1
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period ended March 31, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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 of (I.R.S. Employer Identification No.)
Incorporation or Organization)
10515 Colonial Downs Parkway
New Kent, VA 23124
(Address of Principal Executive Offices)
(804) 966-7223
(Registrant's telephone number, including area code)
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 [ ]
Number of Shares of Class A Common Stock outstanding
as of April 18, 2000 - 5,025,239
Number of Shares of Class B Common Stock outstanding
as of April 18, 2000 - 2,242,500
2
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COLONIAL DOWNS HOLDINGS, INC.
INDEX
Page
PART I. FINANCIAL STATEMENTS AND NOTES Number
------
Item 1. Financial Statements and Notes 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security
Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
3
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COLONIAL DOWNS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,528 $ 1,313
Horsemen's deposits 1,008 659
Accounts receivable 479 253
Prepaid expenses and other assets 480 114
--------- ---------
Total current assets 3,495 2,339
Property, plant and equipment
Land and improvements 15,554 15,554
Buildings and improvements 48,476 48,472
Equipment, furnishings, and fixtures 2,855 2,853
Leasehold improvements 1,124 1,124
--------- ---------
68,009 68,003
Less accumulated depreciation 4,230 3,817
--------- ---------
Property, plant and equipment, net 63,779 64,186
Licensing and organization costs, net of accumulated
amortization of $322 and $311, respectively 706 729
Other assets 131 151
--------- ---------
Total assets $ 68,111 $ 67,405
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,122 $ 2,764
Purses due horsemen 1,405 182
Accrued liabilities and other 1,555 1,184
Current maturities of long-term debt
and capital lease obligations 15,914 15,974
Current maturities of long-term debt - related parties 8,800 8,800
--------- ---------
Total current liabilities 29,796 28,904
Long-term debt and capital lease obligations 1,750 1,750
Notes payable - related parties 1,225 1,225
--------- ---------
Total liabilities 32,771 31,879
Commitments and contingencies
Stockholders' equity
Class A, common stock, $0.01 par value; 12,000 shares
authorized; 5,025 shares issued and outstanding 50 50
Class B, common stock, $0.01 par value; 3,000 shares
authorized; 2,242 shares issued and outstanding 23 23
Additional paid-in capital 42,873 42,873
Accumulated deficit (7,606) (7,420)
--------- ---------
Total stockholders' equity 35,340 35,526
--------- ---------
Total liabilities and stockholders' equity $ 68,111 $ 67,405
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
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COLONIAL DOWNS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
2000 1999
---------- ----------
<S> <C> <C>
Revenues
Pari-mutuel and simulcasting commissions $ 6,524 $ 6,622
Other 376 402
---------- ----------
Total revenues 6,900 7,024
Operating expenses
Direct operating expenses
Purses, fees, and pari-mutuel taxes 2,789 2,013
Simulcast and other direct expenses 2,384 2,331
---------- ----------
Total direct operating expenses 5,173 4,344
Selling, general, and administrative expenses 1,206 1,521
---------- ----------
Total operating expenses 6,379 5,865
---------- ----------
Earnings from operations 521 1,159
Interest expense, net (707) (644)
---------- ----------
Earnings (loss) before income taxes (186) 515
Provision for (benefit from) income taxes - -
---------- ----------
Net earnings (loss) $ (186) $ 515
========== ==========
Earnings (loss) per share data:
Basic and diluted earnings (loss) per share $ (0.03) $ 0.07
Weighted average number of shares outstanding 7,267 7,250
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
5
<PAGE>
COLONIAL DOWNS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
March 31, March 31,
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ (186) $ 515
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 425 405
Changes in operating assets and liabilities:
Increase in accounts receivable and other assets (559) (98)
Decrease in trade accounts payable and accrued liabilities (270) (13)
Increase in horsemen's deposits and purses, net 872 120
----------- -----------
Net cash provided by operating activities 282 929
----------- -----------
INVESTING ACTIVITIES:
Capital expenditures (6) (102)
Decrease in construction payables - (391)
----------- -----------
Net cash used in investing activities (6) (493)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from long-term debt, capital leases, and other 265 96
Payments on long-term debt and capital leases (326) (189)
----------- -----------
Net cash used in financing activities (61) (93)
----------- -----------
Net change in cash and cash equivalents 215 343
Cash and cash equivalents, beginning of period 1,313 1,155
----------- -----------
Cash and cash equivalents, end of period $ 1,528 $ 1,498
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
6
<PAGE>
COLONIAL DOWNS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted. These financial
statements should be read in conjunction with the annual financial statements
for the year ended December 31, 1999 of Colonial Downs Holdings, Inc. (the
"Company") included in the Company's Form 10-K filed with the Securities and
Exchange Commission on April 3, 2000.
In the opinion of management, the financial statements include all
adjustments (consisting only of normal recurring adjustments) considered
necessary to present fairly the financial position of the Company as of March
31, 2000 and the results of its operations and its cash flows for the
respective three month periods ended March 31, 2000 and 1999. Interim results
for the three months ended March 31, 2000 are not necessarily indicative of
results that may be expected for the fiscal year ending December 31, 2000.
Basic earnings (loss) per share is computed by dividing earnings 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 (which can consist of stock options and warrants)
that could share in earnings of an entity.
Certain reclassifications have been made in the prior period's financial
statements in order to conform to the March 31, 2000 presentation.
7
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COLONIAL DOWNS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. LONG-TERM DEBT, NOTES PAYABLE-RELATED PARTIES, AND CAPITAL LEASES
Long-Term Debt, Notes Payable-Related Parties, and Capital Leases,
consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
---------------------------
2000 1999
----------- ------------
<S> <C> <C>
Note payable to a bank maturing June 2000, bearing
interest at a variable rate (9.06% at March 31, 2000),
collateralized by substantially all assets, except the
Racing Centers, of the Company and guaranteed by certain
shareholders and related parties $ 10,000,000 $ 10,000,000
Convertible subordinated note payable to CD Entertainment,
Ltd., maturing September 2000, with interest payable quarterly
at a rate of 7.25%, collateralized by a second deed of
trust on the racetrack facility 5,500,000 5,500,000
Note payable to a bank, maturing October 2000, bearing
interest at prime plus 1.0% (10% at March 31, 2000),
with monthly principal payment of $15,000, collateralized
by certain fixed assets 435,000 480,000
Installment loans 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% 35,988 51,543
Note payable to Maryland Jockey Club, maturing December 2005,
bearing interest at a rate of 7.75% payable quarterly for
the first two years and equal installments of interest and
principal to be paid quarterly over the remaining five year
term of the note, beginning in the first quarter of 2001 1,450,000 1,450,000
Note payable under the revolving credit facility with a bank,
bearing interest at a variable rate (9.06% at March 31,
2000), due June 30, 2000, collateralized by substantially
all assets, except the Racing Centers, of the Company and
guaranteed by certain shareholders and related parties 5,000,000 5,000,000
Convertible subordinated note payable to CD Entertainment,
Ltd., maturing August 2000, with an interest rate of 8.5%,
collateralized by the Hampton Racing Center 1,000,000 1,000,000
</TABLE>
[/CAPTION]
8
<PAGE>
COLONIAL DOWNS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
2. LONG-TERM DEBT, NOTES PAYABLE-RELATED PARTIES, AND CAPITAL LEASES
- (CONTINUED)
<TABLE>
<CAPTION>
March 31, December 31,
---------------------------
2000 1999
----------- ------------
<S> <C> <C>
Note payable to Norglass, Inc. maturing September 24, 2000,
monthly interest payment at a rate of 6% until maturity. 1,850,000 1,850,000
Note payable to Maryland Jockey Club, bearing interest at
the prime rate, payable in two equal installments during
the years 2000 and 2001. 455,827 600,000
Note payable to CD Entertainment, Ltd., bearing interest
at the prime rate, payable in two equal installments during
the years 2000 and 2001. 900,000 900,000
Note payable to CD Entertainment, Ltd., maturing August 2001,
with monthly interest payment at the Lender's cost of funds
plus one-half percent (approximately 8.7% at March 31, 2000). 300,000 300,000
Note payable to CD Entertainment, Ltd., maturing September
2001, with monthly interest payment at the Lender's cost of
funds plus one-half percent (approximately 8.7% at March 31,
2000). 475,000 475,000
Note payable to Ryan Incorporated Central, bearing monthly
interest at 10%, payable in six equal monthly payments
commencing January 1, 2000. 54,941 142,735
Note payable to an insurance company, maturing January 2001,
bearing interest at 8.70%, with monthly payments of $7,477
including interest. 64,920 -
Note payable to an insurance company, maturing October 2000,
bearing interest at 7.10%, with monthly payments of $25,628
including interest. 166,828 -
----------- -----------
27,688,504 27,749,278
Less current maturities. 15,913,504 15,974,278
Current maturities - related parties. 8,800,000 8,800,000
----------- -----------
2,975,000 2,975,000
Less long-term debt - related parties. 1,225,000 1,225,000
----------- -----------
Long-term debt, including capital lease obligations. $ 1,750,000 $ 1,750,000
=========== ===========
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
The Company, through its subsidiaries, holds the only licenses to own and
operate a racetrack (the "Track") and Racing Centers in Virginia. The Company
currently operates Racing Centers in Chesapeake, Richmond, Hampton, and Alberta,
Virginia, and may open two additional Racing Centers if suitable opportunities
are identified and referenda are passed.
The Company's revenues are comprised of (i) pari-mutuel commissions from
wagering on races broadcast from out-of-state racetracks to the Company's Racing
Centers and the Track using import simulcasting; (ii) wagering at the Track and
the Company's Racing Centers on its live races; (iii) admission fees, program,
racing form and tip sheet sales, and certain other ancillary activities; (iv)
commissions from food and beverage sales and concessions; and (v) fees from
wagering at out-of-state locations on races run at the Track using export
simulcasting.
The following table sets forth certain operating results as a percentage
of total revenues for the periods indicated:
<TABLE>
<CAPTION>
(Percentage of Net Revenues)
March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues:
Pari-mutuel and simulcasting commissions 94.6% 94.3%
Other 5.4% 5.7%
-------- --------
Total revenues 100.0% 100.0%
Direct operating expenses:
Purses, fees, and pari-mutuel taxes 40.4% 28.7%
Simulcast and other direct 34.6% 33.2%
-------- --------
Total direct operating expenses 75.0% 61.9%
Selling, general, and administrative expenses 17.5% 21.6%
-------- --------
Earnings from operations 7.5% 16.5%
Interest expense, net (10.2)% (9.2)%
-------- --------
Earnings (loss) before taxes (2.7)% 7.3%
</TABLE>
10
<PAGE>
Total Revenues. Total revenues for the first quarter of 2000 decreased
$124,000 or 1.8% to $6,900,000 from $7,024,000. Snow in January closed our
Racing Centers for two days. This weather had an impact on our Northeast tracks
Simulcast signals as they were closed for more days.
Direct Operating Expenses. As a percentage of revenues, direct operating
expenses increased 13.1% from 61.9% for the first quarter of 1999 to 75.0% for
the first quarter of 2000. The increase in operating expenses were attributed
to an increase in purse expense. Purse expenses for the first quarter of 2000
were approximately $784,000 or 96% of the increase in direct operating expenses.
Selling, General and Administrative Expenses (SG&A). As a percentage of
revenues, SG&A decreased 4.1%, from 21.6% for the first quarter of 1999 to 17.5%
for the first quarter of 2000. The decrease in SG&A as a percentage of revenues
was primarily due to reductions in professional, consulting and legal fees of
approximately $331,000.
Interest Expense, Net. Interest expense, net of interest income,
increased $63,000 in the first quarter of 2000 to $707,000 from $644,000 for
the same period of the prior year. The increase in interest expense was
primarily a result of higher levels of debts.
Net Earnings (Loss). Net loss for the first quarter of 2000 was $186,000
compared to net earnings of $515,000 for the corresponding period of the prior
fiscal year. The decrease in net earnings was primarily a result of the
increase in purse expense as discussed above.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's consolidated financial statements are presented on the going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
During 1999 and 1998, the Company incurred aggregate net losses of
approximately $6,400,000 and has a working capital deficit of $26,301,000 at
March 31, 2000. In addition, approximately $24,714,000 of the Company's debt is
due in the remainder of 2000.
The Company's continued existence is dependent upon its ability to
Refinance or renew maturing debt and obtain adequate working capital to support
its operations until they become profitable. The Company has been and continues
to be largely dependent on the financial support of its principal stockholder,
who has personally guaranteed $16,850,000 of the maturing debt and whose
affiliate is the holder of $8,800,000 of additional debt. The Company is
seeking continued financial support from this stockholder and expects such
support to be forthcoming; however there can be no assurances that it will be.
Additionally, CD Entertainment Ltd. has agreed to loan the Company between $1.5
million and $2 million on terms to be negotiated for working capital purposes.
11
<PAGE>
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classifications of liabilities that may result from the possible
inability of the company to continue as a going concern. The Report of
Independent Certified Public Accountants included in the annual financial
statements in the Company's form 10-K for the year ended December 31, 1999
contains a qualification that raises substantial doubt about the Company's
ability to continue as a going concern primarily due to significant debt coming
due in 2000. The Company is seeking to refinance the debt coming due in 2000.
There can be no assurance that the Company will be successful in its efforts or
if successful, that the terms of such refinancing will be favorable to the
Company.
Cash Flows. After adjusting the net loss of $186,000 for non-cash items
such as depreciation and amortization, $239,000 in cash was provided. The
increase in accounts payable and other operating liabilities and the decreases
in accounts receivable and other assets and horsemen's deposits and purses
provided $43,000 of cash resulting in net cash provided by operating activities
of $282,000. Investing activities utilized $6,000 of cash. Financing
activities used $61,000 of cash.
In June 1999, the Company entered into a three-year contract (which is
renewable for an additional three year term) with the Virginia Horsemen's
Benevolent and Protective Association ("the VaHBPA) to provide for thoroughbred
purses. Under the contract, $3,125,000 was guaranteed to be available for
purses for the 1999 thoroughbred meet. Of this amount, $1,500,000 is considered
to be an advance of purse money due in years 2000 and 2001. In years 2000 and
2001, the Company is required to pay 5 1/4% of the handle generated on simulcast
thoroughbred racing to the thoroughbred purse account. The advance will be
repaid by the VaHBPA in an annual amount of $750,000 plus interest at
approximately the prime rate from the 5 1/4% that is contributed to the purse
account in years 2000 and 2001.
EBITDA is a widely accepted financial indicator of a company's ability to
service and incur debt. The Company's EBITDA for the first three months of
fiscal year 2000 and 1999 was approximately $946,000 and $1.6 million,
respectively. The decrease in EBITDA is primarily due to lower income before
interest and income taxes due to the changes in revenues, operating expenses and
selling, general and administrative expenses discussed in "Results of
Operations" above. EBITDA should not be considered in isolation from or as a
substitute for net income or cash flow measures prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity. EBITDA is defined as the sum of income before
interest, income taxes, and depreciation and amortization.
In January 11, 1999, the Company negotiated an agreement with PNC Bank,
N.A. ("PNC"), which restructured the principal payments of the Credit Agreement
dated June 26, 1997. Under the agreement, in lieu of making principal payments
on the due dates, the guarantors were required to deliver to PNC letters of
credit in the face amount of future principal payments. The letters of credit
have an expiration date of July 31, 2000. Guarantors of the debt posted letters
of credit totaling $2.5 million, in lieu of the Company making the principal
payments due December 31, 1998 through March 31, 2000. The Company anticipates
that the guarantors will continue to post letters of credit for the principal
payments due during the remainder of 2000.
12
<PAGE>
SEASONALITY AND THE EFFECT OF INCLEMENT WEATHER
Revenues and expenses relating to the Track may be higher during scheduled
live racing than at other times of the year. In addition, weather conditions
such as those from the snow storm in the Northeast in January 2000, sometimes
cause cancellation of outdoor horse races or curtail attendance, both of which
reduce wagering. Attendance and wagering at both outdoor races and indoor
Racing Centers also may be adversely affected by certain holidays and
professional and college sports seasons as well as other recreational
activities. Conversely, attendance and wagering may be favorably affected by
special racing events which stimulate interest in horse racing, such as the
Triple Crown races in May and June and the Breeders' Cup in November. As a
result, the Company's revenues and net income may fluctuate from quarter to
quarter. Given that a substantial portion of the Company's Track expenses are
fixed, the loss of scheduled racing days could have a material adverse affect on
the Company's profitability. The Company believes that simulcasting diminishes
the effect of inclement weather on wagering.
IMPACT OF YEAR 2000
Currently, the Company has experienced no negative effects as a result of
the Year 2000 conversion. However, there can be no assurance that during the
fiscal year ending December 31, 2000 that no such disturbances will occur.
FORWARD LOOKING INFORMATION
The statements contained in this report which are not historical facts,
including, but not limited to, statements found under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
above, are forward looking statements that involve a number of risks and
uncertainties. The actual results of the future events described in such
forward looking statements in this report could differ materially from those
contemplated by such forward looking statements. Among the factors that could
cause actual results to differ materially are the risks and uncertainties
discussed in the report, including without limitations the portions of such
statements under the caption referenced above, and the uncertainties set forth
from time to time in the Company's other public reports and filings and public
statements. Such risks include but are not limited to acts by parties outside
the control of the Company, including the Maryland Jockey Club, horsemen
associations, the Virginia Racing Commission, political trends, the effects of
adverse general economic conditions, the approval of future Racing Centers by
referenda and/or the Commission and governmental regulation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Most of the Company's debt obligations at March 31, 2000 were either fixed
rate obligations or variable rate obligations which provide the Company various
options in determining the rate of interest. Management does not believe that
the Company has any material market risk from its debt obligations.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Mechanic Lien Litigation. In connection with the dispute with Norglass,
------------------------
two subcontractors of Norglass filed mechanic's liens against the property,
which have been ordered removed by the New Kent County Circuit Court. In Baker
-----
Roofing Company v. Colonial Downs Holdings, Inc., et al. (New Kent County
- --------------------------------------------------------
Circuit Court Case No. CH98-76), a roofing subcontractor seeks payment of
$137,790.10 and its subcontractor in turn seeks payment of $40,541.32 in NCI
---
Building Components v. Baker Roofing Company, et al. (New Kent County Circuit
- ----------------------------------------------------
Court Case No. CH98-78). The Company is contesting these matters and is seeking
a final resolution to all pending claims.
Virginia Racing Commission's December 1999 Rulings. Certain rulings of
--------------------------------------------------
the Commission made at its December 15, 1999 Meeting and its written Order
pertaining thereto issued on December 20, 1999 (the "December Order") gave rise
to certain litigation initiated by Colonial Downs, L.P. (the "Partnership),
Stansley Racing Corp. ("Racing") and others during the first quarter of 2000.
The Commission rulings included: its order that the Partnership continue to set
aside and to deposit into the Standardbred Purse Account 5% of handle wagered
on standardbred simulcast races at the Partnership's Racing Centers (the "Purse
Requirement") based upon the Commission's finding that certain agreements (the
"VHHA Agreements") between the Partnership, Racing and the Virginia Harness
Horse Association (the "VHHA") had renewed and were in force; its order that
the Partnership make all payments necessary to have no accounts payable aged
over 90 days by February 29, 2000 (the "Payables Requirement"); its order that
the Partnership not make certain credit enhancement, development and consulting
fee payments to Diversified Opportunities Group, Ltd., Premier Development Co.
and Arnold W. Stansley (all related parties) (hereinafter, the "Related
Parties"); its order that the Partnership and Racing conduct 40 days of live
standardbred racing in 2000; and its direction to the Commission's Executive
Secretary that he withhold approval of the Partnership's and Racing's monthly
simulcast schedules unless he was satisfied that they were making progress
toward meeting the terms of the December Order. In January 2000, Partnership,
Racing and the Related Parties appealed certain of the Commission's December
rulings, and Partnership and Racing filed a related declaratory judgment action
(the "Declaratory Judgment Action") against the VHHA seeking a judicial
declaration that the VHHA Agreements, which the Commission found to have
renewed, had expired as of August 4, 1999.
In connection with the appeal of the Commission's December Order,
(Colonial Downs, L.P., et al v. Virginia Racing Commission, Circuit Court of
- ----------------------------------------------------------
the City of Richmond, Case No. HN-256), the Partnership and Racing argued that
the Commission violated Virginia's Administrative Process Act and Freedom of
Information Act and exceeded its authority under the Virginia Horse Racing and
Pari-Mutuel Wagering Act (the "Racing Act"). In particular, they challenged
the Commission's procedures in finding that the VHHA Agreements were currently
in force since it purported to conduct a fact-finding hearing on the matter
without notice to the Partnership or Racing pursuant to Virginia Code Section
14
<PAGE>
9.6-14:11. It was further argued that because the VHHA Agreements were not in
force, the Commission had no authority to order the Partnership to deposit five
percent (5%) of the simulcast standardbred handle into the Standardbred Purse
Account. It was also asserted that the Commission violated the Administrative
Process Act and Freedom of Information Act with respect to the Payables
Requirement and the requirement that Related Party fees be waived as a condition
of live racing. Further, it was argued that the Commission procedurally and
substantively improperly delegated authority to its Executive Secretary by
empowering him to withhold approval of the Partnership's and Racing's monthly
simulcast schedules unless he was satisfied that they were making progress
towards complying with the Commission's December Order. Finally, in light of
the other procedural and substantive errors reflected in the December Order, it
was alleged that the Commission committed reversible error and ignored the
substantial evidence presented to it by arbitrarily requiring 40 days of live
standardbred racing in 2000.
By order entered on January 27, 2000, the Richmond Circuit Court entered a
stay of the Commission's rulings with respect to the Purse Requirement and the
Payables Requirement. The Court did not address the Commission's delegation of
authority to its Executive Secretary to withhold approval of the monthly
simulcast schedules in light of its other rulings. Colonial Downs, L.P. and
------------------------
Stansley Racing Corp. v. Virginia Racing Commission, Case No. HN-59 (January
- ---------------------------------------------------
27, 2000)(Markow, J.). The Commission appealed the issuance of the stay, and
by order entered February 22, 2000, the portion of the stay pertaining to the
Purse Requirement was reversed by the Virginia Court of Appeals.
By order entered on March 15, 2000, the Circuit Court found that the
Commission violated Virginia's Freedom of Information Act and committed other
procedural errors with regard to the issues raised on appeal. Notwithstanding
these conclusions, however, the Court found that, with the exception of the
ruling pertaining to the Related Party fees, the Commission's actions should not
be reversed. No appeal was timely taken from the Circuit Court's rulings.
In the Declaratory Judgment Action, Partnership and Racing argued that the
VHHA Agreements terminated on August 4, 1999 based upon the terms of a Second
Amendment, dated as of March 16, 1999, between the parties, written notices
provided to the VHHA and a continuing course of conduct by the parties
reflecting that the Agreements had terminated. The VHHA argued that written
notice had not been properly provided under the terms of the VHHA Agreements
and that the VHHA's course of conduct was inadequate to constitute a waiver of
its alleged rights under the VHHA Agreements to assert the position that the
Agreements had automatically renewed and did not terminate. The parties settled
the case prior to it being heard by the Circuit Court. The terms of the
settlement include an acknowledgement by the parties that the VHHA Agreements
are not in force, Partnership's agreement to continue, nevertheless, to make
purse contributions of 5% of standardbred simulcast handle into the Standardbred
Purse Account through the execution of a new contract, and the payment to
Partnership of the sum of $315,000 from the Standardbred Purse Account. The
settlement was contingent upon the Commission taking no steps to modify the
terms of the settlement, and the Commission approved the settlement at its April
19, 2000 meeting.
15
<PAGE>
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibit 27 Financial Data Schedule
B. Reports on Form 8-K None
16
<PAGE>
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.
By: /s/ Ian M. Stewart
---------------------------------
Ian M. Stewart, President
and Chief Financial Officer
May 3, 2000
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