
whether at maturity, by acceleration or otherwise, and such default shall
continue unremedied for a period of fifteen (15) days;
b. Default in the performance or breach of any other agreement, covenant,
or warranty of the Maker contained in this Note, and such default or breach
shall continue unremedied for a period of thirty (30) days after the date on
which written notice of such default or breach, requiring the Maker to remedy
the same, shall have been given to the Maker by the Holder, or such longer
period, provided that the default is of a nature that cannot be remedied within
thirty (30) days and the Maker has within the thirty (30) day period instituted
curative action and diligently and continuously pursues such action to
completion;
c. The entry of a decree or order by a court having jurisdiction adjudging
the Maker as bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment, or composition of or in respect
of the Maker under federal bankruptcy laws or any similar federal or state law
for the relief of debtors ("Bankruptcy Law") or appointing a receiver,
liquidator, assignee, trustee, conservator, sequestrator, or assignee in
bankruptcy or insolvency of the Maker or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and such
decree or order shall have continued undischarged and unstayed for a period of
ninety (90) days;
d. The Maker shall commence a voluntary case or shall consent to the entry
of an order for relief in any involuntary case under Bankruptcy Law or shall
consent to the appointment of or taking possession by a receiver, liquidator,
custodian, sequestrator, trustee, or assignee of any substantial part of its
property, or shall make an assignment for the benefit of creditors, or shall
fail generally to pay its debts as they become due; or
e. There shall have occurred any circumstance or event which, upon the
lapse of time, the giving of notice, or both, would constitute an event of
default under the Senior Indebtedness of the Maker, except if the same is cured
or waived.
Notwithstanding the foregoing, no Event of Default shall be deemed to have
occurred if any of the foregoing defaults arises solely from the operation of
the subordination provisions of Paragraph 3 of this Note, in which event
interest on the outstanding principal amount hereof, accrued and unpaid interest
thereon (to the extent lawful), and any unpaid fees due shall accrue at the rate
of ten percent (10%) per annum. Upon satisfaction of the requirements of
Paragraph 3 hereof, Maker shall have the cure periods specified in this
Paragraph 8 to cure any defaults.
9. Remedies. If an Event of Default occurs and is continuing (unless waived in
writing by the Holder) then and in each and every case, unless the entire
principal of this Note already shall have become due and payable, the Holder
may, by a notice in writing to the Maker, declare the principal and the accrued
interest on this Note to be immediately due and payable. The principal and
accrued interest on this Note shall become and shall be immediately due and
payable upon such declaration.
10. Security. This Note is secured by a promissory note dated August 26, 1998 by
Colonial Downs, L.P., a Virginia limited partnership as obligor and Colonial
Downs Holdings, Inc. as obligee (the "L.P. Note"). Furthermore, as security
under the L.P. Note, Maker has received a Deed of Trust, Assignment of Rents and
Leases, and Security Agreement, dated as of August 26, 1998, by Colonial Downs,
L.P. Upon recordation of the Deed of Trust by Maker under the L.P. Note, Maker
agrees to record a certificate of transfer of the Deed of Trust to Noteholder
substantially in the form as Exhibit A.
11. Miscellaneous.
a. The Maker hereby waives presentment, notice of dishonor, protest, and
diligence in bringing suit against the Maker. Acceptance by the Holder of any
payment which is less than the full amount then due and owing hereunder shall
not constitute a waiver of the Holder's right to receive payment in full at such
time or at any prior or subsequent time. The Maker consents that the time of
payment may be extended an unlimited number of times before or after maturity
without notice to the Maker, and that the Maker shall not be discharged by
reason of any such extension or extensions of time. No delay or omission on the
part of the Holder in exercising any right hereunder shall operate as a waiver
of such right or any other right under this Note. A waiver on any one occasion
shall not be construed as a bar to or waiver of any such right or remedy on any
future occasion.
b. Notwithstanding the foregoing, if at any time implementation of any
provision hereof shall cause the interest contracted for or charged herein and
collectible hereunder to exceed the applicable lawful maximum rate, then the
interest shall be limited to such lawful maximum.
c. The Maker shall be liable for any and all costs and expenses of
collection of the interest required to be paid hereunder, including, without
limitation, reasonable attorneys' fees, arising by virtue of an Event of
Default.
d. This Note shall be subject to and construed in accordance with the laws
of the Commonwealth of Virginia. If any provision herein shall be unenforceable,
such unenforceable provision shall not render the remaining provisions hereof
unenforceable or invalid.
e. This Note shall be binding upon the Maker and the Maker may not assign
its obligations hereunder without the prior written consent of the Holder. The
Holder may assign its rights hereunder, in whole or in part, only to one or more
corporations, limited liability companies, partnerships, trusts, or other
entities which are under common control, or controlled through equity ownership
and/or voting control, by the Holder or Jeffrey P. Jacobs; it being acknowledged
that for purposes of this subparagraph 11(e), (i) any entity managed or
controlled by Jacobs Entertainment Ltd. ("JEL") or Jeffrey P. Jacobs, or (ii)
any entity in which either JEL or Jeffrey P. Jacobs is one of the trustees
and/or one of the beneficiaries constitutes common control.
COLONIAL DOWNS HOLDINGS, INC.
By: /s/ Ian M. Stewart
---------------------------------
Ian M. Stewart, Chief Operating Officer
<PAGE>
EXHIBIT A
Place of Record: Clerk's Office of the
Circuit Court of the City
of Hampton, Virginia
Date of Deed of Trust ________
Deed Book ____, Page _________
Name of Grantor: Colonial Downs, L.P.
Name of Trustees: James W. Theobold
David F. Belkowitz
Name of Original Payee: Colonial Downs Holdings, Inc.
Original Amount Secured: $1,000,000
FOR VALUE RECEIVED, Colonial Downs Holdings, Inc., the original payee and
holder by delivery of the above-mentioned Note secured by the above mentioned
Deed of Trust and of the said Deed of Trust does hereby convey, set over and
assign unto all of its right, title and interest in and to said Note and the
said Deed of Trust this __ day of __________, 1998.
Colonial Downs Holdings, Inc.
Ian M. Stewart, Chief Operating Officer
COMMONWEALTH OF VIRGINIA
CITY/COUNTY OF ______________:
I certify that the foregoing instrument was executed and acknowledged
before me this ____ day of ______, 1998, by Ian M. Stewart, Chief Operating
Officer of Colonial Downs Holdings, Inc. a Virginia corporation, on behalf of
said corporation.
My commission expires __________.
--------------------------
Notary Public
THIS DOCUMENT PREPARED BY HIRSCHLER, FLEISCHER,
WEINBERG, COX & ALLEN A PROFESSIONAL CORPORATION
P.O. BOX 500, RICHMOND, VIRGINIA 23218-0500
DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES,
AND SECURITY AGREEMENT
THIS DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES, AND SECURITY AGREEMENT
(the "Deed of Trust"), effective as of the 26th day of August, 1998, by COLONIAL
DOWNS, L.P., a Virginia limited partnership ("Grantor"), DAVID F. BELKOWITZ, a
resident of the City of Richmond, Virginia having an address c/o Hirschler,
Fleischer, Weinberg, Cox & Allen, 701 E. Byrd Street, Richmond, VA 23219, and
JAMES W. THEOBALD, a resident of the County of Henrico, Virginia having an
address c/o Hirschler, Fleischer, Weinberg, Cox & Allen, 701 E. Byrd Street,
Richmond, VA 23219, trustees ("Trustees") and Grantees for indexing purposes
only, and Colonial Downs Holdings, Inc., a Virginia corporation, and its
successors and assigns as holder of the Note described below ("Noteholder").
RECITALS
Grantor is the fee simple owner of certain real property more particularly
described on EXHIBIT A hereto (the "Real Property"). Grantor has obtained
financing from Noteholder in the maximum amount of up to $1,000,000 (the
"Loan"), to be secured by, among other things, the Real Property. The Loan is
evidenced by a certain note of even date herewith made by Grantor in the
principal amount of $1,000,000, due and payable in full as described therein
(the "Note"). This Deed of Trust is given to secure the Loan as evidenced by the
Note.
GRANT IN TRUST
In consideration of the Loan and other good and valuable consideration,
the receipt and sufficiency of all of which are acknowledged, Grantor grants,
conveys and assigns to Trustees with General Warranty of Title all of its right,
title, interest and estate in and to the Real Property, all appurtenances
thereto and all buildings and other improvements now or hereafter located
thereon (the "Improvements").
TOGETHER WITH all of Grantor's right, title, interest and estate in and to
all goods, documents, equipment, fixtures, instruments, contract rights,
accounts, general intangibles, inventory and chattel paper and all other
personal property owned by it, if any, which is located at, a part of, used in
connection with, arising from the operation of, or otherwise pertaining to the
Real Property and Improvements, including, without limitation, Grantor's right,
title, interest and estate in and to the property described in the following
subparagraphs:
(a) All accounts receivable, rents, royalties, issues, income,
revenues and profits from time to time accruing from the Real Property and
Improvements and the "Personal Property" (as defined below), whether under
leases, tenancies, licenses, or concessions now existing or hereafter created
(collectively, the "Rents and Profits").
(b) All tangible personal property (the "Personal Property") owned
by Grantor and now or at any time hereafter located on or at the Real Property
and Improvements or used in connection therewith, including, but not limited to:
all screens, awnings, storm windows and doors, window shades, blinds, drapery
and curtain rods, brackets, electric and other signs, dynamos, generators,
engines, ducts, computers, computer terminals, monitors and printers, telephone
systems, switchboards, controls, motors, belting, gas and electric fixtures,
bulbs, wiring, conduits and other gas and electric equipment, apparatus,
machinery, fittings, appliances and appurtenances, elevators, escalators, power
and machinery plants for running and operation of elevators and escalators, fire
prevention and extinguishing apparatus, bathtubs, sinks, water closets, basins,
faucets, tanks, burners, furnaces, heaters, boilers, pipes, pumps, radiators,
fans and other power, heating, plumbing, hot water, sanitary, drainage and
ventilating apparatus and equipment, air conditioning and cooling systems and
equipment, water cooling and condensing apparatus and equipment, apparatus for
exclusion and extermination of vermin and insects, vacuum and other cleaning
systems, dust removal apparatus, lifting and housekeeping machinery, apparatus
and equipment, call systems and other communications systems, ash and fuel
conveyors, incinerators, incinerating fixtures and equipment, laundry machinery,
apparatus and equipment, laundry disposal equipment, store fixtures and
equipment, murals, mirrors attached to walls, doors and other facilities,
wall-to-wall carpets, linoleum, inlaid floor coverings, electronic apparatus and
equipment, trees, shrubs, plants, planter and flower boxes, blackboards,
bulletin boards, stanchions, easels, platforms, compressors, coils, water
coolers and other refrigerating and cooking apparatus and equipment, medicine
chests, commodes, hospital equipment, cornices, mantels, paneling, partitions,
drafting tables, drawing boards, drawing cases, safes, cabinets, lockers,
shelving, printing equipment and apparatus, spotlight equipment, and all other
articles, equipment, appliances, implements, devices and accessories or items
whatsoever (including any and all accessions to, proceeds of replacements of and
substitutions for the equipment), used or to be used, or placed or to be placed,
in the rooms, halls, lounges, offices, lobbies, lavatories, basement cellars,
vaults and other portions of the Improvements, whether herein enumerated or not,
plumbing and electric apparatus and equipment, cleaning and maintenance
equipment, all boilers, tanks, engines, motors, power equipment, piping and
plumbing fixtures, pumps, heating and air-conditioning equipment and systems and
lighting equipment and systems, furniture and fixtures, materials for tenant
improvements, ranges, dishwashers, refrigerators and other appliances, and
building materials and supplies.
(c) All equipment leases for tangible personal property which but
for the fact that said tangible personal property is not owned by Grantor, would
be described in subparagraph (b) immediately above.
(d) All architectural and engineering plans and similar materials
relating to the Improvements now existing or to be constructed on the Real
Property, whether now owned or in existence or hereafter acquired by or prepared
for Grantor.
(e) All contracts for the operation of Improvements and other
development on the Real Property and all warranties, if any, relating to the
Improvements (the "Contracts").
(f) All the estate, interest, right, title and other claims or
demands, including, without limitation, claims or demands with respect to the
proceeds and refunds of premiums on insurance in effect which Grantor now has or
may hereafter acquire in or with respect to the Real Property and Personal
Property, and any and all compensation, awards and other payments, damages,
rights of action and proceeds made for, or with respect to, the taking by
eminent domain, or by any proceeding or purchase in lieu thereof, of the whole
or any part of the Real Property and Personal Property, including, without
limitation, any awards resulting from a change of grade of streets and awards
for severance damages.
(g) All of Grantor's right, title and interest, as lessor or lessee,
in and to all leases, subleases, concessions, licenses and agreements (whether
now existing or hereafter created) of or related to the Real Property and
Improvements (the "Leases").
(h) All of Grantor's right, title and interest in and to all utility
security deposits or bonds concerning the Real Property or any part or parcel
thereof.
(i) All right, title, interest, property, claim and demand, if any,
of Grantor in and to the land lying in the bed of any street, road, avenue or
alley, or gores of land in front of or adjoining the Real Property.
TOGETHER WITH all proceeds of sale of the Property (hereinafter defined)
and all proceeds of the conversion, whether voluntary or involuntary, of any of
the Property into cash or other liquid claims, including without limitation all
awards, payments or proceeds with any interest thereon, and the right to receive
same, which may be made as the result of any casualty, any exercise of the right
of eminent domain or deed in lieu thereof, the alteration of the grade of any
street and any injury to or decrease in the value of the Property, together with
reasonable counsel fees, costs and disbursements incurred by Noteholder in
connection with collection of such awards, payments and proceeds. Nothing herein
shall be deemed to be authorization by Noteholder to Grantor to sell, assign or
otherwise dispose of the Property, except in accordance with the provisions of
this Deed of Trust. Grantor agrees to execute and deliver from time to time such
further instruments as may be requested by Noteholder to confirm the assignment
to Noteholder of any such award, payment or proceeds.
TOGETHER WITH all of Grantor's right, title and interest in and under all
instruments, documents, chattel paper, accounts receivable, trade name rights
and general business intangibles relating to or arising from any of the Property
and any and all cash and noncash proceeds and products relating to or arising
from any of the foregoing collateral.
All of the above-described Real Property, Improvements, Leases and
Contracts, Rents and Profits, Personal Property and other property and interests
herein granted and conveyed by Grantor are referred to herein collectively as
the "Property".
It is intended that this Deed of Trust shall serve as a security agreement
granting Noteholder a security interest in all of the Property not classified as
real property under applicable law, but including fixtures, in accordance with
the terms of the Uniform Commercial Code as adopted in the Commonwealth of
Virginia (the "UCC"). As to all such property, Noteholder shall have, without
limitation, all of the rights and remedies of a secured party under the UCC. The
recordation of this Deed of Trust shall also constitute a fixture filing in
accordance with the provisions of the UCC. Grantor covenants and agrees to
execute promptly upon request such financing statements as Noteholder may
require from time to time, to cause same to be filed in the appropriate
jurisdiction, and to take such other actions as Noteholder may require in order
to perfect the security interest created by this Deed of Trust.
IN TRUST to secure the performance of the covenants contained herein and
in the other documents securing the Note or executed in connection with the Loan
(collectively, the "Loan Documents") and the payment of the Note and all other
amounts secured by or owed pursuant to the Loan Documents.
AND FURTHER IN TRUST to secure all other liabilities of Grantor to
Noteholder under the Loan Documents, whether now existing or hereafter incurred,
direct, indirect, absolute, contingent or otherwise, whether matured or
unmatured, liquidated or unliquidated, secured or unsecured, whether original,
renewed or extended.
1. COVENANTS AND AGREEMENTS. Grantor covenants and agrees as follows:
(a) Payment of Note. Grantor shall pay the principal of and interest
on the Note, together with all other sums due thereunder and hereunder, without
demand (except as may be provided in the Note or in any other Loan Document),
deduction or offset, when and as the same shall become due.
(b) Performance and Compliance. Grantor shall perform, comply with
and abide by all of the stipulations, agreements, conditions and covenants
contained and set forth in the Note, this Deed of Trust and the Loan Documents.
(c) Maintenance, Compliance with Laws. The Property shall be used as
a satellite wagering facility, restaurant and bar with ancillary facilities (the
"Project") and maintained accordingly and in compliance with Virginia law and
the rules and regulations of the Virginia Racing Commission. Noteholder may,
upon reasonable notice, from time to time inspect the Property. Noteholder may
accomplish any inspection by its officers or other representatives, and such
officers and representatives shall be permitted access to the Property and every
part thereof. If any inspection by Noteholder reveals the need for repairs or
maintenance, Grantor shall expeditiously cause same to be completed after
written notice from Noteholder. Except as may be contemplated by the use of the
proceeds of the Loan, Grantor: (i) shall not structurally alter or demolish any
building, parking lot or other improvement now or hereafter located on the
Property without the prior written consent of Noteholder, which consent
Noteholder may grant or withhold in its sole discretion without being governed
by any standard of reasonableness, (ii) shall not commit or suffer any waste to
the Property, (iii) shall comply with all present and future statutes,
ordinances, rules, regulations and requirements of any governmental authority
applicable to the Property or any part thereof or to Grantor's operations at the
Property, including without limitation those related to oil or hazardous waste
or hazardous materials and (iv) shall not dispose of Personal Property except as
permitted by Noteholder.
(d) Governmental Charges. Grantor shall pay and discharge any and
all taxes of every kind and nature, all general and special assessments, levies,
permits, inspection and license fees, all water and sewer charges, all other
public charges imposed upon or assessed against it or the Property or any part
thereof or upon the revenues, rents, issues, income and profits of the Property
or arising with respect to the occupancy, use or possession thereof, not later
than ten (10) days before the same become delinquent. Grantor shall deliver to
Noteholder receipts evidencing the payment of all such amounts within a
reasonable period of time after payment. Grantor further agrees that if it shall
default in making any such payment within ten (10) days after its due date,
Noteholder may make such payment, together with penalties and interest thereon,
on behalf of Grantor. The amount of such payment and expenses incurred by
Noteholder related to same shall be secured by this Deed of Trust. Grantor shall
repay the amount of any such payment and expenses to Noteholder, together with
interest thereon at the rate of 18% per annum (the "Default Rate") from the date
of demand within ten (10) days after demand for said payment is made by
Noteholder to Grantor.
Nothing in this subparagraph (d) shall require the payment or
discharge of any obligation imposed upon Grantor by this subparagraph so long as
the Grantor shall, in good faith and at its own expense, contest the same or the
validity thereof or other realization thereon or the sale or forfeiture of the
Property or any part thereof to satisfy the same; provided, however, that during
such contest Grantor shall deposit money in an interest bearing account or
provide a bond or other security satisfactory to Noteholder assuring the
performance by Grantor of its obligations hereunder and the payment of any
additional charge, penalty or expense arising out of or incurred as a result of
any such contest; and provided further, that if at any time payment of any
obligation of Grantor shall become necessary to prevent a tax sale of the
Property or any portion thereof, then Grantor shall pay the amount required in
sufficient time to prevent any sale, forfeiture or termination.
(e) Condemnation. If any proceedings are instituted or threatened to
take the Property or any part thereof by exercise of the power of eminent
domain, Grantor shall give Noteholder prompt notice thereof. Any award paid to
Grantor shall be paid to Noteholder, up to the amount of the outstanding
principal balance and unpaid accrued interest of the Loan. Grantor hereby
appoints Noteholder as its attorney in fact with the power to receive and give
all appropriate discharges for any such award. The foregoing power of attorney
is a power coupled with an interest, is irrevocable, and shall not terminate
upon the insolvency or dissolution of Grantor and is immediately effective.
Noteholder shall have the right, at its discretion, to participate in such
proceedings at the expense of Grantor, and Grantor agrees to execute such
documents and take such other actions as may be required by Noteholder to permit
such participation. Any such award may, at the option of Noteholder, be (i)
applied to the prepayment of the principal of the Note in inverse order of
maturity of the installments thereof, (ii) applied to the payment of accrued
interest on the Note, (iii) applied to any other sums secured by and owing under
this Deed of Trust, or (iv) released to Grantor, in whole or in part upon
conditions satisfactory to Noteholder. If any portion of a condemnation award is
permitted to be used for the purpose of rebuilding or repairing the Property, or
for any other purposes, Noteholder shall not be deemed to have thereby waived or
impaired any equitable or statutory lien or right under or by virtue of this
Deed of Trust. There shall be no prepayment premium, fee or penalty when
condemnation proceeds are used to prepay the Note. If the entire Property is
taken by condemnation or is conveyed by deed in lieu thereof, and the proceeds
therefrom are not sufficient to pay all sums secured by this Deed of Trust,
Noteholder may declare all sums secured by this Deed of Trust immediately due
and payable. Grantor shall continue, notwithstanding any taking by eminent
domain, to pay any interest as provided in the Note until any such award or
payment shall have been actually received by Noteholder. Any reduction in the
principal sum resulting from the application by Noteholder of such award or
payment as herein set forth shall be deemed to take effect only on the date of
such receipt.
(f) Recordation. Grantor, without expense to Noteholder, immediately
upon the execution and delivery of this Deed of Trust and thereafter from time
to time, shall cause this Deed of Trust and any financing statement or other
security instrument creating a lien or evidencing the lien hereof upon or
perfecting the security interest given herein in the Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to provide notice of, perfect and fully protect the lien hereof upon and
the interest of Noteholder in the Property.
(g) Mechanics, Materialmen's and Other Liens. Grantor shall: (i)
keep the Property free and clear of all encumbrances, liens, mortgages, deeds of
trust, security interests and financing statements superior or subordinate to
Noteholder's interests, except for liens for taxes not yet due, (ii) pay, bond
over, or cause to be discharged of record, all claims and demands of mechanics,
materialmen, laborers, and others which, if unpaid, might result in, or permit
the creation of, a lien on the Property or any part thereof within twenty (20)
days of the filing of the lien, time being of the essence; and (iii) do or cause
to be done everything necessary so that the first lien of this Deed of Trust
shall be fully preserved without expense to Trustees or Noteholder.
(h) Books and Records. (i) Grantor shall keep full and correct
records and books of account in accordance with generally accepted accounting
principles consistently applied showing in detail the earnings and expenses
relating to the Property; (ii) Noteholder, or its agents, shall at all
reasonable times have unrestricted access to the records, accounting books,
contracts, subcontracts, bills and statements of Grantor including any
supporting or related vouchers or other instruments as related in any manner to
the Improvements and shall have the right to make copies of the same. If
Noteholder so requires, the records, books, vouchers, or other instruments shall
be made available at Grantor's office to an accountant of Noteholder's choice
for audit, examination, inspection, and photocopying or other type of
duplication; and (iii) Noteholder, or its agents during business hours shall
have the right to visit and inspect the Property, subject to the rights of
tenants, and occupants in occupancy.
(i) Insurance Requirements.
(i) Grantor shall obtain and maintain on the Improvements, and
the Personal Property located at, the Real Property, or which may hereafter be
erected or placed thereon, and all other real, mixed or personal property now or
hereafter encumbered by the lien of this Deed of Trust physical hazard insurance
on an "all risks" basis with a Replacement Cost Endorsement, covering the perils
of fire, flood (if in a flood hazard zone), earthquakes (if in an earthquake
zone), boiler and machinery (to include major components of HVAC systems if not
already included in the above coverage) and such other equipment as Noteholder
may require, and extended coverage in an amount at least equal to the amount of
the Loan and not less than the "Full Replacement Cost" of the Improvements and
Personal Property. "Full Replacement Cost" shall mean the cost of replacing the
Improvements and Personal Property without deduction for physical depreciation.
(ii) Grantor shall obtain and maintain comprehensive public
liability insurance covering claims for bodily injury, death and property damage
in an amount which Noteholder may reasonably require.
(iii) Grantor shall obtain and maintain business interruption
coverage in an amount which is mutually acceptable to Grantor and Noteholder.
(iv) All liability coverages shall insure Noteholder as an
additional insured, and all other forms of insurance shall insure Noteholder as
first mortgagee. All insurance policies shall be written by a company qualified
to do business in Virginia and shall provide for not less than thirty (30) days'
written notice to Noteholder prior to modification or cancellation. The policy
shall not contain a co-insurance clause or other clause limiting the amount of
coverage under any conditions. Grantor shall notify, instruct and authorize the
companies issuing all policies to make any and all loss drafts thereunder
payable to Noteholder. Noteholder may on behalf of Grantor adjust and compromise
any claims under such insurance and collect and receive proceeds thereof and is
hereby irrevocably appointed attorney in fact for Grantor coupled with an
interest, for such purposes, and may deduct from such proceeds any expense
reasonably incurred by it. If any sum of money shall become payable under such
policy or policies of insurance and is used for the purpose of rebuilding or
repairing the damaged Property, or for any other purposes, Noteholder shall not
be deemed to have thereby waived or impaired any equity or statutory lien or
right under or by virtue of this Deed of Trust.
(v) Grantor shall deliver to Noteholder certified copies of
all insurance policies required hereunder.
(vi) In the event of loss or physical damage to the Property,
Grantor shall give immediate written notice thereof to Noteholder and Noteholder
may make proof of loss if the same is not made promptly by Grantor. All right,
title, and interest of Grantor in and to any insurance policies and the proceeds
therefrom are assigned to Noteholder including unearned premiums. As long as
Grantor is not in default of its obligations under the Note or this Deed of
Trust, all proceeds deposited with Noteholder shall be applied to payment of the
cost of repair, replacement or restoration of such physical damage to the
Property unless Grantor and Noteholder otherwise agree.
(vii) Grantor shall deliver to Noteholder notices of payment
dates and proof of payment of premiums on all insurance policies as well as such
certificates and proof of insurance as Noteholder shall reasonably request.
(viii) Any such insurance coverage may be maintained under
blanket insurance policies meeting all of the criteria set forth herein.
(j) No Sale or Other Transfer. Grantor shall not, without
Noteholder's prior written consent, voluntarily or by operation of law sell,
transfer or convey Grantor's interest in the Property or any general partnership
interests in the Grantor. Noteholder may give or refuse approval to any such
sale, transfer or conveyance in its sole discretion without being governed by
any standard of reasonableness. FAILURE TO OBTAIN THE PRIOR WRITTEN APPROVAL OF
NOTEHOLDER TO ANY SALE, TRANSFER, OR CONVEYANCE OF THE PROPERTY OR A SUBSTANTIAL
CHANGE IN GRANTOR'S LEGAL OR EQUITABLE OWNERSHIP SHALL CONSTITUTE AN EVENT OF
DEFAULT HEREIN, AND ANY AND ALL SUMS OWED PURSUANT TO THE NOTE SHALL BECOME
IMMEDIATELY DUE AND PAYABLE, AT THE OPTION OF NOTEHOLDER.
(k) Indemnification. Grantor shall indemnify, defend and hold
Trustees and Noteholder harmless from and against all liabilities, obligations,
claims, damages, penalties, causes of action, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) imposed upon or
incurred by or asserted against Trustees or Noteholder by reason of (i) any
failure on the part of Grantor to perform or comply with any of the covenants or
conditions of this Deed of Trust; or (ii) the performance of any labor or
services or the furnishing of any materials or other property with respect to
the Property or any part thereof; or (iii) any accident, injury to or death of
persons or loss of or damage to property occurring on or about the Property or
any part thereof; or (iv) any enforcement against Noteholder. Any amounts
payable under this paragraph which are not paid within ten (10) days after
written demand therefor by Noteholder shall bear interest at the Default Rate
from the date of such demand. If any action, suit or proceeding is brought
against Trustees or Noteholder by reason of any such occurrence, Grantor, upon
the written request of Noteholder, shall at Grantor's expense resist and defend
such action, suit or proceeding or will cause the same to be resisted and
defended by counsel acceptable to Noteholder.
(l) Covenants of Title. Grantor covenants and warrants that (i)
Grantor has a good and marketable fee simple title in and to the Property and
any other rights and property granted, conveyed or assigned by Grantor by this
Deed of Trust, subject to the exceptions set forth in EXHIBIT B; (ii) Grantor
has full power and lawful authority to convey the same to Trustees; (iii)
Trustees shall have quiet possession of the Property subject to the exceptions
set forth above; (iv) Grantor will make, execute, acknowledge and deliver, by
instruments reasonably satisfactory to Noteholder, all such further assurances
as at any time hereafter reasonably may be desired by Noteholder for the full
and effective conveyance of the Property; and (v) Grantor will defend the title
to the Property against all adverse assertions and claims whatsoever except
those arising from the exceptions set forth above.
(m) Expenses of Noteholder. Grantor agrees to pay all costs and
expenses of Noteholder, including reasonable attorneys' fees, if Noteholder
finds it necessary or desirable to secure the services or advice of one or more
attorneys with regard to collection of the Note or to the protection of its
rights under the Note, this Deed of Trust or other security for the Note. In
addition, Grantor agrees to pay all costs and expenses, including reasonable
attorneys' fees, incurred by Noteholder in having the Property abandoned by or
reclaimed from any estate in bankruptcy, or in attempting to have any stay or
injunction against the enforcement or collection of the Note or against
foreclosure of the Property lifted by any bankruptcy or other court. All such
sums shall be secured hereby, are due and payable within ten (10) days after
demand, and, if not paid within ten (10) days after demand, shall bear interest
at the Default Rate.
(n) Expenses of Trustees. If Trustees or Noteholder shall be made a
party to or shall intervene in any action or proceeding, whether in court or
before any governmental agency, affecting the Property or the title thereto or
the interest of Trustees or Noteholder under this Deed of Trust, including,
without limitation, any form of condemnation or eminent domain proceeding,
Trustees and Noteholder shall be reimbursed by Grantor upon demand for all
costs, charges and reasonable attorneys' fees incurred by them or either of them
in any such case. All such sums shall be secured hereby, are due and payable
within ten (10) days after demand, and if not paid within ten (10) days after
demand, shall bear interest at the Default Rate.
(o) Right to Make Advances. Upon a default, Noteholder may, at its
option, advance or disburse funds for the performance of any term, warranty,
covenant, condition, or obligation contained in any Loan Document. All sums
advanced or disbursed by Noteholder for performance of any such term, warranty,
covenant, condition or obligation shall bear interest at the Default Rate until
paid, shall be secured hereby, and held to be a prior charge to the lien of this
Deed of Trust upon foreclosure, and shall be paid by Grantor upon demand.
Failure to pay on demand shall constitute an Event of Default.
(p) Grantor's Estoppel Certificate. Grantor agrees that within
fifteen (15) days after a written request from Noteholder, it shall in writing
confirm to Noteholder or another designated by Noteholder (i) the amount
outstanding hereon and on the Note, (ii) the current rate of interest thereon,
(iii) whether Grantor claims any default by Noteholder under any of the Loan
Documents or knows of any facts which, with the passage of time or the giving of
notice, or both, would constitute such a default, (iv) any right of set off,
counterclaim or other defenses claimed by Grantor against such sums and the
obligations of the Note and this Deed of Trust, and (v) such other facts related
to the Loan as Noteholder may request.
(q) Zoning. Grantor covenants, represents and warrants that all
applicable zoning regulations affecting the Property permit the use and
occupancy of the Improvements.
(r) Taxes affecting Noteholder. Upon the passage after the date
hereof of any state, federal, municipal or other governmental law, order, rule
or regulation which changes or modifies the laws now in force governing the
taxation of deeds of trust or debts secured by deeds of trust or the manner of
collecting taxes so as to affect Noteholder adversely, Grantor shall pay all
such additional taxes or other assessments or levies which may be imposed by
such laws, rules, orders or regulations, and if Grantor is prevented by law from
paying such additional taxes, assessments or levies or does not pay same,
Noteholder may declare the Note and all sums due pursuant to any Loan Document
due and payable in full upon sixty (60) days prior written notice to Grantor.
Any payment of the Note required by this Section shall be without prepayment
premium, fee or penalty.
(s) No Credits. Grantor will not claim or demand or be entitled to
receive any credit or credits on the principal or interest payable under the
terms of the Note or on any other sums secured hereby, for so much of the taxes,
assessments or similar impositions assessed against the Property or any part
thereof as are applicable to the indebtedness secured hereby or to Noteholder's
interest in the Property. No deduction shall be claimed from the taxable value
of the Property or any part thereof by reason of the Note or this Deed of Trust.
2. LEASES AND RENTS.
(a) The assignments and grants of the Rents and Profits and Leases
contained in this Deed of Trust are absolute, unconditional and effective
immediately and shall continue in effect until the indebtedness secured by this
Deed of Trust is paid, but Noteholder and Trustees agree not to exercise their
rights hereunder except upon the occurrence of an Event of Default. Grantor
agrees to use the Rents in payment of principal and/or interest payable pursuant
to the Note, and in payment of all taxes, assessments, water rates, sewer rents
and other charges on or against the Real Property and Improvements and all
reasonable and necessary expenses associated with operation of the Improvements
prior to making any distribution of net cash flow.
(b) Grantor shall not enter into any Lease of the Property without
the prior written consent of Noteholder. Any Lease made in violation of the
terms of this paragraph may, at the option of Noteholder, be terminated by
notice to the tenant at any time after Noteholder becomes aware of the existence
of such lease. No delay in giving a notice of termination shall waive or
prejudice in any way Noteholder's right to terminate. Grantor shall furnish to
Noteholder original executed copies of all leases entered into or received by
Grantor. Additionally, Grantor shall send to Noteholder copies of all notices of
default sent to or received from tenants of Leases.
(c) Grantor agrees that it shall not, without the prior written
consent of Noteholder, (i) cancel, terminate or accept any surrender of the
Leases, (ii) accept any prepayments of installments of rent or other payments to
become due under any of the Leases for a period more than thirty (30) days in
advance, (iii) modify or abridge any of the terms, covenants or conditions of
any Lease, (iv) change any renewal privileges contained in any Lease, (v) change
the terms or cancel or terminate any guaranty of a Lease, (vi) consent to any
assignment of a Lease or any subletting under a Lease unless said subletting is
provided for in the Leases, or (vii) request, consent to, agree to or accept a
subordination of the Leases to any deed of trust or other encumbrances now or
hereafter affecting the Real Property, except to Noteholder or beneficiary of
any other subordinate deed of trust permitted under this Deed of Trust.
(d) Immediately upon the execution of this Deed of Trust, or at such
time as any Lease is executed, Grantor agrees to notify each tenant, with a copy
to the Noteholder, of the existence of the assignment of the Leases, Rents and
Profits.
(e) Grantor agrees that the Leases shall remain in full force and
effect irrespective of any merger of the interest of Grantor as lessor and any
permittee or lessee thereunder; and that it will not transfer or convey the
title to said premises to any of the permittees or lessees without requiring
such lessees, in writing, to assume and agree to pay the debt secured hereby in
accordance with the terms, covenants and conditions of the Note and Deed of
Trust.
(f) Grantor irrevocably directs all tenants under all Leases, upon
demand and notice from Noteholder of an Event of Default, to (i) deliver to
Noteholder an estoppel certificate in form reasonably acceptable to Noteholder,
and (ii) pay to Noteholder all Rents accruing or due under any Lease from and
after the receipt of such demand and notice. Tenants, in making such payments to
Noteholder, shall be under no obligation to inquire into or determine the actual
existence of any Event of Default claimed by Noteholder.
(g) Grantor represents and warrants that (i) it shall duly and
punctually perform all the material terms, conditions and covenants of all the
Leases on its part to be kept, observed and performed; (ii) except pursuant to
the Loan Documents, it has not executed any prior assignment, transfer, mortgage
or pledge of any of the Leases and Rents and Profits; (iii) it shall not sell,
assign, transfer, mortgage or pledge any of the Leases and Rents and Profits to
any person, firm or corporation, except pursuant to the Loan Documents; (iv) no
Rents and Profits becoming due subsequent to the date hereof have been collected
for more than one month in advance, nor has payment of any Rents and Profits
been anticipated, waived, released, discounted, or otherwise discharged or
compromised; (v) it will enforce, enjoin and restrain the violation of any of
the terms, provisions and conditions of any of the Leases; (vi) it will promptly
send to Noteholder copies of all notices of default which Grantor shall send or
receive under the Leases; (vii) it will appear in and defend any action or
proceeding arising under or in any manner connected with the Leases or with the
obligations and undertakings of Grantor or the tenants thereunder; and (viii)
the Leases are in full force and effect and there are no defaults thereunder by
the parties thereto nor, to the best of its knowledge, has any event occurred
which but for the notice of or lapse of any applicable cure period or both would
constitute an event of default under the Leases. Grantor agrees to act in good
faith to enforce or secure the performance of each and every material
obligation, covenant, condition and agreement to be performed for their benefit
by any tenants under the Leases.
(h) Grantor agrees to execute and deliver to Noteholder, at any time
or times during which this Deed of Trust shall be in effect, such further
instruments as Noteholder may deem reasonably necessary to make effective the
assignment of the Rents and Profits and Leases and the covenants of Grantor
herein contained.
(i) Nothing contained in this Deed of Trust and no entry by
Noteholder upon the Real Property as hereinabove provided shall be construed as
to constitute Noteholder as a mortgagee in possession.
(j) Noteholder acknowledges that Grantor currently has granted a
license to the Property to Virginia Concessions, L.L.C. Noteholder acknowledges
and agrees that certain provisions of such license may result in Grantor
breaching a provision of this Deed of Trust and that such breach is not an Event
of Default.
3. EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall be an event of default hereunder (an "Event of Default"):
(a) Monetary Default. (i) If any payment of any sum due under the
Note is not paid within ten (10) days of the date due, (ii) if Grantor fails to
pay all amounts due on the Note on its maturity date or such earlier date to
which the maturity of the Note shall have been accelerated; or (iii) if any sum
due pursuant to this Deed of Trust or any other Loan Document is not paid within
ten (10) days of the date due;
(b) Breach of Covenants. Other than monetary defaults covered by
Subparagraph 3(a), if Grantor fails to observe or perform any term, covenant,
condition, or agreement contained in this Deed of Trust or in any other Loan
Document and such failure is not cured within thirty (30) days of receipt of
notice from Noteholder.
(c) Breach of Representation or Warranty. If any representation or
warranty of Grantor contained in this Deed of Trust or in any other Loan
Document is untrue or misleading in any material respect when made;
(d) Inability to Pay Debts When Due. If Grantor shall at any time
be unable or shall fail to pay its debts when due or admits in writing its
inability to pay its debts when due;
(e) Voluntary Proceedings. If Grantor shall file a voluntary
petition in bankruptcy or shall be adjudicated insolvent or bankrupt, or shall
file any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief for any
present or future federal, state, or other statute, law or regulation relating
to bankruptcy, insolvency or other relief for debtors, or if Grantor shall seek
or consent to or acquiesce in the appointment of any trustee, receiver or
liquidator for it or of all or any substantial part of the properties owned by
it or of the Property, or shall make any general assignment for the benefit of
creditors;
(f) Involuntary Proceedings. If a petition shall be filed against
Grantor seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future federal,
state, or other statute, law or regulation, and shall remain undismissed for
sixty (60) days after filing, or if any trustee, receiver or liquidator of
Grantor, or of all or any substantial part of the properties owned or of the
Property shall be appointed without its consent or acquiescence and such
appointment shall not be discharged within sixty (60) days;
(g) Liens. If any lien or claim not otherwise permitted hereunder,
whether alleged to be superior or junior to the lien of this Deed of Trust, any
federal tax lien or claim or mechanics' or materialmen's lien be recorded or
filed against Grantor or the Property and not be removed by payment or bond
within ten (10) days from such filing or contested in the manner as provided in
Sections 1(d) or (g) hereof;
(h) Judgment. If after the date hereof any final judgment or decree
for the payment of money in an amount greater than $100,000 is entered against
Grantor, all applicable periods for appeal have terminated, and such judgment or
decree is not satisfied with fifteen (15) days thereafter;
(i) Modification or Termination of Organizational Status. If the
organizational status of Grantor, if Grantor is an entity, is terminated or
modified without Noteholder's prior written consent, except as permitted herein,
without Noteholder's prior written consent, or if Grantor is dissolved, whether
voluntarily or by operation of law unless a successor entity to Grantor assumes
all of Grantor's obligations to Noteholder under the Note and this Deed of Trust
in writing or by operation of law;
(j) Loss of License. If Grantor or any operator of the Project loses
its license to operate the Project and all appeal periods have lapsed.
(k) Other Events. Any occurrence or breach which is specified in
this Deed of Trust or any other Loan Document to be an "Event of Default".
4. REMEDIES OF NOTEHOLDER. Noteholder shall have, but shall not be limited
to, the following remedies upon the occurrence of an Event of Default, which
remedies are distinct and cumulative to any other right or remedy under this
Deed of Trust or afforded at law or equity or by contract, and may be exercised
concurrently, independently or successively with all other available remedies:
(a) Foreclosure. Upon any Event of Default, Noteholder may, at its
option and without further notice except as may be required by law or herein,
declare the Note and all other sums secured hereby or otherwise due pursuant to
the Loan Documents immediately due and payable, including any prepayment
premium, and shall have the right to have the Trustees take possession of the
Property and proceed to sell the Property at public auction, as a whole or in
such parcels, for cash or credit and, in addition to the requirements imposed by
state law, upon any terms as the Trustees deem appropriate. Before such sale at
public auction is made, there shall first be advertisement of the time, place
and terms of sale at least once a week for four (4) successive weeks in a
newspaper published or having a general circulation in the City of Hampton,
Virginia. At least fourteen (14) days prior to such sale, or in the event that
such sale is postponed, any subsequent sale, written notice of the time, place
and terms of sale shall be given by certified or registered mail to the Grantor
at its address for notice as provided below. Noteholder may become the purchaser
of the Property so sold, and no purchaser shall be required to see to the proper
application of the purchase money. The proceeds of any such sale shall be
applied as required by Section 55-59.4 of the Code of Virginia of 1950, as
amended in effect on the date hereof.
(b) Possession. Subject to the rules of the Virginia Racing
Commission governing licensure of race tracks, immediately upon the occurrence
of an Event of Default, Noteholder, its agents or attorneys-in-fact or the
Trustees, at the request of Noteholder, are authorized to enter and take
possession of the Real Property by actual physical possession or by written
notice served personally upon or sent by registered or certified mail, postage
prepaid, to Grantor, as Noteholder may elect, and Grantor shall surrender
possession upon request and Noteholder may take possession without further
authorization required. Following any such entry or taking of possession,
Noteholder may, either itself or through its agents:
(i) manage and operate the Property or any part thereof;
(ii) lease, sublease or assign existing Leases of all or any
part or parts of the Real Property for such periods of time and upon such terms
and conditions as Noteholder may deem proper;
(iii) enforce, cancel or modify any of the Leases;
(iv) demand, collect, sue for, attach, levy, recover, receive,
compromise and adjust, and make, execute and deliver receipts and releases for,
all Rents and Profits that may then or thereafter become due, owing or payable
with respect to the Real Property or any part thereof, from any present or
future lessees, tenants, subtenants or occupants thereof;
(v) institute, prosecute to completion or compromise and
settle all summary proceedings and actions for rent or for removing any and all
lessees, tenants, subtenants or occupants of the Real Property or any part or
parts thereof;
(vi) enforce, enjoin or restrain the violation of any of the
terms, provisions and conditions of any of the Leases;
(vii) make such repairs and alterations to the Real Property
as Noteholder may, in its reasonable discretion, deem proper;
(viii) pay from and out of the Rents and Profits collected or
from or out of any other funds of Grantor in its possession any insurance
premiums, any taxes, assessments, water rates, sewer rates, or other
governmental charges levied, assessed or imposed against the Real Property or
any portion thereof, and any other charges, costs or expenses which Noteholder
deems necessary or advisable for it to pay in the management or operation of the
Real Property, including, without limitation, the fees and costs of its agents,
the costs of repairs and alterations necessary to maintain the Real Property in
a first-class condition or to lease the Real Property to another, commissions
for renting the Real Property or any portions thereof, and legal expenses in
enforcing claims, preparing papers or for any other services that may be
required; and
(ix) generally perform any other act, deed, matter or thing
whatsoever that ought to be performed in and about or with respect to the Real
Property as fully as Grantor might do.
After payment of proper costs and charges (including any payment owing to
Noteholder pursuant to the provisions of paragraph 5(q) hereof and a reasonable
commission to any agents engaged by Noteholder), Noteholder shall apply the net
amounts of any Rents and Profits received by it from the Real Property to the
payment of the indebtedness due and owing pursuant to or secured by the Deed of
Trust, in such order as Noteholder shall elect. The power granted in this
paragraph is coupled with an interest, and is irrevocable.
(c) Receiver. Upon an Event of Default, Noteholder, to the extent
permitted by law and without regard to the value or adequacy of its security,
shall be entitled as a matter of right to the appointment of a receiver to enter
upon and take possession of the Property and to collect all rents, revenues,
issues, income, and profits thereof and apply the same as the court may direct.
The receiver shall have all rights and powers permitted under the laws of
Virginia and such other powers as the court making such appointment shall
confer. The expenses, including receivers' fees, reasonable attorneys' fees,
costs and agents' compensation, incurred pursuant to the powers herein contained
shall be secured by this Deed of Trust. The right to enter and take possession
of and manage and operate the Property, and to collect the rents, issues and
profits thereof, whether by receiver or otherwise, shall be cumulative with any
other right or remedy hereunder or afforded by law, and may be exercised
concurrently therewith or independently thereof. Noteholder and Trustees shall
be liable to account only for such rents, issues and profits as they may
actually receive, whether from the receiver or pursuant to other provisions of
the applicable Loan Documents. Notwithstanding the appointment of any receiver
or other custodian, Noteholder shall be entitled as secured party hereunder and
under other applicable security agreement provisions of the Loan Documents to
the possession and control of any cash, deposits or instruments at the time held
by or payable or deliverable under the terms of any Loan Document to Noteholder.
(d) Injunction. In addition to any other remedies Noteholder may
have under this Deed of Trust, the Note, or any applicable law, Noteholder may
seek from a court of competent jurisdiction a mandatory injunction requiring
Grantor to take such action as shall be necessary to comply with its covenant to
maintain the Real Property.
<PAGE>
5. MISCELLANEOUS.
(a) Further Rights and Duties of Trustees. Trustees shall be under
no duty to take any action hereunder except as expressly required, to perform
any act which would involve them in expense or liability, or to institute or
defend any suit in respect hereof, unless properly indemnified to their
satisfaction. All reasonable expenses, charges, counsel fees and other
disbursements incurred by Trustees in and about the administration and execution
of the trust created hereby, and the performance of their duties and powers
hereunder shall be secured by this Deed of Trust prior to the indebtedness
represented by the Note, and shall bear interest at the Default Rate. Both
Trustees or either of them may exercise all the rights and powers of the
Trustees hereunder. Noteholder, with or without cause, is hereby authorized and
empowered to substitute and appoint, from time to time, by an instrument
recorded wherever this Deed of Trust is recorded, a trustee in the place of any
Trustee hereunder.
(b) Actions by the Noteholder. Without affecting, modifying,
altering, releasing or limiting the liability of Grantor or any person who is or
may become liable on the Note or who has endorsed or assumed the obligation of
the Note, and without affecting, modifying, altering, releasing or limiting the
lien of this Deed of Trust or any of the other security for the Note, it is
agreed that the following actions may take place at the option of Noteholder
without further notice or consent: (i) the Note may be extended or renewed at
any time, notwithstanding the fact that any extensions or renewals may be for a
period or periods in excess of the original term thereof; (ii) any security for
the Note may be released; (iii) any one or more parties who are or may become
liable on the Note or who have endorsed or assumed the obligation of the Note
may be released; (iv) any indulgence or forbearance whatsoever regarding the
Note may be granted; and (v) Noteholder may fail to act with diligence or may
delay in the collection or enforcement thereof.
(c) Rights and Remedies Cumulative. The rights and remedies arising
under and contained in this Deed of Trust shall be separate, distinct and
cumulative, and none of them shall be in exclusion of any other. All remedies
arising under or contained in this Deed of Trust shall be in addition to every
other remedy now or hereafter existing at law or in equity or by statute.
Neither any course of dealing by the Trustees or Noteholder nor any failure or
delay on their or its part to exercise any right, power or privilege hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege preclude any other or further exercise thereof or
the exercise of any other right, power or privilege.
(d) Subrogation. To the extent of the indebtedness of Grantor to
Noteholder secured hereby, Noteholder is hereby subrogated to the lien or liens
and to the rights of the owners and holders of each and every mortgage, deed of
trust, lien, or other encumbrance on the Property which is paid, in whole or in
part, by the proceeds of the Loan, and the respective liens of said mortgages,
deeds of trust, liens, or other encumbrances, shall be and the same and each of
them hereby is preserved and shall pass to and be held by Noteholder herein as
security for the indebtedness to Noteholder to the same extent that it would
have been preserved and would have been passed to and have been held by
Noteholder had it been duly and regularly assigned, transferred, set over, and
delivered unto Noteholder by separate deed of assignment, notwithstanding the
fact that the same may be satisfied and cancelled of record.
(e) Assignment of Note. Upon every assignment of the Note, the
transferring holder of the Note shall have the right to pay over the balance of
any escrow deposits in its possession to the assignee of the Note. The
transferring holder of the Note shall thereupon be completely released from all
liability with respect to such escrow deposits transferred, and Grantor shall
look solely to the transferee with respect thereto. Upon full payment of the
Note and the indebtedness secured hereby (or at any prior time at the election
of the then holder of the Note), the balance of the escrow deposits in
Noteholder's possession shall be paid over to the record owner of the Property
within fifteen days (15) of the time of payment and no other party shall have
the right or claim thereto in any event.
(f) Time of Essence. Time is of the essence with respect to the
performance by Grantor of all of its obligations under this Deed of Trust and
the other Loan Documents.
(g) Jury Trial. Grantor hereby waives the right to demand a jury
trial in the event Grantor files any affirmative defense or counterclaim in any
judicial proceeding on this Deed of Trust or the Note secured hereby or in the
event Grantor institutes legal proceedings under this Deed of Trust and/or the
Note.
(h) Choice of Law. This Deed of Trust shall be governed by and
construed in accordance with the substantive laws of the Commonwealth of
Virginia, without reference to the conflicts laws or principles of such
Commonwealth that would apply the law of any other jurisdiction.
(i) Successors and Assigns. All of the grants, covenants, terms,
provisions, and conditions herein shall run with the land and shall apply to,
bind, and inure to the benefit of the successors and assigns of Grantor and the
successors and assigns of Noteholder. No provision of this paragraph shall be
construed or shall operate to permit a sale or transfer of the Property except
in strict accordance with the terms of this Deed of Trust.
(j) Construction of this Deed of Trust. Except as otherwise herein
expressly provided, this Deed of Trust shall be construed to impose and confer
upon the parties hereto, including the Noteholder, all duties, rights and
obligations as set forth in Sections 55-59, 55-59.1, 55-59.2, 55-59.3, 55-59.4
and 55-60 of the Code as now in force and further to incorporate herein the
following provisions by short form reference below, of Sections 55-59.2 and
55-60 of the Code:
Renewal, extension or reinstatement permitted. Bidder's deposit of
not more than 10% of the sale price may be required.
(k) Notices. All notices required or contemplated hereunder or in
the Note shall be in writing, and shall be deemed to have been given properly
when actually received, or on the second business day after deposit in the
United States mail, postage prepaid, certified or registered, return receipt
requested, or on the second business day following acceptance for overnight
delivery by Federal Express or another comparable overnight express delivery
service, addressed as follows:
Noteholder: 1231 Main Avenue
Cleveland, Ohio 44113
Grantor: 10515 Colonial Downs Parkway
New Kent, Virginia 23124
With a copy to: James L. Weinberg, Esquire
Hirschler, Fleischer,
Weinberg, Cox & Allen
701 East Byrd Street (23219)
P. O. Box 500
Richmond, Virginia 23218-0500
or to such other persons as Noteholder, or Grantor may request by notice given
as provided above, or to such other address as any intended recipient of notice
may direct by notice given as provided above.
(l) Conflicting Terms. If there is any conflict or inconsistency
between the provisions of the Commitment and the provisions of any Loan
Document, the provisions of the applicable Loan Document shall control. If there
is any conflict or inconsistency between the provisions of this Deed of Trust
and the provisions of any other Loan Document, the provisions of this Deed of
Trust shall control.
(m) Captions. The paragraph headings contained herein are inserted
for convenience only, and shall not be deemed a part of or construed to affect
the context of this Deed of Trust.
(n) Savings Clause. If any term or provision of this Deed of Trust
or an application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Deed of Trust or the
application of such term or provision to persons or circumstances other than
those as to whom or which it is held invalid or unenforceable shall not be
affected thereby, and each term and provision of this Deed of Trust shall be
valid and enforceable to the fullest extent permitted by law.
(o) Terms. Any terms not defined herein shall have the meanings as
defined in the Note or other Loan Documents.
(p) Indemnification of Noteholder. Grantor agrees to indemnify,
defend and hold Noteholder and Trustees harmless from and against any and all
liability, loss, damage and expense, including reasonable attorneys' fees, which
they may incur under any of the Leases, by reason of this Deed of Trust or by
reason of any action taken by Noteholder or Grantor or Trustees hereunder, and
from and against any and all claims and demands whatsoever which may be asserted
against Noteholder or Trustees by reason of any alleged obligation or
undertaking on its part to perform or discharge any of the terms, covenants or
conditions contained in any of the Leases, unless caused by the gross negligence
or willful misconduct of Noteholder or the Trustees. Should Noteholder or the
Trustees incur any such liability, loss, damage or expense, the amount thereof,
together with interest thereon at the Default Rate, shall be secured by this
Deed of Trust and shall be payable by Grantor to Noteholder within ten (10) days
after demand therefor; or at the option of Noteholder, Noteholder may reimburse
itself therefor out of any Rents and Profits collected by it pursuant to
paragraph 4(b) this Deed of Trust. Nothing contained in this Deed of Trust shall
operate or be construed to obligate Noteholder to perform any of the terms,
covenants or conditions contained in any of the Leases or otherwise to impose
any obligation upon Noteholder with respect to any of the Leases. This Deed of
Trust shall not operate to place upon Noteholder any responsibility for the
operation, control, care, management or repair of the Real Property prior to
Noteholder taking possession thereof, and the execution of this Deed of Trust by
Grantor shall constitute conclusive evidence that all responsibility for the
operation, control, care, management and repair of the Real Property prior to
Noteholder taking possession thereof is and shall be that of Grantor.
(q) Paralegal Fees. All references herein to legal fees shall
include the fees and expenses of paralegals.
IN WITNESS WHEREOF, effective as of the day and year first written above,
Grantor has executed these presents under seal.
GRANTOR: COLONIAL DOWNS, L.P.,
a Virginia limited partnership
By: STANSLEY RACING CORP.,
General Partner
/s/ Ian M. Stewart
------------------------------------------
Ian M. Stewart, Chief Operating Officer
COMMONWEALTH OF VIRGINIA
CITY/COUNTY OF NEW KENT :
I certify that the foregoing instrument was executed and acknowledged
before me this 4th day of September, 1998, by Ian M. Stewart, Chief Operating
Officer, of Stansley Racing Corp., General Partner of Colonial Downs, L.P., a
Virginia limited partnership, on behalf of said corporation in its capacity as
general partner of said partnership.
My commission expires 8-31-99.
/s/ Perryann P.Whitehurst
Notary Public
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
ALL THOSE certain pieces of parcels of land, situate, lying and being in the
City of Hampton, Virginia, containing in the aggregate 4.880 Acres, identified
as "Parcel F 4.730 Acres" and "Parcel G 0.150 Acres", all as shown on that
certain plat entitled, "PLAT OF 2 PARCELS OF LAND OWNED BY THE WALNUT HOMES
COMPANY AND THE CITY OF HAMPTON, VIRGINIA, CITY OF HAMPTON VIRGINIA", dated
December 11, 1996, prepared by Resource International, Ltd., Environmental
Consultants & Designers, Ashland, Virginia.
SUBJECT, HOWEVER, to any and all restrictions, conditions, rights-of-way or
agreements of record.
Being the same land conveyed by deed by and between Walnut Homes Co., L.C., a
Virginia limited liability company (formerly Walnut Homes Co., a Virginia
limited partnership and Walnut Homes Co., a Virginia general partnership),
Grantor, party of the first part and Colonial Downs, L.P., a Virginia limited
partnership, Grantee, party of the second part as recorded in the Hampton
Circuit Court, Deed Book 1198, Page 1926.
<PAGE>
EXHIBIT B
PERMITTED ENCUMBRANCES
1. (a) As to the City of Hampton: Taxes subsequent to 1998, not yet
due and payable.
<PAGE>
Place of Record: Clerk's Office of the
Circuit Court of the City
of Hampton, Virginia
Date of Deed of Trust August 26, 1998
Deed Book 016899, Page B1255P0388
Name of Grantor: Colonial Downs, L.P.
Name of Trustees: James W. Theobald
David F. Belkowitz
Name of Original Payee: Colonial Downs Holdings, Inc.
Original Amount Secured: $1,000,000
FOR VALUE RECEIVED, Colonial Downs Holdings, Inc., the original payee and
holder by delivery of the above-mentioned Note secured by the above-mentioned
Deed of Trust and the said Deed of Trust does hereby convey, set over, and
assign unto CD Entertainment Ltd. all of its right, title, and interest in and
to said Note and the said Deed of Trust this 26th day of August, 1998.
Colonial Downs Holdings, Inc.
/s/ Ian M. Stewart
--------------------------------------
Ian M. Stewart, Chief Operating Officer
COMMONWEALTH OF VIRGINIA
CITY/COUNTY OF NEW KENT:
I certify that the foregoing instrument was executed and acknowledged
before me this 12th day of November, 1998, by Ian M. Stewart, Chief Operating
Officer of Colonial Downs Holdings, Inc., a Virginia corporation, on behalf of
said corporation.
My commission expires: May 31, 2000
/s/ Herbert Jones
------------------------------
Notary Public
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheets and Consolidated Statements of Earnings
(Loss) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,295
<SECURITIES> 0
<RECEIVABLES> 395
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,559
<PP&E> 62,554
<DEPRECIATION> 1,674
<TOTAL-ASSETS> 66,537
<CURRENT-LIABILITIES> 28,355
<BONDS> 0
0
0
<COMMON> 72
<OTHER-SE> 32,429
<TOTAL-LIABILITY-AND-EQUITY> 66,537
<SALES> 0
<TOTAL-REVENUES> 22,287
<CGS> 0
<TOTAL-COSTS> 25,267
<OTHER-EXPENSES> (45)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,485
<INCOME-PRETAX> (4,420)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,420)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,420)
<EPS-PRIMARY> (0.61)
<EPS-DILUTED> (0.61)
</TABLE>
