CHURCHILL DOWNS INCORPORATED
700 CENTRAL AVENUE
LOUISVILLE, KENTUCKY 40208
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 18, 1998
TO THE SHAREHOLDERS OF
CHURCHILL DOWNS INCORPORATED:
Notice is hereby given that the Annual Meeting of Shareholders of
Churchill Downs Incorporated (the "Company"), a Kentucky corporation, will be
held at Churchill Downs Sports Spectrum, 4520 Poplar Level Road, Louisville,
Kentucky, on Thursday, June 18, 1998, at 10:00 a.m., E.D.T. for the following
purposes:
I. To elect four (4) Class II Directors for a term of three (3) years
(Proposal No. 1);
II. To approve the proposed Churchill Downs Incorporated 1997 Stock Option
Plan (Proposal No. 2);
III. To approve amending the Company's Articles of Incorporation to
increase the number of authorized shares of the Company's Common Stock from
10,000,000 to 20,000,000 shares (Proposal No. 3);
IV. To approve or disapprove the minutes of the 1997 Annual Meeting of
Shareholders, approval of which does not amount to ratification of actions taken
at such meeting (Proposal No.4); and
V. To transact such other business as may properly come before the meeting
or any adjournment thereof, including matters incident to its conduct.
The close of business on April 20, 1998, has been fixed as the record date
for the determination of the shareholders entitled to notice of and to vote at
the meeting, and only shareholders of record at that time will be entitled to
notice of and to vote at the meeting and at any adjournments thereof.
Shareholders who do not expect to attend the meeting in person are urged to
sign, date and promptly return the Proxy that is enclosed herewith.
By Order of the Board of Directors.
ALEXANDER M. WALDROP
SENIOR VICE PRESIDENT, ADMINISTRATION,
GENERAL COUNSEL AND SECRETARY
May 8, 1998
<PAGE>
CHURCHILL DOWNS INCORPORATED
700 CENTRAL AVENUE
LOUISVILLE, KENTUCKY 40208
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 18, 1998
The enclosed Proxy is being solicited by the Board of Directors (the "Board
of Directors") of Churchill Downs Incorporated (the "Company") to be voted at
the 1998 Annual Meeting of Shareholders to be held on Thursday, June 18, 1998,
at 10:00 a.m., E.D.T. (the "Annual Meeting"), at the Churchill Downs Sports
Spectrum, 4520 Poplar Level Road, Louisville, Kentucky, and any adjournments
thereof. This solicitation is being made primarily by mail and at the expense of
the Company. Certain officers and directors of the Company and persons acting
under their instruction may also solicit Proxies on behalf of the Board of
Directors by means of telephone calls, personal interviews and mail at no
additional expense to the Company. The Proxy and this Proxy Statement are being
sent to shareholders on or about May 8, 1998.
VOTING RIGHTS
Only holders of record of the Company's Common Stock, No Par Value ("Common
Stock"), on April 20, 1998, are entitled to notice of and to vote at the Annual
Meeting. On that date, 7,316,934 shares of Common Stock were outstanding and
entitled to vote. Each shareholder has one vote per share on all matters coming
before the Annual Meeting, other than the election of directors. In the election
of directors, a shareholder is entitled by Kentucky law to exercise "cumulative"
voting rights; that is, the shareholder is entitled to cast as many votes as
equals the number of shares owned by the shareholder multiplied by the number of
directors to be elected and may cast all such votes for a single nominee or
distribute them among the nominees in any manner that the shareholder desires.
Shares represented by proxies received may be voted cumulatively (see "Election
of Directors"). Under the Company's Articles of Incorporation and Bylaws and the
Kentucky statutes, abstentions and broker non-votes on any matter are not
counted in determining the number of votes required for the election of a
director or passage of any matter submitted to the shareholders. Abstentions and
broker non-votes are counted for purposes of determining whether a quorum
exists. All share, per share, share value, option exercise price and similar
data in this Proxy Statement have been adjusted throughout this Proxy Statement
to reflect a share dividend of one share of the Company's Common Stock for each
outstanding share of the Company's Common Stock declared by the Board of
Directors at its March 19, 1998 meeting. The record date for such share dividend
was March 30, 1998.
1
<PAGE>
If the enclosed Proxy is properly executed and returned prior to the Annual
Meeting, the shares represented thereby will be voted as specified therein. IF A
SHAREHOLDER DOES NOT SPECIFY OTHERWISE, THE SHARES REPRESENTED BY THE
SHAREHOLDER'S PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED BELOW
UNDER "ELECTION OF DIRECTORS," FOR APPROVAL OF THE PROPOSED CHURCHILL DOWNS
INCORPORATED 1997 STOCK OPTION PLAN, FOR APPROVAL OF THE PROPOSED AMENDMENT TO
THE COMPANY'S ARTICLES OF INCORPORATION, FOR APPROVAL OF THE MINUTES OF THE 1997
ANNUAL MEETING OF SHAREHOLDERS AND ON SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENTS THEREOF.
REVOCATION OF PROXY
A proxy may be revoked at any time before the shares it represents are
voted by giving written notice of revocation to the Secretary of the Company and
such revocation shall be effective for all votes after receipt.
COMMON STOCK OWNED BY CERTAIN PERSONS
The following table sets forth information concerning the beneficial
ownership of the Common Stock as of April 16, 1998, by [i] the only persons
known by the Board of Directors to own beneficially more than five percent (5%)
of the Common Stock and [ii] the Company's directors and executive officers as a
group. Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to all of the shares of Common Stock
shown as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES
NAME AND ADDRESS BENEFICIALLY
OF BENEFICIAL OWNER OWNED % OF CLASS
---------------------- --------------- ----------
<S> <C> <C>
Darrell R. Wells
4350 Brownsboro Road
Suite 310
Louisville, Kentucky 40207 487,660(1)(2) 6.7%
Charles W. Bidwill, Jr.
911 Sunset Road
Winnetka, Illinois 60093 438,680(2) 6.1%
24 Directors and Executive
Officers as a Group 2,336,900(1)(2)(3) 31.9%
- --------------
(1) Of the total shares listed above, Mr. Wells disclaims beneficial ownership
of 44,800 shares held by The Wells Foundation, Inc., of which he is a
trustee and of 293,218 shares held by The Wells Family Partnership, of which
he is the Managing General Partner. Mr. Wells shares voting and investment
power with respect to all shares attributed to him in the above table.
2
<PAGE>
(2) See "Executive Officers of the Company," "Election of Directors," and
"Continuing Directors," below.
(3) Includes 218,400 shares issuable under currently exercisable options.
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's directors, executive officers and persons who beneficially own more
than ten percent (10%) of the Company's Common Stock file certain reports with
the Securities and Exchange Commission ("SEC") with regard to their beneficial
ownership of the Common Stock. The Company is required to disclose in this Proxy
Statement any failure to file or late filings of such reports. During the
Company's prior fiscal year, Mr. Thomas H. Meeker and Mr. Robert L. Decker,
executive officers of the Company, each made a late filing of one (1) report
covering one (1) transaction. Each required report was subsequently filed. Based
solely on its review of the forms filed with the SEC, the Company believes that
all other filing requirements applicable to its directors, executive officers
and ten percent (10%) beneficial owners were satisfied.
EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive officers, as listed below, are elected annually to
their executive offices and serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
COMMON STOCK OF THE
COMPANY BENEFICIALLY OWNED
AS OF APRIL 16, 1998(1)(2)
POSITION(S) WITH COMPANY
NAME AND AGE AND TERM OF OFFICE AMOUNT % OF CLASS
------------ ------------------------------------- ------ -----------
<S> <C> <C> <C>
William S. Farish (3) Director since 1985; Chairman of the 86,560 1.2%
59 Board since 1992
Thomas H. Meeker President and Chief Executive Officer 148,308(4) 2.0%
54 since 1984; Director since 1995
Vicki L. Baumgardner Vice President, Finance and Treasurer 11,306(5) .2%
46 since February 1993; Controller from
1989 to February 1993
David E. Carrico Senior Vice President, Sales since 16,120(6) .2%
47 December 1996; Senior Vice President,
Administration from June 1994 to
December 1996; Vice President of
Marketing from 1990 to June 1994
Robert L. Decker Senior Vice President, Finance and 2,000 *
50 Development, and Chief Financial Officer
since March 1997
3
<PAGE>
COMMON STOCK OF THE
COMPANY BENEFICIALLY OWNED
AS OF APRIL 16, 1998(1)(2)
POSITION(S) WITH COMPANY
NAME AND AGE AND TERM OF OFFICE AMOUNT % OF CLASS
- --------------- ---------------------------------------- --------- -----------
Dan L. Parkerson Senior Vice President, Live Racing since 16,400(7) .2%
55 December 1996; General Manager since
June 1991; Vice President of Operations
from 1990 to February 1991
Jeffrey M. Smith President, Churchill Downs Management 22,698(8) .3%
45 Company since January 1993; Senior
Vice President, Planning and Development from
February 1993 to December 1996; Senior Vice
President, Finance from 1991 to February 1993;
Treasurer from 1986 to February 1993;
Vice President, Finance from 1990 to 1991
Karl F. Schmitt, Jr. Vice President, Corporate Communications 11,486(9) 1.6%
45 since 1990
Alexander M. Waldrop Senior Vice President, Administration 22,342(10) .3%
41 since December 1996; Senior Vice
President since June 1994; General
Counsel and Secretary since August 1992
- ------------------
*Less than 0.1%
<FN>
(1) See the Tables on Option Grants in Last Fiscal Year and Aggregate
Year-End Option Values under "Executive Compensation" below for a
discussion of stock options granted by the Board of Directors to
executive officers during 1997.
(2) No executive officer shares voting or investment power with respect to
his or her beneficially owned shares, except that Mr. Meeker shares
investment and voting power with respect to 26,908 shares.
(3) Mr. Farish does not serve full-time as an executive officer of the
Company and is not compensated as an officer of the Company.
(4) Includes 121,400 shares issuable under currently exercisable options.
(5) Includes 11,000 shares issuable under currently exercisable options.
(6) Includes 15,500 shares issuable under currently exercisable options.
(7) Includes 15,500 shares issuable under currently exercisable options.
(8) Includes 22,000 shares issuable under currently exercisable options.
(9) Includes 11,000 shares issuable under currently exercisable options.
(10) Includes 22,000 shares issuable under currently exercisable options.
</FN>
</TABLE>
From January, 1993, until joining the Company, Mr. Decker was employed as
the Vice President of Finance of The Americas Hilton International Company, a
subsidiary of Ladbroke
4
<PAGE>
Group PLC, a full service hotel and gaming enterprise. From September, 1987 to
January, 1993, Mr. Decker was the Vice President of Finance and Chief Financial
Officer of Ladbroke Racing Corporation, an owner and operator of thoroughbred,
harness and greyhound racetracks, and off-track betting systems in the United
States.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
At the Annual Meeting, shareholders will vote to elect four (4) persons to
serve in Class II of the Board of Directors to hold office for a term of three
(3) years expiring at the 2001 Annual Meeting of Shareholders and thereafter
until their respective successors shall be duly elected and qualified.
The Articles of Incorporation of the Company provide that the Board of
Directors shall be composed of not less than nine (9) nor more than twenty-five
(25) members, the exact number to be established by the Board of Directors, and
further provide for the division of the Board of Directors into three (3)
approximately equal classes, of which one (1) class is elected annually. At its
meeting on March 19, 1998, the Board of Directors amended the Company's Bylaws
to establish, effective as of the Annual Meeting, the number of directors at
twelve (12), with four (4) directors in each of Class I, Class II and Class III.
The Company is a party to a Stock Purchase Agreement dated as of March 28,
1998 (the "Stock Purchase Agreement"), between the Company and TVI Corp., under
which the Company acquired all of the shares of the stock of Racing Corporation
of America from TVI Corp. as of April 21, 1998. The Stock Purchase Agreement
provides that, at the regular meeting of the Board of Directors in June of 1998,
Daniel Harrington, President of TVI Corp., will be nominated to serve as a
director of the Company in the class of directors deemed appropriate by the
Company, subject to reelection of Mr. Harrington (or a substitute nominee
reasonably acceptable to the Company) by the shareholders of the Company at the
next annual meeting of the shareholders of the Company if TVI Corp. continues to
then hold 200,000 shares of the Company's Common Stock and subject to the
fiduciary obligations of the directors of the Company in nominating such person
for election as a director.
At the Annual Meeting, the four (4) persons named in the following table
will be nominated on behalf of the Board of Directors for election as directors
in Class II. All of the nominees currently serve as Class II directors of the
Company and all of the nominees have agreed to serve if reelected. Under
cumulative voting, the four (4) nominees receiving the highest number of votes
will be elected. Catesby W. Clay currently serves as a Class II director but,
following the Annual Meeting, will assume Director Emeritus status as a result
of having attained the mandatory retirement age as prescribed by the Company's
Bylaws.
5
<PAGE>
<TABLE>
<CAPTION>
NOMINEES FOR ELECTION AS DIRECTORS
COMMON STOCK OF THE COMPANY
BENEFICIALLY OWNED AS
OF APRIL 16, 1998(3)
NAME, AGE AND
POSITIONS WITH PRINCIPAL OCCUPATION (1) AND
COMPANY CERTAIN DIRECTORSHIPS (2) AMOUNT % OF CLASS
- ------------------- -------------------------------------------- ---------- ----------
CLASS II - TERMS EXPIRING IN 2001
<S> <C> <C> <C>
J. David Grissom Chairman, Mayfair Capital, Inc. (Private in 20,100 .3%
59 vestment firm); Director, Providian Financial
Director since 1979 Corporation, LG&E Energy Corporation and
Regal Cinemas, Inc.; Chairman, Centre College
Board of Trustees
Seth W. Hancock Partner and Manager, Claiborne Farm, and 285,650 3.9%
48 President, Hancock Farms, Inc. (Thoroughbred
Director since 1973 breeding and farming); Vice President and
Director, Clay Ward Agency, Inc. (Equine
insurance); Director, Hopewell Company and
Keeneland Association, Incorporated
Frank B. Hower, Jr. Retired; Former Chairman and Chief Executive 2,080 *
69 Officer, Liberty National Bancorp, Inc., Liberty
Director since 1979 National Bank & Trust Company of Louis
ville; Director, Banc One Kentucky Corpora
tion, Bank One, Kentucky, NA, American Life
and Accident Insurance Company, Anthem,
Inc., Kentucky Historical Society and Actors
Theatre of Louisville; Member, Board of Trust
ees, Centre College, J. Graham Brown Founda
tion and University of Louisville (Chairman)
W. Bruce Lunsford Chairman, President and Chief Executive 200,060 2.7%
50 Officer, Vencor, Inc. (Intensive care hospitals
Director since 1995 and nursing homes); Director, Atria Communi
ties, Inc. (Chairman), ResCare, Inc., National
City Bank, Kentucky (Executive Committee),
National City Corporation, Kentucky Economic
Development Corporation (Chairman)
- ---------------
* Less than 0.1%.
<FN>
(1) Except as otherwise indicated, there has been no change in principal
occupation or employment during the past five years.
(2) Directorships in companies with a class of securities registered
pursuant to the Securities Exchange Act of 1934 or companies registered
under the Investment Company Act of 1940 and, in the case of certain
nominees, other directorships considered significant by them.
(3) No nominee shares voting or investment power of his beneficially owned
shares, except that Mr. Hancock shares with others the voting and
investment power with respect to 212,650 shares and Mr. Lunsford shares
investment power with respect to 20,000 shares. Mr. Hancock specifically
disclaims beneficial ownership of 158,400 shares owned by the A.B.
Hancock, Jr. Marital Trust
6
<PAGE>
of which he is the trustee, of 18,060 shares owned by the Waddell Walker
Hancock II Trust of which he is a trustee, of 18,060 shares owned by the
Nancy Clay Hancock Trust of which he is a trustee and of 12,086.66
shares held by the ABC Partnership of which he is a general partner.
</FN>
</TABLE>
The Board of Directors has no reason to believe that any of the nominees
will be unavailable to serve as a director. If any nominee should become
unavailable before the Annual Meeting, the persons named in the enclosed Proxy,
or their substitutes, reserve the right to vote for substitute nominees selected
by the Board of Directors. In addition, if any shareholder(s) shall vote shares
cumulatively or otherwise for the election of a director or directors other than
the nominees named above, or substitute nominees, or for less than all of them,
the persons named in the enclosed Proxy or their substitutes, or a majority of
them, reserve the right to vote cumulatively for some number less than all of
the nominees named above or any substitute nominees, and for such of the persons
nominated as they may choose.
CONTINUING DIRECTORS
The following table sets forth information relating to the Class I and
Class III directors of the Company who will continue to serve as directors until
the expiration of their respective terms of office, and the Directors Emeriti,
and the beneficial ownership of Common Stock by such directors.
<TABLE>
<CAPTION>
COMMON STOCK OF THE
COMPANY BENEFICIALLY OWNED
AS OF APRIL 16, 1998(3)
NAME, AGE AND
POSITIONS WITH PRINCIPAL OCCUPATION (1) AND
COMPANY CERTAIN DIRECTORSHIPS (2) AMOUNT % OF CLASS
-------------- --------------------------------- ------ ----------
CLASS III - TERMS EXPIRING IN 1999
<S> <C> <C> <C>
Charles W. Bidwill, Jr. Chairman of the Board, National Jockey Club 438,680 6.1%
69 (Operator of Sportsman's Park Racetrack);
Director since 1982 Former President and General Manager, National
Jockey Club (until December 31, 1995); Director,
Orange Park Kennel Club, Associated Outdoor
Clubs (Tampa Greyhound Track), Bayard Race
ways and Caterers of North Florida, Jacksonville
Kennel Club, Big Shoulders Fund, Archdiocese of
Chicago, Cristo Rey Jesuit High School
Thomas H. Meeker President and Chief Executive Officer of the 148,308(4) 2.0%
54 Company; Director, Anderson Park, Inc. (Chair
Director since 1995; man), Thoroughbred Racing Association of North
President and Chief America, Inc., Equibase Company, PNC Bank,
Executive Officer Kentucky, Inc., National Thoroughbred Racing
since 1984 Association, Alliant Health System, Inc.
(Executive Committee); Member, Board of
Trustees, Centre College
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK OF THE
COMPANY BENEFICIALLY OWNED
AS OF APRIL 16, 1998(3)
NAME, AGE AND
POSITIONS WITH PRINCIPAL OCCUPATION (1) AND
COMPANY CERTAIN DIRECTORSHIPS (2) AMOUNT % OF CLASS
-------------- ---------------------------- ------ ----------
<S> <C> <C> <C>
Carl F. Pollard Owner, Hermitage Farm since 1995 (Thoroughbred 146,080 2.0%
59 breeding); Former Chairman of the Board,
Director since 1985 Columbia Healthcare Corporation; President and
Chief Operating Officer (1991-March 1993),
Humana Inc.; Director, National City Bank,
Kentucky (Executive Committee), Breeders' Cup
Limited, Kentucky Derby Museum Corporation;
Trustee, Thoroughbred Owners and Breeders
Association
Darrell R. Wells General Partner, Security Management Company 487,660 6.7%
55 (Investments); Director, First Security Trust
Director since 1985 Company, Commonwealth Bancshares, Citizens
Financial Corporation, Commonwealth Bank &
Trust Company and Jundt Growth Fund
CLASS I - TERMS EXPIRING IN 2000
William S. Farish President, W. S. Farish & Company (Trust 86,560 1.2%
59 management company) and Owner and Chief Execu
Director since 1985; tive Officer, Lane's End Farm (Thoroughbred
Chairman since 1992 breeding and racing); Director, Add-Vision,
Breeders' Cup Limited and Keeneland Association,
Incorporated; Vice Chairman and Steward,
Jockey Club; Chairman, American Horse Council
G. Watts Humphrey, Jr. President, G. W. H. Holdings, Inc. (Private 36,000 .5%
53 investment company); Chief Executive Officer,
Director since 1995 The Conair Group, Inc. (Plastics machinery equipment
company), MetalTech L.P., NexTech, L.P., GalvTech, L.P.
(Metals manufacturing and distribution companies) and
Centria (Manufacturing and erector of metal building
systems); Chairman - Fourth District, Federal Reserve
Bank of Cleveland; Ex-Officio Chairman, The Society of
Plastics Industry, Inc.; Director, The Blood Horse,
Inc. (Chairman) and Keeneland Association,
Incorporated; Treasurer, Breeders' Cup Limited
Arthur B. Modell Owner and President, Baltimore Ravens Football 2,000 *
72 Company, Inc. (Professional football team)
Director since 1985
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK OF THE
COMPANY BENEFICIALLY OWNED
AS OF APRIL 16, 1998(3)
NAME, AGE AND
POSITIONS WITH PRINCIPAL OCCUPATION (1) AND
COMPANY CERTAIN DIRECTORSHIPS (2) AMOUNT % OF CLASS
-------------- ---------------------------- ------ ----------
<S> <C> <C> <C>
Dennis D. Swanson President and General Manager, WNBC-TV 0 *
60 (Television station); Former President, ABC
Director since 1996 Sports, Inc. (from January 1986 to May 1996);
Chairman, Foundation for Minority Interests in
Media, Inc. and Resource Development Board,
College of Communications, University of Illinois
at Champaign-Urbana
DIRECTORS EMERITI (5)
John W. Barr, III Retired; Former Chairman, National City Bank, 4,000 .1%
77 Kentucky, Inc.; Director, Kitchen Kompact
Director from 1979 to Company; Director, Speed Museum, Cave Hill
1993; Director Emeritus Cemetery, Boy Scouts of America and American
since 1993 Printing House for the Blind
Catesby W. Clay (6) Chairman, Kentucky River Coal Corporation 60,580 .8%
74 (Coal land lessor); President, Runnymede Farm,
Director since 1953 to Inc. (Thoroughbred breeding); Director, Kent-
1998; Director Emeritus Mar Corp. (President), KRCC Oil & Gas Co.,
since 1998 Inc., University of Kentucky Mining Engineering
Foundation; Director and President, Foundation
for Drug-Free Youth
Louis J. Herrmann, Jr. Owner, Louis Herrmann Auto Consultant Incorporated 80,130 1.1%
78 (Automobile sales); Director, Southeastern
Director from 1968 to Financial Services, Inc.
1994; Secretary-Treasurer
from 1985 to 1986;
Director Emeritus since
1994
Stanley F. Hugenberg, Jr.President, Jackantom Sales Company (Manufacturers' 7,340 .1%
80 representative); Member, Board of Trust
Director from 1982 to ees, J. Graham Brown Foundation
1992; Director Emeritus
since 1992
William T. Young Chairman, W.T. Young, Inc. (Warehousing); 229,320 3.1%
80 Owner, Overbrook Farm (Thoroughbred breed
Director from 1985 to ing); Director, Columbia/HCA Healthcare Corporation
1992; Director Emeritus
since 1992
- --------------
*Less than 0.1%
9
<PAGE>
(1) Except as otherwise indicated, there has been no change in principal
occupation or employment during the past five years.
(2) Directorships in companies with a class of securities registered pursuant to
the Securities Exchange Act of 1934 or companies registered under the
Investment Company Act of 1940 and, in the case of certain directors, other
directorships considered significant by them.
(3) No director shares voting or investment power of his beneficially owned
shares, except that Messrs. Clay, Meeker and Wells share with others the
voting and investment power with respect to 54,580 shares, 26,908 shares,
487,660 shares, respectively. Of the total shares listed, Mr. Clay
specifically disclaims beneficial ownership of 21,900 shares owned by the
Agnes Clay Pringle Trust of which he is a trustee, Mr. Pollard disclaims
ownership of 42,000 shares owned by C. F. Pollard Foundation, Inc. and Mr.
Wells disclaims beneficial ownership of 44,800 shares held by The Wells
Foundation, Inc., of which he is a trustee, and of 293,218 shares held by
The Wells Family Partnership, of which he is the Managing General Partner.
(4) Includes 121,400 shares issuable under currently exercisable options.
(5) Directors Emeriti are entitled to attend meetings of the Board of Directors
but do not have a vote on matters presented to the Board. The Bylaws provide
that once a director is 72 years of age, he may not stand for re-election
but shall assume Director Emeriti status as of the annual meeting following
his current term of service as a director. The Chairman of the Board may
continue to serve as a director notwithstanding this provision.
(6) Mr. Clay currently serves as a Class II director but will assume Director
Emeritus status following the Annual Meeting.
</TABLE>
COMPENSATION AND COMMITTEES OF THE BOARD OF DIRECTORS
Four (4) meetings of the Board of Directors were held during the last
fiscal year. During 1997, directors, other than Directors Emeriti, were paid
$750 for each meeting of the Board of Directors that they attended. Directors
were paid $500 for each committee meeting they attended. No compensation was
paid for attendance at meetings held by teleconference. Directors who did not
reside in Louisville were reimbursed for their travel expenses. Directors, other
than Directors Emeriti, received a retainer of $3,000 for 1997 and Directors who
served as committee chairmen received an additional $1,000 for a total retainer
of $4,000 for 1997. The Chairman of the Board of Directors received an
additional $1,000 for a total retainer of $5,000 for 1997. Directors Emeriti
were not paid any compensation for attending meetings. They were entitled to
have their expenses reimbursed.
For 1998, Directors, other than Directors Emeriti, will be paid $750 for
each meeting (including any committee meeting and including teleconference
meetings) in which they participate. Directors who do not reside in Louisville
will be reimbursed for their travel expenses. Directors, other than Directors
Emeriti, will receive a retainer of $6,000 for 1998. Directors who serve as
committee chairmen will receive an additional retainer of $2,000 for a total
retainer of $8,000 in 1998. The Chairman of the Board of Directors will receive
an additional $3,000 for a total retainer of $11,000 in 1998.
The Company has four (4) standing committees: the Executive, Audit,
Compensation and Racing Committees. No Director Emeritus serves on any Board
committee.
10
<PAGE>
EXECUTIVE COMMITTEE
The Executive Committee is authorized, subject to certain limitations set
forth in the Company's Bylaws, to exercise the authority of the Board of
Directors between Board meetings.
The members of the Executive Committee for 1997 were as follows:
JANUARY - DECEMBER 1997
J. David Grissom, Chairman
William S. Farish
Charles W. Bidwill, Jr.
Carl F. Pollard
Thirteen (13) meetings of the Executive Committee were held during the last
fiscal year.
AUDIT COMMITTEE
The Audit Committee is responsible for annually examining the
financial affairs of the Company, including consultation with the Company's
auditors. The members of the Audit Committee for 1997 were as follows:
JANUARY - MAY 1997 JUNE 1997 - DECEMBER 1997
Darrell R. Wells, Chairman Darrell R. Wells, Chairman
William S. Farish G. Watts Humphrey, Jr.
G. Watts Humphrey, Jr. W. Bruce Lunsford
Carl F. Pollard Carl F. Pollard
One (1) meeting of the Audit Committee was held during the last fiscal year.
COMPENSATION COMMITTEE
The Compensation Committee administers the Company's executive compensation
plans, including its Supplemental Benefit Plan, any incentive compensation plan,
any stock option plan and any employee stock purchase plan, and reviews and
recommends to the Board of Directors actions on the compensation of the
Company's Chief Executive Officer. The Compensation Committee consists of not
fewer than two (2) directors who are not officers or employees of the Company or
any of its subsidiaries. The members of the Compensation Committee for 1997 were
as follows:
11
<PAGE>
JANUARY - MAY 1997 JUNE 1997 - DECEMBER 1997
Frank B. Hower, Jr., Chairman Frank B. Hower, Jr., Chairman
William S. Farish W. Bruce Lunsford
W. Bruce Lunsford Dennis D. Swanson
Arthur B. Modell Darrell R. Wells
Darrell R. Wells
One (1) meeting of the Compensation Committee was held during the last fiscal
year.
RACING COMMITTEE
The Racing Committee is responsible for the Company's contracts and
relations with horsemen, jockeys and others providing horse racing related
services. The members of the Racing Committee for 1997 are as follows:
JANUARY - MAY 1997 JUNE 1997 - DECEMBER 1997
Seth W. Hancock, Chairman Seth W. Hancock, Chairman
Catesby W. Clay Catesby W. Clay
William S. Farish G. Watts Humphrey, Jr.
Carl F. Pollard Carl F. Pollard
No meeting of the Racing Committee was held during the last fiscal year.
The Company does not have a standing nominating committee. All directors
serving as Class I, II or III directors, except Mr. Modell, attended at least
seventy-five percent (75%) of the meetings of the Board of Directors and the
meetings of the committees on which they served.
PROPOSED CHURCHILL DOWNS INCORPORATED 1997 STOCK OPTION PLAN
(PROPOSAL NO. 2)
On November 20, 1997, the Board of Directors adopted the Churchill Downs
Incorporated 1997 Stock Option Plan (the "1997 Option Plan"), which also became
effective on the same date subject to the approval of the Company's shareholders
at the upcoming Annual Meeting. The purpose of the 1997 Option Plan is to
promote the Company's interest by affording an incentive to key employees to
remain in the employ of the Company and its subsidiaries and to use their best
efforts on its behalf and to aid the Company and its subsidiaries in attracting,
maintaining and developing capable personnel of a caliber required to ensure the
continued success of the Company.
At the Annual Meeting, the shareholders will be asked to approve the 1997
Option Plan. Approval of the 1997 Option Plan by the Company's shareholders is
required to qualify the options for favorable tax treatment as incentive stock
options ("ISOs") under Section 422 of the Internal
12
<PAGE>
Revenue Code of 1986, as amended (the "Code"). The 1997 Option Plan will not
become effective unless approved by the holders of record of a majority of the
shares of the Company's Common Stock present in person or represented by proxy
at the Annual Meeting. UNLESS OTHERWISE INSTRUCTED, IT IS THE INTENTION OF THE
PERSONS NAMED IN THE PROXY TO VOTE THE SHARES REPRESENTED THEREBY IN FAVOR OF
THE 1997 OPTION PLAN.
The following constitutes a brief discussion of the material features of
the 1997 Option Plan and is qualified in its entirety by reference to the copy
of the 1997 Option Plan which is attached as APPENDIX A to this Proxy Statement.
The 1997 Option Plan permits the grant of both incentive stock options or ISOs,
within the meaning of Section 422 of the Code, and nonqualified stock options or
NSOs. Employees designated by the Compensation Committee, including officers of
the Company, may be granted incentive and nonqualified stock options. As of
March 1, 1998, the Company had 336 employees.
Options granted under the 1997 Option Plan may be accompanied by stock
appreciation rights or SARs. The grant of an SAR permits the optionee to
surrender an option and receive in exchange cash or, if permitted, shares of
Common Stock with a value equal to the excess of the fair market value of the
stock subject to the option over the exercise price.
The 1997 Option Plan will be administered by the Compensation Committee of
the Board of Directors (the "Compensation Committee"). None of the members of
the Compensation Committee is eligible to receive options under the 1997 Option
Plan. The Compensation Committee selects the employees who will be granted
options and determines the number of shares subject to each option, fixes the
period during which each option may be exercised and fixes the prices at which
shares subject to options may be purchased. The Compensation Committee may
provide in the option agreement for acceleration of the vesting of an option or
SAR on a change in control in the Company or on the death or disability of the
optionee. The Compensation Committee will make any other determinations
necessary or advisable for the administration of the Option Plan.
A total of 300,000 shares of Common Stock will be reserved for issuance
under the Option Plan (representing 3.9% of the total number of shares of Common
Stock outstanding on April 16, 1998, as adjusted to reflect the issuance of such
additional shares). The shares to be issued under the 1997 Option Plan will be
currently authorized but unissued shares of Common Stock of the Company. The
number of shares of the Company's Common Stock available under the 1997 Option
Plan or under an option or SAR will be automatically adjusted in the event of a
stock dividend, stock split, reorganization, merger, consolidation or a
combination or exchange of shares. Shares of the Company's Common Stock subject
to unexercised options that expire or are terminated prior to the end of the
period during which options may be granted will be restored to the number of
shares available for issuance under the 1997 Option Plan.
Each option granted under the 1997 Option Plan will be evidenced by an
agreement which will establish the period in which the option may be exercised.
The maximum term of each
13
<PAGE>
ISO is ten (10) years except for an ISO granted to an employee beneficially
owning more than ten percent (10%) of the Common Stock ("Ten Percent
Shareholder"). The exercise period for ISOs granted to a Ten Percent Shareholder
will not exceed five (5) years from the date of grant. The exercise price of all
ISOs granted under the 1997 Option Plan must be at least 100% of the fair market
value of such shares on the date of grant or, in the case of an ISO granted to a
Ten Percent Shareholder, 110% of the fair market value of such shares on such
date. The exercise price of any NSO will be established by the Compensation
Committee and is not required to be the fair market value of the shares as of
the date of grant. There is also a $100,000 limit on the value of stock
(determined as of the date of grant) covered by ISOs that first become
exercisable by an optionee in any calendar year.
None of the options may be exercised until the optionee has remained
employed by the Company or one of its subsidiaries for a period of time
specified by the Committee in the option agreement, which shall not be less than
one (1) year. In addition, no part of any option may be exercised to the extent
that the exercise would cause the optionee to have compensation from the Company
for any year in excess of $1,000,000 and which is nondeductible by the Company
pursuant to Section 162(m) of the Code and the regulations issued thereunder.
The purchase price of the shares to be paid to the Company at the time of
exercise may be paid in cash by the optionee or a broker utilized by the
optionee or in such other consideration as the Committee deems appropriate,
including Common Stock already owned by the optionee.
An optionee may exercise an SAR only at such time as the related option may
be exercised and only at such times as the fair market value of a share of
Common Stock on the exercise date exceeds the option exercise price of the
related option.
Options granted pursuant to the 1997 Option Plan are not transferable
except upon the death of an optionee, in which event, they may be transferred
only by will or in accordance with and to the extent provided for in the laws of
descent and distribution. If an optionee's employment with the Company shall
terminate for any reason other than death, disability or retirement, all rights
to exercise his options shall terminate at the earlier of the date of such
termination of employment or the date of written notice of such employment
termination. If an optionee's employment with the Company is terminated due to
death or disability, the optionee's options may be exercised at the earlier of
the expiration date of the options or (1) year after the date of termination. If
the optionee's employment terminates by reason of his retirement, unless
provided otherwise in the option agreement for an NSO, his right to exercise his
options shall terminate at the earlier of the expiration date of the options or
three (3) months after termination of employment, except for options held by Mr.
Meeker which shall terminate at the earlier of their expiration date or five (5)
years after termination of his employment. The Compensation Committee may
provide in the option agreement for the lapse of an option or SAR sooner than
the foregoing times.
ISOs granted under the 1997 Option Plan are intended to be "incentive stock
options" as defined by Section 422 of the Code. Under present law, the optionee
of an ISO will not realize taxable income upon the grant or the exercise of the
ISO. The Company will not receive an income
14
<PAGE>
tax deduction at either such time. If the optionee does not dispose of the
shares of the Company's Common Stock acquired upon exercising an ISO within
either (i) two (2) years after the grant of the ISO, or (ii) one (1) year after
the date shares of the Company's Common Stock are transferred to the optionee
pursuant to the exercise of the ISO, the gain upon a subsequent disposition of
the shares will be taxed at capital gain rates. If the optionee, within either
of the above periods, disposes of the shares of the Company's Common Stock
acquired upon exercise of the ISO, the optionee will recognize as ordinary
income an amount equal to the difference between the exercise price and the fair
market value of the shares on the date of exercise. In such event, the Company
would be entitled to a corresponding income tax deduction equal to the amount
recognized as ordinary income by the optionee. The gain in excess of such amount
recognized by the optionee as ordinary income would be taxed as long-term
capital gain or short term capital gain (subject to the holding period
requirements for long-term or short-term capital gain treatment).
The exercise of an ISO will result in the excess of the stock's fair market
value on the date of exercise over the exercise price being included in the
optionee's alternative minimum taxable income. Liability for the alternative
minimum tax is complex and depends upon an individual's overall tax situation.
Upon exercise of an NSO granted under the 1997 Option Plan or upon the
exercise of an ISO that does not qualify for the tax treatment described above,
the optionee will realize ordinary income in an amount equal to the excess of
the fair market value of the shares of the Common Stock received over the
exercise price of such shares. That amount increases the optionee's basis in the
stock acquired pursuant to the exercise of the NSO or ISO not qualifying for the
tax treatment described above. Upon a subsequent sale of the stock, the optionee
will recognize short-term or long-term capital gain or loss depending upon his
holding period for the stock and upon the stock's subsequent appreciation or
depreciation in value. The Company will be allowed a federal income tax
deduction for the amount recognized as ordinary income by the optionee upon the
optionee's exercise of the option.
The holder of an SAR is taxed at ordinary income rates on the amount of
cash or fair market value of stock received at the time the SAR is exercised.
At its November 20, 1997 Board meeting, the Board of Directors, subject to
the approval of the 1997 Option Plan by the shareholders, granted 14,500 NSOs
and 12,032 ISOs under the 1997 Plan. The options granted in 1997 are not
exercisable during the first three years after the date of grant but become
exercisable in full on the third anniversary of the date of grant.
The following table sets forth the number of options granted under the 1997
Plan during 1997 with respect to named executive officers, all executive
officers as a group, and all employees, including all current officers who are
not executive officers, as a group:
15
<PAGE>
NUMBER OF OPTIONS(1)
--------------------
NAME AND POSITIONS 1997(2)
------------------ -------
Thomas H. Meeker 11,448(3)
President and CEO
Robert L. Decker 3,052(3)
Senior Vice President, Finance and
Development, and Chief Financial Officer
Dan L. Parkerson 1,438(3)
Senior Vice President, Live Racing
Jeffrey M. Smith 1,424(3)
President, Churchill Downs
Management Company
Alexander M. Waldrop 1,438(3)
Senior Vice President, Administration,
General Counsel and Secretary
All Executive Officers as a Group 21,982(4)
9 Persons
All Employees 26,532(5)
- ----------------------
(1) The market price of the Common Stock as of April 16, 1998 was $26 3/4 per
share.
(2) Information with regard to the exercise price and expiration date of the
options granted in 1997 is provided in the Table of Option Grants in Last
Fiscal Year under "Executive Compensation." Options granted to all executive
officers are under the same terms except for the options granted to Mr.
Meeker.
(3) See the Tables on Option Grants in Last Fiscal Year and Aggregate Year-End
Option Values under "Executive Compensation" below for a discussion of stock
options granted to the named executive officers by the Board.
(4) 7,482 shares qualify for tax treatment as ISOs. All other options are
nonqualified.
(5) 12,032 shares qualify for tax treatment as ISOs. All other options are
nonqualified.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS APPROVE THE
PROPOSAL TO ADOPT THE CHURCHILL DOWNS INCORPORATED 1997 STOCK OPTION PLAN.
16
<PAGE>
PROPOSED AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
TO INCREASE THE AUTHORIZED COMMON STOCK FROM
10,000,000 TO 20,000,000 SHARES
(PROPOSAL NO. 3)
The Company's Board of Directors has adopted and recommended to the
shareholders a proposal to amend the Company's Articles of Incorporation to
increase the number of authorized shares of no par value Common Stock from
10,000,000 to 20,000,000 shares. On April 16, 1998, there were 7,316,936 shares
of Common Stock outstanding. If the amendment is adopted, approxi mately
12,700,000 shares of Common Stock would be authorized and unissued. At December
31, 1997, there were 400,000 shares of Common Stock reserved for issuance
pursuant to the existing stock option plan of the Company and an additional
300,000 shares of Common Stock will be reserved for issuance under the proposed
1997 Stock Option Plan of the Company. In addition, 100,000 shares are reserved
for issuance pursuant to the employee stock purchase plan of the Company. There
are no preemptive rights relating to the Common Stock. Except to the extent that
the Company may issue shares of Common Stock reserved therefor pursuant to its
stock purchase and stock option plans, the Company has not entered into any
agreements or understandings, and has no present plans, for the issuance of
additional shares of common stock, but desires to have such shares available for
future issuances as the need may arise. No further shareholder approval would be
required prior to the issuance of the additional shares authorized by this
amendment subject, however, to the rules of the Nasdaq Stock Market which
require shareholder approval of certain share issuances.
The Board of Directors' purpose in proposing the increase in the number of
authorized shares of Common Stock is to have shares available for future
issuances from time to time as and when the Board of Directors determines that
such issuances may be desirable. The additional shares of Common Stock could be
used to dilute the stock ownership of a person seeking to obtain control of the
Company or could be privately placed with purchasers who would support the Board
of Directors in opposing a hostile takeover attempt. This proposal to amend the
Articles of Incorporation is not a response to any effort of which the Company
is aware to accumulate Common Stock or obtain control of the Company, nor is it
part of a plan by management to recommend a series of similar amendments to the
Board of Directors and shareholders. The Board of Directors does not presently
contemplate recommending the adoption of any other amendments to the Articles of
Incorporation which could be construed to effect the ability of third parties to
take over or change control of the Company.
The current Articles of Incorporation and Bylaws of the Company contain
other provisions which could be viewed as discouraging takeovers, including a
staggered Board of Directors, authorized but unissued preferred stock with
respect to which the Board of Directors retains the power to determine voting
rights, limitations on the ability to call special meetings of shareholders of
the Company, and procedures to be complied with in order for a matter to be
properly before a meeting of shareholders. Under Kentucky law, shareholders of
the Company have cumulative voting rights in the election of directors. The
adoption of this proposed amendment to
17
<PAGE>
the Articles of Incorporation of the Company may render more difficult or
discourage certain transactions such as a merger, tender offer or proxy contest
or assumption of control by a holder of a larger block of the Company's
securities and the removal of incumbent management, but the Board of Directors
believes that encouraging potential acquirors to negotiate with the Board of
Directors on a potential acquisition is in the best interest of the Company.
In addition to Common Stock, under the current Articles of Incorporation of
the Company the Company is authorized to issue 250,000 shares of preferred
stock, no par value per share, in series. As of April 16, 1998, there were no
such shares of preferred stock outstanding, but pursuant to a shareholder rights
plan adopted by the Company on March 19, 1998 (the "Rights Plan"), rights have
been issued to the holders of the Common Stock of the Company pursuant to such
plan entitling such holders, subject to the terms of such plan, to acquire
shares of preferred stock of the Company.
Pursuant to the Rights Plan, on March 19, 1998, the Board of Directors
declared a dividend distribution of one right (a "Right") for each outstanding
share of Common Stock to shareholders of record at the close of business on
March 30, 1998 (the "Record Date"). The description and terms of the Rights are
set forth in a Rights Agreement dated as of March 19, 1998 (the "Rights
Agreement") between the Company and Bank of Louisville, as Rights Agent.
Prior to the Distribution Date (hereinafter defined), the Rights will be
represented by the certificates for shares of Common Stock. Separate right
certificates will be distributed to shareholders as soon as practicable after
the Distribution Date. The Rights will expire on the tenth anniversary of the
effective date of the Rights Agreement (the "Expiration Date") unless earlier
redeemed or canceled by the Company as provided below. Initially, the Rights
will not be exercisable. The Rights will become exercisable upon the earlier of
(a) the tenth business day (or such later date as may be determined by the
Board) after such time as the Company learns that a person or group (including
any affiliate or associate of such person or group) has acquired, or obtained
the right to acquire, beneficial ownership of 15% or more of the outstanding
Common Stock (such person or group being called an "Acquiring Person") unless
provisions intended to prevent accidental triggering of the Rights apply, and
(b) such date, if any, as may be designated by the Board of Directors of the
Company following the commencement of, or first public disclosure of an
intention to commence, a tender or exchange offer for outstanding Common Stock
which could result in such person or group becoming the beneficial owner of 15%
or more of the outstanding Common Stock (the earlier of such dates being called
the "Distribution Date"). Each Right shall be exercisable for 1/1,000 of a share
of Series 1998 Preferred Stock (the "Preferred Stock") (as described below) at a
purchase price (the "Purchase Price") of $80.00, subject to adjustment. Prior to
the Distribution Date, the Rights shall be transferable only with the related
shares of Common Stock and shall automatically be transferred with such shares.
After the Distribution Date, the Rights shall be separately transferable and the
Company will provide Right Certificates to all holders of Common Stock.
18
<PAGE>
The terms of the Preferred Stock provide that each 1/1,000 of a share of
Preferred Stock is entitled to participate in dividends and other distributions,
and to vote, on an equivalent basis with one whole share of the presently
constituted Common Stock of the Company. In addition, the Preferred Stock has
certain minimum dividend and liquidation rights. The amount of Preferred Stock
issuable upon exercise of the Rights is subject to adjustment by the Board of
Directors of the Company in the event of any change in the Common Stock or
Preferred Stock, whether by reason of share dividends, share splits,
recapitalizations, mergers, consolidations, combinations or exchanges of
securities, split-ups, split-offs, spin-offs, liquidations, other similar
changes in capitalization, any distribution or issuance of assets, evidences of
indebtedness or subscription rights, options or warrants to holders of Common
Stock or Preferred Stock or otherwise.
Subject to provisions of the Rights Plan, at such time as there is an
Acquiring Person, proper provision shall be made so that the holder of each
Right will thereafter have the right to receive, upon exercise thereof, for the
Purchase Price, that number of thousandths of a share of Preferred Stock equal
to the number of shares of Common Stock which at the time of such transaction
would have a market value of twice the Purchase Price (the "flip-in"). Any
Rights that are or were beneficially owned by an Acquiring Person on or after
the Distribution Date shall become null and void. In the event the Company is
acquired in a merger or other business combination by an Acquiring Person that
is a publicly traded corporation or 50% or more of the Company's assets or
assets representing 50% or more of the Company's earning power are sold, leased,
exchanged or otherwise transferred (in one or more transactions) to an Acquiring
Person that is a publicly traded corporation, each Right will entitle its holder
to purchase, for the Purchase Price, that number of common shares of such
corporation which at the time of the transaction would have a market value of
twice the Purchase Price (the "flip-over"). In the event the Company is acquired
in a merger or other business combination by an Acquiring Person that is not a
publicly traded entity or 50% or more of the Company's assets or assets
representing 50% or more of the earning power of the Company are sold, leased,
exchanged or otherwise transferred (in one or more transactions) to an Acquiring
Person that is not a publicly traded entity, each Right will entitle its holder
to purchase, for the Purchase Price, at such holder's option,
A. that number of shares of the surviving corporation in the
transaction with such entity (or, at such holder's option, of the surviving
corporation in such acquisition, which could be the Company) which at the
time of the transaction would have an aggregate book value of twice the
Purchase Price or
B. that number of shares of such entity which at the time of the
transaction would have a book value of twice the Purchase Price or
C. if such entity has affiliates which have publicly traded common
shares, that number of common shares of the affiliate with the greatest
aggregate market value on the transaction date, which at the time of the
transaction would have a market value of twice the Purchase Price.
19
<PAGE>
Any Rights that are or were beneficially owned by an Acquiring Person on or
after the Distribution Date shall become null and void. The "flip-over"
provision only applies to a merger or similar business combination with an
Acquiring Person, and it does not apply to a merger or business combination with
any party which has not triggered the "flip-in" provision.
The Rights are redeemable by the Board of Directors at a redemption price
of $.01 per Right (the "Redemption Price") any time prior to the earlier of (a)
the tenth business day (or such later date as may be determined by the Board)
after such time as there becomes an Acquiring Person and (b) the Expiration
Date. Immediately upon the action of the Board electing to redeem the Rights,
and without any further action and without any notice, the right to exercise the
Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
Rights agreements generally provide a significant deterrent to attempts to
acquire control of a corporation without the approval of the board of directors.
The Rights would cause substantial dilution to a person or group that attempts
to acquire control without Board approval. The Rights, however, should not
affect any prospective offeror willing to make an offer for all outstanding
shares of the Common Stock at a fair price and otherwise in the best interest of
the Company and its shareholders as determined by the Board of Directors or
affect any prospective offeror willing to negotiate with the Board of Directors.
The Rights Agreement, which sets forth the terms and conditions of the
Rights, is incorporated herein by reference. See "Incorporation of Certain
Documents by Reference." The foregoing description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement.
The adoption of this proposed amendment to the Articles of Incorporation of
the Company requires that the number of votes cast in favor of the proposal
exceed the number of votes cast in opposition to the proposal. The complete text
of the proposed amendment to the Articles of Incorporation is set forth on
APPENDIX B hereto; however, such text is subject to change as may be required by
the Kentucky Secretary of State.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
APPROVE THIS PROPOSED AMENDMENT TO THE COMPANY'S ARTICLES OF
INCORPORATION.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Under rules established by the SEC, the Compensation Committee is required
to disclose: (1) the Compensation Committee's compensation policies applicable
to the Company's executive officers; (2) the relationship of executive
compensation to Company performance; and (3) the Compensation Committee's bases
for determining the compensation of the Company's Chief Executive Officer
("CEO"), Thomas H. Meeker, for the most recently completed fiscal year.
20
<PAGE>
Pursuant to these requirements, the Compensation Committee has prepared this
report for inclusion in the Proxy Statement.
The Compensation Committee consists of four (4) independent Directors, none
of whom has ever been employed by the Company. The Compensation Committee
annually reviews executive officer compensation and makes recommendations to the
Board of Directors on all matters related to the structure of the Company's
executive compensation programs. The Compensation Committee's authority and
oversight extend to total executive compensation, including base salaries,
incentive compensation programs, supplemental benefit plans, stock option plans
and stock purchase plans, for the Company as well as the administration of the
employment contract of the Company's chief executive officer. The Compensation
Committee also reviews compensation data from comparable companies.
The fundamental philosophy of the Compensation Committee is to assure that
the Company's compensation program for executive officers links pay to business
strategy and performance in a manner which is effective in attracting,
motivating and retaining key executives while also providing performance
incentives which will inure to the benefit of executive officers and
shareholders alike. The objective is to provide total compensation commensurate
with Company performance by combining salaries and benefits that are competitive
in the marketplace with incentive opportunities established by the Compensation
Committee which are competitive with median levels of competitors' incentive
compensation. The Compensation Committee has determined that as an executive's
level of responsibility increases, a greater portion of his or her compensation
should be based upon the Company's performance. The Compensation Committee also
believes that the Company's compensation program should include an individual
performance component to reward employees whose job performance does not
directly affect revenues.
The Compensation Committee has structured executive compensation based upon
this philosophy. There are three (3) basic elements of the Company's executive
compensation program, each determined by individual and corporate performance:
(1) base salary compensation, (2) annual variable performance incentive
compensation earned under the Company's 1997 Incentive Compensation Plan (the
"ICP") and (3) stock option grants made under the Company's 1993 Stock Option
Plan (the "1993 Option Plan"), and, if approved by shareholders, stock option
grants and stock appreciation rights under the Company's 1997 Stock Option Plan
(the "1997 Option Plan") (the 1993 Option Plan and the 1997 Option Plan are,
collectively, the "Option Plans").
Base salaries are targeted to be competitive with similar positions in
comparable companies. In determining base salaries, the Compensation Committee
also takes into account individual experience and performance and issues
specific to the Company.
The ICP is designed to reward employees' short term performance by
providing for the award of a cash bonus if annual goals based upon the Company's
pre-tax earnings, as well as the performance of the employee and the center in
which the employee works, are achieved. The award of bonuses is based initially
on the Company's achievement of certain target pre-tax earnings goals
21
<PAGE>
established by the Compensation Committee. The amount of each bonus is then
determined by the Company's performance (measured by earnings (computed before
taxes but after recognition of awards made under the ICP)), the center in which
that employee works and that employee's performance.
The third component of executive compensation is the 1993 Option Plan and
the 1997 Option Plan. The Compensation Committee believes that the granting of
options and stock appreciation rights to officers of the Company, including Mr.
Meeker, will further the Company's goals of attracting, motivating and retaining
employees while also providing compensation which links pay to the Company's
long-term performance. During 1997, all officers were granted a total of 47,945
nonqualified stock options and 41,587 incentive stock options. Of these options,
(1) 20,000 are exercisable on February 28, 2000 and 69,532 are exercisable on
November 20, 2000, and (2) 63,000 were granted under the 1993 Plan and 26,532
were granted under the 1997 Plan. The Option Plans provide for cashless
exercises through broker's transactions.
The Compensation Committee believes that the Option Plans are integral to a
performance based compensation package because of their reward based upon the
Company's long-term performance. The Option Plans allow the Company to further
tie compensation to performance of the Company with a possibility of increasing
the total compensation package of its executives without an equivalent cash
outlay by the Company.
Mr. Meeker was employed as President and Chief Executive Officer of the
Company in October 1984 under an annually renewing three-year contract. Each
year, Mr. Meeker's base salary is set by the Committee after considering the
Company's overall financial performance in light of the Company's strategic
development initiatives. For 1997, Mr. Meeker's annual base salary was set at
$285,000. Mr. Meeker's base salary is adjusted periodically to incorporate cost
of living increases and to keep his salary competitive with similar positions in
comparable companies. This approach reflects the Committee's philosophy to shift
a great portion of Mr. Meeker's overall compensation to sources based upon the
Company's overall performance.
COMPENSATION COMMITTEE
Frank B. Hower, Jr.
W. Bruce Lunsford
Dennis D. Swanson
Darrell R. Wells
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company is unaware of any relationships among its officers and
directors which would require disclosure under this caption.
22
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on the Company's Common Stock against
the cumulative total return of each of a peer group index and the Wilshire 5000
index for the period of approximately five (5) fiscal years commencing January
31, 1993 and ending December 31, 1997. The period ending December 31, 1993
represents an eleven (11) month period due to the change in the Company's fiscal
year. The companies used in the peer group index consist of Fair Grounds Corp.,
Hollywood Park Operating Co., International Thoroughbred Breeders, Inc. and The
Meditrust Companies (previously known as Santa Anita Operating Co.), which are
all of the publicly traded companies known to the Company to be engaged
primarily in thoroughbred racing in the continental United States and to be
publicly traded for at least five (5) years. Bay Meadows Operating Co.,
previously a part of the peer group index, is no longer included in the peer
group because it is no longer publicly traded. The Wilshire 5000 equity index
measures the performance of all United States headquartered equity securities
with readily available price data. The graph depicts the result of an investment
of $100 in the Company, the Wilshire 5000 index and the peer group companies.
Since the Company has historically paid dividends on an annual basis, the
performance graph assumes that dividends were reinvested annually.
<TABLE>
<CAPTION>
1/31/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
<S> <C> <C> <C> <C> <C> <C>
Churchill Downs $100 $119.59 $ 97.68 $ 78.93 $ 82.66 $101.93
Peer Group $100 $147.48 $ 97.68 $ 93.95 $206.18 $291.16
Wilshire 5000 $100 $107.40 $104.70 $139.67 $165.98 $214.40
</TABLE>
23
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the remuneration paid during the last
three (3) fiscal years by the Company to [i] Mr. Meeker, the President and CEO
of the Company, and [ii] each of the Company's four (4) most highly compensated
executive officers in fiscal year 1997 (collectively the "named executive
officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
SECURITIES
OTHER UNDERLYING
NAME AND ANNUAL OPTIONS/SARS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION (2) (#)(3) COMPENSATION (4)
- ------------------- ----- ---------- ----------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Thomas H. Meeker, 1997 $285,000 $192,375 $51,406 30,000 $ 15,125
President, CEO and 1996 260,000 175,500 51,406 127,400 15,522
Director 1995 245,000 -0- 57,136 10,000 12,830
Robert L. Decker 1997 $134,038(5) $89,250 -0- 28,000 $99,157(5)
Senior Vice 1996 -0- -0- -0- -0- -0-
President, Finance 1995 -0- -0- -0- -0- -0-
and Development,
and Chief Financial
Officer
Dan L. Parkerson, 1997 $105,763 $54,259 -0- 3,768 $13,087
Senior Vice 1996 99,840 52,416 -0- 20,000 9,465
President, Live 1995 96,000 -0- -0- 2,000 9,303
Racing and General
Manager
Jeffrey M. Smith, 1997 $104,762 $52,369 -0- 3,734 $12,108
President - 1996 98,800 51,870 -0- 26,000 8,818
Churchill Downs 1995 95,000 -0- -0- 2,000 9,039
Management
Company
Alexander M. 1997 $105,603 $ 55,650 -0- 3,768 $11,822
Waldrop, Senior 1996 95,680 50,232 -0- 26,000 8,538
Vice President, 1995 92,000 -0- -0- 2,000 8,162
Administration,
General Counsel and
Secretary
24
<PAGE>
- ------------------
<FN>
(1) In 1996 and 1997, bonuses were paid in cash pursuant to the Company's
Incentive Compensation Plans then in effect. See "Compensation Committee
Report on Executive Compensation."
(2) Includes the expense of a Supplemental Benefit Plan of which Mr. Meeker is
currently the only participant. See the Compensation Committee Report on
Executive Compensation above and discussion regarding the Supplemental
Benefit Plan below.
(3) On June 3, 1996, 155,400 existing options to the named executive officers,
except Mr. Decker, were canceled and an equal number of options were issued
to the named executive officers.
(4) Consists of life insurance premiums paid by the Company with respect to
certain term life insurance payable on the officer's death to beneficiaries
designated by him and, further, includes amounts contributed by the Company
to the officer's account under the Company's Profit Sharing Plan. Amounts
attributable to such term life insurance are as follows:
MR. MEEKER MR. DECKER MR. PARKERSON MR. SMITH MR. WALDROP
1997 $2,980 $1,392 $1,458 $557 $330
1996 2,592 -0- 864 302 290
1995 2,875 -0- 818 286 177
Pursuant to the Company's Profit Sharing Plan, the Company matches
employees' contributions (which are limited to 10% of annual compensation up
to $9,500 for calendar year 1997) up to 2% of quarterly contributions and
also makes discretionary contributions. Amounts contributed by the Company
on behalf of the named executive officers are as follows:
MR. MEEKER MR. DECKER MR. PARKERSON MR. SMITH MR. WALDROP
1997 $12,145 -0- $11,629 $11,551 $11,492
1996 12,930 -0- 8,601 8,516 8,248
1995 9,955 -0- 8,485 8,752 7,985
(5) Mr. Decker was employed by the Company in March 1997, and his compensation
for 1997 reflects less than twelve months of service. All other compensation
for Mr. Decker includes $97,765 of the Company's reimbursement of relocation
expenses.
</FN>
</TABLE>
The following table provides information with respect to the named
executive officers concerning options granted during 1997:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
% OF TOTAL OPTIONS
OPTIONS GRANTED TO GRANT DATE
GRANTED EMPLOYEES EXERCISE OR EXPIRATION PRESENT VALUE
NAME (#) (1) FISCAL YEAR '97(%) BASE PRICE($) DATE ($)(5)
---- -------- ------------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Thomas H. Meeker (2) 30,000 33.51% $21.50 11/19/2007 $195,207
Robert L. Decker (3) 20,000 22.34% $18.50 2/28/2006 $115,094
8,000 8.94% $21.50 11/19/2007 $52,055
Dan L. Parkerson (4) 3,768 4.21% $21.50 11/19/2007 $24,518
Jeffrey M. Smith (4) 3,734 4.17% $21.50 11/19/2007 $24,967
Alexander M. Waldrop (4) 3,768 4.21% $21.50 11/19/2007 $24,518
25
<PAGE>
- ------------------
<FN>
(1) The 69,270 options granted in 1997 to the named executive officers are
composed of incentive stock options, as defined under the Internal Revenue
Code of 1986, as amended, and non-qualified stock options. The exercise
price of these options, whether incentive stock options or non-qualified
stock options, is the fair market value of the shares on the date of their
grant.
(2) Of the 30,000 options granted to Mr. Meeker, 4,650 are incentive stock
options and 25,350 are non-qualified stock options, all of which vest on the
third anniversary of the date of grant (November 20, 2000). 18,552 options
were granted under the 1993 Plan and 11,448 options were granted under the
1997 Plan, which is subject to shareholder approval at the upcoming annual
meeting.
(3) Of the total of 28,000 options granted to Mr. Decker in 1997, (i) 5,405 are
incentive stock options which vest on the third anniversary of the date of
grant (February 28, 2000), (ii) 14,595 are non-qualified stock options which
vest on the third anniversary of the date of grant (February 28, 2000) and
(iii) 8,000 are non-qualified stock options which vest on the third
anniversary of the date of grant (November 20, 2000). Of the 28,000 options,
24,948 options were granted under the 1993 Plan and 3,052 options were
granted under the 1997 Plan, which is subject to shareholder approval at the
upcoming annual meeting.
(4) The 3,768 options granted to Mr. Parkerson, 3,734 options granted to Mr.
Smith and 3,768 options granted to Mr. Waldrop, which represent all of the
options granted to these named executive officers in 1997, are incentive
stock options which vest on the third anniversary of the date of grant
(November 20, 2000). Of the 3,768 options granted to Mr. Parkerson, 2,330
shares were granted under the 1993 Plan and 1,438 shares were granted under
the 1997 Plan. Of the 3,734 options granted to Mr. Smith, 2,310 options were
granted under the 1993 Plan and 1,424 options were granted under the 1997
Plan. Of the 3,768 options granted to Mr. Waldrop, 2,330 options were
granted under the 1993 Plan and 1,438 options were granted under the 1997
Plan. All options granted under the 1997 Plan are subject to the shareholder
approval of the 1997 Plan at the upcoming annual meeting.
(5) The fair value of each stock option granted is estimated on the date of
grant using the Black - Scholes option pricing model with the following
weighted-average assumptions for grants in 1997, respectively: dividend
yield of 1.2% in 1997 and ranging from 1.2% to 1.4% in 1997; risk-free
interest rates are different for each grant and range from 5.85 % to 6.50%;
and the expected lives of options are 6.5 years, and a volatility of 19.38%
for all grants.
</FN>
</TABLE>
The following table provides information with respect to the named
executive officers concerning unexercised options held as of December 31, 1997:
<TABLE>
<CAPTION>
AGGREGATE YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTION IN-THE-MONEY OPTIONS
AT YEAR END (#) AT YEAR END ($)(1)
SHARES ACQUIRED ON EXERCISABLE / EXERCISABLE /
EXERCISE UNEXERCISABLE UNEXERCISABLE
NAME (#) VALUE REALIZED ($) (#) ($)
- ---- -------------- ------------------ --------------- --------------------
<S> <C> <C> <C> <C>
Thomas H. Meeker 0 $0 121,400/66,000 $279,388/167,625
Robert L. Decker 0/28,000 $0/72,250
Dan L. Parkerson 0 0 15,500/13,768 $33,625/131,274
Jeffrey M. Smith 0 0 22,000/13,734 $49,750/42,509
Alexander M. Waldrop 0 0 22,000/13,768 $49,750/42,524
- -----------------------------
<FN>
(1) CLOSING BID AS OF THE LAST TRADING DAY OF 1997 (DECEMBER 31, 1997) MINUS THE
EXERCISE PRICE.
</FN>
</TABLE>
The Company maintains a Supplemental Benefit Plan (the "Plan") in which Mr.
Meeker is currently the only participant. The Plan provides that if a
participant remains in the employ of the Company until age 55 or becomes totally
and permanently disabled, the participant will be paid a monthly benefit equal
to 45% of the "highest average monthly earnings," as defined in the Plan, prior
to the time of disability or age 55, reduced by certain other benefits as set
forth in the Plan, commencing on retirement (or attainment of age 55 if
disability occurs prior to said age) and continuing for life. The benefit
payable under the Plan is increased by 1% for each year the
26
<PAGE>
participant remains employed by the Company after age 55, to a maximum of 55% of
the highest average monthly earnings at age 65. The Plan further provides that
the monthly benefit will be reduced by [i] 100% of the primary insurance amount
under social security payable to a participant determined as of the later of the
participant's retirement date or attainment of age 62; [ii] 100% of the
participant's monthly benefit calculated in the form of a life annuity under the
Company's terminated Pension Plan; [iii] 100% of the monthly income option
calculated as a life annuity from the cash surrender value of all life insurance
policies listed on a schedule attached to the participant's plan agreement; and
[iv] 100% of the employer contributions and any employee contributions up to a
maximum of $2,000 per year allocated to the participant's accounts under the
Company's Profit Sharing Plan, calculated in the form of a life annuity payable
on his retirement date. Due to these reductions, the estimated annual benefit
payable upon retirement at age 65 to Mr. Meeker under the Plan is $95,644. This
estimate is based upon the following assumptions: [i] 8% annual earnings under
the Company's Profit Sharing Plan; [ii] Mr. Meeker's salary is adjusted annually
for cost of living increases; and [iii] the maximum wage base for determining
the Social Security offset remains constant. In addition, Mr. Meeker will be
paid the equivalent of the cash surrender value of an insurance policy covering
his life upon retirement under the terms of the Supplemental Benefit Plan. Based
upon the estimates provided by Mutual Benefit Life, the Company expects to
provide Mr. Meeker with an additional life income beginning at age 65 of $14,174
per year based on premiums paid to date.
EMPLOYMENT AGREEMENT AND CHANGE IN CONTROL AGREEMENT
Mr. Meeker was employed as President and Chief Executive Officer of the
Company in October 1984 under an annually renewing three-year contract. Mr.
Meeker's compensation for 1998 includes a base salary of $300,000 per year,
reimbursement for travel and entertainment expenses (including his wife's travel
expenses on the Company's business), provision of an automobile, payment of dues
for one (1) country club and any other professional or business associations,
and a $250,000 life insurance policy. Mr. Meeker's employment may be terminated
by the Company prior to the expiration of his employment agreement only if he
willfully fails to perform his duties under his employment agreement or
otherwise engages in misconduct that injures the Company. Pursuant to Mr.
Meeker's employment agreement, in the event of both a "change in control" of the
Company and, within one (1) year of such "change in control," either termination
of Mr. Meeker's employment by the Company without "just cause" or his
resignation, the Company will pay to Mr. Meeker an amount equal to three (3)
times his average annual base salary over the prior five (5) years. A "change in
control" is defined generally to include the sale by the Company of all or
substantially all of its assets, a consolidation or merger involving the
Company, the acquisition of over 30% of the Common Stock in a tender offer or
any other change in control of the type which would be required to be reported
under the Federal securities laws; however, a "change in control" will not be
deemed to have occurred in the case of a tender offer or change reportable under
the Federal securities laws, unless it is coupled with or followed by the
election of at least one-half of the directors of the Company to be elected at
any one (1) election and the election of such directors has not been previously
approved by at least two-thirds of the directors in office prior to such change
in control.
27
<PAGE>
In March of 1997, the Company and Mr. Decker entered into an employment
agreement whereby Mr. Decker was employed as the Company's Senior Vice
President, Finance and Development, and Chief Financial Officer. Mr. Decker's
compensation for 1998 includes a base salary of $176,800, reimbursement for
reasonable travel and entertainment expenses (including his wife's travel
expenses on the Company's business), provision of an automobile, payment of dues
for one (1) country club and a mutually acceptable number of professional or
business clubs and associations. The Company further agreed to pay Mr. Decker's
reasonable moving expenses in an amount not to exceed $97,000. The Company may
terminate Mr. Decker and Mr. Decker may resign at any time. If the Company
terminates Mr. Decker without just cause, then the Company must pay to Mr.
Decker one (1) year's base salary. "Just cause" means the willful and continued
failure by Mr. Decker to substantially perform his duties, the willful engaging
by Mr. Decker in misconduct which is materially injurious to the Company,
monetarily or otherwise, or the willful violation by Mr. Decker of the terms of
his employment agreement
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past fiscal year, the Company did not engage in any transactions
in which any director, officer or 5% shareholder of the Company had any material
interest, except as described below.
Directors of the Company may from time to time own or have interests in
horses racing at the Company's tracks. All such races are conducted, as
applicable, under the regulations of the Kentucky Racing Commission or the
Indiana Horse Racing Commission, and no director receives any extra or special
benefit with regard to having his horses selected to run in races or in
connection with the actual running of races.
One or more directors of the Company have an interest in business entities
which contract with the Company or Hoosier Park, L.P. ("Hoosier Park"), the
Company's affiliate, for the purpose of simulcasting the Kentucky Derby and
other races and the acceptance of intrastate or interstate wagers on such races.
In such case, no extra or special benefit not shared by all others so
contracting with the Company is received by any director or entity in which such
director has an interest.
Mr. Charles W. Bidwill, Jr., a director and five percent (5%) owner of the
Company, is the Chairman and a 14.2% owner of National Jockey Club. In 1997,
National Jockey Club and the Company were parties to a simulcasting contract
whereby National Jockey Club was granted the right to simulcast the Company's
races, including the Kentucky Oaks - Grade I race and the Kentucky Derby - Grade
I race. In consideration for these rights, National Jockey Club paid to the
Company 5% of its gross handle on the Kentucky Oaks - Grade I race and the
Kentucky Derby Grade I race and 3.25% of its gross handle on the other simulcast
races. In 1997, National Jockey Club and Hoosier Park were parties to a
simulcasting contract whereby National Jockey Club was granted the right to
simulcast Hoosier Park's thoroughbred races. In consideration for these rights,
National Jockey Club paid to Hoosier Park 2% of its gross handle on the
simulcast races. National
28
<PAGE>
Jockey Club and Hoosier Park were also parties to a simulcasting contract
whereby Hoosier Park was granted the right to simulcast National Jockey Club's
thoroughbred races. In consideration for these rights, Hoosier Park paid to
National Jockey Club 3.5% to 4% of its gross handle on the simulcast races. For
purposes of these and other simulcast contracts, gross handle is defined as the
total amount wagered by patrons on the races at the receiving facility less any
money returned to the patrons by cancels and refunds. These simulcast contracts
are uniform throughout the industry and the rates charged were substantially the
same as rates charged to other parties who contracted to simulcast the same
races. In 1997, the Company and Hoosier Park simulcasted their races to over
1,000 locations in the United States and selected international sites. National
Jockey Club received no extra or special benefit as a result of the Company's
relationship with Mr. Bidwill.
Thomas H. Meeker, President and Chief Executive Officer of the Company, is
currently indebted to the Company in the principal amount of $65,000,
represented by his demand note bearing interest at 8% per annum (payable
quarterly) and payable in full upon termination of Mr. Meeker's employment with
the Company for any reason. This indebtedness arose in connection with Mr.
Meeker's initial employment, pursuant to the terms of which he was granted a
loan by the Company for the purpose of purchasing the Company's Common Stock.
INDEPENDENT PUBLIC ACCOUNTANTS
At its meeting held on March 19, 1998, the Board of Directors adopted the
recommendation of the Audit Committee and selected Coopers & Lybrand L.L.P. to
serve as the Company's independent public accountants and auditors for the
fiscal year ending December 31, 1998. Coopers & Lybrand L.L.P. has served as the
Company's independent public accountants and auditors since the Company's 1990
fiscal year.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at
the Annual Meeting and will be available to respond to appropriate questions and
will have the opportunity to make a statement if they desire to do so.
APPROVAL OF MINUTES OF 1997 SHAREHOLDERS' MEETING
AND OTHER MATTERS (PROPOSAL NO. 4)
The Board of Directors does not know of any matters to be presented to the
Annual Meeting other than those specified above, except matters incident to the
conduct of the Annual Meeting and the approval by a majority of the shares
represented at the Annual Meeting of minutes of the 1997 Annual Meeting which
approval does not amount to ratification of actions taken thereat. If, however,
any other matters should come before the Annual Meeting, it is intended that the
persons named in the enclosed Proxy, or their substitutes, will vote such Proxy
in accordance with their best judgment on such matters.
29
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Current Report of the Company on Form 8-K dated March 19, 1998, which
relates to the adoption of the Rights Agreement dated as of March 19, 1998
between the Company and Bank of Louisville is incorporated herein by reference.
PROPOSALS BY SHAREHOLDERS
Any shareholder proposal that may be included in the Board of Directors'
Proxy Statement and Proxy for presentation at the Annual Meeting of Shareholders
to be held in 1999 must be received by the Company at 700 Central Avenue,
Louisville, Kentucky 40208, Attention of the Secretary, no later than January
8, 1999.
BY ORDER OF THE BOARD OF DIRECTORS.
THOMAS H. MEEKER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ALEXANDER M. WALDROP
SENIOR VICE PRESIDENT, ADMINISTRATION,
GENERAL COUNSEL AND SECRETARY
Louisville, Kentucky
May 8, 1998
PLEASE SIGN AND RETURN THE ENCLOSED PROXY
IF YOU CANNOT BE PRESENT IN PERSON
30
<PAGE>
APPENDIX A
CHURCHILL DOWNS INCORPORATED
1997 STOCK OPTION PLAN
1. PURPOSE. The purpose of the Churchill Downs Incorporated 1997 Stock
Option Plan is to promote Company's interests by affording an incentive to key
employees to remain in the employ of Company and its Subsidiaries and to use
their best efforts on its behalf; and further to aid Company and its
Subsidiaries in attracting, maintaining, and developing capable personnel of a
caliber required to ensure the continued success of Company and its Subsidiaries
by means of an offer to such persons of an opportunity to acquire or increase
their proprietary interest in Company through the granting of incentive stock
options and nonstatutory stock options to purchase Company's stock pursuant to
the terms of the Plan and related stock appreciation rights.
2. DEFINITIONS.
A. "BOARD" means Company's Board of Directors.
B. "CHANGE IN CONTROL" means: (a) the sale, lease, exchange or other
transfer of all or substantially all of the assets of Company (in one
transaction or in a series of related transactions) to a person that is not
controlled by Company, (b) the approval by Company shareholders of any plan or
proposal for the liquidation or dissolution of Company, or (c) a change in
control of Company of a nature that would be required to be reported (assuming
such event has not been "previously reported") in response to Item 1(a) of the
Current Report on Form 8-K, as in effect on the effective date of the Plan,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, whether
or not Company is then subject to such reporting requirement; provided, however,
that, without limitation, such a change in control shall be deemed to have
occurred at such time as (i) any Person becomes after the date this Plan is
approved or ratified by Company's shareholders the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of 30% or more of the combined voting power of Company's outstanding
securities ordinarily having the right to vote at elections of directors, or
(ii) individuals who constitute the board of directors of Company on the date
this Plan is approved or ratified by Company's shareholders cease for any reason
to constitute at least a majority thereof, provided that any person becoming a
director subsequent to such date whose election, or nomination for election by
Company's shareholders, was approved by a vote of at least a majority of the
directors comprising or deemed pursuant hereto to comprise the Board on the date
this Plan is approved or ratified by Company's shareholders (either by a
specific vote or by approval of the proxy statement of Company in which such
person is named as a nominee for director) shall be, for purposes of this clause
(ii) considered as though such person were a member of the Board on the date
this Plan is approved or ratified by Company's shareholders.
31
<PAGE>
C. "CODE" means the Internal Revenue Code of 1986, as amended.
D. "COMMITTEE" means the committee appointed by the Board to
administer the Plan pursuant to Section 4.
E. "COMMON STOCK" means Company's common stock, no par value, or the
common stock or securities of a Successor that have been substituted therefor
pursuant to Section 11.
F. "COMPANY" means Churchill Downs Incorporated, a Kentucky
corporation, with its principal place of business at 700 Central Avenue,
Louisville, Kentucky 40208.
G. "DISABILITY" means, as defined by and to be construed in
accordance with Code Section 22(e)(3), any medically determinable physical or
mental impairment that can be expected to result in death or that has lasted or
can be expected to last for a continuous period of not less than twelve (12)
months, and that renders Optionee unable to engage in any substantial gainful
activity. An Optionee shall not be considered to have a Disability unless
Optionee furnishes proof of the existence thereof in such form and manner, and
at such time, as the Committee may require.
H. "ISO" means an option to purchase Common Stock that at the time
the option is granted qualifies as an incentive stock option within the meaning
of Code Section 422.
I. "NSO" means a nonstatutory stock option to purchase Common
Stock that at the time the option is granted does not qualify as an ISO.
J. "OPTION PRICE" means the price to be paid for Common Stock
upon the exercise of an option, in accordance with Section 6.E.
K. "OPTIONEE" means a key employee to whom an option has been
granted under the Plan.
L. "OPTIONEE'S REPRESENTATIVE" means the personal representative
of Optionee's estate, and after final settlement of Optionee's estate, the
successor or successors entitled thereto by law.
M. "PLAN" means the Churchill Downs Incorporated 1997 Stock Option
Plan as set forth herein, and as amended from time to time.
N. "SAR" means a stock appreciation right described in Section 7.
O. "SUBSIDIARY" means any corporation that at the time an option is
granted under the Plan qualifies as a subsidiary of Company as defined by Code
Section 424(f).
32
<PAGE>
P. "SUCCESSOR" means the entity surviving a merger or consolidation
with Company, or the entity that acquires all or a substantial portion of
Company's assets or outstanding capital stock (whether by merger, purchase or
otherwise).
Q. "TEN PERCENT SHAREHOLDER" means an employee who, at the time an
option is granted, owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of Company or Subsidiary
employing Optionee or of its parent (within the meaning of Code Section 424(e))
or Subsidiary corporation.
3. SHARES SUBJECT TO PLAN.
A. AUTHORIZED UNISSUED SHARES. Subject to the provisions of Section
11, shares to be delivered upon exercise of options granted under the Plan shall
be made available, at the discretion of the Board, from the authorized unissued
shares of Common Stock.
B. AGGREGATE NUMBER OF SHARES. Subject to adjustments and
substitutions made pursuant to Section 11, the aggregate number of shares that
may be issued upon exercise of all options that may be granted under the Plan
shall not exceed one hundred fifty thousand (150,000) of Company's authorized
shares of Common Stock.
C. SHARES SUBJECT TO EXPIRED OPTIONS. If an option is canceled,
expires or termi nates for any reason without having been exercised in full, the
shares of Common Stock subject to, but not delivered under, such option shall
become available for any lawful corporate purpose, including for transfer
pursuant to other options granted to the same key employee or other key
employees without decreasing the aggregate number of shares of Common Stock that
may be granted under the Plan.
4. PLAN ADMINISTRATION. The Plan shall be administered by a Board committee
consisting of not fewer than two (2) directors who are not officers or employees
of Company or a parent or subsidiary company and who receive no compensation
from Company in any capacity other than as a director (except for amounts for
which disclosure is not required under federal securities law). The Committee
shall have full power and authority to construe, interpret, and administer the
Plan and may from time to time adopt such rules and regulations for carrying out
the Plan as it deems proper and in Company's best interests. Subject to the
terms, provisions and conditions of the Plan, the Committee shall have exclusive
jurisdiction: [i] to determine the key employees to whom awards shall be
granted; [ii] to determine the times at which awards shall be granted; [iii] to
determine the form, amount, and manner of exercise of awards; [iv] to grant any
combination of ISOs, NSOs and SARs; [v] to determine the limitations,
restrictions and conditions applicable to awards; [vi] to fix such other
provisions of the option agreement as it may deem necessary or desirable
consistent with the terms of the Plan; and [vii] to determine all other
questions relating to the administration of the Plan. In making such
determinations, the Committee may take into account the nature of the services
performed by such employees, their present and potential contributions to the
success of Company or a Subsidiary and such other factors as the Committee in
its discretion shall deem relevant. The interpretation of any provision of the
Plan by the
33
<PAGE>
Committee shall be final, conclusive, and binding upon all persons and the
officers of Company shall place into effect and shall cause Company to perform
its obligations under the Plan in accordance with the determinations of the
Committee in administering the Plan.
5. ELIGIBILITY. Key employees of Company and its Subsidiaries shall be
eligible to receive options under the Plan. Key employees to whom options may be
granted under the Plan will be those selected by the Committee from time to time
who, in the sole discretion of the Committee, have contributed in the past or
who may be expected to contribute materially in the future to the successful
performance of Company and its Subsidiaries.
6. TERMS AND CONDITIONS OF OPTIONS. Each option granted under the Plan shall
be evidenced by an option agreement signed by Optionee and by a member of the
Committee on behalf of Company. An option agreement shall constitute a binding
contract between Company and Optionee, and every Optionee, upon acceptance of
such option agreement, shall be bound by the terms and restrictions of the Plan
and of the option agreement. Such agreement shall be subject to the following
express terms and conditions and to such other terms and conditions that are not
inconsistent with the Plan as the Committee may deem appropriate.
A. $100,000 ISO LIMITATION. The aggregate fair market value
(determined as of the date an option is granted) of the Common Stock for which
ISOs will first become exercisable by an Optionee in any calendar year under all
ISO plans of Optionee's employer corporation and its parent (within the meaning
of Code Section 424(e)) or subsidiary (within the meaning of Code Section
424(f)) corporation shall not exceed $100,000. Options in excess of this
limitation shall constitute NSOs.
B. OPTION PERIOD. Each option agreement shall specify the period
during which the option is exercisable. The Committee may extend the period;
provided, however, that the period may not be extended without Optionee's
consent if the extension would disqualify the option as an ISO. In no case shall
such period, including extensions, exceed ten (10) years from the date of grant,
provided, however, that in the case of an ISO granted to a Ten Percent
Stockholder, such period, including extensions, shall not exceed five (5) years
from the date of grant.
C. OPTION VESTING. No part of any option may be exercised until
Optionee has been employed by Company or a Subsidiary for such period, which
shall be no less than one (1) year, after the date on which the option is
granted as the Committee may specify in the option agre ement. The option
agreement may provide for exercisability in installments.
D. ACCELERATION OF OPTION VESTING. The Committee may provide that the
exercise dates of outstanding options shall accelerate and become exercisable on
or after the date of a Change in Control or termination of Optionee's employment
due to death and/or Disability on such terms and conditions deemed appropriate
by the Committee and set forth in the option agreement.
E. OPTION PRICE. The Option Price per share of Common Stock shall be
determined by the Committee at the time an option is granted. The Option Price
for ISOs shall be
34
<PAGE>
not less than fair market value, or in the case of an ISO granted to a Ten
Percent Shareholder one hundred ten percent (110%) of the fair market value, at
date of grant. The fair market value of Common Stock shall be the closing high
bid quotation for the Common Stock in the over-the-counter market, as reported
by the National Association of Securities Dealers Automated Quotation System, on
the business day immediately preceding the date of grant. The Option Price shall
be subject to adjustments in accordance with the provisions of Section 11.
F. OPTION EXPIRATION. An option shall expire, and cease to be
exercisable, at the earliest of the following times:
[1] ten (10) years after the date of grant; or
[2] in the case of an ISO granted to a Ten Percent
Shareholder, five (5) years after the date of grant; or
[3] in the case of both an ISO and NSO, unless provided
otherwise in the option agreement solely with respect to an NSO, three (3)
months after termination of employment with Company or a Subsidiary because
of Optionee's retirement in accordance with the terms of Company's
tax-qualified retirement plans or with the consent of the Committee;
notwithstanding the foregoing, options granted to Thomas H. Meeker,
Company's President and Chief Executive Officer, shall expire on the earlier
of: [i] the date specified in Section 6.F[1] or [2], whichever is
applicable; or [ii] five (5) years after employment termination; or
[4] one (1) year after termination of employment with Company
or a Subsidiary because of Optionee's death or Disability; or
[5] the earlier of: [i] date of Optionee's termination of
employment with Company or a Subsidiary for any reason other than death,
Disability or retirement; or [ii] the date on which written notice of such
employment termination is delivered by Company to Optionee; or
[6] any earlier time set by the grant as provided in the
option agreement.
G. EXERCISE BY OPTIONEE'S ESTATE. Upon Optionee's death, options may
be exer cised, to the extent exercisable by Optionee on the date of Optionee's
death, by Optionee's Representative at any time before expiration of said
options.
H. LEAVES OF ABSENCE. The Committee may, in its discretion, treat all
or any portion of a period during which an Optionee is on military or an
approved leave of absence as a period of employment with Company or Subsidiary
for purposes of accrual of rights under the Plan. Notwithstanding the foregoing,
in the case of an ISO, if the leave exceeds ninety (90) days and reemployment is
not guaranteed by contract or statute, Optionee's employment shall be deemed to
have terminated on the 91st day of the leave.
35
<PAGE>
I. PAYMENT OF OPTION PRICE. Each option shall provide that the Option
Price shall be paid to Company at the time of exercise either in cash or in such
other consideration as the Committee deems appropriate, including, but not
limited to, Common Stock already owned by Optionee having a total fair market
value, as determined by the Committee, equal to the Option Price, or a
combination of cash and Common Stock having a total fair market value, as
determined by the Committee, equal to the Option Price.
J. MANNER OF EXERCISE. To exercise an option, Optionee shall deliver
to Company, or to a broker-dealer in the Common Stock with the original copy to
Company, the following: [i] seven (7) days' prior written notice specifying the
number of shares as to which the option is being exercised and, if determined by
counsel for Company to be necessary, representing that such shares are being
acquired for investment purposes only and not for purpose of resale or
distribution; and [ii] payment by Optionee, or the broker-dealer, for such
shares in cash, or if the Committee in its discretion agrees to so accept, by
delivery to Company of other Common Stock owned by Optionee, or in some
combination of cash and such Common Stock acceptable to the Committee. At the
expiration of the seven (7) day notice period, and provided that all conditions
precedent contained in the Plan are satisfied, Company shall, without transfer
or issuance tax or other incidental expenses to Optionee, deliver to Optionee,
at the offices of Company, a certificate or certificates for the Common Stock.
If Optionee fails to accept delivery of the Common Stock, Optionee's right to
exercise the applicable portion of the option shall terminate. If payment of the
Option Price is made in Common Stock, the value of the Common Stock used for
payment of the Option Price shall be the fair market value of the Common Stock,
determined in accordance with Section 6.E, on the business day preceding the day
written notice of exercise is delivered to Company. Options may be exercised in
whole or in part at such times as the Committee may prescribe in the applicable
option agreement.
K. CANCELLATION OF SARS. The exercise of an option shall cancel a
proportionate number, if any, of SARs included in such option.
L. EXERCISES CAUSING LOSS OF COMPENSATION DEDUCTION. No part of an
option may be exercised to the extent the exercise would cause Optionee to have
compensation from Company and its affiliated companies for any year in excess of
$1 million and that is nondeductible by Company and its affiliated companies
pursuant to Code Section 162(m) and the regulations issued thereunder. Any
option not exercisable because of this limitation shall continue to be
exercisable in any subsequent year in which the exercise would not cause the
loss of Company's or its affiliated companies' compensation tax deduction,
provided such exercise occurs before the option expires, and otherwise complies
with the terms and conditions of the Plan and option agreement.
M. ISOS. Each option agreement that provides for the grant of an ISO
shall contain provisions deemed necessary or desirable by the Committee to
qualify such option as an ISO.
7. STOCK APPRECIATION RIGHTS.
36
<PAGE>
A. FORM OF AWARD. The Committee may include an SAR in any ISO or NSO
granted under the Plan, either at the time of grant or thereafter while the
option is outstanding; provided that no SAR may be awarded with respect to an
outstanding ISO without the Optionee's consent to the extent the award would
disqualify the option as an ISO. SARs shall be subject to such terms and
conditions not inconsistent with the other provisions of the Plan as the
Committee shall determine.
B. EXERCISE OF SAR/CANCELLATION OF OPTION. An SAR shall entitle the
Optionee to surrender to Company for cancellation the unexercised option, or
portion thereof, to which it is related, and to receive from Company in exchange
therefor, at the discretion of the Committee, either: [i] a cash payment equal
to the excess of the fair market value of the Common Stock subject to the option
or portion thereof so surrendered over the aggregate Option Price for the
shares; or [ii] delivery to Optionee of Common Stock with a fair market value
equal to such excess, or [iii] a combination of cash and Common Stock with a
combined value equal to such excess. The value of the Common Stock shall be
determined by the Committee in accordance with Section 6.E on the day
immediately preceding the day written notice of exercise of the SAR is delivered
to Company. The exercise procedures provided by Section 6.J shall apply to the
exercise of an SAR to the extent applicable.
C. LIMITATIONS. An SAR shall be exercisable only to the extent the
option to which is relates is exercisable and shall be exercisable only for such
period as the Committee may provide in the option agreement (which period may
expire before, but not later than, the expiration date of the option).
Notwithstanding the preceding sentence, an SAR is exercisable only when the fair
market value of a share of Common Stock exceeds the Option Price for the share.
8. INVESTMENT REPRESENTATION. Each option agreement may provide that, upon
demand by the Committee for such a representation, Optionee or Optionee's
Representative shall deliver to the Committee at the time of exercise a written
representation that the shares to be acquired upon exercise of an option or SAR
are to be acquired for investment and not for resale or distribution. Upon such
demand, delivery of such representation before delivery of Common Stock shall be
a condition precedent to the right of Optionee or Optionee's Representative to
purchase Common Stock.
9. TAX WITHHOLDING. Company shall have the right to: [i] withhold from any
payment due to Optionee or Optionee's Representative; or [ii] require Optionee
or Optionee's Representative to remit to Company; or [iii] retain Common Stock
otherwise deliverable to Optionee or Optionee's Representative, in an amount
sufficient to satisfy applicable tax withholding requirements resulting from the
grant or exercise an option or SAR or disqualifying disposition of Common Stock
acquired pursuant to the Plan.
10. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and
exercise of options and SARs and the obligation of Company to sell and deliver
shares under such options and SARs, shall be subject to all applicable federal
and state laws, rules and regulations and to such approvals by any government or
regulatory agency as may be required. Company shall not be
37
<PAGE>
required to issue or deliver certificates for shares of Common Stock before [i]
the listing of such shares on any stock exchange or over-the-counter market,
such as NASDAQ, on which the Common Stock may then be listed or traded, and [ii]
the completion of any registration or qualification of any governmental body
which Company shall, in its sole discretion, determines to be necessary or
advisable.
11. CAPITAL ADJUSTMENTS AND MERGERS AND CONSOLIDATIONS.
A. CAPITAL ADJUSTMENTS. In the event of a stock dividend, stock
split, reorganiza tion, merger, consolidation, or a combination or exchange of
shares, the number of shares of Common Stock subject to the Plan and the number
of shares under an option or SAR shall be automatically adjusted to take into
account such capital adjustment. The price of any share under an option or SAR
shall be adjusted so that there will be no change in the aggregate purchase
price payable upon exercise of such option or SAR.
B. MERGERS AND CONSOLIDATIONS. In the event Company merges or
consolidates with another entity, or all or a substantial portion of Company's
assets or outstanding capital stock are acquired (whether by merger, purchase or
otherwise) by a Successor, the kind of shares of Common Stock that shall be
subject to the Plan and to each outstanding option and SAR shall automatically
be converted into and replaced by shares of common stock, or such other class of
securities having rights and preferences no less favorable than Company's Common
Stock, of the Successor, and the number of shares subject to the option and SAR
and the purchase price per share upon exercise of the option or SAR shall be
correspondingly adjusted, so that each Optionee shall have the right to purchase
[a] that number of shares of common stock of the Successor that have a value
equal, as of the date of the merger, conversion or acquisition, to the value, as
of the date of the merger, conversion or acquisition, of the shares of Common
Stock of Company theretofore subject to Optionee's option and SAR, [b] for a
purchase price per share that, when multiplied by the number of shares of common
stock of the Successor subject to the option and SAR, shall equal the aggregate
exercise price at which Optionee could have acquired all of the shares of Common
Stock of Company theretofore optioned to Optionee. Conversion of an ISO shall be
done in a manner to comply with Code Section 424 and the regulations thereunder
so the conversion does not disqualify the option as an ISO.
C. NO EFFECT ON COMPANY'S RIGHTS. The granting of an option or SAR
pursuant to the Plan shall not affect in any way the right and power of Company
to make adjustments, reorganizations, reclassifications, or changes of its
capital or business structure or to merge, consolidate, dissolve, liquidate,
sell or transfer all or any part of its business or assets.
12. TRANSFERABILITY. Options and SAR granted under the Plan may not be
transferred by Optionee other than by will or the laws of descent and
distribution and during the lifetime of Optionee, may be exercised only by the
Optionee. Any attempted assignment, transfer, pledge, hypothecation or other
disposition of an option or SAR, or levy or attachment or similar process not
specifically permitted herein, shall be null and void and without effect.
38
<PAGE>
13. NO RIGHTS AS SHAREHOLDER. No Optionee or Optionee's Representative shall
have any rights as a shareholder with respect to Common Stock subject to an
option or SAR before the date of transfer to the Optionee of a certificate for
such shares.
14. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither the Plan nor any award under
the Plan shall confer upon any Optionee any right with respect to continuance of
employment by Company or Subsidiary nor interfere with the right of Company or
Subsidiary to terminate the Optionee's employment.
15. AMENDMENT, SUSPENSION, OR TERMINATION. The Board may amend, suspend or
terminate the Plan at any time and in any respect that it deems to be in
Company's best interests, except that, without approval by shareholders of
Company holding not less than a majority of the votes represented and entitled
to be voted at a duly held meeting of Company's shareholders, no amendment shall
be made that would: [i] change the aggregate number of shares of Common Stock
which may be delivered under the Plan, except as provided in Section 11; or [ii]
change the employees or class of employees eligible to receive ISOs; or [iii]
require shareholder approval under federal or state securities laws.
16. EFFECTIVE DATE, TERM AND APPROVAL. The effective date of the Plan is
November 20, 1997 (the date of Board adoption of the Plan), subject to approval
by stockholders of Company holding not less than a majority of the shares
present and voting at its 1998 annual meeting on June 18, 1998. The Plan shall
terminate ten (10) years after the effective date of the Plan and no options may
be granted under the Plan after such time, but options granted prior thereto may
be exercised in accordance with their terms.
17. SEVERABILITY. The invalidity or unenforceability of any provision of the
Plan or any option or SAR granted pursuant to the Plan shall not affect the
validity and enforceability of the remaining provisions of the Plan and the
options and SARs granted hereunder. The invalid or unenforceable provision shall
be stricken to the extent necessary to preserve the validity and enforceability
of the Plan and the options SARs granted hereunder.
18. GOVERNING LAW. The Plan shall be governed by the laws of the
Commonwealth of Kentucky.
Dated this _____ day of ______________, 1997, but effective as of
- ----------------.
CHURCHILL DOWNS INCORPORATED
By:/S/THOMAS H. MEEKER
------------------------------------
President and Chief Executive Officer
39
<PAGE>
APPENDIX B
ARTICLE VII
CAPITAL STOCK
The corporation shall be authorized to issue 20,000,000 shares of common
stock of no par value (the "Common Stock"), and 250,000 shares of preferred
stock of no par value in such series and with such rights, preferences and
limitations, including voting rights, as the Board of Directors may determine
(the "Preferred Stock").
A. THE COMMON STOCK. Shares of the Common Stock may be issued from time to
time as the Board of Directors shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors.
B. THE PREFERRED STOCK.
1. Shares of the Preferred Stock may be issued from time to time in
one or more series as may from time to time be determined by the Board of
Directors of the corporation. Each series shall be distinctly designated. All
shares of any one series of the Preferred Stock shall be alike in every
particular, except that there may be different dates from which dividends (if
any) thereon shall be cumulative, if made cumulative. The relative preferences,
participating, optional and other special rights of each such series, and
limitations thereof, if any, may differ from those of any and all other series
at any time outstanding. The Board of Directors of the corporation is hereby
expressly granted authority to fix by resolution or resolutions adopted prior to
the issuance of any shares of each particular series of the Preferred Stock, the
designation, relative preferences, participating, optional and other special
rights and limitations thereof, if any, of such series, including but without
limiting the generality of the foregoing, the following:
[a] The distinctive designation of, and the number of shares of the
Preferred Stock which shall constitute the series, which number may be increased
(except as otherwise fixed by the Board of Directors) or decreased (but not
below the number of shares thereof then outstanding) from time to time by action
of the Board of Directors;
[b] The rate and times at which, and the terms and conditions upon
which dividends, if any, on shares of the series may be paid, the extent of
preference or relation, if any, of such dividend to the dividends payable on any
other class or classes of stock of the corporation, or on any series of the
Preferred Stock or of any other class of stock of the corporation, and whether
such dividends shall be cumulative or non-cumulative;
[c] The right, if any, of the holders of shares of the series to
convert the same into, or exchange the same for, shares of any other class or
classes of stock of the corporation, or of any series of the Preferred Stock and
the terms and conditions of such conversion or exchange;
40
<PAGE>
[d] Whether shares of the series shall be subject to redemption and
the redemption price or prices and the time or times at which, and the terms and
conditions upon which shares of the series may be redeemed;
[e] The rights, if any, of the holders of shares of the series upon
voluntary or involuntary liquidation, merger, consolidation, distribution or
sale of assets, dissolution or winding up of the corporation;
[f] The terms of the sinking fund or redemption or purchase account,
if any, to be provided for shares of the series; and
[g] The voting powers, if any, of the holders of shares of the series
which may, without limiting the generality of the foregoing, include the right,
voting as a series by itself or together with other series of the Preferred
Stock as a class, to vote more or less than one vote per share on any or all
matters voted upon by the stockholders and to elect one or more directors of the
corporation in the event there shall have been a default in the payment of
dividends on any one or more series of the Preferred Stock or under such other
circumstances and upon such conditions as the Board of Directors may fix.
C. OTHER PROVISIONS.
1. The relative preferences, rights and limitations of each Series of
Preferred Stock in relation to the preferences, rights and limitations of each
other series of Preferred Stock shall, in each case, be as fixed from time to
time by the Board of Directors in the resolution or resolutions adopted pursuant
to authority granted in this Article VII, and the consent by class or series
vote or otherwise, of the holders of the Preferred Stock of such of the series
of the Preferred Stock as are from time to time outstanding shall not be
required for the issuance by the Board of Directors of any other series of
Preferred Stock whether the preferences and rights of such other series shall be
fixed by the Board of Directors as senior to, or on a parity with, the
preferences and rights of such outstanding series, or any of them; provided,
however, that the Board of Directors may provide in such resolution or
resolutions adopted with respect to any series of Preferred Stock that the
consent of the holders of a majority (or such greater proportion as shall be
therein fixed) of the outstanding shares of such series voting thereon shall be
required for the issuance of any or all other Series of Preferred Stock.
2. Subject to the provisions of Subparagraph 1 of this Paragraph C,
shares of any series of Preferred Stock may be issued from time to time as the
Board of Directors shall determine and on such terms and for such consideration
as shall be fixed by the Board of Directors.
41
<PAGE>
PROXY
CHURCHILL DOWNS INCORPORATED
700 Central Avenue
Louisville, Kentucky 40208
ANNUAL MEETING OF SHAREHOLDERS - JUNE 18, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Darrell R. Wells and G.
Watts Humphrey, Jr., and any of them, as Proxies with full power to appoint a
substitute and hereby authorizes them to represent and to vote, as designated
below, all shares of the undersigned at the Annual Meeting of Shareholders to be
held on Thursday, June 18, 1998 or any adjournment thereof, hereby revoking any
Proxy heretofore given.
The Board of Directors unanimously recommends a vote FOR the
following proposals:
1. Election of Class II Directors (Proposal No. 1):
____ FOR all nominees listed ____ WITHHOLD AUTHORITY to
below (Except as marked to vote for all nominees listed
the contrary below) below
Class II Directors: J. David Grissom, Seth W. Hancock,
Frank B. Hower, Jr., W. Bruce Lunsford
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the space provided below).
- ----------------------------------------------------------------
42
<PAGE>
2. _____ FOR ____ AGAINST ____ ABSTAIN
Proposal to approve the adoption of the Churchill Downs
Incorporated 1997 Stock Option Plan (Proposal No. 2);
3. _____ FOR ____ AGAINST ____ ABSTAIN
Proposal to approve amending the Company's Articles of
Incorporation to increase the number of authorized shares of the Company's
Common Stock from 10,000,000 to 20,000,000 shares
(Proposal No. 3);
4. ____ FOR ____ AGAINST ____ ABSTAIN
Proposal to approve minutes of the 1997 Annual Meeting of
Shareholders, approval of which does not amount to ratification of
action taken thereat (Proposal No. 4); and
5. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting including matters
incident to its conduct.
UNLESS CONTRARY DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED FOR PROPOSAL NO. 2, FOR PROPOSAL
NO. 3 AND FOR PROPOSAL NO. 4, AND FOR THE
ELECTION OF ALL CLASS II DIRECTORS DESIGNATED
UNDER PROPOSAL NO. 1. Please sign, date and
return this Proxy promptly in the enclosed
envelope.
Dated ________________________________, 1998
---------------------------------------------
---------------------------------------------
(Please sign this Proxy exactly as name(s) appears.
Joint owners should each sign. When signing as
attorney, executor, administrator, trustee,
guardian or other fiduciary, please give full
title.)
43
