UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number 0-1469
CHURCHILL DOWNS INCORPORATED
Exact name of registrant as specified in its charter
KENTUCKY 61-0156015
State or other jurisdiction of IRS Employer Identification No.
incorporation or organization
700 CENTRAL AVENUE, LOUISVILLE, KENTUCKY 40208
Address of principal executive offices Zip Code
Registrant's telephone number, including area code 502-636-4400
Securities registered pursuant to Section 12(b) of the Act:
None None
Title of each class registered Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
Title of class
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. (_________)
As of March 15, 2000, 9,853,627 shares of the Registrant's Common Stock were
outstanding, and the aggregate market value of the shares held by nonaffiliates
of the Registrant was $127,000,000.
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on June 22, 2000 are incorporated by reference herein in
response to Items 10, 11, 12 and 13 of Part III of Form 10-K. The exhibit index
is located on pages 57 to 60.
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PART I
ITEM 1. BUSINESS
A. INTRODUCTION
Churchill Downs Incorporated (the "Company") is a racing company that primarily
conducts pari-mutuel wagering on live Thoroughbred, Standardbred and Quarter
Horse horse racing and simulcast signals of races. Additionally, we offer racing
services through our other business interests. We were organized as a Kentucky
corporation in 1928. Our principal executive offices are located at 700 Central
Avenue, Louisville, Kentucky, 40208.
We own and operate our flagship operation, Churchill Downs racetrack, in
Louisville, Kentucky ("Churchill Downs"). Churchill Downs has conducted
Thoroughbred racing continuously since 1875 and is internationally known as home
of the Kentucky Derby. The Churchill Downs operation also encompasses the
Churchill Downs Sports Spectrum ("Louisville Sports Spectrum"), an off-track
betting facility ("OTB").
Churchill Downs Management Company ("CDMC"), a wholly owned subsidiary, oversees
and manages our other racing operations. CDMC oversees Calder Race Course, Inc.
and Tropical Park, Inc. which hold licenses to conduct Thoroughbred horse racing
at Calder Race Course, a Thoroughbred racetrack in Miami, Florida ("Calder Race
Course"). In addition, CDMC oversees Hollywood Park Race Track, a Thoroughbred
racetrack in Inglewood, California ("Hollywood Park"). Calder Race Course and
Hollywood Park were acquired in April 1999 and September 1999, respectively.
CDMC also oversees Ellis Park Race Course ("Ellis Park"), a Thoroughbred track
in Henderson, Kentucky, and Kentucky Horse Center in Lexington, Kentucky
("KHC"). We acquired ownership of these two facilities in April 1998. We have
entered into a definitive agreement with Keeneland Association, Inc.
("Keeneland"), a Lexington, Kentucky racetrack, whereby Keeneland will purchase
the assets of KHC for a cash payment of $5 million. The sale is subject to
certain closing conditions, and closing is expected during the second quarter of
2000.
Additionally, CDMC manages Hoosier Park at Anderson in Anderson, Indiana
("Hoosier Park"). Hoosier Park conducts Thoroughbred, Quarter Horse and
Standardbred horse racing. Hoosier Park is owned by Hoosier Park, LP ("HPLP"),
an Indiana limited partnership. Anderson Park, Inc. ("Anderson"), a wholly owned
subsidiary of CDMC, is the sole general partner of HPLP,and currently owns a 77%
interest in HPLP. The remaining 23% of HPLP is held by unrelated third parties,
Centaur, Inc. ("Centaur"), and Conseco HPLP, LLC ("Conseco"). We have entered
into a definitive agreement with Centaur to sell an additional 26% interest in
HPLP for a purchase price of $8.5 million. The transaction is subject to certain
closing conditions, including the approval of the Indiana Horse Racing
Commission ("IHRC") and various regulatory agencies, and closing is expected
during the second quarter of 2000. CDMC also manages three Churchill Downs
Sports Spectrum facilities ("Indiana Sports Spectrum") in Indiana owned by
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Hoosier Park. These OTBs conduct simulcast wagering on horse racing year-round.
We formed Churchill Downs Investment Company ("CDIC"), a wholly owned
subsidiary, to oversee other industry related investments. In 1999, we completed
the purchase of a 60% ownership interest in Charlson Broadcast Technologies, LLC
("CBT"), a privately held company that provides simulcast graphic software and
video services to racetracks and OTBs.
Other investments owned by CDIC include a 35 percent interest in EquiSource, LLC
("EquiSource"), a procurement business that assists in the group purchasing of
supplies and services for the equine industry, and a 30 percent interest in
NASRIN Services, LLC ("NASRIN"), a telecommunications service provider for the
pari-mutuel and simulcasting industries. In March 1999, CDIC and Autotote
Services, Inc. ("Autotote") formed NASRIN, which is managed on a day-to-day
basis by Autotote. Currently, neither NASRIN nor EquiSource is a material
investment for us.
CDIC also holds a 24 percent minority interest investment in Kentucky Downs, LLC
("Kentucky Downs"), a Franklin, Kentucky, racetrack that conducts a very limited
Thoroughbred race meet with 7 live racing days in late September as well as
year-round simulcasting. Turfway Park LLC ("Turfway"), a Florence, Kentucky,
racetrack, also holds a minority interest in Kentucky Downs and manages its
day-to-day operations. In April 1999, Keeneland ; Dreamport, Inc., a wholly
owned subsidiary of GTECH Corporation; and Dusty Corporation, a wholly owned
subsidiary of Harrah's Entertainment, Inc., through a jointly owned company,
acquired all of Turfway's racetrack-related assets. It is not believed that this
transaction will have a material effect on the management of Kentucky Downs. Our
investment in Kentucky Downs is not material to the Company's operations at this
time.
In February 2000, we announced the creation of a national branding program for
our expanding network of racetracks and OTBs. We have unveiled a new corporate
logo that will be applied consistently to all the CDI racetracks and off-track
betting facilities.
B. LIVE RACING OPERATIONS
We conduct live horse racing at Churchill Downs, Hollywood Park, Calder Race
Course, Hoosier Park and Ellis Park during each track's respective meets. Live
racing produces revenues through pari-mutuel wagering at our racetracks and
OTBs, simulcast fees, admissions and concessions revenue.
The Kentucky Derby and the Kentucky Oaks, both held at Churchill Downs, continue
to be our premier racing events. The Kentucky Derby offers a minimum$1.0 million
in purse money and the Kentucky Oaks offers a minimum $0.5 million in purse
money. Calder Race Course is home to The Festival of the Sun, Florida's richest
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day in Thoroughbred racing offering approximately $1.5 million in total purse
money. Hollywood Park is home to the Sempra Energy Hollywood Gold Cup, which
offers $1.0 million in purse money. Hollywood Park's Autumn Meet is highlighted
by the annual $2.1 million Autumn Turf Festival, comprised of six graded stakes
races. Other races that make us unique are the Indiana Derby for Thoroughbreds
and the Dan Patch Invitational for Standardbreds held at Hoosier Park, as well
as the Gardenia Stakes for older fillies and mares held at Ellis Park.
Churchill Downs hosted the Breeders' Cup Championship ("Breeders' Cup") in 1988,
1991, 1994 and 1998, and will host the event for a record fifth time on November
4, 2000. Hollywood Park has also hosted the Breeders' Cup in 1984, 1987 and
1997. The Breeders' Cup is sponsored by Breeders' Cup Limited, a tax-exempt
organization chartered to promote Thoroughbred racing and breeding. The
Breeders' Cup races, which feature $13.0 million in purses, are held annually
for the purpose of determining Thoroughbred champions in eight different events.
Racetracks across North America compete for the privilege of hosting the
Breeders' Cup races each year. Although most of the income earned from this
event is allocated to Breeders' Cup Limited, hosting the 1998 event had a
positive impact on our 1998 results, and hosting the event in 2000 is expected
to have a positive impact on our 2000 results.
Churchill Downs
We own the Churchill Downs racetrack site and improvements located in
Louisville, Kentucky ("Churchill facility"). The Churchill facility consists of
approximately 147 acres of land with a one-mile oval dirt track, a seven-eighths
(7/8) mile turf track, permanent grandstands and a stabling area. The facility
includes clubhouse and grandstand seating for approximately 48,500 persons, a
state-of- the-art simulcast wagering facility designed to accommodate 450
persons, a general admission area, and food and beverage facilities ranging from
fast food to full-service restaurants. The site also has a saddling paddock,
infield accommodations for groups and special events, parking areas for the
public, and our office facilities. The backside stable area has barns sufficient
to accommodate approximately 1,400 horses, a new 114 room dormitory completed
during 1999 and other facilities for backstretch personnel.
To supplement the facilities at Churchill Downs we provide additional stabling
facilities sufficient to accommodate 500 horses and a three-quarter (3/4) mile
dirt track, which is used for training Thoroughbreds, at the Louisville Sports
Spectrum. The facilities provide a year-round base of operation for many
horsemen and enable us to attract new horsemen to race at Churchill Downs.
We have made numerous capital improvements to the Churchill facility during the
last 10 years in order to better serve our horsemen and patrons. We are in the
process of constructing a $4.9 million expansion of Churchill Downs' main
entrance and expansion of our corporate offices. This project is expected to be
completed spring of 2000.
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Hollywood Park
We own the Hollywood Park Race Track and the Hollywood Park Casino site and
improvements located in Inglewood, California ("Hollywood Park facility"). The
Hollywood Park facility consists of approximately 240 acres of land upon which
the racetrack and casino are located with a one and one-eighth mile (1 1/8) oval
dirt track, a one-mile oval turf track, permanent grandstands and stabling area.
The facility includes clubhouse and grandstand seating for 16,675 persons, a
general admission area, a saddling paddock area and food and beverage facilities
ranging from fast food to full-service restaurants. The stabling area consists
of stalls to accommodate approximately 2,000 horses, tack rooms, feed rooms, a
federally approved quarantine facility, a half-mile oval training track, and a
not-for-profit Equine Teaching Hospital and Research Center operated under the
direction of the Southern California Equine Foundation. The Hollywood Park
facility also features parking areas for the public and office facilities.
The Hollywood Park Casino is a state-of-the-art facility which is open 24 hours
a day, 365 days a year. The casino features more than 150 gaming tables offering
a variety of California approved casino games. Under California gaming law, the
casino is a card club. Thus, it is not authorized to operate slot machines or
video lottery terminals but instead rents its tables to casino patrons for a
seat fee charged on a per hand basis. The casino also offers facilities for
simulcast wagering. We lease the facility to Pinnacle Entertainment, Inc.,
formerly Hollywood Park Inc., under a ten-year lease for an annual rent of $3.0
million and, therefore, do not operate the casino. The lease includes a ten-year
renewal option and is subject to an adjustment to the rent at the time the
option is exercised.
We are also in the process of making a number of capital improvements to the
Hollywood Park facility in order to better serve our horsemen and patrons in
Southern California.
Calder Race Course
We own the Calder Race Course racetrack and improvements located in Miami,
Florida ("Calder Race Course facility"). The Calder Race Course facility is
adjacent to Pro Player Stadium, home of the Florida Marlins and Miami Dolphins.
The Calder Race Course facility consists of approximately 220 acres of land with
a one-mile dirt track, a seven-eighths (7/8) mile turf track, a training area
with a five-eighths (5/8) mile training track, permanent grandstand and a
stabling area. The facility includes clubhouse and grandstand seating for
approximately 15,000 persons, a general admission area, and food and beverage
facilities ranging from fast food to full-service restaurants. The stable area
consists of a receiving barn, feed rooms, tack rooms, detention barns and
living quarters and can accommodate approximately 1,800 Thoroughbreds. The
Calder Race Course facility also features a saddling paddock, parking areas for
the public and office facilities.
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Ellis Park Race Course
We own the Ellis Park racetrack and improvements located in Henderson, Kentucky
("Ellis Park facility"). The Ellis Park facility consists of approximately 230
acres of land just north of the Ohio River with a one and one-eighths (1 1/8)
mile dirt track, a one-mile turf course, permanent grandstands and a stabling
area for 1,290 horses. The facility includes clubhouse and grandstand seating
for 8,000 people, a general admission area, and food and beverage facilities
ranging from fast food to full-service restaurants. The Ellis Park facility also
features a saddling paddock, parking areas for the public and office facilities.
Hoosier Park
Hoosier Park is located in Anderson, Indiana, about 40 miles northeast of
downtown Indianapolis ("Hoosier Park facility"). Hoosier Park leases the land
under a long-term lease with the city of Anderson and owns all of the
improvements on the site. The Hoosier Park facility consists of approximately
110 acres of leased land with a seven-eighths (7/8) mile oval dirt track,
permanent grandstands and stabling area. The facility includes seating for
approximately 2,400 persons, a general admission area, and food and beverage
facilities ranging from fast food to a full-service restaurants. The site also
has a saddling paddock, parking areas for the public and office facilities. The
stable area has barns sufficient to accommodate 780 horses and other facilities
for backstretch personnel.
C. SIMULCAST OPERATIONS
We generate a significant portion of our revenues by sending signals of races
from our racetracks to other facilities and receiving signals from other tracks.
These revenues are earned through pari- mutuel wagering on signals that we both
import and export. Import simulcasting involves receiving a video signal of a
live race at a remote wagering location. Export simulcasting involves sending
the video signal of a live race to a remote wagering location.
Churchill Downs and Calder Race Course conduct simulcast wagering only during
live race meets, while Hollywood Park, Hoosier Park and Ellis Park offer
year-round simulcast wagering. The Louisville Sports Spectrum conducts simulcast
wagering when Churchill Downs is not operating a live race meet with the
exception of Kentucky Oaks Day, Kentucky Derby Day and the immediately following
Sunday. The Indiana Sports Spectrums and the Kentucky Off-Track Betting
facilities conduct simulcast wagering year-round.
During 1999, we initiated the sale of Churchill Downs, Ellis Park, Hoosier Park
and the Kentucky Derby signals as a combined package. Hollywood Park and Calder
Race Course were acquired during 1999, therefore, these signals were sold as
separate products. Starting in 2000, we will combine all of the signals to form
a new product, the Churchill Downs Simulcast Network (CDSN). CDSN will provide
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incentives to encourage OTB operators to purchase the new CDSN product but will
also continue to make individual signals available to OTB operators.
Louisville Sports Spectrum
We own the real property and improvements known as the Louisville Sports
Spectrum, located in Louisville, Kentucky about seven miles from Churchill
Downs. This 100,000-square-foot property, located on approximately 88 acres of
land, is a state-of-the-art OTB and Thoroughbred training annex. The Louisville
Sports Spectrum provides audio and visual technology, seating for approximately
3,000 persons, parking, offices and related facilities for simulcasting races.
The Louisville Sports Spectrum also provides a stabling and training annex for
Churchill Downs.
Indiana Sports Spectrums
Hoosier Park owns and operates three Churchill Downs Sports Spectrum facilities
in Indiana ("Indiana Sports Spectrums"). These OTBs provide a statewide
distribution system for Hoosier Park's racing signal and additional simulcast
markets for our products. The Indiana Sports Spectrum at Merrillville, located
about 30 miles southeast of Chicago, consists of approximately 27,300 square
feet of space. The Indiana Sports Spectrum at Fort Wayne consists of
approximately 15,750 square feet of space. A third Indiana Sports Spectrum is
located in downtown Indianapolis where Hoosier Park leases space for the OTB. In
February 1999, the Indianapolis facility was expanded from approximately 17,500
square feet to 24,800 square feet.
Hoosier Park is continuing to evaluate sites for the location of a fourth
Indiana Sports Spectrum facility. The state of Indiana has enacted legislation
that requires a county's fiscal body to adopt an ordinance permitting OTBs
before such a facility can be located in that county. The ordinance requires
that the voters of the county must approve the operation of an OTB in that
county if the OTB is to be located on public property. The county fiscal body
may require in the ordinance that the voters of the county must approve the
operation of an OTB in that county if the OTB is to be located on private
property. This legislation may affect Hoosier Park's ability to locate its
fourth facility in certain counties.
Kentucky Off-Track Betting, Inc.
In 1992, the Company and three other Kentucky Thoroughbred racetracks formed
Kentucky Off- Track Betting, Inc. ("KOTB"), of which we are a 50% shareholder.
KOTB's purpose is to own and operate facilities for the simulcasting of races
and the acceptance of wagers on such races at locations other than a racetrack.
These OTBs may be located no closer than 75 miles from an existing racetrack
without the track's consent and in no event closer than 50 miles to an existing
track. Each OTB must first be approved by the Kentucky Racing Commission ("KRC")
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and the local government where the facility is to be located. KOTB currently
owns or leases and operates OTBs in Corbin, Maysville, Jamestown, and Pineville,
Kentucky.
OTBs developed by KOTB provide additional markets for the intrastate
simulcasting of and wagering on Churchill Downs' and Ellis Park's live races and
interstate simulcasting of and wagering on out-of-state signals. KOTB did not
contribute significantly to our operations in 1999 and is not anticipated to
have a substantial impact on operations in the future.
In-Home Wagering
Technological innovations have opened the distribution channels for live racing
products to include in-home wagering. Television Games Network ("TVG"), a
subsidiary of TV Guide, Inc., offers high quality live racing video signals in
conjunction with its interactive television wagering system. We have entered
into agreements to broadcast our racetrack simulcast products as part of TVG's
programming content. This new network is anticipated to eventually offer 24-hour
- -a-day programming throughout the United States that will be primarily devoted
to developing new fans for racing. In jurisdictions where lawful, in- home
patrons of TVG can wager on our live races as well as other race signals. As the
originator of the live racing signal, we will receive a simulcast fee on in-home
wagers placed on our races.
In June 1999, the U.S. Justice Department raised concerns whether interactive
wagering conducted through TVG's wagering hub would be legal under existing
federal gambling laws. In addition, certain state attorney generals have
expressed concern over the legality of TVG's business. TVG related revenues are
not material to our operations at this time.
D. OTHER SOURCES OF REVENUE
In addition to revenues from live racing and simulcasting, we generate revenues
from additional sources.
Riverboat Admissions Tax
To compensate for the adverse impact of riverboat competition, the horse
industry in Indiana presently receives $0.65 per $3 admission to riverboats in
the state. By IHRC rule we are required to allocate 70% of any revenue received
from the subsidy directly for purse expenses, breed development and
reimbursement of approved marketing costs. The balance, or 30%, is received by
Hoosier Park as the only horse racetrack currently operating in Indiana. In
November 1999, the Company and the IHRC agreed to a $6.8 million ceiling on
Hoosier Park's share of the subsidy. The ceiling represents a 9% decrease from
the $7.4 million Hoosier Park earned for 1999.
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Kentucky Horse Center
We own the real property and improvements known as Kentucky Horse Center,
located in Lexington, Kentucky ("KHC"). KHC is a Thoroughbred training and
boarding facility. KHC, which sits on 245 acres of land, offers a one-mile dirt
track with a starting gate, a five-eighths (5/8) mile training track and
stabling for 1,100 horses. Additionally, KHC has facilities for meetings and
larger special events, including a 920-seat auditorium known as the Pavilion.
Escorted tours of KHC's training facilities are offered to the public. KHC's
revenues are not material to our operations. We currently have a definitive
agreement to sell KHC in 2000.
Charlson Broadcast Technologies
During 1999 we purchased a majority interest in CBT located in Erlanger,
Kentucky, a Cincinnati, Ohio suburb. CBT provides television production and
computer graphic services to the racing industry. CBT's proprietary software
displays odds, statistical data and other racing information on televisions in
real-time for customers at racetracks and OTBs.
E. LICENSING
Kentucky's racetracks, including Churchill Downs and Ellis Park, are subject to
the licensing and regulation of the KRC. The KRC consists of 11 members
appointed by the governor of Kentucky. Licenses to conduct live Thoroughbred
race meets and to participate in simulcasting are approved annually by the KRC
based upon applications submitted by the racetracks in Kentucky. Although to
some extent Churchill Downs and Ellis Park compete with other racetracks in
Kentucky for the award of racing dates, the KRC is required by state law to
consider and seek to preserve each racetrack's usual and customary live racing
dates. Generally, there is no substantial change from year to year in the racing
dates awarded to each racetrack.
We received approval from the KRC to conduct two live Thoroughbred racing meets
at Churchill Downs from April 29 through July 9, 2000 ("Spring Meet"), and from
October 29 through November 25, 2000 ("Fall Meet"), for a total of 76 days,
excluding the Breeders' Cup on November 4, 2000. The KRC also awarded Ellis
Park approval to conduct live Thoroughbred racing from July 12 through September
4, 2000, for a total of 41 live racing days.
In California, licenses to conduct live Thoroughbred racing and to participate
in simulcasting are approved annually by the California Horse Racing Board based
upon applications submitted by California racetracks. Generally, there is no
substantial change from year to year in the racing dates awarded to each
racetrack. Hollywood Park, which was acquired on September 10, 1999, has been
approved to conduct two live Thoroughbred race meets from April 28 through July
24, 2000 ("Spring/Summer Meet"), and from November 8 through December 24, 2000
("Autumn Meet"), for a total of 100 live racing days.
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In Florida, licenses to conduct live Thoroughbred racing and to participate in
simulcasting are approved by the Department of Business and Professional
Regulation, Division of Pari-Mutuel Wagering ("DPW"). The DPW is responsible for
overseeing the network of state offices located at every pari-mutuel wagering
facility, as well as issuing the permits necessary to operate a pari-mutuel
wagering facility. The DPW also approves annual licenses for Thoroughbred,
Standardbred and Quarter Horse races. Calder Race Course, Inc. and Tropical
Park, Inc., which were acquired on April 23, 1999, hold licenses to conduct two
consecutive live Thoroughbred race meets at Calder Race Course. Calder Race
Course, Inc. was approved for live racing from May 23 through November 2, 2000,
and Tropical Park, Inc. was approved for live racing from November 3, 2000
through January 2, 2001, for a total of 174 days of live racing.
In Indiana, licenses to conduct live Standardbred and Thoroughbred race meets,
including Quarter Horse races, and to participate in simulcasting are approved
annually by the IHRC, which consists of five members appointed by the governor
of Indiana. Licenses are approved annually by the IHRC based upon applications
submitted by Hoosier Park. Currently, Hoosier Park is the only facility in
Indiana licensed to conduct pari-mutuel wagering on live Standardbred, Quarter
Horse or Thoroughbred racing and to participate in simulcasting. The IHRC has
approved Hoosier Park to conduct live Standardbred racing from April 7 through
August 23, 2000, and live Thoroughbred racing from September 8 through December
3, 2000, for a total of 167 live racing dates.
The total number of days on which each racetrack conducts live racing fluctuates
annually according to the calendar year. A substantial change in the allocation
of live racing days at Churchill Downs, Hollywood Park, Calder Race Course,
Hoosier Park or Ellis Park could adversely impact our operations and earnings in
future years.
Service Marks
We hold several state and federal service mark registrations on specific names
and designs in various categories including entertainment business, apparel,
paper goods, printed matter and housewares and glass. We license the use of
these service marks and derive revenue from such license agreements.
F. OTHER FACTORS AFFECTING THE COMPANY'S BUSINESS
North American bloodstock sales climbed again in 1999, continuing a trend that
began in 1995. According to The Blood-Horse magazine, expenditures for
Thoroughbred weanlings, yearlings, two year olds and broodmares totaled $987.5
million in 1999 compared to $816.9 million in 1998, which was the previous
record. Since 1995, the number of Thoroughbred foals born each year has
increased. These increases in Thoroughbred sales and the number of foals are
indicators of a resurgence of the Thoroughbred breeding industry, reversing a
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trend of declines from 1986 to 1995. The increase in the number of Thoroughbreds
enables racetracks to increase the number of horses participating in live
racing.
We generally do not directly compete with other racetracks or OTBs for patrons
due to geographic separation of facilities or differences in seasonal timing of
meets. However, we compete with other sports, entertainment and gaming options,
including riverboat, cruise ship and land-based casinos and lotteries, for
patrons for both live racing and simulcasting (For a further discussion of the
Company's competitive environment, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations").
We have successfully grown our live racing product and positioned ourselves to
compete by strengthening our flagship operations, increasing our share of the
interstate simulcast market, and geographically expanding our racing operations.
We also continue to seek industry consensus for a plan to allow video lottery
terminals at our racetrack facilities in Kentucky as a means to attract new
patrons and generate additional revenue for purses and capital investment.
G. ENVIRONMENTAL MATTERS
Hollywood Park has received cease and desist orders from the California Regional
Water Quality Control Board addressing storm water runoff and dry weather
discharge issues. We have retained an engineering firm to develop a plan for
compliance and to construct certain drainage and waste disposal systems. As part
of the 1999 asset acquisition of Hollywood Park, the seller has agreed to
indemnify us in the amount of $5.0 million for costs incurred in relation to the
waste water runoff issue. It is not possible at this time to accurately assess
the total potential costs associated with this matter but we do not believe it
will be materially in excess of the indemnification amount.
The septic system at our Ellis Park facility is in need of repair. The cost of
the repairs is not yet known, but we believe it will be less than $400,000.
In 1992, we acquired certain assets of Louisville Downs Incorporated for $5.0
million including the site of the Louisville Sports Spectrum. In conjunction
with this purchase, we withheld $995,000 from the amount due to the sellers
to offset certain costs related to the remediation of environmental
contamination associated with underground storage tanks at the site. All of
the $995,000 hold back had been utilized as of December 31, 1999 and additional
costs of remediation have not yet been conclusively determined. The sellers
have now received a reimbursement from the commonwealth of Kentucky of $995,000
for remediation costs, and that amount is now being held in an escrow account
to pay further costs of remediation. Approximately $1.2 million, including
interest on the escrow principal, remains in the account. The seller has
submitted a corrective action plan to the state and it is anticipated that the
Kentucky Cabinet of Natural Resources will consent to a closure, either with
or without monitoring. In addition to the hold back, we have obtained an
indemnity to cover the full cost of remediation from the prior owner of the
property. We do not believe the cost of further investigation and remediation
will exceed the amount of funds in the escrow.
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In January 1995, Hoosier Park opened the Indiana Sports Spectrum in
Merrillville, Indiana. The 27,300 square-foot facility is designed exclusively
for the simulcast of horse races and pari-mutuel wagering. The Merrillville,
Indiana, facility was subject to contamination related to prior business
operations adjacent to the property. In conjunction with the purchase, Hoosier
Park withheld $50,000 from the amount due to the seller to offset costs related
to remediation of the contamination. In connection with the remediation the
seller received a certificate of completion of the voluntary remediation work
from the Indiana Department of Environmental Management and a covenant not to
sue from the state of Indiana. We believe that any potential loss relating to
this matter will not be material.
It is not anticipated that we will have any material liability as a result of
compliance with environmental laws with respect to any of our properties.
Compliance with environmental laws has not materially affected the ability to
develop and operate our properties and we are not otherwise subject to any
material compliance costs in connection with federal or state environmental
laws.
H. EMPLOYEES
As of December 31, 1999, we employed approximately 1,030 full-time employees
Company-wide. Due to the seasonal nature of our live racing business, the number
of seasonal and part-time persons employed will vary throughout the year. During
1999, peak employment occurred during Kentucky Derby week when we employed as
many as 3,300 persons Company-wide. During 1999, average full-time and seasonal
employment per pay period was approximately 950 individuals Company-wide.
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ITEM 2. PROPERTIES
Information concerning property owned by us required by this Item is
incorporated by reference to the information contained in Item 1. "Business" of
this Report.
Our real and personal property (but not including the property of Hoosier Park,
KOTB or Charlson) is encumbered by liens securing our $250 million line of
credit facility. The shares of stock of certain of our subsidiaries are also
pledged to secure this facility.
The Kentucky Derby Museum is operated on property adjacent to Churchill Downs.
The Museum is owned and operated by the Kentucky Derby Museum Corporation, a
tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code of
1986.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to our business, to which we are a party or of which any
of our property is the subject and no such proceedings are known to be
contemplated by governmental authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of our shareholders during the fourth quarter
of the fiscal year covered by this Report.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Our common stock is traded on the National Association of Securities Dealers,
Inc.'s National Market automated quotation system ("Nasdaq") under the symbol
CHDN. As of March 14, 2000, there were approximately 3,350 shareholders of
record.
The following table sets forth the high and low bid quotations, as reported by
Nasdaq, and dividend payment information for our common stock during the last
two years:
1999 - By Quarter 1998 - By Quarter
----------------- -----------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
--- --- --- --- --- --- --- ---
High Bid $38.75 $35.75 $33.63 $26.00 $25.31 $43.25 $41.44 $36.44
Low Bid $26.25 $26.00 $22.50 $20.13 $19.31 $24.00 $27.63 $27.25
Dividend per share: $.50 $.50
Stock quotations and dividend per share amounts reflect retroactive adjustments
for the 2-for-1 stock split with a record date of March 30, 1998.
In July 1999, we issued 2,300,000 shares of common stock at a public offering
price of $29 a share.
Quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions, and may not necessarily reflect actual transactions.
We presently expect that comparable annual cash dividends (adjusted for any
stock splits or other similar transactions) will continue to be paid in the
future.
14
<PAGE>
ITEM 6. CONSOLIDATED SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands, expect per share data)
<S> <C> <C> <C> <C> <C>
Years ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Operations:
Net revenues $258,427 $147,300 $118,907 $107,859 $92,434
Operating income $32,513 $17,143 $14,405 $12,315 $10,305
Net earnings $14,976 $10,518 $9,148 $8,072 $6,203
Basic net earnings per share $1.74 $1.41 $1.25 $1.08 $.82
Diluted net earnings per share $1.72 $1.40 $1.25 $1.08 $.82
Dividend paid per share
Annual $.50 $.50 $.25 $.25 $.25
Special - - $.25 $.08 -
Balance Sheet Data at Period End:
Total assets $398,046 $114,651 $85,849 $80,729 $77,486
Working capital surplus $800 $(7,791) $(8,032) $(10,789) $(10,434)
(deficiency)
Long-term debt $181,450 $13,665 $2,713 $2,953 $6,421
Other Data:
Shareholders' equity $138,121 $65,231 $53,393 $47,781 $46,653
Shareholders' equity per share $14.02 $8.67 $7.30 $6.54 $6.17
Additions to racing plant and
equipment, exclusive of business
acquisitions $12,083 $3,524 $4,568 $2,571 $8,590
</TABLE>
Earnings, dividend and shareholders' equity per share amounts have been
retroactively adjusted for the 2-for-1 stock split with a record date of March
30, 1998.
15
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information set forth in this discussion and analysis contain various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private
Securities Litigation Reform Act of 1995 ( the "Act") provides certain "safe
harbor" provisions for forward-looking statements. All forward-looking
statements made in this Annual Report on Form 10-K are made pursuant to the Act.
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
include: the impact of gaming competition (including lotteries and riverboat,
cruise ship and land-based casinos) and other sports and entertainment options
in those markets in which we operate; a substantial change in law or regulations
affecting our pari-mutuel activities; a substantial change in allocation of live
racing days; a decrease in riverboat admissions revenue from our Indiana
operations; the impact of an additional racetrack near our Indiana operations;
our continued ability to effectively compete for the country's top horses and
trainers necessary to field high-quality horse racing; our continued ability to
grow our share of the interstate simulcast market; the impact of interest rate
fluctuations; our ability to execute our acquisition strategy and to complete or
successfully operate planned expansion projects; our ability to adequately
integrate acquired businesses; the loss of our totalisator companies or their
inability to keep their technology current; our accountability for environmental
contamination; the loss of key personnel and the volatility of our stock price.
Overview
We conduct pari-mutuel wagering on live Thoroughbred, Standardbred and Quarter
Horse horse racing and simulcast signals of races. Additionally, we offer racing
services through our other interests.
We own and operate the Churchill Downs racetrack in Louisville, Kentucky, which
has conducted Thoroughbred racing since 1875 and is internationally known as
home of the Kentucky Derby. We also own and operate Hollywood Park Race Track, a
Thoroughbred racetrack in Inglewood, California ("Hollywood Park"); Calder Race
Course, a Thoroughbred racetrack in Miami, Florida, which owns racing licenses
held by Calder Race Course, Inc. and Tropical Park, Inc. ("Calder Race Course");
Ellis Park Race Course, a Thoroughbred racetrack in Henderson, Kentucky ("Ellis
Park"); and Kentucky Horse Center, a Thoroughbred training center in Lexington,
Kentucky ("KHC"). We have entered into a definitive agreement with Keeneland
Association, Inc.("Keeneland") whereby Keeneland will purchase the assets of KHC
for a cash payment of $5 million. The sale is subject to certain closing
conditions, and closing is expected during March or April of 2000.
16
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Additionally, we are the majority owner and operator of Hoosier Park at Anderson
in Anderson, Indiana, which conducts Thoroughbred, Quarter Horse and
Standardbred horse racing ("Hoosier Park"). Hoosier Park is owned by Hoosier
Park, LP ("HPLP"), an Indiana limited partnership. We have entered into a
definitive agreement with Centaur, Inc. ("Centaur") to sell a 26% interest in
Hoosier Park, LP for a purchase price of $8.5 million. Upon closing, we will
retain a 51% interest in Hoosier Park and continue to manage its day-to-day
operations. Centaur, which already owned a portion of HPLP prior to the
agreement, will hold a 39% minority interest in HPLP. The transaction is subject
to certain closing conditions, including the approval of the Indiana Horse
Racing Commission ("IHRC") and various regulatory agencies and closing is
expected during the second quarter of 2000. We also conduct simulcast wagering
on horse racing at our off-track betting facilities (OTBs) located in
Louisville, Kentucky, and in Indianapolis, Merrillville and Fort Wayne, Indiana,
as well as at our racetracks.
Because of the seasonal nature of our business, revenues and operating results
for any interim quarter are likely not indicative of the revenues and operating
results for the year and are not necessarily comparable with results for the
corresponding period of the previous year. We normally earn a substantial
portion of our net earnings in the second quarter of each year during which the
Kentucky Derby and the Kentucky Oaks are run. The Kentucky Derby and the
Kentucky Oaks are run on the first weekend in May.
Our primary source of revenue is commissions on pari-mutuel wagering at our
racetracks and OTBs. Other sources of revenue include Indiana riverboat
admissions subsidy revenue, simulcast fees, lease income, admissions and
concessions revenue.
The Kentucky Derby and the Kentucky Oaks, both held at Churchill Downs, continue
to be our premier racing events. The Kentucky Derby offers a minimum$1.0 million
in purse money and the Kentucky Oaks offers a minimum $0.5 million in purse
money. Calder Race Course is home to the Festival of the Sun, Florida's richest
day in Thoroughbred racing offering approximately $1.5 million in total purse
money. Hollywood Park is home to the Sempra Energy Hollywood Gold Cup, which
offers $1.0 million in purse money. Hollywood Park's Autumn Meet is highlighted
by the annual $2.1 million Autumn Turf Festival, comprised of six graded stakes
races. Other races that make us unique are the Indiana Derby for Thoroughbreds
and the Dan Patch Invitational for Standardbreds held at Hoosier Park, as well
as the Gardenia Stakes for older fillies and mares held at Ellis Park.
Churchill Downs hosted the Breeders' Cup Championship ("Breeders' Cup") in 1988,
1991, 1994 and 1998, and will host the event for a record fifth time on November
4, 2000. Hollywood Park has also hosted the Breeders' Cup in 1984, 1987 and
1997. The Breeders' Cup is sponsored by Breeders' Cup Limited, a tax-exempt
organization chartered to promote Thoroughbred racing and breeding.The Breeders'
Cup races, which feature $13.0 million in purses, are held annually for the
purpose of determining Thoroughbred champions in eight different events.
Racetracks across North
17
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
America compete for the privilege of hosting the Breeders' Cup races each year.
Although most of the income earned from this event is allocated to Breeders' Cup
Limited, hosting the 1998 event had a positive impact on our 1998 results, and
hosting the event in 2000 is expected to have a positive impact on our 2000
results.
Kentucky's racetracks, including Churchill Downs and Ellis Park, are subject to
the licensing and regulation of the Kentucky Racing Commission ("KRC"). The KRC
consists of 11 members appointed by the governor of Kentucky. Licenses to
conduct live Thoroughbred race meets and to participate in simulcasting are
approved annually by the KRC based upon applications submitted by the racetracks
in Kentucky. Although to some extent Churchill Downs and Ellis Park compete with
other racetracks in Kentucky for the award of racing dates, the KRC is required
by state law to consider and seek to preserve each racetrack's usual and
customary live racing dates. Generally, there is no substantial change from year
to year in the racing dates awarded to each racetrack.
We received approval from the KRC to conduct two live Thoroughbred racing meets
at Churchill Downs from April 29 through July 9, 2000 ("Spring Meet"), and from
October 29 through November 25, 2000 ("Fall Meet"), for a total of 76 days,
excluding the Breeders' Cup on November 4, 2000. Churchill Downs conducted live
racing from April 24 through June 27, 1999, and from October 31 through November
27, 1999, for a total of 71 racing days compared to a total of 71 racing days in
1998. KRC approved a one week increase in Churchill Downs' Spring Meet during
2000, which is a reduction to Ellis Park's customary racing schedule.
The KRC also awarded Ellis Park approval to conduct live Thoroughbred racing
from July 12 through September 4, 2000, for a total of 41 live racing days.
Ellis Park conducted live racing from June 28 through September 6, 1999, for a
total of 61 racing days compared to 61 racing days in 1998. The decrease of 20
live race dates for 2000 compared to 1999 is the result of reducing the live
racing week from 6 days of live racing to 5 days of live racing and the movement
of one week of live racing to Churchill Downs' Spring Meet. We expect the change
in live race dates to better utilize the operations of both racetracks.
In California, licenses to conduct live Thoroughbred racing and to participate
in simulcasting are approved by the California Horse Racing Board annually based
upon applications submitted by California racetracks. Generally, there is no
substantial change from year to year in the racing dates awarded to each
racetrack. Hollywood Park, which was acquired on September 10, 1999, has been
approved to conduct two live Thoroughbred race meets from April 28 through July
24, 2000 ("Spring/Summer Meet"), and from November 8 through December 24, 2000
("Autumn Meet"), for a total of 100 days combined. Hollywood Park conducted 97
days of racing during 1999 compared to 97 days of racing during 1998.
18
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS F
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In Florida, licenses to conduct live Thoroughbred racing and to participate in
simulcasting are approved by the Department of Business and Professional
Regulation, Division of Pari-Mutuel Wagering ("DPW"). The DPW is responsible for
overseeing the network of state offices located at every pari-mutuel wagering
facility, as well as issuing the permits necessary to operate a pari-mutuel
wagering facility. The DPW also approves annual licenses for Thoroughbred,
Standardbred and Quarter Horse races. Calder Race Course, Inc. and Tropical
Park, Inc., which were acquired April 23, 1999, hold licenses to conduct two
consecutive live Thoroughbred race meets at Calder Race Course. Calder Race
Course, Inc. has been approved for live racing from May 23 through November 2,
2000, and Tropical Park, Inc. was approved from November 3, 2000 through January
2, 2001, for a collective total of 174 days of live racing. In 1999, Calder Race
Course conducted 169 days of racing, which included 2 days of racing in January
2000 compared to 173 days of racing during 1998, which included 2 days of racing
in January 1999. During 1999, 1 day of approved live racing was lost as a result
of inclement weather.
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 and may have the ability
to increase live racing dates or lose live racing dates in the future.
In Indiana, licenses to conduct live Standardbred and Thoroughbred race meets,
including Quarter Horse races, and to participate in simulcasting are approved
annually by the Indiana Horse Racing Commission ("IHRC"), which consists of five
members appointed by the governor of Indiana. Licenses are approved annually by
the IHRC based upon applications submitted by Hoosier Park. Currently, Hoosier
Park is the only facility in Indiana licensed to conduct pari-mutuel wagering on
live Standardbred, Quarter Horse or Thoroughbred racing and to participate in
simulcasting. The IHRC has approved Hoosier Park to conduct live Standardbred
racing from April 7 through August 23, 2000, and live Thoroughbred racing from
September 8 through December 3, 2000, for a combined total of 167 live racing
dates in 2000. Hoosier Park conducted live racing from April 9, 1999 through
December 5, 1999, for a combined total of 167 days of racing during 1999
compared to 153 total days of racing during 1998. Indiana law requires us to
conduct live racing for at least 120 days each year in order to simulcast races.
In December 1999, the IHRC accepted an application from a group of investors who
seek to build a Standardbred racetrack in Lawrence, Indiana. The application is
now in the review process. It is our belief that the Indianapolis market cannot
support two racetracks, and Hoosier Park is compiling market data to respond to
the proposal. 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. A
reduction in Hoosier Park's live racing dates as a result of a second race-
track could also result in an adverse impact on long term profitability of the
facility.
19
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The total number of days on which each racetrack conducts live racing fluctuates
annually according to the calender year. A substantial change in the allocation
of live racing days at Churchill Downs, Hollywood Park, Calder Race Course,
Hoosier Park or Ellis Park could adversely impact our operations and earnings in
future years.
As of December 31, 1999, we employed approximately 1,030 full-time employees
Company-wide. Due to the seasonal nature of our live racing business, the number
of seasonal and part-time persons employed will vary throughout the year. During
1999, peak employment occurred during Kentucky Derby week when we employed as
many as 3,300 persons Company-wide. During 1999, average full-time and seasonal
employment per pay period was approximately 950 individuals Company-wide.
We generally do not directly compete with other racetracks or OTBs for local
patrons due to geographic separation of facilities or differences in seasonal
timing of meets. Calder Race Course, for example, is in close proximity to two
other racetracks, but the tracks currently do not directly compete with each
other because they offer live races and simulcasting during different times of
the year. However, we compete with other sports, entertainment and gaming
options, including riverboat, cruise ship and land-based casinos and lotteries,
for patrons for both live racing and simulcasting. We attempt to attract patrons
by providing high quality racing products in attractive entertainment facilities
with fairly priced, appealing concession services.
The development of riverboat gaming facilities began in Indiana pursuant to
authorizing legislation passed by the state of Indiana in 1993. Illinois had
previously authorized riverboat gaming. There are currently five riverboat
casinos operating on the Ohio River along Kentucky's border, including two in
the southeastern Indiana cities of Lawrenceburg and Rising Sun, one in
southwestern Indiana in Evansville and one in Metropolis, Illinois. The fifth
riverboat casino, licensed to RDI/Caesars, opened in November 1998 in Harrison
County, Indiana, 10 miles from Louisville. We experienced some decreases in
attendance and pari-mutuel wagering at the Churchill Downs Sports Spectrum
("Louisville Sports Spectrum") during 1999 as compared to 1998. However, we
experienced an increase in pari-mutuel wagering on Churchill Downs races,
including export simulcasting, during the same period. It is impossible to
accurately determine the extent of the riverboat's impact on our business at
these facilities. Other factors, such as unfavorable weather conditions, may
also have had an impact.
The Indiana Gaming Commission voted in September 1998 to grant a license to open
a fifth Indiana riverboat along the Ohio River in Switzerland County, about 70
miles from Louisville. The license holder, Pinnacle Entertainment, Inc.,
formerly Hollywood Park, Inc., plans to build a riverboat casino, hotel and
resort complex, which is projected to open in the third quarter of 2000.
20
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to those riverboats operating along the Ohio River, five riverboat
casinos have opened along the Indiana shore of Lake Michigan near our Indiana
Sports Spectrum in Merrillville, Indiana. The opening of these Lake Michigan
riverboats adversely impacted our pari-mutuel wagering activities at the
Merrillville facility. Given its proximity to Chicago, the Merrillville Indiana
Sports Spectrum also faces competition from OTBs and riverboat casinos near
Chicago. We also compete with cruise ship casinos in Florida and state
lotteries.
Additionally, several Native American tribes in Florida have expressed interest
in opening casinos in southern Florida, which could compete with Calder Race
Course. Also, the state of Michigan has approved a proposal by the Pokagon Band
of the Potawatomi Indian Tribe to develop a casino in New Buffalo, Michigan,
which is approximately 45 miles from our Merrillville facility. The development
of this casino may negatively impact pari-mutuel activities at Hoosier Park's
Indiana facilities.
In Kentucky, a Breeders' Cup incentive bill is being considered by the Kentucky
General Assembly. This proposed legislation seeks to attract the Breeders' Cup
to Kentucky more frequently by eliminating the excise tax on pari-mutuel
wagering for live races on Breeders' Cup Day at any Kentucky racetrack hosting
the event. It remains uncertain whether this proposal will be enacted.
The potential integration of alternative gaming products at our racetrack
facilities is one of our four core business strategies developed to position us
to compete in this changing environment. We have successfully grown our live
racing product by implementing our other core business strategies by
strengthening our flagship operations, increasing our share of the interstate
simulcast market and geographically expanding our racing operations in Kentucky,
Indiana, Florida and California. Alternative gaming in the form of video lottery
terminals may enable us to more effectively compete with Indiana riverboat
casinos and provide new revenue for purse money and capital investment. We
continue to seek industry consensus for a plan to allow video lottery terminals
at our racetrack facilities in Kentucky. Currently, we are working with members
of the Kentucky horse industry to establish a consensus for a plan to operate
video lottery terminals exclusively at Kentucky's racetracks.
The horse industry in Indiana presently receives $.65 per $3 admission to
Indiana riverboats to compensate for the effect of riverboat competition. By
IHRC rule we are required to allocate 70% of such revenue directly for purse
expenses, breed development and reimbursement of approved marketing costs. The
balance, or 30%, is received by Hoosier Park as the only horse racetrack
currently operating in Indiana. Riverboat admissions revenue from our Indiana
21
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
operations increased $2.0 million for the year ended December 31, 1999 compared
to 1998, as a result of the expansion of existing riverboats. The net increase
in riverboat admissions revenue, after required purse and marketing expense
increases of approximately $1.2 million, is $0.8 million.
In November 1999, the Company and the IHRC agreed to a $6.8 million ceiling on
Hoosier Park's share of the subsidy. The ceiling represents a 9% decrease from
the $7.4 million revenues Hoosier Park earned for 1999. A more significant
change in Hoosier Park's share of the subsidy, as a result of a possible second
track approved in Indiana, would impact funding for operating expenditures,
potentially reducing the number of race dates at Hoosier Park and, in all
likelihood, re-emphasize the need for the integration of alternative gaming
products at the Hoosier Park racetrack in order for it to remian a profitable
enterprise.
Technological innovations have opened the distribution channels for live racing
products to include in-home wagering. Television Games Network ("TVG"), a
subsidiary of TV Guide, Inc., offers high quality live racing video signals in
conjunction with its interactive television wagering system. We have entered
into agreements to broadcast our racetrack simulcast products as part of TVG's
programming content. This new network is anticipated to eventually offer 24-hour
- -a-day programming throughout the United States that will be primarily devoted
to developing new fans for racing. In jurisdictions where lawful, in- home
patrons of TVG can wager on our live races as well as other race signals. As the
originator of the live racing signal, we will receive a simulcast fee on in-home
wagers placed on our races.
In June 1999, the U.S. Justice Department raised concerns whether interactive
wagering conducted through TVG's wagering hub would be legal under existing
federal gambling laws. In addition, certain state attorney generals have
expressed concern over the legality of TVG's business. TVG related revenues are
not material to our operations at this time.
22
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Pari-mutuel wagering information, including intercompany transactions, for our
five live racing facilities and four separate OTBs, which are included in their
respective racetracks, during the years ended December 31, 1999 and 1998 is as
follows ($ in thousands):
<TABLE>
<CAPTION>
Churchill
Downs Hollywood Calder Race
racetrack Park* Course* Hoosier Park Ellis Park*
<S> <C> <C> <C> <C> <C>
Live racing
1999 handle $125,258 $198,683 $183,439 $15,888 $19,790
1999 no. of days 71 97 169 167 61
1998 handle $128,250 $199,338 $187,477 $16,092 $20,944
1998 no. of days 71 97 173 153 61
Export simulcasting
1999 handle $459,545 $730,479 $489,519 $68,994 $159,964
1999 no. of days 71 97 169 167 61
1998 handle $421,200 $732,510 $456,860 $62,720 $116,735
1998 no. of days 70 97 173 153 61
Import simulcasting
1999 handle $121,160 $228,556 - $139,379 $38,040
1999 no. of days 234 175 - 1,205 290
1998 handle $138,443 $214,799 - $133,770 $38,065
1998 no. of days 232 179 - 1,219 288
Totals
1999 handle $705,963 $1,157,718 $672,958 $224,261 $217,794
1998 handle $687,893 $1,146,647 $644,337 $212,582 $175,744
</TABLE>
* Pari-mutuel wagering information is provided for years ended December 31, 1999
and 1998. Although the summary reflects handle for the full year, only revenues
generated since the subsidiaries' acquisition dates have been included in the
Company's results of operations.
23
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Revenues
Net revenues increased $111.1 million (75%) from $147.3 million in 1998 to
$258.4 million in 1999. Calder Race Course contributed $72.4 million and
Hollywood Park contributed $30.5 million to the increase in 1999 net revenues.
Churchill Downs revenues increased $1.5 million (2%) due primarily to an
increase in corporate sponsor event ticket prices, admissions and seat revenue,
concessions, and program revenue as a result of record attendance on Kentucky
Oaks and Kentucky Derby days. Hoosier Park revenues increased $3.5 million (7%)
primarily due to increased simulcasting revenues and a $2.0 million increase in
the riverboat gross admissions subsidy of which a portion was required to be
spent on purses and marketing expenses. Net revenues for Ellis Park for 1999
increased $2.3 million (13%) primarily due to the timing of the 1998 acquisition
and increased pari-mutuel wagering revenue for 1999. Other operations, which
include Charlson Broadcast Technologies, LLC ("CBT") and Kentucky Horse Center,
comprised the remaining $0.9 million of the increase.
Operating Expenses
Operating expenses increased $88.4 million (74%) from $119.0 million in 1998 to
$207.4 million in 1999, including Calder Race Course and Hollywood Park
operating expenses of $54.4 million and $26.5 million, respectively. Churchill
Downs operating expenses increased $1.9 million (3%). Hoosier Park operating
expenses increased $2.8 million (7%) due primarily to increases in purses
payable consistent with the increase in pari-mutuel revenue and an increase in
required purses and marketing expenses related to the riverboat admissions
subsidy. Ellis Park operating expenses increased $2.8 million (18%) during 1999
as compared to expenses after the acquisition date of April 21, 1998 for the
prior year.
Gross Profit
Gross profit increased $22.7 million (80%) from $28.3 million in 1998 to $51.0
million in 1999. The increase was primarily due to a $18.0 million and $4.0
million increase in gross profit from Calder Race Course and Hollywood Park,
respectively.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased by $7.4 million
(66%) from $11.2 million in 1998 to $18.6 million in 1999. Calder Race Course
and Hollywood Park added $2.4 million and $1.5 million, respectively, and the
inclusion of Ellis Park during all of 1999 contributed $0.2 million of the
increase. SG&A expenses at Churchill Downs racetrack and corporate expenses
24
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
increased $1.7 million (21%) due primarily to increased corporate staffing and
compensation expenses reflecting the Company's strengthened corporate services
to meet the needs of new business units. Other operations accounted for the
remaining $1.6 million of the increase in SG&A expenses. SG&A expenses as a
percentage of net revenues decreased slightly from 7.5% in 1998 to 7.2% in 1999.
Other Income and Expense
Interest expense increased $6.9 million from $0.9 million in 1998 to $7.8
million in 1999 primarily as a result of borrowings to finance the acquisitions
of Calder Race Course, Hollywood Park and CBT during 1999 and the acquisition of
Ellis Park in April 1998.
Income Tax Provision
Our income tax provision increased by $4.1 million during 1999 as compared to
1998 as a result of increased pre-tax earnings and an increase in the estimated
effective tax rate from 39.1% in 1998 to 42.1% in 1999 due primarily to
non-deductible goodwill amortization expense related to the acquisitions of
Calder Race Course and CBT.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net Revenues
Net revenues increased $28.4 million (24%) from $118.9 million in 1997 to $147.3
million in 1998. Churchill Downs revenues increased $3.5 million (5%) due
primarily to increases in simulcast revenues and license, rights, broadcast
revenues and increased corporate sponsorship of the Kentucky Derby. Hoosier Park
revenues increased $6.2 million (15%) primarily due to increased simulcasting
revenues and a $5.1 million increase in the riverboat gross admissions subsidy
of which a portion was required to be spent on purses and marketing expenses.
Ellis Park contributed $17.4 million to 1998 net revenues since its acquisition
in the second quarter. Other operations, including Kentucky Horse Center which
was also acquired in the second quarter, comprised the remaining $1.3 million of
the increase.
Operating Expenses
Operating expenses increased $23.7 million (25%) from $95.4 million in 1997 to
$119.1 million in 1998. Churchill Downs operating expenses increased $1.9
million (3%) due primarily to increased marketing, simulcast, totalisator and
video expenses. Hoosier Park operating expenses increased $5.0 million (14%) due
primarily to required increases in purses and marketing expenses of $2.8
25
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
million and $0.8 million, respectively, related to the riverboat admissions
subsidy. Ellis Park increased 1998 operating expenses by $15.4 million since its
acquisition. Other operations, including Kentucky Horse Center, accounted for
the remaining $1.4 million of the increase in operating expenses.
Gross Profit
Gross profit increased $4.7 million (20%) from $23.5 million in 1997 to $28.2
million in 1998. The Ellis Park acquisition contributed $2.0 million to 1998
gross profit. Churchill Downs gross profit increased $1.6 million and Hoosier
Park gross profit increased $1.2 million for the reasons described above.
Selling, General and Administrative Expenses
SG&A expenses increased by $2.0 million (22%) from $9.1 million in 1997 to $11.1
million in 1998. SG&A expenses at Churchill Downs increased $1.3 million (19%)
due primarily to increased corporate staffing, compensation and business
development expenses. Hoosier Park SG&A expenses decreased by $0.2 million (9%)
due primarily to declines in professional fees and wages. The acquisition of
Ellis Park contributed $0.6 million to the increase in 1998 SG&A expenses. Other
operations accounted for the remaining $0.3 million of the increase. SG&A
expenses as a percentage of net revenues decreased slightly from 7.6% in 1997 to
7.5% in 1998.
Other Income and Expense
Interest expense increased $0.6 million from $0.3 million in 1997 to $0.9
million in 1998 as a result of borrowings to finance our second quarter
acquisition of Ellis Park and Kentucky Horse Center.
Income Tax Provision
Our income tax provision increased by $1.0 million from $5.8 million in 1997 to
$6.8 million in 1998 primarily as the result of an increase in pre-tax earnings
of $2.3 million. The effective income tax rate increased slightly from 38.9% in
1997 to 39.1% in 1998 due primarily to non-deductible goodwill amortization
expense related to the acquisition of Ellis Park and Kentucky Horse Center and
increases in other permanent differences, partially offset by the reversal of
the valuation allowance on certain state income tax net operating loss
carryforwards.
Significant Changes in the Balance Sheet December 31, 1999 to December 31, 1998
The net plant and equipment increase of $191.8 million during 1999 included
$189.2 million for the acquisitions of Hollywood Park, Calder Race Course and
CBT. The remaining increase was due to routine capital spending at our operating
units offset by current year depreciation expense.
26
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Intangible assets increased $54.0 million primarily a result of the addition of
approximately $52.0 million of goodwill due to the acquisitions of Calder Race
Course and CBT. In addition, deferred financing costs of $3.1 million related to
our new $250 million revolving loan facility are included. These increases were
partially offset by current year amortization expense.
The long-term debt increase of $167.4 million was the result of additional
borrowings on our bank line of credit during 1999 used to fund the 1999
acquisitions of Hollywood Park, Calder Race Course and CBT.
Deferred income tax liabilities increased by $8.5 million primarily as a result
of the Calder Race Course acquisition during the second quarter of 1999.
Common stock increased by $62.7 million primarily due to $62.1 million in net
proceeds received from our public offering during the third quarter of 1999.
Significant Changes in the Balance Sheet December 31, 1998 to December 31, 1997
Plant and equipment increased $25.0 million during 1998 which included $22.0
million for the acquisition of Ellis Park and Kentucky Horse Center. Routine
capital spending at our operating units made up the remainder of the increase.
Accumulated depreciation increased $5.5 million for current year depreciation
expense.
Intangible assets increased $6.5 million as a result of the acquisition of Ellis
Park and Kentucky Horse Center.
We borrowed on our bank line of credit during 1998 primarily to fund the Ellis
Park acquisition during the second quarter.
Deferred income tax liabilities increased to $6.9 million in 1998, an increase
of $4.6 million from 1997 balances, primarily as a result of the acquisition of
Ellis Park and Kentucky Horse Center.
Liquidity and Capital Resources
The working capital surplus (deficiency) was $0.8, $(7.8) and $(8.0) million for
the years ended December 31, 1999, 1998 and 1997, respectively. Working capital
surplus \ deficiency results from the nature and seasonality of our business.
Cash flows provided by operations were $39.7, $10.8 and $10.5 million for the
years ended December 31, 1999, 1998 and 1997, respectively. The
27
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
significant increase in operating cash flow for 1999 was primarily a result of
the current year acquisitions. The net increase of $0.3 million in 1998 resulted
from a $1.4 million increase in net earnings and $1.2 million increase in
depreciation and amortization coupled with the timing of accounts receivable,
accounts payable, income taxes payable and deferred revenue balances. Management
believes cash flows from operations and available borrowings during 2000 will be
sufficient to fund our cash requirements for the year, including capital
improvements and any acquisitions.
Cash flows used in investing activities were $240.4, $20.8 and $6.9 million for
the years ended December 31, 1999, 1998 and 1997, respectively. Cash used for
1999 business acquisitions consisted of $142.5 million for the acquisition of
Hollywood Park during the third quarter, $82.4 million net of cash acquired for
the acquisition of Calder Race Course during the second quarter, and $2.9
million net of cash acquired for the acquisition of CBT during the first
quarter. We used $12.6 million for capital spending at our facilities including
$1.8 million for the construction of the main entrance and corporate offices,
$2.2 million for the construction of a stable area dormitory and $0.7 million
for the renovation of the racing offices at the Churchill Downs racetrack
facility. The additional increase in capital spending from prior year spending
is primarily the result of routine capital spending at CBT and Calder Race
Course, which were acquired during 1999. The capital additions for all
locations, including the expansion of Churchill Downs' main entrance and
expansion of our corporate offices, are expected to approximate $16.6 million
for 2000.
Cash flows provided by (used in) financing activities were $223.3, $7.0 and
$(2.5) million for the years ended December 31, 1999, 1998 and 1997,
respectively. We borrowed $269.5 million on our line of credit during 1999
primarily to finance the purchase of Hollywood Park, Calder Race Course and CBT.
We received net proceeds of $62.1 million in connection with the July 15, 1999
common stock public offering and an additional $0.6 million for the issuance of
common stock under our stock purchase plan and the exercise of stock options.
Proceeds from the stock offering and operations were used to repay $102.5
million on our line of credit. In addition, cash dividends of $3.8 million were
paid to shareholders in 1999 (declared in 1998) versus $3.7 million paid in 1998
(declared in 1997).
In April 1999, our total line of credit was increased to $250 million under a
new revolving loan facility, of which $178 million was outstanding at December
31, 1999. This credit facility replaced a $100 million line of credit obtained
during the third quarter of 1998. The new facility is collateralized by
substantially all of our assets. This credit facility is intended to provide
funds for acquisitions and to meet working capital, capital expenditures and
other short-term requirements. Proceeds from the sale of a portion of our
interest in Hoosier Park and the sale of KHC are expected to be used to repay a
portion of this credit facility. The new revolving loan facility matures in
2004.
Impact of the Year 2000 Issue
During 1999, we completed a company-wide program to make our computer systems
Year 2000 compliant. The Year 2000 issue is the result of computer programs that
were written using two digits rather than four to define the applicable year in
date-dependent systems. If our computer programs with date-sensitive functions
were not Year 2000 compliant, they may not have been able to distinguish the
year 2000 from the year 1900. This could have resulted in system failure or
miscalculations leading to a disruption of business operations.
28
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of December 31, 1999, we had completed the Year 2000 compliance evaluation
for our owned systems as well as issues involving third party service providers.
In addition, we have also completed the Year 2000 compliance evaluation for our
recent acquisitions of Calder Race Course and Hollywood Park and the remediation
plans were completed on all critical operating systems. We have not experienced
any disruptions to our business operations as a result of the Year 2000 issue.
While we will continue to monitor our systems for continued Year 2000 compliance
and continue to verify the Year 2000 preparedness of our third party service
providers, we do not anticipate any significant business disruptions related to
this matter.
Total cost to remediate Year 2000 compliance issues was approximately $275,000.
Our management believes that any future costs to remediate Year 2000 compliance
issues will not be material to our financial position or results of operations.
Subsequent Events
We have entered into a definitive agreement with Keeneland Association, Inc.
("Keeneland") whereby Keeneland will purchase our Thoroughbred training and
boarding facility known as Kentucky Horse Center ("KHC"). Keeneland has agreed
to purchase KHC for a cash payment of $5 million. Proceeds from the sale will be
used to repay a portion of our line of credit. The sale is subject to certain
closing conditions, and closing is expected during March or April of 2000.
We have also entered into a definitive agreement with Centaur, Inc. ("Centaur")
to sell a 26% interest in Hoosier Park, LP ("HPLP") for a purchase price of $8.5
million. HPLP is an Indiana limited partnership which owns Hoosier Park
racetrack and related OTBs. Upon closing, we will retain a 51% interest in HPLP
and continue to manage its day-to-day operations. Centaur, which already owned a
portion of HPLP prior to the agreement, will hold a 39% minority interest in
HPLP. The transaction is subject to certain closing conditions, including the
approval of the IHRC and various regulatory agencies. The agreement also
contains a provision under which Centaur has the right to purchase our remaining
interest at any time prior to July 31, 2001. Upon failure of Centaur to exercise
this provision both parties will have an opportunity to purchase the other's
remaining interest. We do not expect our earnings to be significantly effected
by this sale. We expect any loss in Hoosier Park annual income to be
significantly offset by a reduction in interest expense as a result of using the
proceeds from the sale to repay a portion of our line of credit. Closing is
expected during the second quarter of 2000.
29
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
At December 31, 1999, we had $178.0 million of debt
outstanding under our revolving loan facility which bears
interest at LIBOR based variable rates. We are exposed to
market risk on this variable rate debt due to potential
adverse changes in the LIBOR rate. Assuming the outstanding
balance on the revolving loan facility remains constant, a one
percentage point increase in the LIBOR rate would reduce
pre-tax earnings and cash flows by $1.8 million.
In order to mitigate a portion of the market risk associated
with our variable rate debt, we entered into interest rate
swap contracts with a major financial institution. Under terms
of the contracts we receive a LIBOR based variable interest
rate and pay a fixed interest rate of 5.89% and 5.92% on
notional amounts of $35.0 million and $70.0 million,
respectively. The $70.0 million interest rate swap matured in
March 2000 and the $35.0 million interest rate swap matures in
August 2000. At December 31, 1999, these interest rate swaps
approximated a mark-to-market value of $77,000 based on
current interest rates. Assuming the December 31, 1999
notional amounts under the interest rate swap contracts remain
constant, a one percentage point increase in the LIBOR rate
would increase pre-tax earnings and cash flows by $1.1
million.
Upon expiration of the $70 million interst rate swap in early
March 2000, we enterd into a 3-year interest rate swap in
which we pay a fixed interest rate of 7.015% on a notional
amount of $35 million. Management plans to engage in further
interest rate swap agreements in the future to protect our
interest rate exposure.
30
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Churchill Downs Incorporated
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) (1), present fairly, in all material respects, the
financial position of Churchill Downs Incorporated and its subsidiaries as of
December 31, 1999, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14 (a)(2), presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of management; our responsibility is
to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
\s\PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Louisville, Kentucky
February 23, 2000
31
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED BALANCE SHEETS
December 31,
(in thousands)
ASSETS 1999 1998 1997
---- ---- ----
Current assets:
Cash and cash equivalents $ 29,060 $ 6,380 $ 9,280
Accounts receivable 24,279 11,968 7,087
Other current assets 2,751 1,049 541
--------- --------- --------
Total current assets 56,090 19,397 16,908
Other assets 4,740 3,796 3,884
Plant and equipment, net 274,882 83,088 63,163
Intangible assets, net 62,334 8,370 1,894
--------- --------- --------
$398,046 $114,651 $85,849
========= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,794 $ 6,381 $ 6,549
Accrued expenses 23,821 8,248 7,121
Dividends payable 4,927 3,762 3,658
Income taxes payable 336 258 187
Deferred revenue 10,860 8,412 7,345
Long-term debt, current portion 552 127 80
--------- --------- --------
Total current liabilities 55,290 27,188 24,940
Long-term debt 180,898 13,538 2,633
Other liabilities 8,263 1,756 2,506
Deferred income taxes 15,474 6,938 2,377
Commitments and contingencies - - -
Shareholders' equity:
Preferred stock, no par value;
250 shares authorized; no
shares issued - - -
Common stock, no par value;
50,000 shares authorized;
issued: 9,854 shares in
1999; 7,525 shares in 1998;
and 7,317 shares in 1997 71,634 8,927 3,615
Retained earnings 66,667 56,599 49,843
Deferred compensation costs (115) (230) -
Note receivable for common stock (65) (65) (65)
--------- --------- --------
138,121 65,231 53,393
--------- --------- --------
$398,046 $114,651 $85,849
========= ========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31,
(in thousands, except per share data)
1999 1998 1997
---- ---- ----
Net revenues $258,427 $147,300 $118,907
Operating expenses:
Purses 97,585 50,193 39,718
Other direct expenses 109,783 68,788 55,706
--------- --------- ---------
207,368 118,981 95,424
--------- --------- ---------
Gross profit 51,059 28,319 23,483
Selling, general and administrative
expenses 18,546 11,176 9,078
--------- --------- ---------
Operating income 32,513 17,143 14,405
--------- --------- ---------
Other income (expense):
Interest income 847 680 575
Interest expense (7,839) (896) (332)
Miscellaneous, net 334 342 325
--------- --------- ---------
(6,658) 126 568
--------- --------- ---------
Earnings before provision for income
taxes 25,855 17,269 14,973
Provision for income taxes 10,879 6,751 5,825
--------- --------- ---------
Net earnings $ 14,976 $ 10,518 $ 9,148
========= ========= =========
Earnings per common share data:
Basic $1.74 $1.41 $1.25
Diluted $1.72 $1.40 $1.25
Weighted average shares outstanding:
Basic 8,598 7,460 7,312
Diluted 8,718 7,539 7,321
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Note Deferred
Common Stock Retained Receivable Compensation
Shares Amount Earnings Common Stock Costs Total
<S> <C> <C> <C> <C> <C> <C>
Balances December 31, 1996 7,309 $ 3,493 $44,353 $(65) - $47,781
Net earnings 9,148 9,148
Issuance of common stock
at $14.45 per share 8 122 122
Cash dividends, $.50 per share (3,658) (3,658)
------ ------- -------- -------- -------- ---------
Balances December 31, 1997 7,317 3,615 49,843 (65) - 53,393
Net earnings 10,518 10,518
Deferred compensation 344 $(344) -
Deferred compensation
amortization 114 114
Issuance of common stock at
$24.25 per share in conjunction
with RCA acquisition 200 4,850 4,850
Issuance of common stock
at $14.60 per share 8 118 118
Cash dividends, $.50 per share (3,762) (3,762)
------ ------- -------- -------- -------- ---------
Balances December 31, 1998 7,525 8,927 56,599 (65) (230) 65,231
Net earnings 14,976 14,976
Deferred compensation
amortization 115 115
Issuance of common stock
at $29.00 per share 2,300 62,122 62,122
Issuance of common stock
at $24.00 per share 7 170 170
Exercise of Stock Options 22 415 19 434
Cash dividends, $.50 per share (4,927) (4,927)
------ ------- -------- -------- -------- ---------
Balances December 31, 1999 9,854 $71,634 $66,667 $(65) $ (115) $138,121
====== ======= ======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
34
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(in thousands)
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net earnings $ 14,976 $ 10,518 $ 9,148
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization 11,306 5,744 4,559
Deferred income taxes (502) (121) 352
Deferred compensation 285 183 55
Increase (decrease) in cash resulting
from changes in operating assets
and liabilities:
Accounts receivable (8,971) (2,973) (2,053)
Other current assets (1,119) (293) (153)
Accounts payable 7,619 (2,211) 680
Accrued expenses 11,150 386 (434)
Income taxes payable (refundable) 98 71 (2,324)
Deferred revenue (231) 758 1,017
Other assets and liabilities 5,121 (1,246) (377)
--------- --------- --------
Net cash provided by operating
activities 39,732 10,816 10,470
--------- --------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash
acquired of $4,200 in 1999 and $517
in 1998 (228,303) (17,232) -
Additions to plant and equipment, net (12,083) (3,524) (4,568)
Purchase of minority-owned investment - - (2,338)
--------- --------- --------
Net cash used in investing activities (240,386) (20,756) (6,906)
--------- --------- --------
Cash flows from financing activities:
Decrease in long-term debt, net (1,295) (140) (240)
Borrowings on bank line of credit 269,500 22,000 -
Repayments of bank line of credit (102,500) (11,000) -
Payment of loan origination costs (2,867) (280) -
Payment of dividends (3,762) (3,658) (2,375)
Capital contribution by minority interest
in subsidiary 1,551 - -
Common stock issued 62,707 118 122
--------- --------- --------
Net cash provided by (used in)
financing activities 223,334 7,040 (2,493)
--------- --------- --------
Net increase (decrease) in cash and
cash equivalents 22,680 (2,900) 1,071
Cash and cash equivalents, beginning of period 6,380 9,280 8,209
--------- -------- --------
Cash and cash equivalents, end of period $ 29,060 $ 6,380 $ 9,280
========= ========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,858 $ 497 $ 151
Income taxes $ 10,796 $ 7,130 $ 7,915
Schedule of Non-cash Activities:
Issuance of common stock related to the
acquisition of RCA - $ 4,850 -
Invoicing for future events $ 2,678 $ 678 $ 402
Plant & equipment additions included
in accounts payable $ 502 $ 95 -
Compensation expense - $ 344 -
The accompanying notes are an integral part of the consolidated financial
statements.
35
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
Churchill Downs Incorporated (the "Company") conducts pari-mutuel wagering
on live race meetings for Thoroughbred horses and participates in intrastate
and interstate simulcast wagering at its racetracks in Kentucky, California
and Florida. In addition, the Company, through its subsidiary, Hoosier Park
L.P. ("Hoosier Park"), conducts pari-mutuel wagering on live Thoroughbred,
Quarter Horse and Standardbred horse races and participates in interstate
simulcast wagering. The Company's Kentucky, California, Florida and Indiana
operations are subject to regulation by the racing commissions of the
respective states.
The accompanying consolidated financial statements include the accounts of
the Company, its wholly owned subsidiaries, Churchill Downs California
Company d/b/a Hollywood Park Race Track ("Hollywood Park"), Calder Race
Course, Inc. and Tropical Park, Inc. which hold licenses to conduct horse
racing at Calder Race Course ("Calder Race Course"), Ellis Park Race Course
("Ellis Park"), Churchill Downs Management Company ("CDMC"), Churchill Downs
Investment Company ("CDIC"), Kentucky Horse Center and Anderson Park Inc.
("Anderson") and its majority-owned subsidiaries, Hoosier Park and Charlson
Broadcast Technologies, LLC ("CBT"). All significant intercompany balances
and transactions have been eliminated.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
A Summary of Significant Accounting Policies Followed
Cash Equivalents
The Company considers investments with original maturities of three months
or less to be cash equivalents. The Company has, from time to time, cash in
the bank in excess of federally insured limits.
Plant and Equipment
Plant and equipment are recorded at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the related
assets as follows: 10 to 30 years for grandstands and buildings, 3 to 11
years for equipment, 5 to 10 years for furniture and fixtures and 10 to 20
years for tracks and other improvements.
36
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
1. Basis of Presentation and Summary of Significant Accounting Policies(cont'd)
Intangible Assets
Amortization of the cost of acquisitions in excess of fair value of assets
acquired and the Indiana racing license is provided over 40 years using the
straight-line method. Loan origination costs on the Company's line of credit
are being amortized under the effective interest method over 60 months, the
term of the loan.
Long-lived Assets
In the event that facts and circumstances indicate that the carrying amount
of tangible or intangible long-lived assets or groups of assets may be
impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the assets would be compared to the assets' carrying amount
to determine if a write-down to market value or discounted cash flow value
is required.
Interest Rate Swaps
The Company utilizes interest rate swap contracts to hedge exposure to
interest rate fluctuations on its variable rate debt. The differential
between the fixed interest rate paid and the variable interest rate received
under the interest rate swap contracts is recognized as an adjustment to
interest expense in the period in which the differential occurs.
Differential amounts incurred under the interest rate swap contracts but not
settled in cash at the end of a reporting period are recorded as receivables
or payables in the balance sheet. Any gains or losses realized on the early
termination of interest rate swap contracts are deferred and amortized as an
adjustment to interest expense over the remaining term of the underlying
debt instrument.
Deferred Revenue
Deferred revenue includes primarily advance sales related to the Kentucky
Derby and Oaks races in Kentucky and other advanced billings on racing
events.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees". In accordance with Statement of Financial Accounting Standards
(SFAS) No. 123 "Accounting for Stock-based Compensation" proforma disclosure
of net earnings and earnings per share are presented in Note 10 as if SFAS
No. 123 had been applied.
Reclassification
Certain financial statement amounts have been reclassified in the prior
years to conform to current year presentation.
37
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
2. Acquisitions
On September 10, 1999, the Company acquired the assets of the Hollywood Park
Race Track and the Hollywood Park Casino in Inglewood, California, including
approximately 240 acres of land upon which the racetrack and casino are
located, for a purchase price of $140.0 million plus approximately $2.5
million in transaction costs. The Company leases the Hollywood Park Casino
to the seller under a ten-year lease with one ten-year renewal option. The
lease provides for annual rent of $3.0 million, subject to adjustment during
the renewal period. The entire purchase price of $142.5 million was
allocated to the acquired assets and liabilities based on their fair values
on the acquisition date. The acquisition was accounted for by the Company as
an asset purchase and, accordingly, the financial position and results of
operations of Hollywood Park Race Track have been included in the Company's
consolidated financial statements since the date of acquisition. The
allocation of the purchase price is preliminary and may require adjustment
in the Company's future financial statements based on a final determination
of the fair value of assets acquired in the acquisition.
On April 23, 1999, the Company acquired all of the outstanding stock of
Calder Race Course, Inc.and Tropical Park, Inc. from KE Acquisition Corp.for
a purchase price of $86 million cash plus a closing net working capital
adjustment of approximately $2.9 million cash and $0.6 million in
transaction costs. The purchase included Calder Race Course in Miami and
the licenses held by Calder Race Course, Inc. and Tropical Park, Inc. to
conduct horse racing at Calder Race Course. The purchase price, plus
additional costs, of $89.5 million was allocated to the acquired assets and
liabilities based on their fair values on the acquisition date with the
excess of $49.4 million being recorded as goodwill, which is being
amortized over 40 years. The acquisition was accounted for by the Company
under the purchase method of accounting and, accordingly, the financial
position and results of operations of Calder Race Course, Inc. and Tropical
Park, Inc. have been included in the Company's consolidated financial
statements since the date of acquisition. The allocation of the purchase
price is preliminary and may require adjustment in the Company's future
financial statements based on a final determination of the fair value of
assets acquired and liabilities assumed in the acquisition.
On April 21, 1998, the Company acquired from TVI Corp. ("TVI") all of the
outstanding stock of Racing Corporation of America ("RCA") for a purchase
price of $22.6 million, which includes transaction costs of $0.6 million. As
part of the transaction, TVI received 0.2 million shares of the Company's
common stock valued at $4.9 million with the remaining balance of $17.1
million paid from cash on hand and a draw on the Company's bank line of
credit. The acquisition was accounted for by the Company under the purchase
method of accounting and, accordingly, the results of operations of RCA
subsequent to April 20, 1998, are included in the Company's consolidated
results of operations.
38
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
2. Acquisitions (cont'd)
Following are the unaudited pro forma results of operations as if the
September 10, 1999 acquisition of Hollywood Park Race Track, the July 20,
1999 stock issuance, the April 23, 1999 acquisition of Calder Race Course
and the April 21, 1998 acquisition of RCA had occurred on January 1, 1998:
December 31,
1999 1998
---- ----
Net revenues $335,254 $318,017
Net earnings $20,200 $15,993
Earnings per common
share:
Basic $2.05 $1.63
Diluted $2.03 $1.62
Weighted average shares
outstanding:
Basic 9,834 9,820
Diluted 9,953 9,900
This unaudited pro forma financial information is not necessarily
indicative of the operating results that would have occurred had the
transactions been consummated as of January 1, 1998, nor is it necessarily
indicative of future operating results.
3. Plant and Equipment
Plant and equipment is comprised of the following:
1999 1998 1997
---- ---- ----
Land $105,292 $ 7,632 $ 5,999
Grandstands and buildings 201,613 73,377 57,580
Equipment 17,120 4,979 3,416
Furniture and fixtures 7,741 5,341 4,328
Tracks and other
improvements 39,602 37,998 33,118
Construction in process 2,411 249 113
---------- -------- ---------
373,779 129,576 104,554
Accumulated depreciation (98,897) (46,488) (41,391)
---------- -------- ---------
$274,882 $83,088 $63,163
========== ======== =========
Depreciation expense was approximately $9,506, $5,490, and $4,288 for the
years ended December 31, 1999, 1998 and 1997.
39
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
4. Intangibles assets
The Company's intangible assets are comprised of the following:
1999 1998 1997
---- ---- ----
Cost of acquisitions in excess of fair value
of net assets acquired $59,433 $6,449 -
Indiana racing license 2,085 2,085 $2,085
Loan origination costs 3,076 280 -
-------- ------- -------
64,594 8,814 2,085
Accumulated amortization (2,260) (444) (191)
-------- ------- -------
$62,334 $8,370 $1,894
======== ======= =======
Amortization expense was approximately $1,353, $253 and $271 for the years
ended December 31, 1999, 1998 and 1997.
5. Income Taxes
Components of the provision for income taxes are as follows:
1999 1998 1997
---- ---- ----
Currently payable:
Federal $ 9,528 $5,795 $4,617
State & local 1,853 1,077 856
11,381 6,872 5,473
-------- ------- -------
Deferred:
Federal (439) 46 308
State & local (63) 6 44
-------- ------- -------
(502) 52 352
-------- ------- -------
Reversal of valuation
allowance - (173) -
-------- ------- -------
$10,879 $6,751 $5,825
======== ======= =======
40
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
5. Income Taxes (cont'd)
The Company's income tax expense is different from the amount computed by
applying the statutory federal income tax rate to income before taxes as
follows:
1999 1998 1997
----- ----- -----
Federal statutory tax on
earnings before income tax $ 9,049 $5,942 $5,141
State income taxes, net of
federal income tax benefit 1,154 747 612
Permanent differences and other 676 235 72
Reversal of valuation allowance - (173) -
------- ------- ------
$10,879 $6,751 $5,825
======= ======= ======
At December 31, 1999, the Company has net operating loss carryforwards of
approximately $1,169 for Indiana state income tax purposes expiring from
2009 through 2011 and approximately $6,401 for Kentucky state income
tax purposes expiring from 2002 through 2011. Management has determined
that its ability to realize future benefits of the state net operating loss
carryforwards meets the "more likely than not" criteria of SFAS No. 109,
"Accounting for Income Taxes"; therefore, no valuation allowance has been
recorded at December 31, 1999.
Components of the Company's deferred tax assets and liabilities are as
follows:
1999 1998 1997
---- ---- ----
Deferred tax liabilities:
Property & equipment in excess
of tax basis $16,288 $7,805 $2,415
Racing license in excess of tax basis 650 650 636
Other 66 - -
------- ------ ------
Deferred tax liabilities 17,004 8,455 3,051
------- ------ ------
Deferred tax assets:
Supplemental benefit plan 337 316 295
State net operating loss
carryforwards 638 857 173
Allowance for uncollectible
receivables 345 87 71
Other 830 437 378
------- ------ ------
Deferred tax assets 2,150 1,697 917
------- ------ ------
Valuation allowance for state net operating
loss carryforwards - - 173
------- ------ ------
Net deferred tax liability $14,854 $6,758 $2,307
======= ====== ======
Income taxes are classified in the balance sheet as follows:
Net non-current deferred tax
liability $15,474 $6,938 $2,377
Net current deferred tax asset (620) (180) (70)
------- ------ ------
$14,854 $6,758 $2,307
======= ====== ======
41
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
6. Shareholders' Equity
On July 20, 1999 the Company issued 2,300 shares of the Company's common
stock at a price of $29 per share. The total proceeds net of offering
expenses was $62.1 million, and was used for the repayment of bank
borrowings.
On March 19, 1998, the Company's Board of Directors authorized a 2-for-1
stock split of its common stock effective March 30, 1998. All share and
per share amounts in the accompanying consolidated financial statements
have been restated to give effect to the stock split.
Additionally, the Company's Board of Directors approved a stockholder
"Rights Plan" (the "Plan") on March 19, 1998, which grants each stockholder
the right to purchase a fraction of a share of Series 1998 Preferred Stock
at the rate of one right for each share of the Company's common stock.
The rights will become exercisable 10 business days (or such later date as
determined by the Board of Directors) after any person or group acquires,
obtains a right to acquire or announces a tender offer for 15% or more of
the Company's outstanding common stock. The rights would allow the holder
to purchase preferred stock of the Company at a 50% discount. The Plan is
intended to protect stockholders from takeover tactics that may be used by
an acquirer that the Board believes are not in the best interests of the
shareholders. The Plan expires on March 19, 2008.
7. Employee Benefit Plans
The Company has a profit-sharing plan that covers all employees with one
year or more of service and one thousand or more worked hours. The Company
will match contributions made by the employee up to 3% of the employee's
annual compensation. The Company will also match at 50%, contributions
made by the employee up to an additional 2%.The Company may also contribute
a discretionary amount determined annually by the Board of Directors as
well as a year end discretionary match not to exceed 4%. The Company's
contribution to the plan for the years ended December 31, 1999, 1998 and
1997 was approximately $819, $806 and $535 respectively.
The Company is a member of a noncontributory defined benefit multi-employer
retirement plan for all members of the Pari-mutuel Clerk's Union of
Kentucky and several other collectively-bargained retirement plans which
are administered by unions. Contributions are made in accordance with
` negotiated labor contracts. Retirement plan expense for the years ended
December 31, 1999, 1998 and 1997 was approximately $665, $258 and $205,
respectively. The Company's policy is to fund this expense as accrued.
The estimated present value of future payments under a supplemental benefit
plan is charged to expense over the period of active employment of the
employees covered under the plan. Supplemental benefit plan expense for
the years ended December 31, 1999, 1998 and 1997 was approximately $55,
$55 and $51, respectively.
42
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
8. Long-Term Debt
On April 23, 1999, the Company increased its line of credit to $250 million
under a new revolving loan facility through a syndicate of banks headed
by its principal lender to meet working capital and other short-term
requirements and to provide funding for acquisitions. This credit facility
replaced a $100 million line of credit obtained during the third quarter of
1998. The interest rate on the borrowing is based upon LIBOR plus 75 to 250
additional basis points, which is determined by certain Company financial
ratios. There was $178.0 million outstanding on the line of credit at
December 31, 1999 compared to $11.0 million outstanding at December
31, 1998 and no borrowings outstanding at December 31, 1997 under previous
lines of credit. The line of credit is collateralized by substantially all
of the assets of the Company and its wholly owned subsidiaries, and matures
in 2004.
During the third quarter of 1999 we entered into interest rate swap
contracts with a major financial institution which have termination dates
through August 31, 2000. Under the terms of the contracts we receive a
LIBOR based variable interest rate and pay a fixed interest rate of 5.89%
and 5.92% on notional amounts of $35.0 million and $70.0 million,
respectively. The variable interest rate paid on the contracts is
determined based on LIBOR on the last day of each month, which is
consistent with the variable rate determination on the underlying debt.
The Company also has two non-interest bearing notes payable in the
aggregate face amount of $900 relating to the purchase of an intrastate
wagering license from the former owners of the Louisville Sports Spectrum
property. Interest has been imputed at 8%. The balance of these notes
net of unamortized discount was $110, $196 and $276 at December 31,
1999, 1998 and 1997, respectively. The notes require aggregate annual
payments of $110.
On May 31, 1996, the Company entered into a Partnership Interest Purchase
Agreement with Conseco, LLC ("Conseco") for the sale of 10% of the
Company's partnership interest in Hoosier Park to Conseco. The transaction
also included assumption by Conseco of a loan to the Company of
approximately $2.6 million, of which the balance is $2.4 million at
December 31, 1999. The loan requires interest of prime plus 2% (10.5% at
December 31, 1999) payable monthly with principal due November 2004.
The note is collateralized by 10% of the assets of Hoosier Park.
Future aggregate maturities of long-term debt are as follows:
2000 $ 552
2001 359
2002 127
2003 17
2004 180,395
-------
$181,450
========
43
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
9. Operating Leases
The Company has a long-term operating lease for the land in Anderson,
Indiana on which its Hoosier Park facility is located, as well as
operating leases for the Indianapolis off-track betting facility and
certain totalisator and audio/visual and other equipment and services. The
Anderson lease expires in 2003, with an option to extend the lease for
three additional ten year terms. The Indianapolis lease expires in 2009,
with an option to extend the lease for two additional five year terms. The
leases include provisions for minimum lease payments as well as contingent
lease payments based on handle or revenues. Total annual rent expenses for
contingent lease payments including certain totalisator and audio/visual
equipment and services and land and facility rent was approximately $6,287,
$3,942 and $3,475 for the years ended December 31, 1999, 1998 and 1997.
Total rent expense for all operating leases was approximately $6,832,
$4,022 and $3,803 for the years ended December 31, 1999, 1998 and 1997.
Future minimum operating lease payments are as follows:
Minimum Lease
Payment
-------
2000 $1,088
2001 885
2002 646
2003 513
2004 405
Thereafter 1,841
-------
$5,378
=======
10. Stock-Based Compensation Plans
Employee Stock Options:
The Company sponsors both the "Churchill Downs Incorporated 1997 Stock
Option Plan" (the "97 Plan") and the "Churchill Downs Incorporated 1993
Stock Option Plan" (the "93 Plan"), stock-based incentive compensation
plans, which are described below. The Company applies APB Opinion 25 and
related interpretations in accounting for both the plans. However, pro
forma disclosures are as if the Company adopted the cost recognition
provisions of SFAS 123 are presented below.
The Company is authorized to issue up to 300 shares and 400 shares of
common stock (as adjusted for the stock split) under the 97 Plan and
93 Plan, respectively, pursuant to "Awards" granted in the form of
incentive stock options (intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended) and non-qualified stock options.
Awards may be granted to selected employees of the Company or any
subsidiary.
44
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
10. Stock-Based Compensation Plans (cont'd)
Both the 97 Plan and the 93 Plan provide that the exercise price of any
incentive stock option may not be less than the fair market value of the
common stock on the date of grant. The exercise price of any nonqualified
stock option is not so limited by the plans. The Company granted stock
options in 1999, 1998 and 1997. The stock options granted in those years
have contractual terms of 10 years and varying vesting dates, ranging from
one to three years following the date of grant. In accordance with APB 25,
the Company has not recognized any compensation cost for these stock
options.
A summary of the status of the Company's stock options as of December 31,
1999, 1998 and 1997 and the changes during the year ended on those dates is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ------------------------ --------------------------
Weighted Weighted Weighted
# of Shares Average # of Shares Average # of Shares Average
Underlying Exercise Underlying Exercise Underlying Exercise
Options Prices Options Prices Options Prices
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of the year 478 $20.86 426 $19.45 337 $19.08
Granted 154 $23.70 52 $32.50 89 $20.83
Exercised 22 $19.30 - - - -
Canceled - - - - - -
Forfeited 10 $22.53 - - - -
Expired - - - - - -
Outstanding at end
of year 600 $21.62 478 $20.86 426 $19.45
Exercisable at
end of year 311 $19.09 248 $21.02 207 $19.67
Weighted-average fair value per
share of options granted
during the year $12.01 $10.42 $6.34
</TABLE>
The fair value of each stock option granted is estimated on the date of
grant using the Black- Scholes option-pricing model with the following
weighted-average assumptions for grants in 1999, 1998 and 1997,
respectively: dividend yields ranging from 1.20% to 1.54%; risk- free
interest rates are different for each grant and range from 5.75% to 6.76%;
and the expected lives of options are different for each grant and range
from approximately 6.5 to 7.0 years, and expected volatility rates of
43.74%, 24.86% and 19.38% for years ending December 31, 1999,1998 and 1997.
45
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
10. Stock-Based Compensation Plans (cont'd)
The following table summarizes information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/99 Contributing Life Exercise Price at 12/31/99 Exercise Price
- ---------------- ------------ ------------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$13.40 to $16.75 20 6.0 $15.75 20 $15.75
$16.76 to $20.10 273 6.6 $18.93 253 $18.97
$20.11 to $23.45 240 8.5 $22.17 38 $21.61
$26.80 to $30.15 8 9.3 $29.88 - -
$30.16 to $33.50 59 9.0 $32.67 - -
--- --- ------ --- ------
TOTAL 600 7.6 $21.62 311 $19.09
</TABLE>
Employee Stock Purchase Plan:
Under the Company's Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan"), the Company is authorized to sell, pursuant to short-term
stock options, shares of its common stock to its full-time(or part-time
for at least 20 hours per week and at least five months per year) employees
at a discount from the common stock's fair market value. The Employee Stock
Purchase Plan operates on the basis of recurring, consecutive one-year
periods. Each period commences on August 1 and ends on the next following
July 31.
On the first day of each 12-month period, August 1, the Company offers to
each eligible employee the opportunity to purchase common stock. Employees
elect to participate for each period to have a designated percentage of
their compensation withheld (after-tax) and applied to the purchase of
shares of common stock on the last day of the period, July 31. The Employee
Stock Purchase Plan allows withdrawals, terminations and reductions on
the amounts being deducted. The purchase price for the common stock is 85%
of the lesser of the fair market value of the common stock on (i) the first
day of the period, or (ii) the last day of the period. No employee may
purchase common stock under the Employee Stock Purchase Plan valued at
more than $25 for each calendar year.
Under the Employee Stock Purchase Plan, the Company sold 7 shares of common
stock to 131 employees pursuant to options granted on August 1, 1998, and
exercised on July 30, 1999. Because the plan year overlaps the Company's
fiscal year, the number of shares to be sold pursuant to options granted on
August 1, 1999, can only be estimated because the 1999 plan year is not yet
complete. The Company's estimate of options granted in 1999 under the Plan
is based on the number of shares sold to employees under the Plan for the
1998 plan year, adjusted to reflect the change in the number of employees
participating in the Plan in 1999.
46
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
10. Stock-Based Compensation Plans (cont'd)
A summary of the status of the Company's stock options under the
Employee Stock Purchase Plan as of December 31, 1999, 1998 and 1997 and the
changes during the year ended on those dates is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- ------------------------
Weighted Weighted Weighted
# of Shares Average # of Shares Average # of Shares Average
Underlying Exercise Underlying Exercise Underlying Exercise
Options Prices Options Prices Options Prices
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of the year 5 $24.00 8 $14.60 8 $14.45
Adjustment to prior year
estimated grants 2 $24.00 0 $14.60 0 $14.45
Granted 9 $23.90 5 $31.45 8 $18.94
Exercised 7 $24.00 8 $14.60 8 $14.95
Forfeited - - - - - -
Expired - - - - - -
Outstanding at end
of year 9 $23.90 5 $31.45 8 $18.94
Exercisable at end
of year - - - - - -
Weighted-average
Fair value per share
of options granted
during the year $8.67 $12.16 $5.36
</TABLE>
Had the compensation cost for the Company's stock-based compensation plans
been determined consistent with SFAS 123, the Company's net earnings
and earnings per common share for 1999, 1998 and 1997 would approximate
the pro forma amounts presented below:
1999 1998 1997
---- ---- ----
Net earnings:
As reported $14,976 $10,518 $9,148
Pro-forma $14,262 $10,087 $8,605
Earnings per common share:
As reported
Basic $1.74 $1.41 $1.25
Diluted $1.72 $1.40 $1.25
Pro-forma
Basic $1.66 $1.35 $1.18
Diluted $1.64 $1.34 $1.18
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. The Company anticipates making awards in the
future under its stock-based compensation plans.
47
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
11. Fair Values of Financial Instruments
Financial Accounting Standards Board ("FASB") Statement No. 107,"Disclosure
about Fair Value of Financial Instruments," is a part of a continuing
process by the FASB to improve information on financial instruments. The
following methods and assumptions were used by the Company in estimating
its fair value disclosures for such financial instruments as defined by
the Statement:
Cash and Cash Equivalents - The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Long-Term Debt - The carrying amounts of the Company's borrowings under its
line of credit agreements and other long-term debt approximates fair value,
based upon current interest rates.
Interest Rate Swaps - The carrying amounts of the Company's interest rate
swaps approximates mark-to-market value of $77, based upon current interest
rates.
12. Contingencies
Hollywood Park has received cease and desist orders from the California
Regional Water Quality Control Board addressing storm water runoff and dry
weather discharge issues. We have retained an engineering firm to develop
a plan for compliance and to construct certain drainage and waste disposal
systems. As part of the 1999 asset acquisition of Hollywood Park, the
seller has agreed to indemnify our Company in the amount of $5.0 million
for costs incurred in relation to the waste water runoff issue. It is not
possible at this time accurately assess the total potential costs
associated with this matter but we do not believe it will be materially in
excess of the indemnification amount.
On January 22, 1992, the Company acquired certain assets of Louisville
Downs, Incorporated for $5.0 million including the site of the Louisville
Sports Spectrum. In conjunction with this purchase, the Company withheld
$1.0 million from the amount due to the sellers to offset certain costs
related to the remediation of environmental contamination associated with
underground storage tanks at the site. All of the $1.0 million hold back
had been utilized as of December 31, 1999 and additional costs of
remediation have not yet been conclusively determined. The sellers have now
received a reimbursement from the commonwealth of Kentucky of $1.0 million
for remediation costs and that amount is now being held in an escrow
account to pay further costs of remediation. Approximately $1.2 million,
including interest on the escrow principal, remains in the account. The
seller has submitted a corrective action plan to the state and it is
anticipated that the Kentucky Cabinet of Natural Resources will consent to
a closure, either with or without monitoring. In addition to the hold
back, we have obtained an indemnity to cover the full cost of remediation
from the prior owner of the property. We do not believe the cost of further
investigation and remediation will exceed the amount of funds in the
escrow.
48
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
12. Contingencies (cont'd)
It is not anticipated that the Company will have any liability as a result
of compliance with environmental laws with respect to any of the Company's
property. Except as discussed herein, compliance with environmental
laws has not affected the ability to develop and operate the Company's
properties and the Company is not otherwise subject to any material
compliance costs in connection with federal or state environmental laws.
13. Earnings Per Common Share Computations
The following is a reconciliation of the numerator and denominator of the
earnings per common share computations:
1999 1998 1997
---- ---- ----
Net earnings (numerator) amounts used
for basic and diluted per share computations: $14,976 $10,518 $9,148
======= ======= ======
Weighted average shares (denominator) of
common stock outstanding per share
computations:
Basic 8,598 7,460 7,312
Plus dilutive effect of stock options 120 79 9
------- ------- ------
Diluted 8,718 7,539 7,321
======= ======= ======
Earnings per common share:
Basic $1.74 $1.41 $1.25
Diluted $1.72 $1.40 $1.25
Options to purchase approximately 67, 52 and 10 shares for the years ended
December 31, 1999, 1998 and 1997, respectively, were not included in the
computation of earnings per common share-assuming dilution because the
options' exercise prices were greater than the average market price of the
common shares.
14. Segment Information
The Company has adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information." The Company has determined that it
currently operates in the following six segments (1) Churchill Downs
racetrack, the Louisville Sports Spectrum simulcast facility and Churchill
Downs corporate expenses (2) Hollywood Park Race Track(3)Calder Race Course
(4) Ellis Park racetrack and its on-site simulcast facility, (5) Hoosier
Park racetrack and its on-site simulcast facility and the other three
Indiana simulcast facilities and (6) Other operations, including Kentucky
Horse Center, CBT and the Company's investments in various equity interests
in the net income of equity method investees, which are not material.
Eliminations include the elimination of management fee and other
intersegment transactions.
Most of the Company's revenues are generated from commissions on
pari-mutuel wagering at the Company's racetracks and OTBs, plus Indiana
riverboat admissions subsidy revenue, simulcast fees, lease income,
admissions and concessions revenue.
49
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
14. Segment Information (cont'd)
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies" in the Company's annual
report to stockholders for the year ended December 31, 1999. EBITDA should
not be considered as an alternative to, or more meaningful than, net
income (as determined in accordance with accounting principles generally
accepted in the United States) as a measure of our operating results or
cash flows(as determined in accordance with accounting principles generally
accepted in the United States) or as a measure of our liquidity.
The table below presents information about reported segments for the years ended
December 31, 1999, 1998 and 1997:
December 31,
------------
1999 1998 1997
---- ---- ----
Net revenues:
Churchill Downs including
corporate expenses $ 82,429 $ 80,925 $ 77,404
Hollywood Park 30,494 - -
Calder Race Course 72,418 - -
Hoosier Park 51,280 47,744 41,503
Ellis Park 19,653 17,386 -
Other Operations 6,151 2,497 1,299
--------- --------- ---------
262,425 148,552 120,206
Eliminations (3,998) (1,252) (1,299)
--------- --------- ---------
$258,427 $147,300 $118,907
========= ========= =========
EBITDA:
Churchill Downs including
corporate expenses $12,110 $14,417 $14,205
Hollywood Park 3,842 - -
Calder Race Course 17,946 - -
Hoosier Park 6,423 5,599 4,282
Ellis Park 2,071 2,305 -
Other Operations 1,314 909 802
--------- --------- ---------
$43,706 $23,230 $19,289
========= ========= =========
Operating income (loss):
Churchill Downs including
corporate expenses $8,561 $10,700 $10,557
Hollywood Park 2,574 - -
Calder Race Course 15,564 - -
Hoosier Park 5,246 4,499 3,088
Ellis Park 721 1,422 -
Other Operations (153) 522 760
--------- --------- ---------
$32,513 $17,143 $14,405
========= ========= =========
50
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($ in thousands, except per share data)
14. Segment Information (cont'd)
As of December 31,
-----------------
1999 1998 1997
---- ---- ----
Total Assets:
Churchill Downs $345,909 $ 89,427 $ 72,490
Hollywood Park 153,126 - -
Calder Race Course 114,396 - -
Hoosier Park 32,559 31,732 29,689
Ellis Park 25,015 23,038 -
Other Operations 312,272 71,109 31,180
--------- ---------- ---------
983,277 215,306 133,359
Eliminations (585,231) (100,655) (47,510)
--------- ---------- ---------
$398,046 $114,651 $ 85,849
========= ========== =========
Following is a reconciliation of total EBITDA to income before provision for
income taxes:
December 31,
1999 1998 1997
---- ---- ----
Total EBITDA $43,706 $23,230 $19,289
Depreciation and amortization (10,859) (5,744) (4,559)
Interest income (expense), net (6,992) (216) 243
-------- -------- --------
Earnings before provision for
income taxes $25,855 $17,270 $14,973
======== ======== ========
15. Subsequent Events
The Company and Keeneland Association, Inc. ("Keeneland") have entered into a
definitive agreement whereby Keeneland will purchase the Company's Thoroughbred
training and boarding facility known as Kentucky Horse Center ("KHC"). Keeneland
has agreed to purchase KHC for a cash payment of $5 million. Proceeds from the
sale will be used to repay a portion of the Company's line of credit. The sale
is subject to certain closing conditions, and closing is expected during the
second quarter of 2000.
The Company has entered into a definitive agreement with Centaur, Inc.
("Centaur") to sell a 26% interest in Hoosier Park, LP ("HPLP") for a purchase
price of $8.5 million. HPLP is an Indiana limited partnership which owns Hoosier
Park racetrack and related OTBs. Upon closing, the Company will retain a 51%
interest in HPLP and continue to manage its day-to-day operations. Centaur,
which already owned a portion of HPLP prior to the agreement, will hold a 39%
minority interest in HPLP. The transaction is subject to certain closing
conditions, including the approval of the Indiana Horse Racing Commission and
various regulatory agencies. The agreement also contains a provision under
which Centaur has the right to purchase our remaining interest at any time prior
to July 31, 2001. Upon failure of Centaur to exercise this provision both
parties will have an opportunity to purchase the other's remaining interest. The
Company does not expect earnings to be significantly effected by this sale, as
any loss in Hoosier Park annual income is expected to be significantly offset
by a reduction in interest expense as a result of using the proceeds from the
sale to repay a portion of the Company's line of credit. Closing is expected
during the second quarter of 2000.
51
<PAGE>
<TABLE>
<CAPTION>
Supplementary Financial Information(Unaudited) Common Stock Information
(In thousands, except per share data) Per Share of Common Stock
------------------------------------------------
Operating Net Basic Diluted
Net Income Earnings Earnings Earnings Market Price
Revenues (Loss) (Loss) (Loss) (Loss) Dividends High Low
-------- ------ ------------ -------- -------- --------- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $258,427 $32,513 $14,976 $1.74 $1.72
Fourth Quarter $93,548 $8,784 $3,128 $0.32 $0.31 $0.50 $26.00 $20.13
Third Quarter 63,076 3,635 1,192 0.13 0.12 33.63 22.50
Second Quarter 84,140 24,891 13,666 1.82 1.79 35.75 26.00
First Quarter 17,663 (4,797) (3,010) (0.40) (0.40) 38.75 26.25
- ---------------------------------------------------------------------------------------------------
1998 $147,300 $17,143 $10,518 $1.41 $1.40
Fourth Quarter $31,242 $(1,291) $(780) $(0.10) $(0.10) $0.50 $36.44 $27.25
Third Quarter 33,299 (1,016) (655) (0.09) (0.09) 41.44 27.63
Second Quarter 67,374 22,220 13,522 1.81 1.79 43.25 24.00
First Quarter 15,385 (2,770) (1,569) (0.21) (0.21) 25.31 19.31
- ---------------------------------------------------------------------------------------------------
1997 $118,907 $14,405 $9,148 $1.25 $1.25
Fourth Quarter $28,021 $(270) $31 $0.00 $0.00 $0.50 $23.38 $20.75
Third Quarter 16,827 (3,005) (1,819) (0.25) (0.25) 21.00 16.25
Second Quarter 60,780 20,816 12,785 1.75 1.75 19.00 16.50
First Quarter 13,279 (3,136) (1,849) (0.25) (0.25) 18.50 16.00
- ---------------------------------------------------------------------------------------------------
</TABLE>
The Company's Common Stock is traded on the National Association of Securities
Dealers, Inc.'s National Market("Nasdaq") under the symbol CHDN. As of March 14,
2000, there were approximately 3,350 shareholders of record.
Earnings (loss) per share and other per share amounts have been retroactively
adjusted for the 2-for-1 stock split with a record date of March 30, 1998.
On July 20, 1999 the Company issued 2.3 million shares of common stock at a
public offering price of $29 per share.
Quarterly earnings (loss) per share figures may not equal total earnings (loss)
per share for the year due in part to the fluctuation of the market price of the
stock.
The above table sets forth the high and low bid quotations (as reported by
Nasdaq) and dividend payment information for the Company's Common Stock during
its last three years. Quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions, and may not necessarily reflect actual
transactions.
52
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required herein is incorporated by reference
from sections of the Company's Proxy Statement titled
"Section 16(a) Beneficial Ownership Reporting Compliance,"
"Election of Directors," and "Executive Officers of the
Company," which Proxy Statement will be filed with the
Securities and Exchange Commission pursuant to instruction
G(3) of the General Instructions to Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required herein is incorporated by reference
from sections of the Company's Proxy Statement titled
"Election of Directors - Compensation and Committees of the
Board of Directors," "Compensation Committee Report on
Executive Compensation," "Compensation Committee Interlocks
and Insider Participation," "Performance Graph," and
"Executive Compensation," which Proxy Statement will be filed
with the Securities and Exchange Commission pursuant to
instruction G(3) of the General Instructions to Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required herein is incorporated by reference
from the sections of the Company's Proxy Statement titled
"Common Stock Owned by Certain Persons," "Election of
Directors" and "Executive Officers of the Company," which
Proxy Statement will be filed with the Securities and Exchange
Commission pursuant to instruction G(3) of the General
Instructions to Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required herein is incorporated by reference
from the section of the Company's Proxy Statement titled
"Certain Relationships and Related Transactions," which
Proxy Statement will be filed with the Securities and Exchange
Commission pursuant to instruction G(3) of the General
Instructions to Form 10-K.
53
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
Pages
(a) (1) Consolidated Financial Statements
The following financial statements of Churchill
Downs Incorporated
for the years ended December 31, 1999, 1998 and
1997 are included in Part II, Item 8:
Report of Independent Accountants 31
Consolidated Balance Sheets 32
Consolidated Statements of Earnings 33
Consolidated Statements of Shareholders' Equity 34
Consolidated Statements of Cash Flows 35
Notes to Consolidated Financial Statements 36-51
(2) Schedule VIII - Valuation and Qualifying Accounts 56
All other schedules are omitted because they are
not applicable, not significant or not required,
or because the required information is included in
the financial statement notes thereto.
(3) For the list of required exhibits, see exhibit index.
(b) Reports on Form 8-K:
(1) Churchill Downs Incorporated filed a Current Report
on Form 8-K dated September 10, 1999, amended by Form
8-K/A dated November 24, 1999, reporting , under Item 2,
"Acquisition or disposition of assets", for the
acquisition of Hollywood Park Race Track horse racing
facility and the Hollywood Park Casino card club casino
pursuant to an Asset Purchase Agreement dated as of May
5, 1999, amended by Amendment No.1 dated August 31, 1999.
(c) Exhibits
See exhibit index.
(d) All financial statements and schedules except those
items listed under items 14(a)(l) and (2) above are
omitted because they are not applicable, or not required,
or because the required information is included in the
financial statements or notes thereto.
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CHURCHILL DOWNS INCORPORATED
/s/Thomas H. Meeker
Thomas H. Meeker
President and Chief Executive
Officer
March 16, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/Thomas H. Meeker /s/Robert L. Decker /s/Michael E. Miller
Thomas H. Meeker, President and Robert L. Decker, Michael E. Miller,
Chief Executive Officer Executive Vice President and Senior Vice President, Finance
March 16, 2000 Chief Financial Officer March 16, 2000
(Director and Principal Executive March 16, 2000 (Principal Accounting Officer)
Officer) (Principal Financial Officer)
/s/Daniel P. Harrington /s/Frank B. Hower, Jr.
Daniel P. Harrington Frank B. Hower, Jr. Arthur B. Modell
March 16, 2000 March 16, 2000 March 16, 2000
(Director) (Director) (Director)
/s/William S. Farish /s/G. Watts Humphrey, Jr. /s/Carl F. Pollard
William S. Farish G. Watts Humphrey, Jr. Carl F. Pollard
March 16, 2000 March 16, 2000 March 16, 2000
(Director) (Director) (Director)
/s/J. David Grissom /s/W. Bruce Lunsford /s/Dennis D. Swanson
J. David Grissom W. Bruce Lunsford Dennis D. Swanson
March 16, 2000 March 16, 2000 March 16, 2000
(Director) (Director) (Director)
/s/Charles W. Bidwill, Jr. /s/Seth W. Hancock /s/Darrell R. Wells
Charles W. Bidwill, Jr. Seth W. Hancock Darrell R. Wells
March 16, 2000 March 16, 2000 March 16, 2000
(Director) (Director) (Director)
</TABLE>
55
<PAGE>
CHURCHILL DOWNS INCORPORATED
SCHEDULE VIII. - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance, Balance,
Beginning Charged to End
Description of Period Expenses Deductions of Period
Year ended December 31, 1999:
Allowance for doubtful
account and notes receivable $121 $272 $(140) $253
Valuation allowance for
deferred tax asset - - - -
----- ---- ------ ----
$121 $272 $(140) $253
===== ---- ====== ====
Year ended December 31, 1998:
Allowance for doubtful
account and notes receivable $176 $ 1 $ (56) $121
Valuation allowance for
deferred tax asset * 173 - (173) -
----- ---- ------ ----
$349 $ 1 $(229) $121
===== ==== ====== ====
Year ended December 31, 1997:
Allowance for doubtful
account and notes receivable $165 $61 $(50) $176
Valuation allowance for
deferred tax asset * 176 - (3) 173
---- ---- ------ ----
$341 $61 $(53) $349
==== ==== ====== ====
* Adjustments taken to income represent reversals of valuation allowance
previously established for state net operating loss carryforwards.
56
<PAGE>
EXHIBIT INDEX
Numbers Description By Reference To
(2) (a) Stock Purchase Agreement and Joint Escrow Exhibit 2.1 to Report
Instructions dated as of January 21, 1999 on Form 8-K dated
by and among Churchill Downs Incorporated April 23, 1999
and KE Acquisition Corp.
(b) First Amendment to Stock Purchase Exhibit 2.2 to
Agreement dated as of April 19, 1999 by Report on Form 8-K
and between Churchill Downs Incorporated, dated April 23,
Churchill Downs Management Company and 1999
KE Acquisition Corp.
(c) Agreement and Plan of Merger and Exhibit 2.3 to Report
Amendment to Stock Purchase Agreement on Form 8-K dated
dated as of April 22,1999 by and among April 23, 1999
Churchill Downs Incorporated, Churchill
Downs Management Company, CR Acquisition
Corp., TP Acquisition Corp., Calder Race
Course, Inc., Tropical Park, Inc. and KE
Acquisition Corp.
(d) Asset Purchase Agreement dated May 5, Exhibit 2.1 to
1999 between Hollywood Park, Inc., a Registration
Delaware Corporation, and Churchill Downs Statement on Form S-3
Incorporated filed May 21, 1999
(No. 333-79031)
(e) Amendment No. 1 to Asset Purchase Exhibit 2.2 to Report
Agreement dated as of August 31, 1999 by on Form 8-K dated
and among Churchill Downs Incorporated, September 10, 1999
Churchill Downs California Company and
Hollywood Park, Inc.
(f) Stock Purchase Agreement dated as of Exhibit 2.1 to
March 28, 1998 between Churchill Downs Current Report on
Incorporated and TVI Corp. Form 8-K dated April
(g) Agreement and Plan of Merger dated as of Exhibit 2.2 to
April 17, 1998 by and among TVI Corp., Current Report on
Racing Corporation of America, Churchill Form 8-K dated April
Downs Incorporated and RCA Acquisition 21, 1998
Company
(h) Partnership Interest Purchase Agreement Page 61, Report on
dated as of February 16, 2000 by and Form 10-K for the
among Anderson Park, Inc., Churchill year ended December
Downs Management Company and Centaur, Inc. 31, 1999
(3) (a) Amended and Restated Articles of Page 91, Report on
Incorporation of Churchill Downs Form 10-K for the
Incorporated year ended December
31, 1999
57
<PAGE>
(b) Restated Bylaws of Churchill Downs Exhibit (3)(a) to
Incorporated as amended Report on Form 10-Q
for the fiscal
quarter ended June
30, 1999
(4) Rights Agreement dated as of March 19, Exhibit 4.1 to
1998 between Churchill Downs, Inc. and Current Report on
Bank of Louisville Form 8-K dated March
19, 1998
(10)(a) $250,000,000 Revolving Credit Facility Exhibit (10)(a) to
Credit Agreement between Churchill Downs Report on Form 10-Q
Incorporated, and the guarantors party for the fiscal
hereto, and the Banks party hereto and quarter ended March
PNC Bank, National Association, as Agent, 31, 1999
and CIBC Oppenheimer Corp., as
Syndication Agent, and Bank One, Kentucky,
N.A., as Documentation Agent, dated as
of April 23, 1999
(b) First Amendment to $250,000,000 Revolving Exhibit (10)(b) to
Credit Facility Credit Agreement dated Report on Form 10-Q
April 30, 1999 for the fiscal
quarter ended March
31, 1999
(c) Second Amendment to $250,000,000 Exhibit (10)(c) to
Revolving Credit Facility Credit Form 10-Q for the
Agreement dated June 14, 1999 fiscal quarter ended
June 30, 1999
(d) Third Amendment, Waiver and Consent to Page 109, Report on
$250,000,000 Revolving Credit Facility Form 10-K for the
Credit Agreement dated February 23, 2000 year ended December
31, 1999
(e) Underwriting agreement for 2,000,000 Exhibit 1.1 to
Shares of Churchill Downs Incorporated Registration
Common Stock between Churchill Downs Statement on Form
Incorporated and CIBC World Markets S-3/A filed July 15,
Corporation, Lehman Brothers, Inc., JC 1999 (No. 333-79031)
Bradford & Co., J.J.B. Hilliard, W.L.
Lyons, Inc. on behalf of several
underwriters
(f) Casino Lease Agreement dated as of Exhibit 10.1 to
September 10, 1999 by and between Report on Form 8-K
Churchill Downs California Company and dated September
Hollywood Park, Inc. 10, 1999
(g) Churchill Downs Incorporated Amended and Exhibit (10)(a) to
Restated Supplemental Benefit Plan dated Report on Form 10-K
December 1, 1998 * for the year ended
December 31, 1998
(h) Employment Agreement dated as of October Exhibit 19(a) to
1,1984, with Thomas H. Meeker, President* Report on Form 10-Q
for fiscal quarter
ended October
31, 1984
58
<PAGE>
(i) Churchill Downs Incorporated Incentive Exhibit 10 (c) to
Compensation Plan (1997) * Report on Form 10-K
for the year ended
December 31, 1996
(j) Churchill Downs Incorporated 1993 Stock Exhibit 10(h) to
Option Plan * Report on Form 10-K
for the eleven months
ended December
31, 1993
(k) Amendment of Employment Agreement with Report on Form 10-K
Thomas H. Meeker, President, dated for the fiscal year
October 1, 1984 * ended January 31,
1986; Report on Form
10-K for the fiscal
year ended January
31, 1987; 1988, 1990,
1991, 1992 and 1993
(l) Amendment No. 1 to Churchill Downs Exhibit 10 (g) to
Incorporated 1993 Stock Option Plan * Report on Form 10-K
for the year ended
December 31, 1994
(m) Amended and Restated Lease Agreement Exhibit 10 (l) to
dated January 31, 1996 Report on Form 10-K
for the year ended
December 31, 1995
(n) Partnership Interest Purchase Agreement Exhibit 10(k) to
dated December 20, 1995 among Anderson Report on Form 10-K
Park, Inc., Conseco HPLP, LLC, Pegasus for the year ended
Group, Inc. and Hoosier Park, L.P. December 31, 1995
(o) Employment Agreement between Churchill Exhibit 10 (l) to
Downs Incorporated and Robert L. Decker* Report on Form 10-Q
for the fiscal
quarter ended March
31, 1997
(p) Amendment No. 2 to Churchill Downs Report on Form 10-K
Incorporated 1993 Stock Option Plan * for the year ended
December 31, 1997
(q) Churchill Downs Incorporated, Amended and Exhibit (10)(n) to
Restated Deferred Compensation Plan for Report on Form 10-K
Employees and Directors * for the year ended
December 31, 1998
(r) Amended and Restated Churchill Downs Page 127, Report on
Incorporated 1997 Stock Option Plan * Form 10-K for the
year ended December
31, 1999
59
<PAGE>
(21) Subsidiaries of the registrant Page 137, Report on
Form 10-K for the
year ended December
31, 1999
(23) Consent of PricewaterhouseCoopers, LLP Page 138, Report on
Independent Accountants Form 10-K for the
year ended December
31, 1999
(27) Financial Data Schedule for the year Page 139, Report on
ended December 31, 1999 Form 10-K for the
year ended December
31, 1999
*Management contract or compensatory plan or arrangement.
60
PARTNERSHIP INTEREST PURCHASE AGREEMENT
By and Among
Anderson Park, Inc.,
an Indiana corporation,
Churchill Downs Management Company,
a Kentucky corporation,
and
Centaur, Inc.,
an Indiana corporation
Dated as of the 16th day of February, 2000.
61
<PAGE>
TABLE OF CONTENTS
ARTICLE I
PURCHASE OF ASSETS...................................................1
1.1 Acquisition of Transferred Partnership Interest.............1
1.2 Participation Agreement.....................................2
1.3 Consulting Fee..............................................2
ARTICLE II
PURCHASE PRICE.......................................................2
2.1 Purchase Price..............................................2
2.2 Payment of Purchase Price...................................2
2.3 Taxes and Costs.............................................3
2.4 Allocation..................................................3
ARTICLE III
CLOSING; CLOSING DELIVERIES..........................................3
3.1 Closing.....................................................3
3.2 Closing Deliveries of the Selling Parties...................3
3.3 Buyer's Closing Deliveries..................................4
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLING PARTIES................5
4.1 Representations and Warranties Concerning the
Selling Parties............................................6
(a) Organization of Seller.............................6
(b) Organization of CDMC...............................6
(c) Authorization......................................6
(d) Validity; Binding Effect...........................6
(e) Noncontravention...................................6
(f) Title to Acquired Assets...........................6
(g) Legal Compliance...................................7
4.2 Representations and Warranties Concerning
Hoosier Park...............................................7
(a) Organization of Hoosier Park.......................7
(b) Ownership Interest.................................7
(c) Financial Statements...............................7
(d) Subsequent Events..................................7
(e) Undisclosed Liabilities............................7
(f) Notes and Accounts Receivable......................8
(g) Legal Compliance...................................8
(h) Tax Matters........................................8
(i) ERISA; Benefit Plans...............................8
(j) Employees..........................................9
62
<PAGE>
(k) Litigation.........................................9
(l) Environmental, Health and Safety Matters...........9
(m) Title to Property..................................9
(n) Contracts, Agreements, and Commitments............10
4.3 Disclosure.................................................10
4.4 No Breach..................................................10
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER.............................10
5.1 Organization of Buyer......................................11
5.2 Authorization..............................................11
5.3 Validity; Binding Effect...................................11
5.4 Noncontravention...........................................11
5.5 Licensing..................................................11
5.6 Securities Matters.........................................11
5.7 Disclosure.................................................12
ARTICLE VI
COVENANTS PENDING CLOSING...........................................12
6.1 Reasonable Efforts.........................................12
6.2 Notices and Consents.......................................12
6.3 Full Access................................................12
6.4 Operation of Business......................................13
6.5 Notices....................................................13
6.6 Preservation of Business...................................13
6.7 Exclusivity................................................13
6.8 Letter of Credit...........................................14
ARTICLE VII
CONDITIONS PRECEDENT OF THE SELLING PARTIES.........................14
7.1 Performance by Buyer.......................................14
7.2 Accuracy of Representations and Warranties.................14
7.3 No Injunction..............................................14
7.4 Closing Deliveries.........................................14
7.5 Receipt of Regulatory Approvals............................14
ARTICLE VIII
BUYER'S CONDITIONS PRECEDENT........................................15
8.1 Performance by CDMC and Seller.............................15
8.2 Accuracy of Representations and Warranties.................15
8.3 No Injunction..............................................15
8.4 Closing Deliveries.........................................15
8.5 Receipt of Consents/Regulatory Approvals...................15
63
<PAGE>
8.6 No Material Change.........................................15
ARTICLE IX
POST-CLOSING COVENANTS..............................................15
9.1 Indemnification............................................15
9.2 Survival Period............................................16
9.3 Matters Affecting Partnership Agreement....................16
9.4 No Investment..............................................17
9.5 Non-Solicitation and Retention.............................17
9.6 Call Right.................................................17
9.7 Put/Call Right.............................................19
9.8 Additional Interests Acquired..............................20
9.9 Acquisition of Conseco Interest............................20
9.10 Simulcasting Rights........................................20
9.11 Disclosures................................................20
9.12 Board Participation........................................21
9.13 Due Diligence..............................................21
ARTICLE X
MISCELLANEOUS.......................................................21
10.1 Confidentiality; Press Release.............................21
10.2 Notices....................................................21
10.3 Expenses...................................................22
10.4 Governing Law..............................................23
10.5 Partial Invalidity.........................................23
10.6 Assignment.................................................23
10.7 Successors and Assigns.....................................23
10.8 Execution in Counterparts..................................23
10.9 Titles and Headings; Rules of Construction.................23
10.10 Entire Agreement; Amendments and Waivers...................24
10.11 Termination................................................24
10.12 No Third Party Beneficiaries...............................24
10.13 Definitions................................................24
64
<PAGE>
EXHIBITS
Exhibit A Form of Participation Agreement
Exhibit B Form of Consulting Agreement
Exhibit C Hoosier Park Year-End Financial Statements
Exhibit D Hoosier Park Interim Financial Statement
65
<PAGE>
PARTNERSHIP INTEREST PURCHASE AGREEMENT
THIS PARTNERSHIP INTEREST PURCHASE AGREEMENT (this "Agreement") is made
and entered into as of the 16th day of February, 2000, by and among Anderson
Park, Inc., an Indiana corporation ("Seller"), Churchill Downs Management
Company, a Kentucky corporation and the parent corporation of Seller ("CDMC")
(Seller and CDMC, collectively, the "Selling Parties") and Centaur, Inc., an
Indiana corporation ("Buyer").
RECITALS:
A. Seller is the general partner of Hoosier Park, L.P., an Indiana
limited partnership ("Hoosier Park"), and owns a seventy-seven percent (77%)
partnership interest therein.
B. Hoosier Park operates a horse race track and related pari-mutuel
wagering facility in Anderson, Indiana as well as various satellite pari-mutuel
wagering facilities in the State of Indiana (collectively, the "Gaming
Facility").
C. Seller's principal asset is its seventy-seven percent (77%) general
partnership interest in Hoosier Park.
D. Buyer desires to acquire from Seller, and Seller desires to sell to
Buyer, (i) all right, title and interest of Seller in, to and under Seller's
interest as a partner in Hoosier Park equal to twenty-six percent (26%) of all
of the partnership interests therein now outstanding (the "Transferred
Partnership Interest"), and (ii) the right to purchase from Seller either (1)
its remaining fifty-one percent (51%) interest as a partner in Hoosier Park (the
"Remaining Asset"), or (2) a portion (the "Asset Portion") of the Remaining
Asset and all of the issued and outstanding common shares of Seller (the Asset
Portion and such issued and outstanding shares, collectively, the "Asset and
Stock Combination"), on the terms and subject to the conditions set forth in
this Agreement. Buyer's right under Subsection (ii)(1) is hereinafter referred
to as the "Asset Purchase Right" and its right under Subsection (ii)(2) as the
"Stock and Asset Right".
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
PURCHASE OF ASSETS
1.1 Acquisition of Transferred Partnership Interest. Upon the terms and
subject to the conditions contained herein, Seller shall (and CDMC shall cause
Seller to) sell and transfer to Buyer, and Buyer shall purchase and acquire from
Seller, at the Closing (as hereinafter defined), all of
66
<PAGE>
Seller's right, title and interest in, to and under the Transferred Partnership
Interest, free and clear of all security interests, liens, restrictions, claims,
encumbrances or charges of any kind, other than those set forth in the
Partnership Agreement or restrictions under any federal or state securities laws
(collectively, "Encumbrances").
1.2 Participation Agreement. At the Closing, CDMC shall grant to Buyer,
by delivery of the Participation Agreement substantially in the form attached
hereto as Exhibit A (the "Participation Agreement") a twenty-six percent (26%)
interest in that certain loan (including all accrued and unpaid interest
thereon) owed to CDMC by Hoosier Park in the original principal amount of
$28,700,000, evidenced by that certain Second Amended Secured Promissory Note
dated November 1, 1994 and executed by Hoosier Park in favor of CDMC (such loan,
the "Loan" and such interest therein, the "Transferred Loan Interest").
1.3 Consulting Fee. At the Closing and in consideration for certain
advisory services to be performed by Buyer in favor of CDMC (as described in the
Consulting Agreement defined below), CDMC shall pay to Buyer an amount equal to
twenty percent (20%) of all the management fees (the "Consulting Fee") payable
to CDMC (in excess of $400,000 annually and other than any management fees
accrued and unpaid at Closing) under the Amended and Restated Management
Agreement dated May 31, 1996, between CDMC and Hoosier Park (the "Existing
Management Agreement"), by delivery of the Consulting Agreement substantially in
the form attached hereto as Exhibit B (the "Consulting Agreement").
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price. In consideration for the Transferred Partnership
Interest to be sold and transferred to Buyer, the Transferred Loan Interest and
the Consulting Fee and upon the terms and conditions contained herein, Buyer
shall pay or cause to be paid to or for the account of Seller (as set forth in
Section 2.2 below), Eight Million Five Hundred Thousand Dollars ($8,500,000)
(the "Purchase Price").
2.2 Payment of Purchase Price. Buyer shall pay the Purchase Price to
Seller as follows:
(a) Buyer shall deliver an irrevocable letter of credit, in a
form and from a financial institution acceptable to Seller, in the amount of Two
Million Five Hundred Thousand Dollars ($2,500,000) (the "Deposit Amount") to
Seller upon the execution of this Agreement; and
(b) Buyer shall pay the Purchase Price, less any amounts drawn
on the letter of credit described in Section 2.2(a) above, to Seller at Closing
by wire transfer to an account or accounts designated by Seller at least
forty-eight hours prior to Closing.
67
<PAGE>
Seller shall only draw upon such letter of credit as permitted under Section 6.8
below and any funds drawn thereon shall be applied to the Purchase Price at the
time of Closing or as otherwise provided in Section 6.8.
2.3 Taxes and Costs. All taxes, stamp duties, notarial, registration
and recording fees resulting from or relating to the sale and transfer of the
Transferred Partnership Interest as contemplated hereby shall be paid by Seller.
2.4 Allocation. The parties shall agree at the Closing to the
allocation of the Purchase Price among the Transferred Partnership Interest and
the Transferred Loan Interest for financial accounting and tax purposes so that
the portion of the Purchase Price attributable to the Transferred Loan Interest
shall be equal to twenty-six percent (26%) of the then principal balance of the
Loan and all accrued interest thereon, with all remaining Purchase Price
allocated to the Transferred Partnership Interest.
ARTICLE III
CLOSING; CLOSING DELIVERIES
3.1 Closing. The "Closing" means the time at which the Selling Parties
consummate the sale and transfer of the Transferred Partnership Interest, the
Transferred Loan Interest and the Consulting Fee (collectively, the "Transferred
Interests") to Buyer, against payment by Buyer of the Purchase Price, after the
satisfaction (or receipt of a duly executed waiver) of each of the conditions
precedent to Closing as hereinafter described. The Closing shall take place at
the offices of Buyer's counsel, Sommer & Barnard, PC, 4000 Bank One Tower, 111
Monument Circle, Indianapolis, Indiana. Subject to Section 10.11 below, the
Closing shall occur at 10:00 a.m., Eastern Standard Time, on June 30, 2000, or
such other date as the parties may mutually agree. The date on which the Closing
occurs is herein referred to as the "Closing Date".
3.2 Closing Deliveries of the Selling Parties. At the Closing, in
addition to any other documents specifically required to be delivered pursuant
to this Agreement, the Selling Parties shall, in form and substance reasonably
satisfactory to Buyer and its counsel, deliver to Buyer the following:
(a) A Bill of Sale and Assignment, duly executed by Seller,
conveying all of Seller's right, title and interest in, to and under the
Transferred Partnership Interest to Buyer;
(b) A counterpart to the Participation Agreement, duly
executed by CDMC;
(c) A counterpart to the Consulting Agreement, duly
executed by CDMC;
(d) A certificate, duly executed by each of the Selling
Parties, certifying that each of the Selling Parties has performed and complied
with, in all material respects, all of the terms, provisions and conditions of
this Agreement to be performed and complied with by each of them at
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or prior to Closing and that their respective representations and warranties
are true in all material respects as of the date of this Agreement and as of the
Closing (except as expressly contemplated or permitted by this Agreement);
(e) A certificate of the Secretary or Assistant Secretary of
Seller, dated the Closing Date, certifying (i) the resolutions duly adopted by
CDMC, as sole shareholder of Seller (if required by Law, as hereinafter
defined), and the Board of Directors of Seller authorizing and approving the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby, and (ii) that such resolutions have not been rescinded or
modified and remain in full force and effect as of the Closing Date;
(f) A certificate of the Secretary or Assistant Secretary of
CDMC, dated the Closing Date, certifying (i) the resolutions duly adopted the
Board of Directors of CDMC authorizing and approving the execution, delivery and
performance of this Agreement and the transactions contemplated hereby, and (ii)
that such resolutions have not been rescinded or modified and remain in full
force and effect as of the Closing Date;
(g) A Certificate of Existence of Seller, dated no more than
ten days prior to the Closing Date, issued by the Secretary of State of Indiana;
(h) A Certificate of Existence of CDMC, dated no more than ten
days prior to the Closing Date, issued by the Secretary of State of Kentucky;
(i) An opinion of Wyatt, Tarrant & Combs, counsel for the
Selling Parties, dated the Closing Date and addressed to Buyer, containing
customary opinions;
(j) Such other instruments of sale, transfer, conveyance and
assignment as Buyer and its counsel may reasonably request to effect the
transfer of the Transferred Interests as contemplated hereby, including, without
limitation, such documents as are required by the Amended and Restated Hoosier
Park, L.P. Agreement of Limited Partnership dated as of May 31, 1996, among the
partners of Hoosier Park (the "Partnership Agreement") to cause the sale and
transfer of the Transferred Partnership Interest as herein contemplated to be
effective and to cause the conveyance of the Transferred Partnership Interest to
Buyer to be recognized by Hoosier Park and accurately reflected in Schedule 1 to
the Partnership Agreement and in such other of its records as relate to the
identity of its partners and the extent of their partnership interests or as
otherwise required by applicable agreements; and
(k) All other previously undelivered items required to be
delivered by any of the Selling Parties at or prior to Closing pursuant to this
Agreement or otherwise required in connection herewith unless waived in writing
by Buyer.
3.3 Buyer's Closing Deliveries. At the Closing, in addition to any
other documents specifically required to be delivered pursuant to this
Agreement, Buyer shall, in form and substance
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reasonably satisfactory to the Selling Parties and their counsel, deliver to
the Selling Parties the following:
(a) The portion of the Purchase Price (in U. S. Dollars) to be
paid at the Closing pursuant to Section 2.2(b) of this Agreement;
(b) A counterpart to the Participation Agreement,duly executed
by Buyer;
(c) A counterpart to the Consulting Agreement, duly executed
by Buyer;
(d) A certificate, duly executed by Buyer, certifying that
Buyer has performed and complied with, in all material respects, all of the
terms, provisions and conditions of this Agreement to be performed and complied
with by it at or prior to Closing and that its representations and warranties
are true in all material respects as of the date of this Agreement and as of the
Closing (except as expressly contemplated or permitted by this Agreement);
(e) A certificate of the Secretary or Assistant Secretary of
Buyer, dated the Closing Date, certifying (i) the resolutions duly adopted by
the Board of Directors of Buyer authorizing and approving the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby, and (ii) that such resolutions have not been rescinded or modified and
remain in full force and effect as of the Closing Date;
(f) A Certificate of Existence of Buyer, dated no more than
ten days prior to the Closing Date, issued by the Secretary of State of Indiana;
(g) An opinion of Sommer & Barnard, P.C., counsel for Buyer,
dated the Closing Date, addressed to the Selling Parties, containing customary
opinions; and
(h) All other previously undelivered items required to be
delivered by Buyer at or prior to Closing pursuant to this Agreement or
otherwise required in connection herewith unless waived in writing by each of
the Selling Parties.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLING PARTIES
As an inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, the Selling Parties, jointly
and severally, represent and warrant to Buyer, and Buyer in agreeing to pay the
Purchase Price and to otherwise consummate the transactions contemplated by this
Agreement has relied upon such representations and warranties, except as set
forth in that certain Disclosure Letter which is referred to herein and which
has previously been delivered by the Selling Parties to Buyer, as follows:
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4.1 Representations and Warranties Concerning the Selling Parties.
(a) Organization of Seller. Seller is a corporation duly
organized and validly existing under the laws of the state of its organization
and is qualified to do business as a foreign corporation in good standing in
each other state wherein the nature of its business or activities requires such
qualification.
(b) Organization of CDMC. CDMC is a corporation duly organized
and validly existing under the laws of the state of its organization and is
qualified to do business as a foreign corporation in good standing in each other
state wherein the nature of its respective business or activities requires such
qualification.
(c) Authorization. Each of the Selling Parties has full
corporate power and authority to (a) execute and deliver this Agreement and to
perform its respective obligations hereunder, and (b) own and operate its
respective assets, properties and business and carry on its respective business
as presently conducted. The execution, delivery and performance of this
Agreement have been duly authorized by all necessary corporate action on the
part of each of the Selling Parties, including director and shareholder (where
required) authorization.
(d) Validity; Binding Effect. This Agreement has been duly and
validly executed and delivered by each of the Selling Parties and constitutes a
valid and legally binding obligation of each of the Selling Parties, enforceable
against each of the Selling Parties in accordance with its terms.
(e) Noncontravention. The execution, delivery and performance
of this Agreement by each of the Selling Parties, the consummation of the
transactions contemplated hereby and the compliance with or fulfillment of the
terms and provisions hereof or of any other agreement or instrument contemplated
hereby, do not and will not (i) conflict with or result in a breach of any of
the provisions of the Articles of Incorporation or Bylaws of any of the Selling
Parties, (ii) contravene any Law which affects or binds any of the Selling
Parties or any of their respective properties, (iii) except as set forth in the
Disclosure Letter, conflict with, result in a breach of, constitute a default
under, or give rise to a right of termination or acceleration under any material
contract, agreement, note, deed of trust, mortgage, trust, lease, Governmental
(as hereinafter defined) or other license, permit or other authorization, or any
other material instrument or restriction to which any of the Selling Parties is
a party or by which any of their respective properties may be affected or bound,
or (iv) except for the Regulatory Approvals (as hereinafter defined) require any
of the Selling Parties to obtain the approval, consent or authorization of, or
to make any declaration, filing or registration with, any third party or any
Governmental authority which has not been obtained in writing prior to the date
of this Agreement.
(f) Title to Acquired Assets. Seller has, or will have at
Closing, good and marketable title to the Transferred Partnership Interest, free
and clear of any and all Encumbrances.
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(g) Legal Compliance. Seller has complied in all material
respects with all applicable Laws (including rules, regulation, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local and foreign governments (and all agencies thereof) and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against Seller alleging any
failure so to comply.
4.2 Representations and Warranties Concerning Hoosier Park.
(a) Organization of Hoosier Park. Hoosier Park is a limited
partnership duly organized and validly existing under the laws of the State of
Indiana and is qualified to do business as a foreign limited partnership in good
standing in each other state wherein the nature of its business or activities
requires such qualification.
(b) Ownership Interest. Hoosier Park is owned seventy-seven
percent (77%) by Seller and to Seller's knowledge ten percent (10%) by Conseco
HPLP, L.L.C., an Indiana limited liability company ("Conseco"). To Seller's
knowledge, other than the interest of Centaur, there are no other holders of any
ownership interest in Hoosier Park. There are no outstanding subscriptions,
options, warrants, contracts, commitments, convertible securities or other
agreements or arrangements of any character or nature whatsoever under which
Hoosier Park or Seller is or may become obligated to issue, assign or transfer
any ownership interest in Hoosier Park, except as provided in the Partnership
Agreement.
(c) Financial Statements. The (i) audited balance sheets and
statements of income, changes in stockholders' equity and cash flow as of and
for the fiscal years ending 1996, 1997 and 1998 for Hoosier Park, attached
hereto as Exhibit C, and (ii) unaudited balance sheets and statements of income,
statement of partner's capital and cash flow as of and for the months ended
November 30, 1999 (the "Hoosier Park Interim Financial Statements"), for Hoosier
Park attached hereto as Exhibit D have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods covered thereby and present fairly the financial condition of Hoosier
Park as of such dates and the results of operations of Hoosier Park for such
periods; provided, however, that the Hoosier Park Interim Financial Statements
are subject to normal year-end adjustments and lack footnotes and other
presentation items required under generally accepted accounting principles.
(d) Subsequent Events. Since the date of the Hoosier Park
Interim Financial Statements, to the Selling Parties' knowledge there has not
been any material adverse change in the business, financial condition,
operations or result of operations of Hoosier Park.
(e) Undisclosed Liabilities. To the Selling Parties'
knowledge, Hoosier Park has no liability (and there is no basis for any present
or future action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand against it giving rise to any liability), except for (i)
liabilities (whether known or unknown, foreseen or unforseen, contingent or
otherwise
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("Liabilities")) disclosed in the Hoosier Park Interim Financial Statements,
and (ii) Liabilities not required to be so disclosed or which have arisen
thereafter in the ordinary course of business.
(f) Notes and Accounts Receivable. Except as set forth in the
Disclosure Letter, all notes and accounts receivable of Hoosier Park are
reflected properly on its books and records, and to the knowledge of the Selling
Parties, all material notes and accounts receivable of Hoosier Park are valid
receivables subject to no setoffs or counterclaims, are current and are
collectible in accordance with their terms at their recorded amounts, subject
only to the reserve for bad debts set forth on the face of the balance sheet
contained in the Hoosier Park Interim Financial Statements (rather than in any
notes thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of Hoosier Park. At the Closing,
Hoosier Park will have no obligations for borrowed money or the deferred
purchase price of any asset, other than the Loan and capitalized leases incurred
in the ordinary course of business.
(g) Legal Compliance. Hoosier Park has complied in all
material respects with all applicable Laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local and foreign Governments (and all agencies thereof) and
no action, suit, proceeding, hearing, investigation, charge, complaint, demand,
or notice has been filed or commenced against Hoosier Park alleging any failure
so to comply.
(h) Tax Matters.
(i) Hoosier Park has filed all tax returns that it was
required to file. All such tax returns were prepared in substantial compliance
with applicable rules and instructions. Seller has delivered true and complete
copies of all the tax returns of Hoosier Park for the last three (3) years to
Buyer. All taxes, penalties, and interest (collectively, "Taxes") owed by
Hoosier Park (whether or not shown on any tax return) have been paid, except as
being contested in good faith, including the matters set forth in the Disclosure
Letter. Hoosier Park is not currently the beneficiary of any extension of time
within which to file any tax return. No claim has ever been made by an authority
in a jurisdiction where Hoosier Park does not file tax returns that it is or may
be subject to taxation by that jurisdiction.
(ii) Hoosier Park has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
(iii)Hoosier Park has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(i) ERISA; Benefit Plans. The Disclosure Letter describes each
employee benefit plan (as such term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and each other
material employee benefit plan, program or
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arrangement maintained, contributed to or required to be contributed to, by
Hoosier Park as of the date hereof on account of current or former employees of
Hoosier Park (each, a "Benefit Plan").
(i)Each Benefit Plan that is intended to be qualified
under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code") has received a determination from the Internal Revenue Service that
such Benefit Plan is so qualified and nothing has occurred since the date of
such determination that would adversely affect the qualified status of such
Benefit Plan.
(ii) Each Benefit Plan has been maintained, funded, and
administered in compliance with its terms, the terms of any applicable
collective bargaining agreements, and all applicable laws including, but not
limited to, ERISA and the Code.
(j) Employees. To the knowledge of each of the Selling
Parties, no executive, key employee, or group of employees has any plans to
terminate employment with Hoosier Park. Except as set forth in the Disclosure
Letter, Hoosier Park is not a party to or bound by any collective bargaining
agreement, nor has Hoosier Park experienced any material strikes, grievances,
claims of unfair labor practices, or other collective bargaining disputes. To
the knowledge of the Selling Parties, Hoosier Park has not committed any unfair
labor practice. None of the Selling Parties has any knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of Hoosier Park.
(k) Litigation. Hoosier Park (i) is not subject to any
material outstanding injunction, judgment, order, decree, ruling or charge, and
(ii) is not a party to (or to the best of the knowledge of each of the Selling
Parties, threatened to be made a party to) any action, suit, proceeding, hearing
or investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local or foreign jurisdiction.
(l) Environmental, Health and Safety Matters.
i)To the knowledge of the Selling Parties, Hoosier Park is
in compliance with all federal, state, local and foreign statutes, regulations
and ordinances concerning public health and safety, worker health and safety
and pollution or protection of the environment, including, without limitation,
all those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control or cleanup of any
hazardous materials, substances or wastes (collectively, "Environmental, Health
and Safety Requirements").
(ii) Hoosier Park has not received any written notice,
report or other information regarding any active or alleged violation of any
Environmental, Health and Safety Requirements.
(m) Title to Property. Hoosier Park has good and marketable
title to or, as applicable, a valid leasehold interest in all of its assets and
properties (or interests therein), real or
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personal, tangible or intangible, which it owns or leases, free and clear of
all Encumbrances except for those (i) Encumbrances set forth in the Disclosure
Letter, (ii) liens for real and personal property taxes not yet due and payable,
(iii) statutory landlord's liens, or (iv) any liens incurred in the ordinary
course of business since March 3, 1999 and which will not have an adverse effect
on the operation or use of its property.
(n) Contracts, Agreements, and Commitments. Except for the
contracts, agreements and commitments set forth in the Disclosure Letter (true
and complete copies of which have been provided to or made available to Buyer),
Hoosier Park is not a party to, or bound by any written or oral contract,
agreement or commitment which involves the payment or potential payment per
annum by or to Hoosier Park of more than Fifty Thousand Dollars ($50,000)
individually or One Hundred Thousand Dollars ($100,000) in the aggregate (with
respect to contracts relating to the same general subject matter) or that are
otherwise material to the business, operations, assets or property of Hoosier
Park (including, without limitation, oral or written employment agreements,
consulting or deferred compensation agreements). Each contract disclosed or
required to be disclosed in the Disclosure Letter is in full force and effect
and constitutes a valid and binding obligation of Hoosier Park in accordance
with its terms and, to the Selling Parties' knowledge, no party to such
contract, has violated, breached or defaulted under such contract, unless such
violation, breach or default has been cured or waived, or, with or without
notice or lapse of time or both, would be in violation or breach of or default
under any such contract.
4.3 Disclosure. None of the representations or warranties of any of the
Selling Parties contained in this Article IV, and none of the information
contained in the Disclosure Letter referred to in this Article IV, is false or
misleading in any material respect or omits to state a fact herein or therein
necessary to make the statements made herein or therein not misleading in any
material respect.
4.4 No Breach. Notwithstanding anything to the contrary herein
contained, no inaccuracy of any of the representations or warranties set forth
in Sections 4.2(h), (i), (j) or (l) of this Agreement shall constitute a breach
of this Agreement on which a right of action could be maintained against the
Selling Parties.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to the Selling Parties to enter into this Agreement
and to consummate the transactions contemplated hereby, Buyer represents and
warrants to each of the Selling Parties, and each of the Selling parties in
agreeing to consummate the transactions contemplated by this Agreement has
relied upon such representations and warranties, as follows:
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5.1 Organization of Buyer. Buyer is a corporation duly organized and
validly existing under the laws of the State of Indiana and is qualified to do
business as a foreign corporation in good standing in each other state wherein
the nature of its business or activities requires such qualification.
5.2 Authorization. Buyer has full corporate power and authority to (a)
execute and deliver this Agreement and to perform its obligations hereunder, and
(b) own and operate its assets, properties and business and carry on its
business as presently conducted. The execution, delivery and performance of this
Agreement has been duly authorized by all necessary corporate action on the part
of Buyer, including director authorization.
5.3 Validity; Binding Effect. This Agreement has been duly and validly
executed and delivered by Buyer and constitutes a valid and legally binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
5.4 Noncontravention. The execution, delivery and performance of this
Agreement by Buyer, the consummation of the transactions contemplated hereby and
the compliance with or fulfillment of the terms and provisions hereof or of any
other agreement or instrument contemplated hereby, do not and will not (a)
conflict with or result in a breach of any of the provisions of the Articles of
Incorporation or Bylaws of Buyer, (b) contravene any Law which affects or binds
Buyer or any of its properties, (c) conflict with, result in a breach of,
constitute a default under, or give rise to a right of termination or
acceleration under any material contract, agreement, note, deed of trust,
mortgage, trust, lease, Governmental or other license, permit or other
authorization, or any other material instrument or restriction to which Buyer is
a party or by which any of its properties may be affected or bound, or (d)
except for the Regulatory Approvals require Buyer to obtain the approval,
consent or authorization of, or to make any declaration, filing or registration
with, any third party or any Governmental authority which has not been obtained
in writing prior to the date of this Agreement.
5.5 Licensing. Buyer, its beneficial owners and its Affiliates are
Qualified (both as hereinafter defined), and shall be Qualified at the Closing,
to acquire an interest in Hoosier Park pursuant to Indiana Code Section 4-31-1
et. seq. or any other applicable Indiana law and the rules and regulations of
the IHRC. "Qualified" shall include, without limitation, the ability to obtain a
license from the IHRC. Buyer, in its reasonable judgment, believes that it, its
beneficial owners and its Affiliates will not jeopardize Hoosier Park's
continuing opportunity to conduct its business.
5.6 Securities Matters
(a) Buyer understands and agrees that the Transferred
Partnership Interest has not been registered under the Securities Act of 1933,
as amended (the "Act"), or any state securities act and, therefore, may not be
resold unless registered under such acts or unless an exemption from
registration is available. Buyer further understands that the certificate
evidencing the Transferred Partnership Interest will contain a legend setting
forth the restrictions on transferability of such shares.
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(b) Buyer is purchasing the Transferred Partnership Interest
for investment only for its own account and not with a view to the distribution
or resale thereof.
(c) Buyer acknowledges that the Transferred Partnership
Interest is a speculative investment which involves a risk of loss by it of its
entire investment.
(d) Buyer is an "accredited investor" as defined in Rule
501(a) promulgated under the Act and has sufficient knowledge and experience in
business and financial matters to evaluate the merits and risks of an investment
in the Transferred Partnership Interest.
(e) Buyer has been afforded access to all material books,
records and contracts of Hoosier Park, has had an opportunity to ask questions
of and receive answers from Hoosier Park, or a person or persons acting on
behalf of Hoosier Park concerning the business and affairs of Hoosier Park and
concerning the terms and conditions of an investment in the Transferred
Partnership Interest; and all such questions have been answered to its full
satisfaction.
5.7 Disclosure. None of the representations or warranties of Buyer
contained in this Article V is false or misleading in any material respect or
omits to state a fact herein or therein necessary to make the statements made
herein or therein not misleading in any material respect.
ARTICLE VI
COVENANTS PENDING CLOSING
The parties agree as follows with respect to the period between the
date of the execution of this Agreement and the Closing:
6.1 Reasonable Efforts. Each of the parties hereto shall take all
action and do all things reasonably necessary, proper or advisable in order to
consummate the transactions contemplated by this Agreement, including, without
limitation, (a) obtaining the Regulatory Approvals and resolving any licensing
issues before the IHRC, and (b) satisfaction, but not waiver, of the conditions
to Closing set forth below.
6.2 Notices and Consents. Each of the parties hereto shall use
reasonable efforts to obtain any and all consents of third parties and
Governmental authorities (including, without limitation, the Regulatory
Approvals) as are necessary to consummate the transactions contemplated hereby;
provided, however, that no party hereto shall be obligated under this Section
6.2 until after March 30, 2000.
6.3 Full Access. Seller shall, and Seller shall cause Hoosier Park to,
permit the representatives of Buyer to have full access at all reasonable times,
and in a manner so as not to interfere with the normal business operations of
Hoosier Park and Seller, to all premises, properties, personnel, books, records
(including tax records), contracts and documents of or pertaining to
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Hoosier Park, Seller, the Transferred Partnership Interest, the Remaining
Asset, the Transferred Loan Interest and the Consulting Fee.
6.4 Operation of Business. From and after the date hereof until the
Closing, Hoosier Park and Seller will (and CDMC shall cause Seller, and Seller
shall cause Hoosier Park, to): (a) operate their respective businesses in the
ordinary course, consistent with past practice; (b) use their best efforts to
preserve their operations so that Buyer will obtain the benefits intended to be
afforded by this Agreement; (c) not take or permit any action which would result
in any representation or warranty of any of the Selling Parties becoming
incorrect or untrue in any material respect or result in the failure of any of
the Selling Parties to comply with its covenants and agreements herein in any
material respect; and (d) notify Buyer in writing promptly after any of the
Selling parties becomes aware of the occurrence of any event (other than matters
of general knowledge or otherwise known to Buyer) that might have a material
adverse effect on the business, operations or financial condition of Hoosier
Park. By way of describing the limitations described in Section 6.4(a) above,
but without limiting the scope of such provision, Seller will not (nor will CDMC
permit Seller nor will Seller permit Hoosier Park to): (x) make any
non-customary or extraordinary distributions or payments to any party
(including, without limitation, CDMC or Seller) for any purpose whatsoever (the
parties acknowledging that payments under the Existing Management Agreement and
the Loan are customary and not extraordinary), (y) enter into any material
agreement (oral or written) that is likely to continue beyond the Closing Date
(without the written consent of Buyer, which consent shall not be unreasonably
withheld), except that Hoosier Park may enter into concession agreements in the
ordinary course of business and on commercially reasonable terms, or (z) sell,
transfer or encumber (or enter into any agreement to sell transfer or encumber)
any of the Transferred Partnership Interest, the Remaining Asset, the
Transferred Loan Interest or the Consulting Fee (except as contemplated by this
Agreement).
6.5 Notices. The parties hereto will promptly notify each other in
writing if any of them receives any notice, or otherwise becomes aware, of any
action or proceeding instituted or threatened before any court or governmental
agency or by any third party to restrain or prohibit, or obtain substantial
damages in respect of this Agreement or the consummation of the transactions
contemplated hereby.
6.6 Preservation of Business. Hoosier Park will use its best efforts to
keep (and Seller will cause Hoosier Park to keep) its business and properties
substantially intact, including, its present operations, physical facilities,
working conditions, and relationships with lessors, licensors, suppliers,
customers, and employees.
6.7 Exclusivity. Seller will not (and CDMC will not cause or permit
Seller to) (a) solicit, initiate, or encourage the submission of any proposal or
offer from any third party relating to the acquisition of any interest in
Hoosier Park, or any capital stock or other voting securities, or any
substantial portion of the assets, of Seller (including any acquisition
structured as a merger, consolidation, or share exchange or any acquisition of
any interest in Seller's partnership interest in Hoosier Park) or (b)
participate in any discussions or negotiations regarding, furnish any
information
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with respect to, assist or participate in, or facilitate in any other manner
any effort or attempt by any third party to do or seek any of the foregoing.
Seller will notify Buyer immediately if any third party makes any proposal,
offer, inquiry, or contact with respect to any of the foregoing.
6.8 Letter of Credit. Seller may not draw upon the letter of credit
described in Section 2.2(a) above until Closing or if the Closing does not occur
for any reason other than (a) a breach of a material provision of this Agreement
by any of the Selling Parties (whether or not a right of action exists with
respect to such breach), or (b) the failure or refusal of the IHRC to grant the
approval described in Section 7.5 of this Agreement (unless such refusal or
failure is caused by the action or inaction, or an attribute, of Buyer) at which
time Buyer shall forfeit the Deposit Amount and Seller can draw upon the letter
of credit for payment thereof. The forfeiture of the Deposit Amount as set forth
above shall not constitute a waiver of any legal or equitable remedies,
including specific performance, available to the Selling Parties.
ARTICLE VII
CONDITIONS PRECEDENT OF THE SELLING PARTIES
The obligation of the Selling Parties to effect the transactions
contemplated by this Agreement is subject to the fulfillment at or prior to the
Closing of each of the following conditions, except to the extent any such
condition is waived in writing by all of the Selling Parties:
7.1 Performance by Buyer. Buyer shall have performed and complied in
all material respects with all of the terms, provisions and conditions of this
Agreement to be performed and complied with by Buyer at or prior to the Closing.
7.2 Accuracy of Representations and Warranties. All of the
representations and warranties made by Buyer in this Agreement shall be true in
all material respects as of the date of this Agreement and as of the Closing
(except as expressly contemplated or permitted by this Agreement).
7.3 No Injunction. No injunction, restraining order, judgment or decree
of any court or Governmental authority shall be existing against any of the
parties to this Agreement or any of their officers, directors or
representatives, which restrains, prevents or materially alters the transactions
contemplated hereby.
7.4 Closing Deliveries. Buyer shall have delivered to the Selling
Parties each of the documents required of Buyer under Section 3.3 of this
Agreement.
7.5 Receipt of Regulatory Approvals. Seller shall have received the
approval of the Indiana Horse Racing Commission (the "IHRC"), and the City of
Anderson, Indiana, Parks and Recreations Board (to the extent their approval is
required by applicable Law or agreement) (collectively, the "Regulatory
Approvals").
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ARTICLE VIII
BUYER'S CONDITIONS PRECEDENT
The obligation of Buyer to effect the transactions contemplated by this
Agreement is subject to the fulfillment at or prior to the Closing of each of
the following conditions, except to the extent any such condition is waived in
writing by Buyer:
8.1 Performance by CDMC and Seller. Each of the Selling Parties shall
have performed and complied in all material respects with all of the terms,
provisions and conditions of this Agreement to be performed and complied with by
it at or prior to the Closing.
8.2 Accuracy of Representations and Warranties. All of the
representations and warranties made by the Selling Parties in this Agreement
shall be true in all material respects as of the date of this Agreement and as
of the Closing (except as expressly contemplated or permitted by this
Agreement).
8.3 No Injunction. No injunction, restraining order, judgment or decree
of any court or Governmental authority shall be existing against any of the
parties to this Agreement or any of their officers, directors or
representatives, which restrains, prevents or materially alters the transactions
contemplated hereby.
8.4 Closing Deliveries. The Selling Parties shall have delivered to
Buyer each of the documents required of them under Section 3.2 of this
Agreement.
8.5 Receipt of Consents/Regulatory Approvals. Buyer shall have received
all of the Regulatory Approvals.
8.6 No Material Change. There will not have occurred (a) any suspension
or revocation of the IHRC license for Hoosier Park or (b) any destruction or
disposition (voluntary or involuntary, except as contemplated by this Agreement)
of a material part of the assets of Hoosier Park.
ARTICLE IX
POST-CLOSING COVENANTS
The parties agree as follows with respect to the period after the
Closing:
9.1 Indemnification.
(a) The Selling Parties shall, jointly and severally,
indemnify and hold Buyer harmless from and against any and all damages, claims,
causes of action, losses and expenses, including reasonable attorneys' fees and
expenses (collectively, "Indemnifiable Losses"), incurred
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in connection with or arising from (i) any nonfulfillment or breach by any of
the Selling Parties of any of their agreements or covenants contained in this
Agreement, (ii) any breach of any warranty or the inaccuracy of any
representation or warranty of any of the Selling Parties contained in this
Agreement or in the Disclosure Letter (other than the representations and
warranties set forth in Sections 4.2(h), 4.2(i), 4.2 (j) or 4.2(l) of this
Agreement), (iii) any Liabilities of any of the Selling Parties, and (iv)
ownership of the Transferred Partnership Interest prior to the Closing;
provided, however, that Buyer shall not be entitled to make a claim for
indemnification under Section 9.1(a) (ii) until Buyer's Indemnifiable Losses in
the aggregate equal or exceed One Hundred Thousand Dollars ($100,000) (the
"Threshold Level"); provided, further, that once a claim for such
indemnification exceeds the Threshold Level, such indemnification shall be made
from the first dollar of Indemnifiable Losses and no indemnity shall be provided
for such Indemnifiable Losses in excess of One Million Dollars ($1,000,000) (the
"Indemnity Limit").
(b) Buyer shall indemnify and hold each of the Selling Parties
harmless from and against any and all Indemnifiable Losses incurred in
connection with or arising from (i) any nonfulfillment or breach by Buyer of any
of its agreements or covenants contained in this Agreement, (ii) any breach of
any warranty or the inaccuracy of any representation or warranty of Buyer
contained in this Agreement, and (iii) ownership of the Transferred Partnership
Interest after the Closing; provided, however, that Seller shall not be entitled
to make a claim for indemnification under Section 9.1(b)(ii) until Seller's
Indemnifiable Losses in the aggregate equal or exceed the Threshold Level;
provided, further, that once a claim for such indemnification exceeds the
Threshold Level, such indemnification shall be made from the first dollar of
Indemnifiable Losses and no indemnity shall be provided for such Indemnifiable
Losses in excess of the Indemnity Limit.
9.2 Survival Period. Except as otherwise specifically provided herein,
the representations and warranties contained in this Agreement or in the
Disclosure Letter delivered pursuant to this Agreement (or in any other
information delivered to any other party incident to the transactions
contemplated hereby) shall survive the Closing and shall remain in full force
and effect, regardless of any investigation made by or on behalf of any party
hereto, and shall continue for a period of one (1) year after the Closing Date,
at which time all of such representations and warranties shall terminate.
Notwithstanding anything contained in this Section 9.2 to the contrary, any
claim for indemnification made by any party hereto in writing to another party
hereto prior to the expiration of the survival period set forth above shall
survive until such claim has been resolved.
9.3 Matters Affecting Partnership Agreement. Buyer and Seller shall
discharge in full all of their respective obligations arising from, through or
in any manner related to the Partnership Agreement, including, without
limitation, any obligations owed to Conseco under Section 10.2(d) thereof.
Specifically, but not by way of limitation, Buyer agrees that if Conseco
exercises its co-sale right under the Partnership Agreement or otherwise desires
to sell its interest as a partner in Hoosier Park, at the election of Conseco,
Buyer shall either (a) purchase the entire partnership interest of Conseco in
Hoosier Park and all rights of Conseco in, to or under the Loan, the Existing
Management Agreement and any and all other interest of Conseco in any way
relating thereto, but excluding accrued and unpaid financial advisory fees, if
any (collectively, the "Conseco Interest")
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for an amount equal to the result of ten (10) multiplied by a fraction (the
"Fraction") the numerator of which is equal to the Purchase Price and the
denominator of which is equal to twenty-six (26), or (b) purchase twenty-six
seventy-sevenths (26/77) of the Conseco Interest for an amount equal to
twenty-six seventy-sevenths (26/77) of ten (10) multiplied by the Fraction and
offer to purchase the remaining portion of the Conseco Interest (i.e., fifty-one
seventy sevenths (51/77) of the Conseco Interest) for an amount equal to
fifty-one seventy-sevenths (51/77) of ten (10) multiplied by a fraction the
numerator of which is equal to the Call Price (as hereinafter defined) and the
denominator of which is equal to fifty-one (51). Notwithstanding any other
provision of this Agreement, Buyer shall not be in breach of this Agreement for
failure to consummate the purchase of the Conseco Interest as set forth in this
Section 9.3 above if such failure is caused by the failure or refusal of Conseco
to sell the Conseco Interest on such terms or its failure or refusal to
consummate such a sale.
9.4 No Investment. From the date of this Agreement and for a period of
five years thereafter, Buyer and its Affiliates will not acquire equity
securities representing more than five percent (5%) of the issued and
outstanding equity securities of Churchill Downs Incorporated, a Kentucky
corporation.
9.5 Non-Solicitation and Retention.
(a) From the date on which the sale of the Retained
Partnership Interest (as hereinafter defined) from Seller to Buyer is
consummated pursuant to either Section 9.6 or 9.7 below and for one (1) year
thereafter, none of the Selling Parties will (nor will they permit any of their
respective Affiliates to), without Buyer's prior written consent, directly or
indirectly, recruit, solicit or otherwise induce or influence any employee or
sales agent of Hoosier Park (other than Richard B. Moore) to discontinue such
employment, agency or other relationship with Hoosier Park.
(b) For a period of one (1) year after the closing of the sale
of the Call Right, Buyer agrees that it will offer or cause Hoosier Park to
continue to offer employment to all of Hoosier Park's employees effective on the
closing of the Call Right (other than such non-union employees Buyer has
identified by written notice to the Selling Parties within thirty (30) days of
the Call Notice), it being understood that Hoosier Park thereafter will be free
to terminate such employees and that Hoosier Park may terminate any employees at
any time For Cause (as hereinafter defined).
(c) "For Cause" shall mean (i) any act or omission on the part
of an employee that constitutes (A) common law fraud, (B) a felony, or (C)
dishonesty, or (ii) any act or omission on the part of an employee that
jeopardizes Hoosier Park's continuing ability to conduct its business or is
otherwise injurious to Hoosier Park, or (iii) any neglect by an employee in
connection with his or her duties.
9.6 Call Right.
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(a) At any time prior to July 31, 2001 (the "Call Period"),
Buyer may notify Seller of its intention to purchase the Retained Partnership
Interest (defined as the Remaining Asset or the Asset and Stock Combination,
whichever is elected by Buyer, along with all remaining interest of CDMC in, to
and under the Loan, and the Existing Management Agreement (other than any
accrued and unpaid management fees), which agreement shall be forthwith
terminated by Buyer) from Seller at a price of Sixty Million Dollars
($60,000,000), adjusted or allocated as provided in Section 9.6(c) below (the
"Call Price") (Buyer's right to purchase the Retained Partnership Interest from
Seller for the Call Price during such period, the "Call Right").
(b) Upon Buyer delivering notice to Seller of its intention to
exercise its Call Right as set forth in Section 9.6 (a) above (the "Call
Notice"), Seller (and CDMC, as appropriate) shall be obligated to sell and
transfer the Retained Partnership Interest to Buyer on the terms and subject to
the conditions set forth in this Agreement relating to the sale and transfer of
the Transferred Partnership Interest; provided, however, that (i) the purchase
price for the Retained Partnership Interest shall be the Call Price rather than
the Purchase Price, (ii) the Call Price shall be paid to Seller and/or CDMC (in
U.S. Dollars) in full at the Closing, (iii) the Closing shall occur within the
earlier of (A) three months from the date all Regulatory Approvals are given, or
(B) six months from the date the Call Notice is delivered (subject to the
proviso set forth in Section 10.11 below), (iv) the representations and
warranties of Buyer and the Selling Parties set forth in this Agreement shall be
reaffirmed on the Closing Date (it being understood, however, that (A) the
representations and warranties made in Sections 4.2(b) through (d) and (j) of
this Agreement (the "Updated Representations") shall be updated within thirty
(30) days of the date of the Call Notice to reflect events occurring after the
Closing Date ("Intervening Events"), and (B) changes in the Updated
Representations and immaterial changes in the other representations and
warranties caused by Intervening Events shall not be deemed a breach thereof by
the Selling Parties and/or Buyer, (v) if Buyer elects to exercise the Stock and
Asset Right, (A) all representations and warranties given in Section 4.2 hereof
shall be made with respect to both Hoosier Park and Seller, and (B) the
Indemnity for Liabilities of Seller set forth in Section 9.1(a)(iii) shall not
apply, unless such Liabilities result from a breach of this Agreement, (vi) the
parties' indemnity obligations relating to the sale of the Retained Partnership
Interest shall be extended beyond the date of the consummation of the sale of
the Retained Partnership Interest for the period described in Section 9.2 above,
and (vii) the Indemnity Limit shall be increased to Three Million Five Hundred
Thousand Dollars ($3,500,000).
(c) If Buyer purchases the Remaining Asset pursuant to Buyer's
exercise of the Asset Purchase Right, then the Call Price shall be increased by
an amount equal to (i) the product of (A) One Million Seven Hundred Nineteen
Thousand Seven Hundred Fourteen Dollars ($1,719,714) multiplied by (B) the
maximum marginal federal corporate income tax rate then in effect (currently
thirty-five percent (35%)) plus seven percent (7%) (the "Applicable Tax Rate")
multiplied by (ii) the reciprocal of one minus the Applicable Tax Rate. If Buyer
purchases the Asset Portion and the stock of Seller pursuant to the Stock and
Asset Right, then the Call Price shall be allocated between the stock of the
Seller and such Asset Portion so that, based on an assumed effective tax rate to
Seller equal to the Applicable Tax Rate, the tax on the gain realized by Seller
on the sale of the Asset Portion plus the tax on the gain realized by CDMC on
the sale of the stock
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of Seller shall equal the tax on the gain CDMC would realize upon a sale of all
of the stock of Seller without Seller having sold any of the Remaining Asset,
provided, however, that at least so much of the Call Price shall be allocable to
the stock of the Seller so that, after giving effect to the sale of the Asset
Portion and the distribution of the proceeds of such sale from the Seller to
CDMC, no loss shall be realized by CDMC on the sale of the stock of the Seller.
(d) Upon delivery of the Call Notice to Seller, Buyer shall
simultaneously deliver a letter of credit in the Deposit Amount, having terms
described in Section 2.2(a) above, to Seller. Such letter of credit shall be
subject to forfeiture on the same terms as described in Section 6.8 above,
relating to the failure of the consummation of the sale of the Retained
Partnership Interest.
(e) Buyer may extend the Call Period until April 30, 2002, by
delivery to Seller of a written notice of its intention to so do prior to the
expiration of the initial Call Period, along with a payment in immediately
available funds of Two Hundred Fifty Thousand Dollars ($250,000).
9.7 Put/Call Right.
(a) If Buyer fails to exercise its Call Right during the Call
Period, either Seller or Buyer shall have the right to offer to either (i) sell
the entire interest it then owns as a partner in Hoosier Park to the other for
an amount equal to the result of (A) the value of Hoosier Park as a going
concern as determined by the offering party (the "Total Enterprise Value")
multiplied by (B) the percentage interest the offering party then owns as a
partner in Hoosier Park (the "Offered Sales Price"), or (ii) purchase the entire
interest the other party then owns as a partner in Hoosier Park for an amount
equal to the result of (A) the Total Enterprise Value multiplied by (B) the
percentage interest the other party then owns as a partner in Hoosier Park (the
"Offered Purchase Price") (such right to either purchase or sell, the "Put/Call
Right"). If the offering party so desires to exercise its Put/Call Right, it
shall do so by written notice (the "Put/Call Notice"). The non-offering party
shall then be obligated to either sell its partnership interest for the Offered
Purchase Price, or purchase the offering party's partnership interest for the
Offered Sales Price. The non-offering party shall have sixty (60) days from
delivery of the Put/Call Notice (the "Put/Call Period") to notify the offering
party as to whether it will sell its partnership interest or purchase the
offering party's partnership interest. If the non-offering party fails to
respond to the Put/Call Notice during the Put/Call Period, the non-offering
party shall be deemed to have elected to sell its partnership interest as set
forth above.
(b) Upon expiration of the Put/Call Period, the parties shall
be obligated to sell or purchase their respective interests as hereinabove
provided in Section 9.7(a), on the terms and conditions set forth herein
relating to the sale of the Transferred Partnership Interest, subject to the
proviso set forth in Section 9.6(b) above (substituting the interest so sold or
purchased for the Retained Partnership Interest, the Put/Call Notice for the
Call Notice and the Offered Sales Price or the Offered Purchase Price, as the
case may be, for the Call Price).
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9.8 Additional Interests Acquired. Any sale of the partnership interest
in Hoosier Park of Seller or Buyer pursuant to Section 9.6 or Section 9.7 shall
include the sale of such party's rights under the Loan and the Existing
Management Agreement, which agreement shall forthwith be terminated by Buyer.
The allocation of the price to be paid for the Retained Partnership Interest
shall be allocated as set forth in Section 2.4 above.
9.9 Acquisition of Conseco Interest. Seller acknowledges that Buyer may
acquire (by purchase, stock purchase, merger, consolidation, share exchange, or
otherwise) the Conseco Interest. Seller hereby waives any and all rights of
first refusal it may have under the Partnership Agreement if Buyer seeks to so
acquire such interest of Conseco. If Buyer consummates such an acquisition of
the Conseco Interest, the parties hereto agree that Buyer shall succeed to all
rights of Conseco in, to and under the Loan and the Existing Management
Agreement.
9.10 Simulcasting Rights. The parties agree that from the date of the
consummation of the sale of Seller's partnership interest in Hoosier Park to
Buyer under Sections 9.6 or 9.7 above, they will each negotiate for making
available simulcast signals relating to Hoosier Park on commercially reasonable
terms for a five (5) year period.
9.11 Disclosures. From the Closing and for so long as the Call Right or
the rights set forth in Section 9.7 above are in existence, the Selling Parties
will deliver or cause to be delivered to Buyer, the following statements:
(a) Within twenty (20) days after the end of each calendar
month (except the last month of the year), a detailed balance sheet, profit and
loss statement, and cash flow statement showing the results of operation of
Hoosier Park for such month and the year to date, with a comparison to the then
current Annual Plan (as defined in the Management Agreement) and the same
period(s) in the prior year and figures for handle and attendance at Hoosier
Park;
(b) Within forty-five (45) days after the end of each calendar
quarter (except the last calendar quarter of the year), a detailed balance
sheet, profit and loss statement, and cash flow statement showing the results of
operation of Hoosier Park for such quarter and the year to date, with a
comparison to the then current Annual Plan and the same period(s) in the prior
year, and a narrative explanation for those items which vary ten percent (10%)
or more from the Annual Plan, to the extent that ten percent (10%) is in excess
of $100,000; and
(c) Within ninety (90) days after the end of each year, a
balance sheet, together with a comparison to the previous year, a related
statement of profit and loss and a cash flow statement, together with a
comparison to the previous year, and having annexed thereto a computation in
reasonable detail of the management fees (payable pursuant to the Management
Agreement) for such year.
9.12 Board Participation. From the date of this Agreement and as long
as the Call Right or the Put/Call Right exist, Buyer shall be entitled to
designate one (1) person to the Board of Directors of Seller.
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9.13 Due Diligence. From the date of this Agreement and as long as the
Call Right or the Put/Call Right exist, each of the Selling Parties will (and
shall cause Hoosier Park to) permit representatives of Buyer to have full access
at all reasonable times, and in a manner so as not to interfere with the normal
business operations of Seller and Hoosier Park, to all premises, properties,
personnel, books, records, contracts and documents pertaining to Seller, Hoosier
Park or the Retained Partnership Interest.
ARTICLE X
MISCELLANEOUS
10.1 Confidentiality; Press Release.
(a) Prior to Closing, and for four (4) years thereafter, each
party hereto shall treat in confidence, and not disclose without the prior
consent of the other parties hereto, all documents, materials and other
information which it shall have obtained regarding the other party during the
course of the negotiations leading to the consummation of the transactions
contemplated hereby (whether obtained before or after the date of this
Agreement), the investigation provided for herein and the preparation of this
Agreement and other related documents, except for disclosure required by law, or
in connection with any lawsuit between or involving the parties or any party
hereto. The obligation of each party to treat such documents, materials and
other information in confidence shall not apply to any information which (a)
such party can demonstrate was already lawfully in its possession prior to the
disclosure thereof by the other party, (b) is known to the public and did not
become so known through any violation of a legal obligation, or (c) became known
to the public through no fault of such party. Upon termination of this Agreement
in accordance with Section 10.11 hereof, each party shall promptly return to the
other parties hereto all of the confidential documents, materials and other
information it has obtained from such other parties. The obligations imposed by
the immediately preceding sentence shall survive any termination of this
Agreement pursuant to Section 10.11.
(b) No party to this Agreement shall issue any press release
or make any public announcement relating to the subject matter of this Agreement
prior to the Closing without the prior written approval of all of the other
parties hereto, except as otherwise required by Law or the rules or regulations
of NASDAQ.
10.2 Notices. All notices, requests, consents and other communications
hereunder ("Notice") shall be in writing and shall be deemed to have been given
(a) if mailed, the date of receipt of such Notice when sent via first class
United States registered mail, return receipt requested, postage prepaid to the
address listed below for the party to whom the Notice is being sent ("Notice
Party"); (b) if hand delivered or delivered by courier, upon actual delivery of
such Notice to the Notice Party at the address listed below for such Notice
Party; or (c) if sent by facsimile, on the first business day after the date of
the sender's receipt of a confirmed transmission of such Notice to the Notice
Party at the facsimile number, if any, listed below for such Notice Party
provided the party giving such Notice mails a copy of such Notice within two
days after the transmission of such
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Notice by facsimile to the Notice Party. The addresses and facsimile numbers
for each party to this Agreement, as of the date hereof, are:
If to any of the Churchill Downs Incorporated
Selling Parties: Attn: Rebecca C. Reed
700 Central Avenue
Louisville, KY 40208
Facsimile No. 502/636-4456
With a copy to: Wyatt, Tarrant & Combs
Attn: Robert A. Heath
2800 Citizens Plaza
Louisville, KY 40202-2898
Facsimile No. 502/589-0309
If to Buyer: Centaur, Inc.
Attn: Kurt E. Wilson
20 N. Salisbury
W. Lafayette, IN 47906
Facsimile No. 765/746-1015
With a copy to: Sommer & Barnard, P.C.
Attn: James K. Sommer
111 Monument Cir., Suite 4000
P. O. Box 44363
Indianapolis, IN 46244
Facsimile No. 317/236-9802
Any party may change its address or facsimile number by providing written
notice, in accordance with the foregoing provisions of this Section 10.2, to
each other party of such change.
10.3 Expenses.
(a) Each party hereto will pay all costs, fees and expenses
incident to its negotiation and preparation of this Agreement and to its
performance and compliance with all agreements contained herein on its part to
be performed, including the fees, expenses and disbursements of its respective
counsel and accountants.
(b) In any legal action between the parties arising out of or
related to this Agreement, the prevailing party shall be entitled to recover its
costs and expenses, including reasonable accounting and legal fees.
10.4 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Indiana, without regard to such
jurisdiction's conflict of laws principles.
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10.5 Partial Invalidity. In case any one or more of the provisions
contained herein shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, but this Agreement
shall be construed as if such invalid, illegal or unenforceable provision or
provisions had never been contained herein.
10.6 Assignment. None of the Selling Parties may assign this Agreement,
or any rights hereunder, to any other party without the prior written consent of
Buyer. Buyer may, however, assign its rights hereunder to a majority-owned
Affiliate of Buyer, provided, however, that Buyer shall not make any such
assignment of its rights without having given Seller written notice of the
proposed assignment, which notice shall identify the beneficial owners of such
Affiliate (the "Assignment Notice"). For a period of thirty (30) days after the
giving of the Assignment Notice, Seller shall be entitled to give Buyer written
notice of rejection of such proposed Affiliate (the "Rejection Notice") if
Seller, upon the advice of legal counsel and in its reasonable, good faith
judgment, believes that the assignment to such proposed Affiliate would
jeopardize Hoosier Park's continuing ability to conduct (or is materially
injurious to) its business because of the identity of one or more of such
beneficial owners, which Rejection Notice shall specify the beneficial owner or
owners of such Affiliate to whom Seller takes exception. Buyer may thereafter
assign its rights hereunder to such Affiliate of Buyer if such beneficial owner
or owners to whom Seller has taken exception no longer hold a beneficial
ownership interest in such Affiliate. A Selling Party may, however, assign this
Agreement to one of its wholly-owned subsidiaries or to a wholly-owned
subsidiary of Churchill Downs Incorporated. Seller hereby also agrees that Buyer
may assign its rights to the current partnership interest in Hoosier Park owned
by Buyer to a majority-owned Affiliate of Buyer on the terms set forth in this
Section 10.6 above, and Seller waives any and all right Seller may have to
acquire such partnership interest under the Partnership Agreement, along with
any co-sale or rights of first refusal of Seller.
10.7 Successors and Assigns. Subject to the provisions of Section 10.6
above, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
10.8 Execution in Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be considered an original counterpart,
and all of which shall be considered to be but one agreement and shall become a
binding agreement when each party shall have executed one counterpart and
delivered it to the other party hereto.
10.9 Titles and Headings; Rules of Construction. Titles and headings to
sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement. Whenever the context so requires the use of or reference to any
gender includes the masculine, feminine and neuter genders; and all terms used
in the singular shall have comparable meanings when used in the plural and vice
versa.
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10.10 Entire Agreement; Amendments and Waivers. This Agreement contains
the entire understanding of the parties hereto with regard to the subject matter
contained in this Agreement and supersedes all prior agreements or
understandings of the parties. The parties, by mutual agreement in writing, may
amend, modify and supplement this Agreement. The failure of any party to this
Agreement to enforce at any time any provision of this Agreement shall not be
construed to be a waiver of such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of such party
thereafter to enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to constitute a waiver of any other or subsequent
breach.
10.11 Termination. This Agreement shall terminate and shall be of no
further force or effect (a) upon mutual written agreement of the parties hereto,
or (b) upon notice given by any party which is not in breach of this Agreement
to the other party hereto in the event the Closing has not occurred on or before
June 30, 1999; provided, however, that if the Closing has not occurred prior to
such date due to delays in acquiring any of the Regulatory Approvals and the
party responsible for acquiring such approvals is diligently pursuing the same,
this Agreement may not be so terminated and the Closing Date shall be extended
until such approvals are acquired so long as such party continues to diligently
pursue their acquisition. Except for the provisions of Sections 6.8, 9.1,10.1
and 10.3 of this Agreement, upon termination of this Agreement, this Agreement
shall be of no further force or effect. No termination of this Agreement shall
release, or be construed as releasing, any party from any liability to any other
party which may have arisen for any reason. A party's right to terminate this
Agreement is in addition to, and not in lieu of, any other rights or remedies
which such party may have.
10.12 No Third Party Beneficiaries. This Agreement will not confer any
rights or remedies upon any person other than the parties and their respective
heirs, successors and permitted assigns, as applicable.
10.13 Definitions. For purposes of this Agreement:
(a) "Affiliate" means, with respect to any person or entity,
any person or entity that controls, is controlled by or is under common control
with such person or entity. A person or entity shall be presumed to have control
when it possesses the power, directly or indirectly, to direct, or cause the
direction of, the management or policies of another person or entity, whether
through ownership of voting securities, by contract, or otherwise.
Notwithstanding the foregoing, Affiliate shall not include individuals who are
(A) independent directors of CDMC, or (B) independent directors or shareholders
of Churchill Downs Incorporated, a Kentucky corporation.
(b) "Government" shall mean (or in the case of "Governmental")
shall refer to:
(i) the government of the United States of America;
(ii) the government of any state, county, municipality,
city, town or district of the United States of America; and
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(iii) any ministry, agency, department, authority,
commission,
administration, corporation, court, magistrate, tribunal, arbitrator,
instrumentality or political subdivision of, or within the geographical
jurisdiction of, any government described in the foregoing subparagraphs (A) and
(B).
(c) "Law" shall mean any of the following of, or issued by,
any Government or Governmental agency: any statute, law, act, ordinance, code,
rule or regulation or any license, permit, authorization or approval, or any
injunction, award, decree, judgment or order.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
"SELLER" "BUYER"
Anderson Park, Inc. Centaur, Inc.
By: By:
- ----------------------------------------- -----------------------------------
Printed: _______________________ Kurt E. Wilson, President
Title: _________________________
"CDMC"
Churchill Downs Management Company
By: __________________________
Printed: ______________________
Title: ________________________
90
CERTIFICATE
REGARDING AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
CHURCHILL DOWNS INCORPORATED
THIS CERTIFICATE is delivered pursuant to KRS 271B.10-070(4) together
with the Restated Articles of Incorporation of Churchill Downs Incorporated. On
behalf of Churchill Downs Incorporated, the undersigned states that the Restated
Articles of Incorporation attached hereto contain an amendment to the Articles
of Incorporation requiring shareholder approval and therefore, provides the
information required by KRS 271B.10-060 as follows:
ARTICLE I
The name of the corporation is Churchill Downs Incorporated.
ARTICLE II
Article VII of the Articles of Incorporation of Churchill Downs
Incorporated is amended to read in its entirety as follows:
ARTICLE VII
CAPITAL STOCK
The corporation shall be authorized to issue
50,000,000 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,
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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;
[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;
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[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.
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ARTICLE III
The amendment to the Articles of Incorporation does not provide for an
exchange, reclassification or cancellation of issued shares.
ARTICLE IV
The amendment to the Articles of Incorporation was adopted by the vote
of the shareholders of Churchill Downs Incorporated at the Annual Meeting of
Shareholders held on June 17, 1999.
ARTICLES V
At the June 17, 1999 Annual Meeting of Shareholders of Churchill Downs
Incorporated, 7,525,041 shares of Churchill Downs Incorporated common stock were
outstanding and entitled to vote upon all matters presented to the meeting,
including adoption of the amendment. No other voting groups exist. A total of
6,306,277 shares of the common capital stock of Churchill Downs Incorporated
were represented at the meeting and a total of 5,832,957 votes were cast for
adoption of the amendment to the Articles of Incorporation of Churchill Downs
Incorporated, which number is sufficient for approval of the amendment to the
Articles of Incorporation.
Executed this ____ day of July, 1999.
CHURCHILL DOWNS INCORPORATED
---------------------------------------
Rebecca C. Reed, Senior Vice President,
General Counsel and Secretary
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AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF CHURCHILL DOWNS INCORPORATED
ARTICLE I
NAME
The name of the corporation shall be Churchill Downs Incorporated.
ARTICLE II
PURPOSE AND POWERS
The nature of the business to be conducted by the corporation and its
objects and purposes shall be the improvement of livestock, particularly
thoroughbred horses, by giving exhibitions of contests of speed and races
between horses for premiums, purses and other awards. In the furtherance and in
the accomplishment of the objects and purposes enumerated, the corporation shall
have the power to establish, maintain, purchase or otherwise acquire suitable
race tracks located in or without the Commonwealth of Kentucky, with all
necessary buildings and improvements and land for the purpose of establishing
race tracks; to give or conduct on said race tracks public exhibitions of speed
or races between horses for premiums, purses and other awards made up from fees
or otherwise, and to charge the public for admission thereto and to the said
race tracks; to engage in the registering of bets on exhibitions of speed or
races at paid race tracks and premises in such manner as may be authorized or
permitted by law; to operate restaurant, cafes, lunch counters and stands for
the sale of food and other refreshments to persons on said premises; to purchase
and hold title to such real estate as may be necessary or deemed to be necessary
to fully carry out the several purposes for which the corporation is formed; to
borrow money and give security therefor; to acquire, hold, mortgage, pledge or
dispose of the shares, bonds, securities and other evidences of indebtedness of
any domestic or foreign corporation and the securities issued by the corporation
and the securities issued by the United States or by the Commonwealth of
Kentucky or any governmental subdivision thereof to adopt through its Board of
Directors a corporate seal and to alter name at the pleasure of the Board of
Directors; to make bylaws through its Board of Directors not inconsistent with
the law; and to transact any or all lawful business for which corporations may
be incorporated.
The corporation shall have the power to purchase shares of the capital
stock of the corporation to the extent of unreserved and unrestricted earned
surplus and capital surplus of the corporation.
ARTICLE III
DURATION
The corporation shall have perpetual existence.
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ARTICLE IV
REGISTERED OFFICE AND AGENT
Until otherwise designated as provided by law, the location and Post
Office address of the registered office of the corporation and its principal
place of business shall be:
700 Central Avenue
Louisville, Kentucky 40208
ARTICLE V
REGISTERED AGENT
Until otherwise designated as provided by law, the name and Post Office
address of the authorized agent of the corporation upon whom process shall be
served shall be:
Rebecca C. Reed
700 Central Avenue
Louisville, Kentucky 40208
ARTICLE VI
DEBT LIMITATION
There shall be no limit on the amount of indebtedness which the
corporation may incur.
ARTICLE VII
CAPITAL STOCK
The corporation shall be authorized to issue 50,000,000 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.
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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;
[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
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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.
ARTICLE VIII
VOTING RIGHTS OF COMMON STOCK
In stockholders' meetings each holder of Common Stock shall be entitled
to one vote for each share of Common Stock standing in his name on the books of
the corporation, except that in the election of directors, each holder of Common
Stock shall have as many votes as results from multiplying the number of shares
held by him by the number of directors to be elected. Such votes may be divided
among the total number of directors to be elected or distributed among any
lesser number in such proportion as the holder may determine.
The presence in person or by proxy of the holders of a majority of the
outstanding Common Stock of the corporation shall constitute a quorum at all
stockholders' meetings.
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ARTICLE IX
PREEMPTIVE RIGHTS
No holder of any shares of Common Stock of the corporation, whether now
or hereafter authorized, issued or outstanding, shall be entitled to a
preemptive right to acquire unissued or treasury shares or securities
convertible into such shares or carrying a right to subscribe to or acquire
shares or any rights or options to purchase shares of the corporation.
ARTICLE X
DIRECTORS
The business and affairs of the corporation shall be managed by or
under the direction of a Board of Directors consisting of not less than nine (9)
nor more than twenty-five (25) directors, the exact number of directors to be
determined by affirmative vote of a majority of the entire Board of Directors
except that at the time this new Articles X is adopted, the number of directors
shall be fixed at seventeen (17). The directors shall be divided into three
classes, designated Class I, Class II and Class III. Each class shall consist,
as nearly as possible, of one-third of the total number of directors
constituting the entire Board of Directors.
At the 1984 annual meeting of stockholders, the seventeen (17)
directors elected will not be elected to a specific class of directors.
Following the 1984 annual meeting of stockholders, the Board of Directors will
initially determine which directors will be designated and serve as Class I,
Class II and Class III directors, respectively. Upon such determination by the
Board of Directors, Class I directors shall serve for a one-year term expiring
in 1985. Class II directors for a two-year term expiring in 1986, and Class III
directors for a three-year term expiring in 1987. At each succeeding annual
meeting of Stockholders beginning in 1985, successors to the class of directors
whose term expires at that annual meeting shall be elected for a three-year
term. If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional director of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of that class, but
in no case will a decrease in the number of directors shorten the term of any
incumbent director. A director shall hold office until the annual meeting of the
year in which his term expires and until his successor shall be elected and
shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board of Directors
that results from an increase in the number of directors may be filled by a
majority of the Board of Directors then in office, and any other vacancy
occurring in the Board of Directors may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
Any director elected to fill a vacancy not resulting from an increase in the
number of directors shall have the same remaining term as that of his
predecessor.
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Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of these Articles of Incorporation applicable thereto, and such directors
so elected shall not be divided into classes pursuant to this Article X unless
expressly provided by such terms.
Any director or the entire Board of Directors may be removed from
office without cause by the affirmative vote of eighty percent (80%) of the
votes entitled to be cast by the holders of all then outstanding shares of
voting stock of the corporation, voting together as a single class; provided,
however, that no individual director shall be removed without cause (unless the
Board of Directors or the class of directors of which he is a member be removed)
in case the votes cast against such removal would be sufficient, if voted
cumulatively for such director, to elect him to the class of directors of which
he is a member.
Notwithstanding any other provision of these Articles or the bylaws of
the corporation and notwithstanding the fact that a lesser percentage or
separate class vote may be specified by law, these Articles or the bylaws of the
corporation, the affirmative vote of the holders of not less than eighty percent
(80%) of the votes entitled to be cast by the holders of all then outstanding
shares of voting stock of the corporation, voting together as a single class,
shall be required to amend or repeal, or adopt any provisions inconsistent with,
this Article X, unless such action has been previously approved by a
three-fourths vote of the whole Board of Directors.
ARTICLE XI
ELIMINATION OF DIRECTOR LIABILITY
No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for a breach of his duties
as a director except for liability:
[a] For any transaction in which the director's personal
financial interest is in conflict with the financial
interest of the corporation or its stockholders;
[b] For acts or omissions not in good faith or which
involve intentional misconduct or are known to the
director to be a violation of law;
[c] For distributions made in violation of the Kentucky
Revised Statutes; or
[d] For any transaction from which the director derives
an improper personal benefit.
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If the Kentucky Revised Statutes are amended after approval by the
stockholders of this Article to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the corporation shall be eliminated or limited to the fullest extent
permitted by the Kentucky Revised Statutes, as so amended. Any repeal or
modification of this Article XI by the stockholders of the corporation shall not
adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification.
ARTICLE XII
SPECIAL MEETING OF SHAREHOLDERS
Special meetings of the shareholders of the corporation may be called
only by:
[a] The Board of Directors; or
[b] The holders of not less than sixty-six and two-thirds
percent (66 2/3%) of all shares entitled to cast
votes on any issue proposed to be considered at the
proposed special meeting upon such holders signing,
dating and delivering to the corporation's Secretary
one or more written demands for the meeting,
including a description of the purpose or purposes
for which the meeting is to be held.
SERIES DESIGNATION FOR SERIES 1998 PREFERRED STOCK
I. Designation and Number of Shares. This series of the Preferred Stock
shall be designated as "Series 1998 Preferred Stock" (the "Series 1998 Preferred
Stock"). The number of shares initially issuable as the Series 1998 Preferred
Stock shall be 11,300; provided, however, that, if more than a total of 11,300
shares of Series 1998 Preferred Stock shall be issuable upon the exercise of
Rights (the "Rights") issued pursuant to the Rights Agreement dated as of March
19, 1998, between the Corporation and Bank of Louisville, as Rights Agent (the
"Rights Agreement"), the Board of Directors of the Corporation, shall, if then
permitted by the Kentucky Business Corporation Act, direct by resolution or
resolutions that Articles of Amendment of the Articles of Incorporation of the
Corporation be properly executed and filed with the Secretary of State of
Kentucky providing for the total number of shares issuable as Series 1998
Preferred Stock to be increased (to the extent that the Articles of
Incorporation then permit) to the largest number of whole shares (rounded up to
the nearest whole number) issuable upon exercise of such Rights.
II. Dividends or Distributions.
(a) Subject to the prior and superior rights of the holders of
shares of any other series of Preferred Stock or other class of capital stock of
the Corporation ranking prior and superior to the shares of Series 1998
Preferred Stock with respect to dividends, the holders of shares of the Series
1998 Preferred Stock shall be entitled to receive, when, as and if declared by
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the Board of Directors, out of the assets of the Corporation legally available
therefor, (i) annual dividends payable in cash on January 15 of each year, or
such other dates as the Board of Directors of the Corporation shall approve
(each such date being referred to herein as an "Annual Dividend Payment Date"),
commencing on the first Annual Dividend Payment Date after the first issuance of
a share or a fraction of a share of Series 1998 Preferred Stock, in the amount
of $.01 per whole share (rounded to the nearest cent), less the amount of all
cash dividends declared on the Series 1998 Preferred Stock pursuant to the
following clause (ii) since the immediately preceding Annual Dividend Payment
Date or, with respect to the first Annual Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series 1998 Preferred Stock (the
total of which shall not, in any event, be less than zero) and (ii) dividends
payable in cash on the payment date for each cash dividend declared on the
Common Stock in an amount per whole share (rounded to the nearest cent) equal to
the Formula Number (as hereinafter defined) then in effect times the cash
dividends then to be paid on each share of Common Stock. In addition, if the
Corporation shall pay any dividend or make any distribution on the Common Stock
payable in assets, securities or other forms of non-cash consideration (other
than dividends or distributions solely in shares of Common Stock), then, in each
such case, the Corporation shall simultaneously pay or make on each outstanding
whole share of Series 1998 Preferred Stock a dividend or distribution in like
kind equal to the Formula Number then in effect times such dividend or
distribution on each share of the Common Stock. As used herein, the "Formula
Number" shall be 1,000; provided, however, that, if at any time after
March 19, 1998, excluding, however, the two-for-one stock split or stock
dividend declared by the Corporation on March 19, 1998, the Corporation shall
(x) declare or pay any dividend on the Common Stock payable in shares of Common
Stock or make any distribution on the Common Stock in shares of Common Stock,
(y) subdivide (by a stock split or otherwise) the outstanding shares of Common
Stock into a larger number of shares of Common Stock or (z) combine (by a
reverse stock split or otherwise) the outstanding shares of Common Stock into a
smaller number of shares of Common Stock, then, in each such event, the Formula
Number shall be adjusted to a number determined by multiplying the Formula
Number in effect immediately prior to such event by a fraction, the numerator of
which is the number of shares of Common Stock that are outstanding immediately
after such event and the denominator of which is the number of shares of Common
Stock that are outstanding immediately prior to such event (and rounding the
result to the nearest whole number); and, provided further, that, if at any time
after March 19, 1998, the Corporation shall issue any shares of its capital
stock in a merger, share exchange, reclassification, or change of the
outstanding shares of Common Stock, then, in each such event, the Formula Number
shall be appropriately adjusted to reflect such merger, share exchange,
reclassification or change so that each share of Preferred Stock continues to be
the economic equivalent of a Formula Number of shares of Common Stock prior to
such merger, share exchange, reclassification or change.
(b) The Corporation shall declare a dividend or distribution
on the Series 1998 Preferred Stock as provided in Section II(a) immediately
prior to or at the same time it declares a dividend or distribution on the
Common Stock (other than a dividend or distribution solely in shares of Common
Stock); provided, however, that, in the event no dividend or distribution (other
than a dividend or distribution in shares of Common Stock) shall have been
declared on the Common Stock during the period between any Annual Dividend
Payment Date and the next subsequent Annual Dividend Payment Date, a dividend of
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$.01 per share on the Series 1998 Preferred Stock shall nevertheless be payable
on such subsequent Annual Dividend Payment Date. The Board of Directors may fix
a record date for the determination of holders of shares of Series 1998
Preferred Stock entitled to receive a dividend or distribution declared thereon,
which record date shall be the same as the record date for any corresponding
dividend or distribution on the Common Stock.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series 1998 Preferred Stock from and after the Annual
Dividend Payment Date next preceding the date of original issue of such shares
of Series 1998 Preferred Stock; provided, however, that dividends on such shares
that are originally issued after the record date for the determination of
holders of shares of Series 1998 Preferred Stock entitled to receive an annual
dividend and on or prior to the next succeeding Annual Dividend Payment Date
shall begin to accrue and be cumulative from and after such Annual Dividend
Payment Date. Notwithstanding the foregoing, dividends on shares of Series 1998
Preferred Stock that are originally issued prior to the record date for the
determination of holders of shares of Series 1998 Preferred Stock entitled to
receive an annual dividend on the first Annual Dividend Payment Date shall be
calculated as if cumulative from and after the last day of the fiscal quarter
next preceding the date of original issuance of such shares. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series 1998
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding and entitled
to receive such dividends.
(d) So long as any shares of the Series 1998 Preferred Stock
are outstanding, no dividends or other distributions shall be declared, paid or
distributed, or set aside for payment or distribution, on the Common Stock,
unless, in each case, the dividend required by this Section II to be declared on
the Series 1998 Preferred Stock shall have been declared and paid.
(e) The holders of the shares of Series 1998 Preferred Stock
shall not be entitled to receive any dividends or other distributions, except as
provided herein.
III. Voting Rights. The holders of shares of Series 1998 Preferred
Stock shall have the following voting rights:
(a) Each holder of Series 1998 Preferred Stock shall be
entitled to a number of votes equal to the Formula Number then in effect, for
each whole share of Series 1998 Preferred Stock held of record on each matter on
which holders of the Common Stock or shareholders generally are entitled to
vote, multiplied by the maximum number of votes per share which any holder of
the Common Stock or shareholders generally then have with respect to such matter
(assuming any holding period or other requirement to vote a greater number of
shares is satisfied).
(b) Except as otherwise provided herein or by applicable law,
the holders of shares of Series 1998 Preferred Stock and the holders of shares
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of Common Stock shall vote together as one voting group for the election of
directors of the Corporation and on all other matters submitted to a vote of
shareholders of the Corporation.
(c) If, at the time of any annual meeting of shareholders for
the election of directors, the equivalent of two annual dividends (whether or
not consecutive) payable on any share or shares of Series 1998 Preferred Stock
are in default, the number of directors constituting the Board of Directors of
the Corporation shall be increased by two. In addition to voting together with
the holders of Common Stock for the election of other directors of the
Corporation, the holders of record of the Series 1998 Preferred Stock, voting
separately as a voting group to the exclusion of the holders of Common Stock,
shall be entitled at said meeting of shareholders (and at each subsequent annual
meeting of shareholders), unless all dividends in arrears have been paid or
declared and set apart for payment prior thereto, to vote for the election of
two directors of the Corporation, the holders of any Series 1998 Preferred Stock
being entitled to cast a number of votes per whole share of Series 1998
Preferred Stock equal to the Formula Number. Until the default in payments of
all dividends that permitted the election of said directors shall cease to
exist, any director who shall have been so elected pursuant to the next
preceding sentence may be removed at any time, either with or without cause,
only by the affirmative vote of the holders of the shares of Series 1998
Preferred Stock at the time entitled to cast such number of votes as are
required by law for the election of any such director at a special meeting of
such holders called for that purpose, and any vacancy thereby created may be
filled only by the vote of such holders. If and when such default shall cease to
exist, the holders of the Series 1998 Preferred Stock shall be divested of the
foregoing special voting rights, subject to revesting in the event of each and
every subsequent like default in payments of dividends. Upon the termination of
the foregoing special voting rights, the terms of office of all persons who may
have been elected directors pursuant to said special voting rights shall
forthwith terminate to the extent permitted by law, and the number of
directors constituting the Board of Directors shall be reduced by two. The
voting rights granted by this Section III(c) shall be in addition to any other
voting rights granted to the holders of the Series 1998 Preferred Stock in this
Section III.
(d) Except as provided herein, in Section XI or by applicable
law, holders of Series 1998 Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for authorizing or
taking any corporate action.
IV. Certain Restrictions.
(a) Whenever annual dividends or other dividends or
distributions payable on the Series 1998 Preferred Stock as provided in Section
II are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series 1998 Preferred Stock
outstanding shall have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series
1998 Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
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Series 1998 Preferred Stock, except dividends paid ratably on the
Series 1998 Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series l998 Preferred Stock; provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series 1998 Preferred Stock; or
(iv) purchase or otherwise acquire for consideration
any shares of Series 1998 Preferred Stock, or any shares of stock
ranking on a parity with the Series 1998 Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares
upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in
good faith will result in fair and equitable treatment among the
respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section IV, purchase or otherwise acquire such shares at such time and in
such manner.
V. Liquidation Rights. Upon the liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, no distribution shall be
made (a) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series 1998
Preferred Stock, unless, prior thereto, the holders of shares of Series 1998
Preferred Stock shall have received an amount equal to the accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (i) $.01 per whole share or
(ii) an aggregate amount per share equal to the Formula Number then in effect
times the aggregate amount to be distributed per share to holders of Common
Stock or (b) to the holders of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series 1998 Preferred
Stock, except distributions made ratably on the Series 1998 Preferred Stock and
all other such parity stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up.
VI. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, share exchange, combination or other transaction
in which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash or any other property, then, in any such case, the
then outstanding shares of Series 1998 Preferred Stock shall at the same time be
similarly exchanged or changed into an amount per whole share equal to the
Formula Number then in effect times the aggregate amount of stock, securities,
cash or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is exchanged or changed. In the event both
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this Section VI and Section II appear to apply to a transaction, this Section VI
will control.
VII. No Redemption; No Sinking Fund.
(a) The shares of Series 1998 Preferred Stock shall not be
subject to redemption by the Corporation or at the option of any holder of
Series 1998 Preferred Stock; provided, however, that the Corporation may
purchase or otherwise acquire outstanding shares of Series 1998 Preferred Stock
in the open market or by offer to any holder or holders of shares of Series 1998
Preferred Stock.
(b) The shares of Series 1998 Preferred Stock shall not be
subject to or entitled to the operation of a retirement or sinking fund.
VIII. Ranking. The Series 1998 Preferred Stock shall rank junior to all
other series of Preferred Stock of the Corporation, unless the Board of
Directors shall specifically determine otherwise in fixing the powers,
preferences and relative, participating, optional and other special rights of
the shares of such series and the qualifications, limitations and restrictions
thereof.
IX. Fractional Shares. The Series 1998 Preferred Stock shall be
issuable upon exercise of the Rights issued pursuant to the Rights Agreement in
whole shares or in any fraction of a share that is one-thousandth (1/1,000) of a
share or any integral multiple of such fraction which shall entitle the holder,
in proportion to such holder's fractional shares, to receive dividends, exercise
voting rights, participate in distributions and have the benefit of all other
rights of holders of Series 1998 Preferred Stock. In lieu of fractional shares,
the Corporation, prior to the first issuance of a share or a fraction of a share
of Series 1998 Preferred Stock, may elect (a) to make a cash payment as provided
in the Rights Agreement for fractions of a share other than one-thousandth
(1/1,000) of a share or any integral multiple thereof or (b) to issue depository
receipts evidencing such authorized fraction of a share of Series 1998 Preferred
Stock pursuant to an appropriate agreement between the Corporation and a
depository selected by the Corporation; provided that such agreement shall
provide that the holders of such depository receipts shall have all the rights,
privileges and preferences to which they are entitled as holders of the Series
1998 Preferred Stock.
X. Reacquired Shares. Any shares of Series 1998 Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock, without par value, of the Corporation, undesignated as to
series, and may thereafter be reissued as part of a new series of such Preferred
Stock as permitted by law.
XI. Amendment. None of the powers, preferences and relative,
participating, optional and other special rights of the Series 1998 Preferred
Stock as provided herein or in the Articles of Incorporation shall be amended in
any manner that would alter or change the powers, preferences, rights or
privileges of the holders of Series 1998 Preferred Stock so as to affect such
holders adversely without the affirmative vote of the holders of at least
66-2/3% of the outstanding shares of Series 1998 Preferred Stock, voting as a
separate voting group; provided, however, that no such amendment approved by the
holders of at least 66-2/3% of the outstanding shares of Series 1998 Preferred
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Stock shall be deemed to apply to the powers, preferences, rights or privileges
of any holder of shares of Series 1998 Preferred Stock originally issued upon
exercise of a Right after the time of such approval without the approval of such
holder.
RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS ELECTING THAT
THE CORPORATION BE SUBJECT GENERALLY, WITHOUT QUALIFICATION OR
LIMITATION, TO THE REQUIREMENTS OF KRS 271B.12-210.
WHEREAS, there may be uncertainty as to whether the provisions of the
Kentucky Business Combinations statute, KRS 271B.12-210 to 271B.12-230, apply to
the Corporation by virtue of the provisions of KRS 271B.12-220(4)(a) and
pursuant to the provisions of that subsection, the Board of Directors of the
Corporation desires to elect by resolution, adopted by all of the continuing
directors of the Corporation, to be subject generally, without qualification or
limitation, to the requirements of KRS 271B.12-210;
RESOLVED, that the Corporation be subject generally, without
qualification or limitation, to the requirements of KRS 271B.12-210 and the
officers of the Corporation are hereby authorized and directed to take any and
all actions necessary or appropriate to give effect to this resolution,
including, without limitation, making any filings required by statute or
regulation, including filing articles of amendment to the articles of
incorporation of the Corporation including a copy of this resolution making this
election;
RESOLVED, that any and all actions heretofore taken by the officers of
the Corporation in connection with the above resolution, in the name of or on
behalf of the Corporation, be and hereby are approved, ratified and confirmed.
It is hereby certified that on this date I am the duly elected and
qualified Senior Vice President, General Counsel and Secretary of Churchill
Downs Incorporated and that on the 17th day of June, 1999, the foregoing
Restated Articles of Incorporation of the corporation were amended to amend
provisions of the foregoing Article VII thereto, in the manner as set forth in
the Certificate delivered herewith and that the foregoing Restated Articles of
Incorporation were approved by action of the Board of Directors.
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CHURCHILL DOWNS INCORPORATED
------------------------------------
Rebecca C. Reed, Senior Vice President,
General Counsel and Secretary
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THIRD AMENDMENT, WAIVER AND CONSENT
to
$250,000,000 REVOLVING CREDIT FACILITY
CREDIT AGREEMENT
by and among
CHURCHILL DOWNS INCORPORATED, as the Borrower,
and
THE GUARANTORS PARTY HERETO
and
THE BANKS PARTY HERETO
and
PNC BANK, NATIONAL ASSOCIATION, As Agent,
and
CIBC OPPENHEIMER CORP., As Syndication Agent.
and
BANK ONE, KENTUCKY, N.A., As Documentation Agent
Dated as of February 23, 2000
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THIS THIRD AMENDMENT, WAIVER AND CONSENT TO CREDIT AGREEMENT (the
"Third Amendment") dated as of February 23, 2000, by and among CHURCHILL DOWNS
INCORPORATED, as the Borrower (the "Borrower"), the GUARANTORS party to the
Credit Agreement (as hereinafter defined), the BANKS party to the Credit
Agreement (as hereinafter defined) and PNC BANK, NATIONAL ASSOCIATION, as the
Agent (the "Agent"), and CIBC OPPENHEIMER CORP., as Syndication Agent. and BANK
ONE, KENTUCKY, N.A., as Documentation Agent
WHEREAS, reference is made to the Credit Agreement dated April 23,
1999, as amended prior to the date hereof (the "Credit Agreement") described
above;
WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Credit Agreement; and
WHEREAS, reference is made to that certain memorandum from PNC Bank to
Churchill Downs Bank Group dated October 12, 1999 attached hereto as Exhibit A
(the "October 12, 1999 Memorandum").
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
1. Sale of Kentucky Horse Center and Release of Liens
A. Recital.
Attached hereto as Exhibit 1(A) is a letter dated December 21,
1999 from the Borrower to the Agent describing the proposed sale of the Kentucky
Horse Center (the "KHC") by Racing Corporation of America ("RCA"). Attached to
such letter is a description of the personal property and other assets to be
sold (together with the applicable real property comprising the KHC, the "KHC
Assets") and a summary of the financial performance and projections relating to
the KHC. Under such transaction, Borrower will guaranty the obligations of RCA
under the applicable transaction documents. Under the terms described in such
letter, RCA will sell the KHC Assets for a price of approximately $5,000,000.
RCA may engage in a "deferred like kind exchange" under Section 1031 of the
Internal Revenue Code (the "Code") and currently intends to employ Bank One
Exchange Corporation as the "qualified intermediary" under Regulation Section
1.1031(k)-1(g)(4) (the "Intermediary") to hold the proceeds of such sale pending
identification and purchase of "replacement assets" (as defined in the Code). It
is also possible that RCA will not engage in a "deferred like-kind of exchange".
B. Consent; Authorization to Release.
The Banks hereby approve of such sale and authorize the Agent
to execute such documents as are necessary to release the Liens of the Banks in
the KHC Assets subject to the following:
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(a) Sales Price.
The sales price for the KHC Assets shall be approximately
$5,000,000 and the other terms of the sale shall be substantially as set forth
in the first paragraph of this Section 1;
(b) Terms of Intermediary Agreement; Delivery of
Intermediary Agreement.
If RCA engages in a "deferred like kind exchange", the
Loan Parties shall deliver to the Agent a copy of the agreement between KHC
and the Intermediary (the "Intermediary Agreement") at least 3 Business Days
before the date of RCA's sale of the KHC Assets. The Intermediary Agreement
shall (1) be substantially consistent with the first paragraph of this Section
1, (2) comply with the requirements of a deferred like-kind exchange using
a qualified intermediary pursuant to Section 1031 of the Code, (3) provide that
the proceeds held by the Intermediary shall be returned to RCA if either (a)
RCA fails to identify "replacement property" within 45 days of the date of the
sale of the KHC Assets or (b) RCA fails to purchase replacement property within
180 days after the sale of the KHC Assets, and (4) provide that any net
proceeds held by the Intermediary in excess of the purchase price for the
replacement property shall be returned to RCA;
(c) Release Terms.
The Agent shall not be required to release its Liens on
the KHC Assets until it has satisfactory assurance that the proceeds of such
sale have been, or simultaneously with such release will be, received by the
Intermediary;
(d) Exclusion of KHC Assets from Financial Covenant
Computations After Sale.
The parties hereto acknowledge that on any computations
of the financial ratios listed below pursuant to the Credit Agreement made
after the date on which RCA sells the KHC Assets (including quarterly
computations for quarters ending prior to the date of such sale if the due date
for the Compliance Certificate setting forth such computation is after the
date of such sale), the operations of KHC shall be excluded from all income and
expense items in the computations of such ratios. For purposes of the preceding
sentence "Income and expense items" shall include without limitation
Consolidated EBITDA and both the numerators and denominators of the Interest
Coverage Ratio and the Fixed Charge Coverage Ratio (and each component of such
numerators and denominators).
---------------------------------------------------------
Section/Ratio
---------------------------------------------------------
Section 7.2.17 Maximum Total Leverage Ratio
---------------------------------------------------------
Section 7.2.18 Maximum Senior Leverage Ratio
---------------------------------------------------------
Section 7.2.19 Minimum Interest Coverage Ratio
---------------------------------------------------------
Section 7.2.21 Minimum Fixed Charge Coverage Ratio
---------------------------------------------------------
; and
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(e) Compliance with Section 7.2.5 (Liquidations,
Mergers, Consolidations, Acquisitions) in
Connection With Purchase of Replacement Property.
The purchase by the Loan Parties of replacement property
shall be subject to Section 2.5 (Liquidations, Mergers, Consolidations,
Acquisitions) and the Loan Parties shall comply with the requirements of such
Section.
2. Amendment to Permit Pledge of Assets by Charlson Broadcast
Technologies, LLC
A new clause (xii) is hereby added to the definition
of "Permitted Liens" to follow immediately after the last clause of such
definition to read as set forth below. Such last clause is renumbered to read
"(xi)" instead of "(x)" (correcting the numerical sequence--such definition now
has two clauses numbered "(x)") :
"(xii) Liens granted by Charlson Broadcast
Technologies, LLC provided that the Indebtedness secured
thereby is permitted under clause (i) of Section 7.2.1(Limitation
on Indebtedness) (and such Indebtedness shall reduce the amount
of availability under the $5,000,000 limit on Indebtedness of
Excluded Subsidiaries permitted under such clause (i))."
3. Amendments to Create a $10 Million "Basket" for Guarantees and
Indebtedness.
A. Indebtedness (Section 7.2.1)
A new clause (xi) is hereby added to Section 7.2.1 to follow
immediately after clause (x) and to read as follows:
"(xi) other Indebtedness provided that the total
amount of Indebtedness included under this clause (xi) and
Guarantees included under clause (iii) of Section 7.2.3 shall
not exceed $10,000,000."
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B. Guaranties (Section 7.2.3)
Section 7.2.3 is hereby amended and restated to read as
follows:
"7.2.3 Guaranties.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, at any time, directly or
indirectly, become or be liable in respect of any Guaranty, or
assume, guarantee, become surety for, endorse or otherwise
agree, become or remain directly or contingently liable upon
or with respect to any obligation or liability of any other
Person, except for (i) the Guaranty Agreement (ii) other
Guaranties entered into in the ordinary course of business on
behalf of a Loan Party or any of its Subsidiaries (subject in
the case of Guaranties on behalf of the Excluded Subsidiaries
to the limitation on Restricted Investments contained in
Section 7.2.4(vii)) provided that such other Guaranties do not
to exceed $5,000,000 in the aggregate and are otherwise
permitted hereunder, (iii) other Guaranties provided that the
total amount of Guaranties included in this clause (iii) plus
the amount of Indebtedness included in clause (xi) of Section
7.2.1 shall not exceed $10,000,000, and (iv) Guarantees by any
Loan Party of Indebtedness or other obligations of any other
Loan Party permitted hereunder."
C. Acknowledgments Related to The Foregoing Amendments.
(a) $5,000,000 Loan From Triple Crown Productions, LLC.
The $5,000,000 loan to the Borrower from Triple Crown
Productions, LLC referenced in Section I of the October 12, 1999 Memorandum is
Indebtedness permitted under clause (xi) of Section 7.2.1 of the Credit
Agreement and shall be included under such clause (xi).
(b) $1,500,000 Loan to Kentucky Derby Museum.
The $1,500,000 loan from the Borrower to the Kentucky
Derby Museum referenced in Section II of the October 12, 1999 Memorandum shall
(as provided in such October 12, 1999 Memorandum) be included as a Permitted
Investment under the last clause of the definition of such term (beginning "and
in addition, the Borrower shall be allowed to invest") in the Credit Agreement
(and accordingly such loan shall reduce from $5,000,000 to $3,500,000 the amount
of "similar cash investments"
which may be treated as "Permitted Investments" under the last clause of such
definition).
4. Landlord's Waiver and Consent--Calder Satellite Uplink.
A. Recital:
Calder entered into that certain Agreement of Lease
dated as of July 1, 1995 pursuant
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to which Calder leased to The Satlink Corporation ("Satlink") space on the
premises of Calder's racetrack facility for the construction of a satellite
communications uplink facility. Roberts Communications Network, Inc.
("Roberts"), is the successor by merger to Satlink. Roberts' lender, General
Electric Capital Corporation ("GECC"), has requested that Calder enter into that
certain Landlord's Waiver and Consent (the "GECC Waiver") in the form attached
as Exhibit 4(A) hereto pursuant to which among other things, the Agent
acknowledges the validity of GECC's liens in the personal property and trade
fixtures of Roberts some of which is located on Calder's premises.
B. Waiver and Consent.
The Banks hereby permit Calder to enter into the GECC
Waiver in substantially the form attached hereto and waive any provisions of the
Calder Mortgage, the related assignment of leases executed by Calder or any
of the other Loan Documents to the extent that such documents would otherwise
prohibit Calder from executing such GECC Waiver or require consent for the same.
5. Landlord's Waiver and Consent--Calder Satellite Tower.
A. Recital:
Calder desires to enter into a certain Option and Lease
Agreement with AT&T Wireless Services of Florida, Inc. ("AT&T") pursuant to
which Calder will lease to AT&T space for the construction of towers or other
facilities for transmission and reception of communications signals on Calder's
premises. AT&T has requested that Calder enter into that certain
Subordination, Non-Disturbance and Attornment Agreement (the " AT&T Waiver")
in substantially the form attached as Exhibit 5(A) hereto pursuant to which
among other things, the Agent acknowledges it will acquire no interest and it
waives any interest it may have or acquire in the personal property of AT&T some
of which is located on Calder's premises.
B. Waiver and Consent.
The Banks hereby permit Calder to enter into the AT&T
Waiver in substantially the form attached hereto and waive any provisions of
the Calder Mortgage, the related assignment of leases executed by Calder or
any of the other Loan Documents to the extent that such documents would
otherwise prohibit Calder from executing such AT&T Waiver or require consent for
the same.
6. Lease For Equine Hospital--Hollywood Park.
A. Recital:
Hollywood Park, Inc. entered into a certain lease (the
"Prior Lease") agreement pursuant to which Hollywood Park, Inc. leased to
Southern California Equine Foundation a portion of its premises located at the
Hollywood Park racetrack for the operation of an Equine Hospital. The Prior
Lease expired and Hollywood Park, Inc. continued to lease the real estate
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comprising the Equine Hospital on a month-to month basis. Churchill Downs
California Company purchased the Hollywood Park racetrack assets of Hollywood
Park, Inc. on September 10, 1999, including Hollywood Park, Inc.'s rights under
its month to month lease with Southern California Equine Foundation. Churchill
Downs California Company entered into a written new Ground Lease Agreement
dated December 1, 1999 (the "Ground Lease") with Southern California Equine
Foundation replacing its month to month lease with Southern California Equine
Foundation.
B. Waiver and Consent.
The Agent and the Banks hereby consent to Churchill Downs
California Company entering into a written lease agreement with Southern
California Equine Foundation. The Agent and the Banks waive any provisions of
their Mortgage on the Hollywood Park property and the related Assignment of
Leases and Rents, each dated as of September 10, 1999, to the extent that such
documents would otherwise prohibit Churchill Downs California Company from
executing such lease or require consent for the same.
7. Amendment to Schedule of Existing Indebtedness (Section 7.2.1).
A. Recital:
The parties desire to amend Schedule 7.2.1 (Permitted
Indebtedness) to the Credit Agreement to reflect the potential maximum principal
amount of Indebtedness of Hoosier Park under the Second Amended Secured
Promissory Note dated as of November 1, 1994, as amended ("Hoosier Park/CDMC
Note"), in favor of Churchill Downs Management Company. Such Indebtedness was
heretofore also reflected on Schedule 7.2.4 (Restricted Investments on the
Closing Date).
B. Waiver and Amendment.
Schedule 7.2.1 to the Credit Agreement is hereby amended and
restated to read as set forth on Schedule 7.2.1 hereto. The Agent and the Banks
hereby waive any alleged breach of the Credit Agreement which may be alleged to
have occurred between the Closing Date and the date hereof resulting from any
failure of Schedule 7.2.1 to reflect correctly the amount of the Indebtedness
under the Hoosier Park/CDMC Note.
8. Amendment to Section 7.2.5 (Liquidations, Mergers,
Consolidations, Acquisitions); Amendments to Mortgages.
A. Amendment to Section 7.2.5.
A new clause (4) is hereby added to Section 7.2.5
(Liquidations, Mergers, Consolidations, Acquisitions) to follow immediately
after existing clause (3) to read as follows:
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"(4) Any Loan Party may acquire by purchase, lease or
otherwise all or substantially all of the assets of any other Person
(without complying with the requirements of clause (3) of this Section
7.2.5) provided that:
(i) the total Consideration paid or given by
such Loan Party in connection with such acquisition does not
exceed $500,000;
(ii) the total Consideration paid or given
by such Loan Party in connection with acquisitions under this
clause (4) of Section 7.2.5 over the term of this Agreement
shall not exceed $10,000,000, and
(iii) the Borrower shall send to the Agent
written notice of each acquisition under this Section 7.2.5(4)
within five (5) Business Days after such acquisition and such
report shall contain
(a) a certification in the form of Section 9
of the quarterly Compliance Certificate (as
amended by the Third Amendment to this Agreement)
demonstrating the Loan Parties' compliance with
the requirements of subclauses (i) and (ii)
of this clause (4) and
(b) an updated Schedule 7.2.5(4)
(Acquisitions Under Section 7.2.5(4)) listing all
of the acquisitions made by the Loan Parties
under clause (4) of Section 7.2.5 between February
23, 2000 (date of Third Amendment) and the date
of such acquisition.
(iv) the Borrower shall report all such
acquisitions under this clause (4) of Section 7.2.5 in each
quarter on its Compliance Certificate for such quarter."
B. New Schedule 7.2.5(4)
A new Schedule 7.2.5(4) is hereby added to the Credit
Agreement to be in the form attached as Schedule 7.2.5(4). Such Schedule shall
list all of the acquisitions all of the acquisitions made by the Loan Parties
under clause (4) of Section 7.2.5 after February 23, 2000 (date of Third
Amendment):
C. Amendment to (Exhibit 7.3.3) Quarterly Compliance
Certificate (Exhibit 7.3.3).
Exhibit 7.3.3 (Quarterly Compliance Certificate) is
hereby amended and restated to read as set forth on Exhibit 7.3.3 hereto.
D. Amendments to Mortgages.
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The Agent and the Banks shall not require the Borrower to
amend the applicable Mortgages to include within the Collateral thereunder Real
Property acquired pursuant to acquisitions described in and permitted under
Section 7.2.5 (4) (added to the Credit Agreement pursuant to the Third
Amendment thereto), provided that such Loan Parties shall at any time promptly
upon the request of the Agent or the Required Banks amend such Mortgages to
include such Real Property (and any other similar Real Property owned by the
Loan Parties and not then included in such Collateral, including the Schedule
9.E) Parcels (as such term is defined in Section 9.E))) and obtain
appropriate amendments or endorsements to the title insurance policies relating
to the same.
E. Waiver.
Subject to the covenant contained in Section 8.D, the
Agent and the Banks waive any requirement that the Loan Parties have, prior
to the date of this Third Amendment, amended the Mortgages to include the
Schedule 9.E) Parcels (as such term is defined in Section 9.E) in the Collateral
thereunder.
9. Warranties
The Loan Parties, jointly and severally, represent and warrant
as follows:
A. Recitals.
The recitals hereto are true, correct and complete.
B. Warranties Under the Credit Agreement
The representations and warranties of Loan Parties contained
in the Credit Agreement, after giving effect to the amendments thereto on the
date hereof, are true and correct on and as of the date hereof with the same
force and effect as though made by the Loan Parties on such date, except to the
extent that any such representation or warranty expressly relates solely to a
previous date. The Loan Parties are in compliance with all terms, conditions,
provisions, and covenants contained in the Credit Agreement.
C. Power and Authority; Validity and Binding Effect; No
Conflict.
Each Loan Party has full power to enter into, execute, deliver
and carry out this Third Amendment, and such actions have been duly authorized
by all necessary proceedings on its part. This Third Amendment has been duly and
validly executed and delivered by each Loan Party. This Third Amendment
constitutes the legal, valid and binding obligation of each Loan Party which is
enforceable against such Loan Party in accordance with its terms. Neither the
execution and delivery of this Third Amendment nor the consummation of the
transactions herein contemplated will conflict with, constitute a default under
or result in any breach of (i) the terms and conditions of any organizational
documents of any Loan Party or (ii) any Law or any material agreement or
instrument or other obligation to which any Loan Party or any of its
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Subsidiaries is a party or by which it or any of its Subsidiaries is bound, or
result in the creation or enforcement of any Lien upon any property of any Loan
Party or any of its Subsidiaries other than as set forth herein.
D. Consents and Approvals; No Event of Default.
No consent, approval, exemption, order or authorization
of any Person other than the parties hereto is required by any Law or any
agreement in connection with the execution, delivery and carrying out of this
Third Amendment. No event has occurred and is continuing and no condition exists
or will exist after giving effect to this Third Amendment which constitutes
an Event of Default or Potential Default.
E. Schedule of Properties Acquired Since Closing.
Attached as Schedule 9.E to this Third Amendment is a list of
the properties (the "Schedule 9.E Parcels") purchased by the Borrower between
the Closing Date and the date of this Third Amendment which are located in
Jefferson County, Kentucky and which have not been included in the Collateral
under the Mortgages filed in such County.
10. Conditions to Effectiveness.
The effectiveness of this Third Amendment is subject to
satisfaction of each of the following conditions on or before the date hereof:
A. Representations and Warranties.
Each of the representations and warranties under Section 9 hereof
are true and correct on the date hereof.
B. Execution by Required Banks, Agent and Loan Parties.
This Third Amendment shall have been executed by all of the
Banks, the Agent and the Loan Parties on or before the date hereof.
C. Opinion of Counsel.
The Loan Parties shall have delivered an opinion of their counsel confirming the
warranties in Section 9 hereof.
11. References to Credit Agreement, Loan Documents.
Any reference to the Credit Agreement or other Loan Documents
in any document, instrument, or agreement shall hereafter mean and include the
Credit Agreement or such Loan Document, including such schedules and exhibits,
as amended hereby. In the event of irreconcilable inconsistency between the
terms or provisions hereof and the terms or provisions of the Credit Agreement
or such Loan Document, including such schedules and exhibits, the terms and
provisions hereof shall control.
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12. Force and Effect.
The Borrower reconfirms, restates, and ratifies the Credit
Agreement and all other documents executed in connection therewith except to the
extent any such documents are expressly modified by this Third Amendment and
Borrower confirms that all such documents have remained in full force and effect
since the date of their execution.
13. Governing Law.
This Third Amendment shall be deemed to be a contract under
the laws of the Commonwealth of Kentucky and for all purposes shall be governed
by and construed and enforced in accordance with the internal laws of the
Commonwealth of Kentucky without regard to its conflict of laws principles.
14. Counterparts; Effective Date.
This Third Amendment may be signed in any number of
counterparts each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Third Amendment
shall become effective when it has been executed by the Agent, the Loan Parties
and all of the Banks and each of the other conditions set forth in Section 10 of
this Third Amendment has been satisfied.
[SIGNATURE PAGES TO FOLLOW]
119
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[SIGNATURE PAGE 1 OF 4 TO THIRD AMENDMENT]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Third Amendment as of the day and year above
written.
BORROWER:
CHURCHILL DOWNS INCORPORATED
By:
Title:
GUARANTORS:
CHURCHILL DOWNS MANAGEMENT COMPANY
By:
Title:
CHURCHILL DOWNS INVESTMENT COMPANY
By:
Title:
RACING CORPORATION OF AMERICA
By:
Title:
ELLIS PARK RACE COURSE, INC.
By:
Title:
120
<PAGE>
[SIGNATURE PAGE 2 OF 4 TO THIRD AMENDMENT]
CALDER RACE COURSE, INC.
By:
Title:
TROPICAL PARK, INC.
By:
Title:
BANKS AND AGENT
PNC BANK, NATIONAL ASSOCIATION,
individually and as Agent
By:
Title:
BANK ONE, KENTUCKY, NA
By:
Title:
121
<PAGE>
[SIGNATURE PAGE 3 OF 4 TO THIRD AMENDMENT]
CIBC INC.
By:
Title:
COMERICA BANK
By:
Title:
FIFTH THIRD BANK
By:
Title:
NATIONAL CITY BANK OF KENTUCKY
By:
Title:
FIRSTAR BANK, N.A.
By:
Title:
BANK OF LOUISVILLE
By:
Title:
122
<PAGE>
[SIGNATURE PAGE 4 OF 4 TO THIRD AMENDMENT]
CIVITAS BANK
By:
Title:
WELLS FARGO BANK
By:
Title:
123
<PAGE>
Schedules and Exhibits to Third Amendment
Schedules
Schedule 9.E - Kentucky Properties Acquired Since Closing
Schedule 7.2.1 - Permitted Indebtedness
Schedule 7.2.5(4) - Acquisitions Under Section 7.2.5(4)
Exhibits
Exhibit A - October 12, 1999 Memorandum
Exhibit 1.A - Letter dated December 21, 1999 re sale of the
Kentucky Horse Center
Exhibit 4.A - GECC Waiver
Exhibit 5.A - AT&T Waiver
Exhibit 7.3.3 - Form of Compliance Certificate (changed
pages only)
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Schedule 7.2.5(4)
Acquisitions Under Section 7.2.5(4)
The following is a list of all of the acquisitions made by the Loan Parties
under clause (4) of Section 7.2.5 between February 23, 2000 (date of Third
Amendment) and the Report Date:
- ---------------------------------------------------------------------
Name of Seller Description of Assets Consideration Paid by
Acquired the Loan Parties
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
$
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
$
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Total (may not exceed $
$10,000,000)
- ---------------------------------------------------------------------
125
<PAGE>
Schedule 9.E
Kentucky Properties Acquired Since Closing
(Not Included in the Mortgages)
126
CHURCHILL DOWNS INCORPORATED
AMENDED AND RESTATED 1997 STOCK OPTION PLAN
1. Purpose. The purpose of the Churchill Downs Incorporated 1997
StockOption 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.
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<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.
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<PAGE>
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).
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 six hundred thousand (650,000) of Company's authorized shares
of Common Stock.
C. Shares Subject to Expired Options. If an option is
canceled, expires or terminates 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,
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<PAGE>
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 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.
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<PAGE>
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 agreement. 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 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, five (5) years 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; or
[4] two (2) years 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
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<PAGE>
[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 exercised, 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.
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.
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<PAGE>
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' compensa tion 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.
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.
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<PAGE>
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
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, reorganization, 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
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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.
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
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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 effective date of
the amendment to Sections 3.B and 6.F of the Plan will be March 16, 2000,
subject to approval by stockholders of Company holding not less than a majority
of the shares present and voting at its 2000 annual meeting on June 22,2000. 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 enforce ability 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 19th day of November, 1997, but effective as of
June 22, 2000, as to the amendments to Section 3.B and 6.F of the Plan.
CHURCHILL DOWNS INCORPORATED
By:
President and Chief Executive Officer
136
Subsidiary State/Jurisdiction of
Incorporation/Organization
Churchill Downs Management Company Kentucky
Hoosier Park, L.P. (limited partnership) Indiana
Ellis Park Race Course, Inc. Kentucky
Racing Corporation of America d/b/a
Kentucky Horse Center Delaware
Calder Race Course, Inc. Florida
Tropical Park, Inc Florida
Hollywood Park Race Track California
137
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-8 (File Nos. 33-85012, 333-62013 and 33-61111) of Churchill
Downs Incorporated and its subsidiaries of our report dated February 23, 2000
relating to the financial statements and financial statement schedule, which
appears in this Form 10-K.
\s\ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Louisville, Kentucky
March 15, 2000
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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0
0
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</TABLE>
