<PAGE> 1
PROSPECTUS
CHURCHILL DOWNS INCORPORATED
700 CENTRAL AVENUE
LOUISVILLE, KENTUCKY 40208
(502) 636-4400
200,000 SHARES OF COMMON STOCK
Churchill Downs Incorporated common stock is listed on the Nasdaq
National Market under the symbol "CHDN". As used in this prospectus, the term
"Churchill Downs" means Churchill Downs Incorporated and its subsidiaries,
unless the context indicates a different meaning, and the term "common stock"
means Churchill Downs' common stock. The reported last sale price of the Common
Stock on the Nasdaq National Market was $32.00 per share on December 14, 2000.
These shares of common stock may be sold by TVI Corp., the selling
stockholder. If the selling stockholder sells these shares, we will not receive
any part of the proceeds from the sale. The selling stockholder may offer its
shares of common stock through public or private transactions, on or off the
Nasdaq National Market, at prevailing market prices, or at privately negotiated
prices. We will pay all the expenses of the registration of common stock by the
selling stockholder, other than underwriting discounts and commissions,
brokerage fees and similar compensation and transfer taxes, if any. We estimate
these expenses will be $32,200.
The selling stockholder obtained its shares of common stock on April
21, 1998 in connection with our acquisition of a subsidiary from the selling
stockholder.
Investing in the common stock involves risks. See "Risk Factors"
beginning on page 3 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is December 20, 2000.
<PAGE> 2
TABLE OF CONTENTS
PAGE
FORWARD-LOOKING STATEMENTS................................................3
RISK FACTORS..............................................................3
WHERE YOU CAN FIND MORE INFORMATION......................................14
THE COMPANY..............................................................16
USE OF PROCEEDS..........................................................16
SELLING STOCKHOLDER......................................................16
PLAN OF DISTRIBUTION.....................................................17
DESCRIPTION OF CAPITAL STOCK.............................................19
LEGAL MATTERS............................................................21
EXPERTS ................................................................21
2
<PAGE> 3
FORWARD-LOOKING STATEMENTS
Information incorporated by reference or made in this prospectus under
the captions "Risk Factors" and elsewhere contains various "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Exchange Act of 1934. These statements represent our judgment
concerning the future and are subject to risks and uncertainties that could
cause our actual operating results and financial condition to differ materially.
Forward-looking statements are typically identified by the use of terms such as
"may," "will," "expect," "anticipate," "estimate" and similar words, although
some forward-looking statements are expressed differently. Although we believe
that the expectations reflected in such forward-looking statements are
reasonable, we can give no assurance that such expectations will prove to be
correct. Important factors that could cause actual results to differ materially
from our expectations are set forth under the caption "Rick Factors" and
elsewhere in this prospectus.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS BEFORE DECIDING TO
INVEST IN OUR COMMON STOCK. THE MOST SIGNIFICANT RISKS AND UNCERTAINTIES WE FACE
ARE DESCRIBED BELOW, BUT THEY ARE NOT THE ONLY ONES. ADDITIONAL RISKS AND
UNCERTAINTIES THAT ARE NOT PRESENTLY KNOWN TO US, THAT WE CURRENTLY DEEM
IMMATERIAL OR THAT ARE SIMILAR TO THOSE FACED BY OTHER COMPANIES IN OUR INDUSTRY
OR BUSINESS IN GENERAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED.
IN THIS CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY
LOSE ALL OR PART OF YOUR INVESTMENT. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN FORWARD-LOOKING STATEMENTS CONTAINED IN THIS
PROSPECTUS AS A RESULT OF VARIOUS RISKS, INCLUDING THOSE DISCUSSED BELOW AND
ELSEWHERE IN THIS PROSPECTUS. PLEASE REFER TO "FORWARD-LOOKING STATEMENTS"
ABOVE.
3
<PAGE> 4
OUR ACQUISITION OF ARLINGTON INTERNATIONAL RACECOURSE POSES A NUMBER OF
SIGNIFICANT RISKS.
On September 8, 2000 subsidiaries owned by us merged into Arlington
International Racecourse Inc., Arlington Management Services Inc. and Turf Club
of Illinois Inc. (referred to as "Arlington" or the "Arlington Companies"),
subsidiaries of Duchossois Industries, Inc. The Arlington Companies hold and
operate the Chicago-area racetrack and five off-track betting and pari-mutuel
operations in Illinois.
Under the terms of the agreement, we issued 3.15 million shares of our common
stock upon closing to Duchossois Industries. The agreement also specifies the
issuance of up to an additional 1.25 million shares of our common stock to
Duchossois Industries depending on certain developments and conditions over a
future period. Duchossois Industries has entered into a stockholder agreement
that provides for restrictions on the voting and transfer of the shares of our
common stock received in the transaction.
FINANCIAL STATUS OF ARLINGTON. Because the Arlington Companies did not
conduct live racing operations during the 1998 and 1999 racing seasons, they
have a limited recent operating history and future operating results are
uncertain. Arlington suspended its live racing operations as of the close of its
meet in 1997 and only re-opened on May 14, 2000. As a result of this lack of
recent operating history, there can be no assurance that Arlington will be able
to operate at or above historical levels.
LITIGATION REGARDING PROPOSED ROSEMONT CASINO. The Arlington Companies
may lose the right to receive significant benefits under Illinois legislation
presently being challenged in court, which would reduce the revenues and
profitability of the Arlington Companies. In 1999, the State of Illinois enacted
legislation which provides significant benefits to Illinois horse racing tracks.
For example, the legislation provides for pari-mutuel tax relief and related tax
credits for Illinois racetracks. In addition, the legislation provides for
subsidies to Illinois horse racing tracks from revenues generated by the
relocation of a license to operate a riverboat casino gaming facility.
Currently, the proposed site for the license is Rosemont, Illinois, a suburb of
Chicago. It is not possible to calculate the exact amount of subsidies that the
proposed Rosemont casino will generate if opened; however, it is expected that
the subsidies will be substantial. The Arlington Companies' share of subsidies
from the proposed Rosemont casino under the 1999 legislation is expected to
range from $4.6 million to $8.0 million annually, based on publicly available
sources. Of the 4,400,000 shares of common stock to be issued in the mergers, up
to 1,250,000 of the shares will be issued only after the proposed Rosemont
casino opens and subsidies have been distributed for one year.
The 1999 legislation is currently the subject of a lawsuit pending in Illinois
state court. This lawsuit alleges that the 1999 legislation is unconstitutional
under state and federal law because it, among other things, provides for minimum
minority and female ownership requirements for the proposed relocated riverboat
casino. An Illinois trial court judge has stated that the pending lawsuit raises
a "fair question" as to the constitutionality of the legislation. If any
provision of the
4
<PAGE> 5
1999 legislation is found unconstitutional, the entire 1999 legislation likely
will be voided under Illinois law, with a corresponding loss of tax benefits and
expected subsidies for the Arlington Companies. In addition, the owners of the
proposed Rosemont casino are defendants in a federal lawsuit that threatens
their ownership interests. This lawsuit does not raise a constitutional
challenge to the 1999 legislation. However, this lawsuit, as well as the
previously mentioned lawsuit, could indefinitely delay the opening of any
Rosemont casino, with a resulting delay in the expected subsidies for Arlington.
Furthermore, the subsidies and tax benefits conferred by the 1999 legislation
could be reduced or eliminated completely by the Illinois legislature, even if
the 1999 legislation is not declared unconstitutional. Casino gaming and horse
racing generate substantial debate in the Illinois legislature, and it is
possible that legislation will be proposed in the future that would seek to
eliminate or reduce the benefits conferred by the 1999 legislation. Any
significant reduction in the benefits conferred by the State of Illinois could
potentially reduce the number of live racing dates that Arlington could support
or cause a shutdown of the facility.
INTEGRATION AND TRANSACTION EXPENSES. The mergers will result in costs
of integration and transaction expenses that could adversely affect the combined
company's financial results. If the benefits of the mergers do not exceed the
costs associated with the mergers, including dilution to our shareholders
resulting from the issuance of shares of our common stock in connection with the
mergers, the combined company's financial results could be adversely affected.
Although Churchill Downs and Arlington estimate that they will incur total
transaction costs of approximately $1.6 million associated with the mergers,
actual costs may substantially exceed the parties' estimates. In addition,
unexpected expenses associated with integrating the two companies may arise.
DILUTION. Our shareholders face dilution as a result of the mergers and
the issuance of shares of common stock to Duchossois Industries in the mergers.
On a pro forma basis prepared for periods during which Arlington had no live
racing operations, the closing of the mergers will have a dilutive effect on our
earnings per share for the fiscal year ended December 31, 1999. The extent of
dilution to our shareholders with respect to future earnings per share and book
value per share will depend on the actual results we achieve following the
mergers as compared to the results that we could have achieved on a stand-alone
basis over the same period in the absence of the mergers. No assurance can be
given as to such future results and, accordingly, as to whether the mergers will
ultimately be dilutive to our shareholders with respect to future earnings per
share or book value per share.
IMPACT ON CORPORATE GOVERNANCE. Our shareholders face dilution of
voting control as a result of the issuance of shares of common stock. Our
current shareholders control Churchill Downs through their ability to elect our
Board of Directors and to vote on various matters affecting Churchill Downs.
Assuming all shares of common stock issuable pursuant to the Merger Agreement
are issued, Duchossois Industries will hold approximately 30.7% of our common
stock on a fully diluted basis, after giving effect to the mergers. As a result,
the issuance
5
<PAGE> 6
of shares of common stock in connection with the mergers has the effect of
substantially reducing the percentage voting interest in Churchill Downs
represented by a share of common stock immediately prior to such shares'
issuance.
The substantial ownership of common stock by Duchossois Industries following the
mergers provides it with the ability to exercise substantial influence in the
election of directors and other matters submitted for approval by our
shareholders. 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. In addition, pursuant to a stockholder's
agreement entered into at the closing of the mergers, Duchossois Industries has
the right to initially designate three individuals for election to our Board of
Directors, and it will have the right to designate a fourth individual for
election to our Board of Directors if the additional 1,250,000 shares are
issued. The stockholder's agreement contains restrictions on the ability of
Duchossois Industries to vote its shares of common stock, but there are
exceptions to the restrictions which allow Duchossois Industries to vote its
shares in its own self-interest. In such situations, Duchossois Industries would
have a substantial influence over the result of any such matter submitted for
approval by our shareholders.
RESALES OF COMMON STOCK. We will issue up to 4,400,000 shares of common
stock, or approximately 30.7% of our outstanding shares of common stock on a
fully diluted basis, after giving effect to the mergers, as the consideration
for the merger transaction with the Arlington Companies. All of the shares of
common stock proposed to be issued will be considered "restricted securities"
under federal and state securities laws. Consequently, the transferability of
such shares by their holders will be limited during the two years following
their date of issuance, and will remain limited thereafter to the extent such
shares are held by our affiliates. In addition, pursuant to the stockholder's
agreement, the transferability of the shares of common stock is restricted
beyond the limits imposed by federal and state securities laws. However, the
holders of the shares are permitted to transfer shares to some degree. Sales of
common stock as permitted by the stockholder's agreement could adversely affect
the prevailing market price of our common stock.
THE SIGNIFICANT COMPETITION WE FACE FROM OTHER GAMING AND ENTERTAINMENT
OPERATIONS COULD DECREASE OUR REVENUES AND PROFITS.
We operate in a highly competitive industry. We compete for patrons with other
sports, entertainment and gaming operations, including land-based, riverboat and
cruise ship casinos, and state lotteries. Competition in the gaming industry is
likely to increase due to limited opportunities for growth in new markets. If we
lose customers for any reason, including the factors discussed below, our
revenues and profits may decrease.
6
<PAGE> 7
CHALLENGES FACING HORSE RACING. Nationally, fewer patrons are attending
and wagering at live horse races. We believe this decline has resulted primarily
from competing forms of entertainment and gaming and from an increasing
unwillingness of customers to travel a significant distance to racetracks, in
part due to the availability of off-track wagering. Because of the decline in
on-track attendance and wagering, racetracks increasingly rely on simulcasting
and off-track wagering. The industry-wide focus on simulcasting and off-track
wagering has increased competition among racetracks for outlets for their live
races. A decline in consumer interest in horse racing, a continued decrease in
on-track attendance and wagering or increased competition in the simulcast
wagering market could lower our revenues and profits.
RIVERBOAT AND CRUISE SHIP CASINOS. We directly compete with the
riverboat and cruise ship casinos that operate near our wagering facilities.
There are currently five Indiana-based and one Illinois-based riverboat casinos
on the Ohio River bordering Kentucky. A casino located approximately 70 miles
from our facilities in Louisville began operating in 2000. In November 1998, the
world's largest riverboat casino, licensed to RDI/Caesars, began operating
approximately 10 miles from the Churchill Downs racetrack and Louisville Sports
Spectrum. We experienced some decreases in attendance and pari-mutuel wagering
at the Louisville Sports Spectrum during 1999 as compared to 1998. However, we
experienced an increase in pari-mutuel wagering on Churchill Downs races during
the same period. Independent industry and academic studies suggest, however,
that the Churchill Downs racetrack could experience a material adverse impact on
attendance and wagers when the RDI/Caesars riverboat is operating at full
capacity and has established itself in the market. Our Merrillville Sports
Spectrum has also been adversely affected by casino riverboats operating in
Indiana on Lake Michigan and in Illinois near Chicago. Arlington Park faces
competition from four riverboat casino operations in northeastern Illinois, and
several in northwestern Indiana that service the Chicago market. There are also
Indian gaming operations in Wisconsin which have drawn from the Chicago market
as well. Two additional gaming operations have been proposed in Wisconsin along
the Illinois border. An additional Chicago-area riverboat operation is pending
in Rosemont, Illinois, approximately twelve miles from Arlington Park. The
increased competition from these additional gaming operations serving the
Chicago market could adversely affect our revenues and profits. Calder Race
Course faces competition from Miami-area cruise ships that permit off-shore
gambling. Increased competition from casinos operating in our markets could
lower our revenues and profits.
LAND-BASED CASINOS. Several Native American tribes in Florida have
expressed interest in opening casinos in southern Florida which could compete
with Calder Race Course. Recently, the Pokagon Band of the Potawatomi Indian
Tribe expressed interest in establishing a land-based casino in northeastern
Indiana or southwestern Michigan. The State of Michigan has approved the Pokagon
Band's proposal to develop a casino in New Buffalo, Michigan, which is
approximately 45 miles from our Merrillville facility. Card club casinos in
California compete with our operations and the California legislature recently
adopted legislation that authorizes Native Americans to open casinos in
California. Increased competition from these casinos could lower our revenues
and profits.
7
<PAGE> 8
STATE LOTTERIES. We face significant competition from state lotteries.
State lotteries benefit from numerous distribution channels, ranging from
supermarkets to convenience stores, and from frequent and extensive advertising
campaigns. We do not have the same access to the gaming public or the
advertising resources available to state lotteries.
ON-LINE AND INTERNET BETTING. We face significant competition from
gaming companies that operate on-line and Internet-based gaming services. These
services allow patrons to wager on a wide variety of sporting events from home.
Unlike most on-line and Internet-based gaming companies, our business requires
significant and ongoing capital expenditures for both its continued operation
and expansion. We cannot offer the same number of gaming options as on-line and
Internet-based gaming companies. We also face significantly greater costs in
operating our business compared to these gaming companies. The inability to
compete successfully with on-line and Internet-based gaming companies could
lower our revenues and profits.
OUR GAMING ACTIVITIES ARE EXTENSIVELY REGULATED.
LICENSING. The operation of gaming facilities is subject to extensive
state and local regulation. We depend on continued state approval of legalized
gaming in states where we operate. Our wagering and racing facilities must meet
the licensing requirements of various regulatory authorities, including the
Kentucky Racing Commission, the Indiana Horse Racing Commission, the Florida
Department of Business and Professional Regulation Division of Pari-Mutuel
Wagering, the California Horse Racing Board and the Illinois Racing Board. As
part of this regulation, licenses to conduct live horse racing and to
participate in simulcast wagering are granted annually. The Churchill Downs
racetrack and Ellis Park compete with the other racetracks in Kentucky for
racing dates. Although state law requires that the Kentucky Racing Commission
consider and seek to preserve each racetrack's customary live race dates, there
can be no guarantee that the number of racing days each track receives, or the
dates in which racing can occur, will not vary from year to year.
In California, licenses to conduct Thoroughbred racing and to participate in
simulcasting are approved annually by the California Horse Racing Board.
Although generally there is no substantial change from year to year in the
racing dates awarded to each racetrack, there is no assurance that such dates
will not vary from year to year.
In Florida, the Division of Pari-Mutuel Wagering approves annual licenses for
Thoroughbred, Standardbred and Quarter Horse races. Tax laws in Florida
currently discourage the three Miami-area racetracks in Florida from applying
for licenses for race dates outside of their traditional racing season, which
currently do not overlap. Effective July 1, 2001, a new tax structure will
eliminate this deterrent. Accordingly, Calder Race Course may face direct
competition from other Florida racetracks in the future. This competition could
lower our revenues and our profits.
8
<PAGE> 9
Hoosier Park is currently the only facility licensed to conduct live horse
racing in Indiana. The Indiana Horse Racing Commission has the authority to
grant additional licenses to conduct live horse racing. If additional licenses
are granted, the number of live racing days allocated to Hoosier Park could be
reduced, or we could compete directly with the new tracks depending on their
location. Additional licensed facilities would also compete with our off-track
wagering facilities and would receive a portion of the subsidy we currently
receive from the admission fee charged on Indiana riverboats. Any reduction in
the number of live racing dates or the presence of a new track in Indiana could
significantly limit the number of races we conduct or could significantly lower
our revenues and profits. In August of 2000, the Indiana Horse Racing Commission
denied the request of a group of investors who sought to build a Standardbred
racetrack in Lawrence, Indiana, but there is no assurance that additional
proposals for other racetracks will not be made in the future. The addition of a
second racetrack in Indiana could potentially impact Hoosier Park's share of the
riverboat admissions revenue, create an increase in competition in the market
and reduce the quality of racing. The addition of a second racetrack could
result in an adverse impact on long term profitability of the facility.
In Illinois, the Illinois Racing Board awards annual licenses for thoroughbred
and standardbred race meets in September for the following year. Arlington Park
and the other five racetracks in Illinois compete for an allocation of race
dates and related host track simulcast opportunities. The Racing Board has wide
discretion in awarding race dates, and there is no assurance that race dates
will not vary from year to year.
To date, we have obtained all governmental licenses, registrations, permits and
approvals necessary for the operation of our gaming facilities. However, we may
be unable to maintain our existing licenses. The loss of our licenses,
registrations, permits or approvals may materially limit the number of races we
conduct and could lower our revenues and profits.
EFFECT ON OUR BUSINESS STRATEGY. Any expansion of our gaming operations
will likely require various additional licenses, registrations, permits and
approvals. The approval process can be time-consuming and costly, and there is
no assurance of success. The high degree of regulation of the gaming industry is
a significant impediment to our growth strategy, especially in the area of
interactive home wagering, known as telephone account wagering. Account wagering
allows customers to wager on racing from their homes via a closed loop
subscriber-based system, such as the Television Games Network ("TVG"). Though
state account wagering legislation is increasing, currently it is specifically
authorized in only 10 states. Unless more states change their laws to permit
account wagering, our expansion opportunities in this market will be limited.
The Internet Gambling Prohibition Act (S.692/H.R.3125), which sought to impose
criminal penalties for conducting wagering over the Internet, but included
exceptions for certain types of pari-mutuel wagering, was introduced during the
106th Congress and passed by the Senate, but the legislation died in the House
of Representatives.
NATIONAL GAMBLING IMPACT STUDY COMMISSION. Congress established a
National Gambling Impact Study Commission to study comprehensively the social
and economic impact
9
<PAGE> 10
of gambling in the United States. The National Commission reported its findings
and conclusions, together with recommendations for legislative and
administrative actions, on June 18, 1999. In its report, the National Commission
concluded that the gambling industry should be closely regulated and recommended
"a pause in the expansion of gambling," including in the area of Internet
gaming, to allow time for assessment of the costs and benefits of the industry.
Although the recommendations of the National Commission could result in the
enactment of new laws or the adoption of new regulations which could adversely
impact Churchill Downs and the gaming industry in general, we are unable at this
time to determine the ultimate effect of the recommendations. Representatives of
the United States Department of Justice have also recently expressed the view
that the existing simulcast practices of the industry could create issues under
current Federal law.
TAXATION. We believe that the prospect of raising significant
additional revenue is one of the primary reasons that jurisdictions permit
legalized gaming. As a result, gaming companies are subject to significant taxes
and fees in addition to normal federal, state and local income taxes. We
currently pay a significant amount of gaming related taxes and fees. These taxes
and fees could increase at any time. From time to time, legislators have
proposed the imposition of a federal tax on gross gaming revenues. Any
additional taxes could materially lower the profitability of the taxed
operations.
HOOSIER PARK DEPENDS ON A SUBSIDY FROM RIVERBOAT CASINO ADMISSIONS IN INDIANA.
The Indiana horse racing industry currently receives a $0.65 subsidy from each
$3.00 admission ticket to Indiana riverboat casinos. Hoosier Park benefits from
this subsidy in a variety of different ways. Indiana law requires that this
subsidy be spent as follows: 40% for purse expenses; 30% for racetrack
operators; 20% for breed development; and 10% for industry promotions. As the
only racetrack in Indiana, Hoosier Park receives all of the subsidy allocated to
purse expenses, racetrack operators and industry promotions. In November 1999,
the Company and the Indiana Horse Racing Commission agreed to a $6.8 million
annual limit on Hoosier Park's share of the subsidy. In 1999, the amount of the
racetrack operator subsidy allocated to Hoosier Park was approximately $7.4
million. If the Indiana Horse Racing Commission grants a license for an
additional racetrack, our portion of the direct subsidy would be reduced. The
Indiana legislature has considered reducing or eliminating the subsidy. It is
likely that additional legislation seeking to reduce or eliminate the subsidy
will be brought before the legislature in the future. Any reduction in the
subsidy or the approval of additional racetracks could significantly reduce the
funding from the subsidy for our operations at Hoosier Park and potentially
reduce the number of live racing dates that we could support or cause a complete
and permanent shutdown of the facility.
10
<PAGE> 11
WE MAY NOT BE ABLE TO ATTRACT QUALITY HORSES AND TRAINERS.
To provide high quality horse racing, we must attract the country's top horses
and trainers by offering competitive purses. Our success in attracting the top
horses and trainers largely depends on our ability to offer competitive purses.
The number of top horses available for racing is affected by a range of factors,
including the market for race horses and the number of foals born each year. Any
decline in the number of suitable race horses could prevent us from attracting
top horses and trainers and may require us to reduce the number of live races we
present. A reduction in suitable race horses could force us to increase the size
of our purses or other benefits we offer, to conduct fewer races or to accept
horses of a lower quality.
WE MAY NOT BE ABLE TO EXECUTE OUR ACQUISITION STRATEGY.
We intend to pursue an aggressive growth strategy, largely through acquisitions.
The expansion of our operations through acquisitions depends on numerous
factors, including our ability to identify potential acquisition targets, to
negotiate acceptable acquisition terms and to obtain the necessary financing. In
pursuing our growth strategy, we will compete for acquisition targets with
gaming companies with significantly greater capital resources. We may be unable
to identify additional acquisition candidates, obtain the necessary financing or
successfully bid for any potential acquisition target. Any failure to
successfully execute our acquisition strategy could prevent us from achieving
our strategic business initiatives.
WE MAY EXPERIENCE DIFFICULTY INTEGRATING ACQUIRED BUSINESSES AND MANAGING OUR
OVERALL GROWTH.
The integration into our operations of acquired businesses will require a
significant dedication of management resources and an expansion of our
information systems. This dedication may distract us from day-to-day business.
These acquisitions have significantly expanded, and are expected to continue to
expand, our operations. We may not be able to manage effectively the larger
operations. We plan to continue pursuing expansion opportunities. We will face
continuing challenges in managing and integrating other gaming operations that
we may acquire in the future, particularly in identifying and recruiting
talented managers for our new facilities. These factors may result in less
efficient and more costly operations as well as a failure of management to focus
on important issues.
In particular, the integration of our operations with Arlington may be difficult
and lead to adverse effects. Realization of the anticipated benefits of the
Arlington mergers will depend in part on whether we can integrate the operations
of Arlington in an efficient and effective manner. Successful integration will
require combining the companies' respective:
- management cultures;
- strategic goals; and
11
<PAGE> 12
- business development efforts.
We may not accomplish this integration smoothly or successfully. The diversion
of the attention of management to the integration effort could cause the
interruption of, or a loss of momentum in, the activities of either or both of
the companies' businesses. Furthermore, employee morale may suffer, and
Churchill Downs and Arlington may have difficulties retaining key managerial
personnel. If the combined company is unable to address any of the foregoing
risks, it could materially harm the combined company's business and impair the
value of the combined company's stock.
WE MAY NOT BE ABLE TO COMPLETE EXPANSION PROJECTS ON TIME, ON BUDGET OR AS
PLANNED.
We may seek to further develop our racetracks and possibly expand our other
gaming properties. Numerous factors, including regulatory and financial
constraints, could cause us to alter, delay or abandon our existing plans. We
may not successfully complete any currently contemplated or future expansion
projects. If we proceed to develop our facilities, we face numerous risks that
could require substantial changes to our plans, including time frames or
projected budgets. These risks include the ability to secure all required
permits and the resolution of potential land use issues, as well as risks
typically associated with any construction project, including possible shortages
of materials or skilled labor, unforseen engineering or environmental problems,
work stoppages, weather interference and unanticipated cost overruns. Even if
completed, our expansion projects may not be successful.
WE EXPERIENCE SIGNIFICANT SEASONAL FLUCTUATIONS IN OPERATING RESULTS.
We experience significant fluctuations in quarterly and annual operating results
due to seasonality and other factors. We have a limited number of live racing
days at our racetracks, and the number of live racing days varies from year to
year. The number of live racing days we have directly affects our operating
results. A significant decrease in the number of live races could materially
lower our revenues and profits. Our live racing schedule also dictates that we
earn a substantial portion of our net earnings in the second quarter of each
year, when the Kentucky Derby and the Kentucky Oaks races usually are run on the
first weekend in May. In 2000, these races accounted for approximately 11.5% of
on-track pari-mutuel wagering at the Churchill Downs racetrack and 31% of total
on-track attendance during the Spring Meet at the Churchill Downs racetrack.
OUR BUSINESS DEPENDS ON PROVIDERS OF TOTALISATOR SERVICES.
In purchasing and selling our pari-mutuel wagering products, our customers
depend on information provided by United Tote Company, Autotote Services, Inc.
and AmTote International, Inc. These totalisator companies provide the computer
systems that accumulate wagers, record sales, calculate payoffs and display
wagering data. These are the only three
12
<PAGE> 13
vendors that provide this service in North America. The loss of any one of these
vendors as a provider of this critical service would decrease competition and
could result in an increase in the cost to obtain these services. Additionally,
the failure of totalisator companies to keep their technology current could
limit our ability to serve patrons effectively or develop new forms of wagering.
Because of the highly specialized nature of these services, replicating these
totalisator services would be expensive.
WE MAY BE HELD RESPONSIBLE FOR CONTAMINATION, EVEN IF WE DID NOT CAUSE THE
CONTAMINATION.
Our business is subject to a variety of federal, state and local governmental
laws and regulations relating to the use, storage, discharge, emission and
disposal of hazardous materials. In addition, environmental laws and regulations
could hold us responsible for the cost of cleaning up hazardous materials
contaminating real property that we own or operate or properties at which we
have disposed of hazardous materials, even if we did not cause the
contamination. We believe that we are currently in compliance with the
applicable environmental laws and have no material cleanup obligations. However,
if we fail to comply with environmental laws or if contamination is discovered,
a court or government agency could impose severe penalties or restrictions on
our operations or assess us with the costs of taking remedial actions.
WE DEPEND ON KEY PERSONNEL.
We are highly dependent on the services of Thomas H. Meeker, President and Chief
Executive Officer, John R. Long, Executive Vice President and Chief Operating
Officer, and Robert L. Decker, Executive Vice President and Chief Financial
Officer. If we lose the services of any of these individuals, our operations
could be disrupted. We have entered into employment agreements with Messrs.
Meeker and Decker.
OUR STOCK PRICE IS VOLATILE.
The market price of our stock has been volatile and may continue to be volatile.
Fluctuations in our operating profits, our announcement of new wagering and
gaming opportunities, the passage of legislation affecting racing or gaming and
developments affecting the racing or gaming industries generally may have
significant effects on the market price of our stock. Moreover, the historical
daily volume of shares of our stock traded has been low, so relatively small
changes in daily trading volume may significantly affect our stock price. In
addition, publicly held racing companies have experienced price and trading
volume fluctuations that are often unrelated to the particular company's
financial conditions or operating results. A shift in market valuations of
publicly held racing or gaming companies could adversely affect the market price
of our common stock, regardless of our financial condition or operating results.
13
<PAGE> 14
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE FUTURE
MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of our common stock in the public market
following this offering could adversely affect the market price of our common
stock.
CERTAIN PROVISIONS OF OUR CHARTER, OUR BYLAWS AND OTHER FACTORS MAY INHIBIT
TAKEOVERS.
Several factors could inhibit an acquisition of Churchill Downs by a third
party. Our amended and restated articles of incorporation provide that the board
of directors is to consist of three approximately equal classes of directors, of
which one class is elected annually. Directors on our board each serve for a
term of three years. This staggered term structure hinders the ability to
acquire control through a proxy contest. Our bylaws limit a shareholder's right
to call special meetings. The bylaws also require advance notice of shareholder
nominations for directors and shareholder proposals to be considered at our
annual meeting. These provisions in the articles and bylaws limit the ability of
shareholders to take actions that would facilitate an acquisition of Churchill
Downs. We also have a shareholder rights plan. This plan is designed to
discourage third parties from trying to acquire Churchill Downs without the
consent of its board of directors. All of these factors may make it more
difficult for a third person to acquire, or may discourage a third party from
trying to acquire, our stock. This could limit the price that some investors
might be willing to pay for our common stock.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the Regional Offices of the SEC at 7 World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60601. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. The SEC maintains a site on
the World Wide Web at http://www.sec.gov that contains our SEC filings and
reports, proxy and information statements, and other information regarding
registrants.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:
14
<PAGE> 15
1. Annual Report on Form 10-K for the fiscal year ended December 31,
1999 and the portions of the Company's Proxy Statement for the 2000 Annual
Shareholders' Meeting that we incorporated by reference into the 10-K;
2. Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 2000, June 30, 2000 and September 30, 2000;
3. Current Reports on Form 8-K filed February 28, 2000, May 10,
2000, June 23, 2000, July 27, 2000 (as amended on Form 8-K/A filed August 8,
2000), July 28, 2000, September 21, 2000 (as amended on Form 8-K/A filed
November 21, 2000) and October 26, 2000;
4. Current Reports on Form 8-K/A filed April 29, 1999 (as amended by
Form 8-K/A filed June 18, 1999) and September 23, 1999 (as amended by Form 8-K/A
filed November 24, 1999) and the portions of the Company's Proxy Statement for a
Special Meeting of Shareholders held September 8, 2000 under the captions
"Unaudited Pro Forma Condensed Consolidated Financial Statements" and "Financial
Statements of Arlington International";
5. The description of the Company's Common Stock, no par value,
contained in the Current Report on Form 8-K dated December 14, 1998, and any
amendment or report filed for the purpose of updating such description; and
6. The description of the Company's Preferred Share Purchase Rights
contained in the Company's Registration Statement on Form 8-A filed March 20,
1998 pursuant to Section 12(g) of the 1934 Act, as amended on Form 8-A/A filed
June 30, 2000 and Form 8-A/A filed September 14, 2000.
You may request a copy of these filings, at no cost, by writing or telephoning
us at the following address:
Chantelle Kammerdiener
Director of Investor Relations
Churchill Downs Incorporated
700 Central Avenue
Louisville, Kentucky 40208
(502) 636-4400
This prospectus is part of a registration statement we filed with the SEC. You
should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different information.
These securities are not offered in any state where the offer is not permitted.
You should not assume that the information in this prospectus is accurate as of
any date other than the date on the front of the document.
15
<PAGE> 16
THE COMPANY
We are a leading pari-mutuel horse racing company and a leading
provider of live racing programming content for the growing simulcast wagering
market. We currently simulcast our races to over 1,000 locations in 41 states
and nine countries. We operate six racetracks and nine remote simulcast
facilities that accept wagers on our races as well as on races simulcast from
other locations. Our flagship operation, the Churchill Downs racetrack, has
conducted Thoroughbred racing continuously since 1875, and is internationally
known as home of the Kentucky Derby. Through our subsidiary, Hoosier Park, L.P.,
we are the majority owner and operator of Hoosier Park in Anderson, Indiana,
which conducts Thoroughbred, Quarter Horse and Standardbred horse racing. In
February 2000, we entered into an agreement to sell 26% of our interest in
Hoosier Park, which would leave us with a 51% interest. The proposed sale was
disapproved by the Indiana Horse Racing Commission in August, 2000. In April,
1998, we acquired from the selling stockholder Racing Corporation of America,
which owns through a subsidiary Ellis Park Race Course in Henderson, Kentucky.
In April, 1999, we acquired Calder Race Course in Miami, Florida. In September,
1999, we acquired Hollywood Park Racetrack and the Hollywood Park Casino in
Inglewood, California. In September, 2000, subsidiaries owned by us merged into
the Arlington Companies.
Churchill Downs was organized as a Kentucky corporation in 1928. Our
principal executive offices are located at Churchill Downs, 700 Central Avenue,
Louisville, Kentucky 40208, and our telephone number is (502) 636-4400. Our web
site address is www.kentuckyderby.com.
USE OF PROCEEDS
All net proceeds from any sale of the common stock will go to the
selling stockholder. Accordingly, we will not receive any proceeds from the sale
of the common stock.
SELLING STOCKHOLDER
The selling stockholder is TVI Corp. The selling stockholder's address
is 24100 Chagrin Blvd., Suite 340, Beachwood, Ohio 44122. Pursuant to a Stock
Purchase Agreement dated March 28, 1998, between us and the selling stockholder,
and an Agreement and Plan of Merger dated April 17, 1998 by and among Churchill
Downs, our wholly-owned subsidiary RCA Acquisition Company, and Racing
Corporation of America, we issued 200,000 shares of our common stock to the
selling stockholder and paid the selling stockholder a cash payment of
$17,150,000 for the selling stockholder's wholly-owned subsidiary Racing
Corporation of America. Pursuant to the Stock Purchase Agreement and the
Agreement and Plan of Merger, on June 18, 1998 our Board of Directors appointed
the selling stockholder's President, Daniel Harrington, to serve as a director
of Churchill Downs subject to reelection by our shareholders at
16
<PAGE> 17
the next annual meeting of shareholders. Mr. Harrington was reelected at the
June 1999 annual meeting of shareholders for a term expiring in 2002. The
selling stockholder holds no other position or office and has had no other
material relationship with us (or any of our predecessors or affiliates) within
the past three years. The selling stockholder owned 233,300 shares of common
stock prior to this offering, or approximately 1.79% of our common stock as of
December 14, 2000, of which 200,000 shares are being offered by this prospectus.
We cannot estimate the amount of the common stock that will be held by the
selling stockholder upon termination of this offering, because the selling
stockholder may offer all, part or none of the common stock it holds pursuant to
the offering contemplated by this prospectus and because the offering is not
being underwritten on a firm commitment basis.
PLAN OF DISTRIBUTION
In any sale of its shares, the selling stockholder may offer or sell
any or all of its shares from time to time (i) to or through underwriters or
dealers, (ii) directly to one or more other purchasers, (iii) through agents on
a best-efforts basis, or (iv) through a combination of these methods of sale.
The selling stockholder may also include donees or pledgees selling shares
received from the selling stockholder after the date of this prospectus.
The selling stockholder may sell its shares at various times in one or
more of the following transactions:
- a block trade in which a broker or dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by such
broker or dealer for its account;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers.
Sales may be made on the Nasdaq National Market or otherwise at prices
and at terms then prevailing or at prices related to the then current market
price, or in negotiated transactions. In effecting sales, brokers or dealers
engaged by the selling stockholder may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or discounts from the
selling stockholder in amounts to be negotiated prior to the sale. In addition,
any securities covered by this prospectus which qualify for sale pursuant to SEC
Rule 144 may be sold under Rule 144 rather than pursuant to this prospectus.
The selling stockholder and any underwriters, dealers or agents that
participate in the distribution of its shares may be deemed to be underwriters
within the meaning of the Securities Act of 1933, and any profit on the sale of
their shares by them and any discounts, commissions
17
<PAGE> 18
or concessions received by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933. The selling stockholder may sell
its shares from time to time in one or more transactions at a fixed offering
price, at varying prices determined at the time of sale or at negotiated prices.
Prices will be determined by the selling stockholder or by an agreement between
the selling stockholder and underwriters or dealers. Brokers or dealers acting
in connection with the sale of common stock contemplated by this prospectus may
receive fees or commissions in connection with stock sales.
At the time a particular offer of common stock is made, to the extent
required by the SEC, a supplement to this prospectus will be distributed which
will identify and set forth the following:
- the aggregate number of shares of common stock being offered and the
terms of the offering;
- the name or names of any underwriters, dealers or agents;
- the purchase price paid by any underwriter for the selling
stockholder's shares;
- any discounts, commissions and other items constituting compensation
from the selling stockholder;
- any discounts, commissions or concessions allowed or reallowed or
paid to dealers, including the proposed selling price to the public;
and
- if the selling stockholder notifies Churchill Downs that a donee,
pledgee, transferee or other successor in interest intends to sell more
than 1,000 shares.
If necessary, a supplement to this prospectus and a post-effective
amendment to the registration statement of which this prospectus is a part, will
be filed with the SEC to reflect the disclosure of additional information with
respect to the distribution of the common stock.
Under applicable rules and regulations of the Securities and Exchange
Act of 1934, any person engaged in a distribution of common stock may not
simultaneously engage in market making activities with respect to the common
stock for a period of nine business days prior to the commencement of such
distribution. In addition and without limiting the foregoing, the selling
stockholder and any person participating in the distribution of its shares will
be subject to applicable provisions of the Securities and Exchange Act of 1934
and the rules and regulations thereunder including, without limitation, the
rules and regulations under Regulation M, which provisions may limit the timing
of purchases and sales of the shares by the selling stockholder.
In order to comply with certain states securities laws, if applicable,
the selling stockholder will only sell its shares through registered or licensed
brokers or dealers. In certain states, the
18
<PAGE> 19
selling stockholder may need to register or qualify for sale its shares in that
state, unless an exemption from registration or qualification is available.
DESCRIPTION OF CAPITAL STOCK
Our amended and restated articles of incorporation authorize us to
issue up to 50,000,000 shares of common stock, no par value per share, and
250,000 shares of preferred stock, no par value per share. As of December 14,
2000, 13,015,449 shares of common stock were outstanding. The holders of our
common stock have the right to one vote per share on all matters which require
their vote, except that in the election of directors, each holder of common
stock has as many votes as results from multiplying the number of shares held by
the shareholder by the number of directors to be elected. Each common
shareholder may divide the total number of votes the shareholder is entitled to
cast among the total number of directors to be elected, or distribute the votes
among any lesser number in any proportions the holder determines. The board of
directors is divided into three approximately equal classes. Each class serves
for a term of three years, with one class up for election each year. Subject to
rights of any preferred shareholders, common shareholders have the right to
receive any dividends that the board of directors declares. If we liquidate,
dissolve or wind up our business, we will pay our preferred shareholders, if
any, before we pay our common shareholders, subject to the rights of creditors.
We will distribute the remaining available assets to our common shareholders, in
proportion to the number of shares that each common shareholder holds. Shares of
common stock are not redeemable and do not have subscription, conversion or
preemptive rights. There are no redemption or sinking fund provisions available
to the common stock. All outstanding shares of common stock are fully paid and
non-assessable.
The board of directors may issue shares of the preferred stock from
time to time, in one or more series, without shareholder approval. The board of
directors determines the designation, relative rights, preferences and
limitations of each series of preferred stock. The issuance of preferred stock
may delay, defer or prevent a change in control of Churchill Downs without
further action by the shareholders. It may also decrease the voting power and
other rights of the holders of common stock and may have the effect of
decreasing the market price of the common stock. At present, there are no shares
of preferred stock outstanding.
Under our shareholder rights plan, which we adopted on March 19, 1998,
we declared a dividend of one preferred stock purchase right for each
outstanding share of common stock and each share of common stock issued after
that date. The rights are transferable with the common stock until they become
exercisable. The rights will not be exercisable until the distribution date
described in the plan. The rights expire on March 19, 2008 unless we redeem them
earlier. When a right becomes exercisable, it entitles the holder to purchase
from us 1/1000th of a share of preferred stock at a purchase price of $80,
subject to adjustment in certain circumstances. Under the rights plan, the plan
distribution date will not occur until any person or group acquires or makes a
tender offer for 15% or more of our outstanding common stock.
19
<PAGE> 20
Until the plan distribution date, the rights will be evidenced by the
certificates for common stock registered in the names of holders. As soon as
practical following the plan distribution date, we will mail separate
certificates evidencing the rights to common shareholders of record. Until a
right is exercised, the holder has no rights as a shareholder of Churchill
Downs.
If any person or group acquires 15% or more of our common stock, rights
holders will be entitled to buy, for the purchase price, that number of
1/1000ths of a preferred share equivalent to the number of shares of common
stock that at the time have a market value of twice the purchase price. If we
are acquired in a business combination, rights holders will be entitled to buy,
for the purchase price, that number of shares of the acquiring corporation that,
at the time, have a market value of twice the purchase price. The board has the
right to redeem the rights in certain circumstances for $0.01 per right, subject
to adjustment.
In connection with our acquisition of Arlington International
Racecourse, we have amended the terms of the rights plan, so that Duchossois
Industries and its shareholders will not be considered an "Acquiring Person" (as
defined in our rights plan) when their beneficial ownership of our common stock
is subject to, does not violate, and is in compliance with, the Stockholders'
Agreement dated as of September 8, 2000 among Churchill Downs, Duchossois
Industries and subsequent signatories thereto.
The rights plan is designed to protect our shareholders in the event of
unsolicited offers to acquire Churchill Downs and other coercive takeover
tactics, which, in the board's opinion, would impair its ability to represent
shareholder interests. The rights plan may make an unsolicited takeover more
difficult or less likely to occur or may prevent a takeover, even though it may
offer our shareholders the opportunity to sell their stock at a price above the
prevailing market rate and may be favored by a majority of our shareholders.
The Kentucky Business Corporation Act contains a business combination
statute which prohibits Kentucky corporations from engaging in a business
combination with a 10% or greater shareholder or its affiliate or associate for
five years following the acquisition of such 10% or greater stake, unless the
board, by a majority vote of the continuing directors, approved the combination
prior to the 10% or greater acquisition. If not previously approved by the
board, the 10% or greater shareholder or its affiliate or associate may effect a
business combination only after the expiration of a five year period and then
only with the approval of 80% of the outstanding shares and 66 2/3% of the
outstanding shares not owned by the 10% or greater shareholder, or if the
aggregate amount of the offer meets certain fair price requirements.
20
<PAGE> 21
LEGAL MATTERS
Wyatt, Tarrant & Combs, LLP, Louisville, Kentucky, will issue an
opinion about the legality of the shares of common stock offered by this
prospectus for the selling stockholder.
EXPERTS
The financial statements incorporated in this prospectus by reference
to the Annual Report on Form 10-K of Churchill Downs Incorporated for the year
ended December 31, 1999 and the audited historical financial statements of
Calder Race Course, Inc. and Tropical Park, Inc. incorporated in this prospectus
by reference to Churchill Downs Incorporated's Report on Form 8-K/A dated June
18, 1999 have been so incorporated in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The combined financial statements of the Hollywood Park Race Track and
Casino as of December 31, 1998 and 1997, and for each of the three years in the
period ended December 31, 1998, incorporated in this prospectus by reference to
Churchill Downs Incorporated's Report on Form 8-K/A dated November 24, 1999 have
been audited by Arthur Andersen, LLP, independent public accountants, as
indicated in their report with respect thereto, and have been incorporated
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
The combined financial statements of Arlington International
Racecourse, Inc. as of December 31, 1999, 1998 and 1997, and for each of the
three years in the period ended December 31, 1999, incorporated in this
prospectus by reference to portions of Churchill Downs Incorporated's Proxy
Statement for a Special Meeting of Shareholders held September 8, 2000, have
been audited by Arthur Andersen, LLP, independent public accountants, as
indicated in their report with respect thereto, and have been incorporated
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
21
