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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1995 Commission file number 0-7607
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FAIR GROUNDS CORPORATION
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(Exact name of registrant as specified in its charter)
Louisiana 72-0361770
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1751 Gentilly Blvd., New Orleans LA 70119
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code 504/944-5515
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Not applicable NONE
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Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, No Par Value
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(Title of Class)
Indicate by a check mark whether the registrant (1) has filed all
reports to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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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 to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was $2,432,860 computed by reference to the average bid and
asked prices of such stock on February 10, 1996.
The number of shares outstanding of the issuer's single class of
common stock was 468,180 as of January 31, 1996.
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EXHIBIT INDEX ON PAGE 92
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PART I
ITEM 1. BUSINESS
GENERAL OVERVIEW OF BUSINESS
Fair Grounds Corporation (the "Company"), which was incorporated in 1941, is
the owner of the Fair Grounds Race Course in New Orleans, Louisiana, at which
thoroughbred horse racing, off-track betting and video poker gaming are
conducted. The Fair Grounds Race Course currently is in its 124th racing
season, making it the third oldest thoroughbred racing track in the United
States. In addition to its live racing operations, the Company currently
operates five off-track betting facilities, referred to herein as tele-tracks,
at locations in St. Bernard, Orleans, Jefferson, St. John and LaFourche
Parishes, Louisiana, as well as a tele-track facility located at the Fair
Grounds Race Course. Through Finish Line Management Corporation ("Finish
Line"), an affiliate, the Company operates tele-track facilities in Terrebone,
St. Tammany and Jefferson Parishes, Louisiana. At each location, the Company
makes available pari-mutuel and video poker wagering and food and beverage
services to the public and receives revenues from such services. The Company
conducts its annual live racing meet and operates its tele-tracks for off-track
betting pursuant to the rules and under the authority of the Louisiana State
Racing Commission (the "Racing Commission"), a statutory body, the members of
which are appointed by the Governor of Louisiana. The Company's live races are
simulcasted to its tele-tracks and to other facilities located both inside and
outside Louisiana. Since 1992 the Company also has operated video poker gaming
devices at the Fair Grounds Race Course and each of the Company's tele-track
facilities.
DEVELOPMENTS DURING FISCAL 1995
New Tele-Track Facility
In October 1995, the Company opened a tele-track facility in Jefferson Parish,
approximately 10 miles from the Fair Grounds Race Course.
Progress of Construction
As previously reported, on December 17, 1993, a fire destroyed the main
clubhouse and grandstand building and all of its contents at the Fair Grounds
Race Course. During the remainder of December 1993, the Company made
arrangements for the installation of temporary racing and patron facilities and
contracted with equipment vendors, suppliers and contractors for the
installation of totalisator, television, lighting and other equipment necessary
to continue the live racing meet. During the two and one-half week period from
the date of the fire to January 5, 1994, the temporary facilities were
installed and the property was readied for the
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reopening of racing. The Company spent in the aggregate $2.68 million in
preparing the temporary facilities for the reopening of live racing at the Fair
Grounds.
The temporary facilities were utilized throughout the balance of the 1993-94
racing season and for the entire 1994-95 racing season and continue to be used
at the present time. In addition, the Company's new tele-track facility at the
Fair Grounds Race Course, which also serves as a temporary clubhouse area, was
opened on December 22, 1994. It is a two-story building of concrete and steel
construction, aggregating approximately 20,000 square feet. The lower level
contains tables and chairs, a concessions area, mutuel machines and an area set
aside for video poker machines. The second floor contains an area of tables
and chairs which is currently being used as the clubhouse area. The new
facility was constructed on part of the area previously occupied by the old
main grandstand and clubhouse, and the glass-enclosed front of the building
overlooks the track. Those parts of the main grandstand and clubhouse which
were not totally destroyed by the fire have been torn down and all of the
debris has been removed. The total cost for debris removal and the
construction of the tele-track facility was approximately $3.2 million.
During the Summer of 1994, the Company approved the plans for a new main racing
facility and commenced construction of the foundation thereof in August 1994.
The plans call for the facility to be principally a multi-tiered concrete and
steel structure, with a total capacity of approximately 10,000 people. It is
anticipated that the size of the new facility, together with the new tele-track
building just completed, to which the new grandstand will be connected, will be
220,000 square feet in the aggregate. The old facility contained over 300,000
square feet. It is anticipated that there will be general seating in a
bleacher area in the front of the grandstand, with reserved seating, including
the new clubhouse area, to be located in tiered areas above the grandstand. In
a significant change from the design of the old building, it is anticipated
that the paddock will be located in the middle of the grandstand and may be
viewed through a glass area from all levels of the grandstand. The total cost
of the facility, together with furniture, fixtures, equipment and certain fees
and permit costs, was anticipated to be approximately $24.3 million at the time
construction commenced, which is in addition to the $3.2 million relating to
debris removal and construction of the tele-track facility, as described above.
As of January 31, 1996, construction of the facility was approximately 60%
completed, and the Company had incurred construction costs of approximately
$15.2 million. Insurance proceeds recovered to date and interim financing
provided by First National Bank of Commerce of New Orleans ("FNBC"), as
described below, provided the source of funds used in such construction.
However, for the reasons described below, further construction work
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on the project has been halted. As a result (i) the cost to complete the
project cannot now be determined with any certainty and (ii) the Company
currently anticipates that it will continue to utilize the temporary tent
facilities and the tele-track facility at least during the remainder of the
current racing season and possibly for the next racing season.
Financing
As previously reported, the Company received and accepted a commitment letter
dated February 6, 1995 from FNBC for a non-revolving line of credit to be used
as an interim construction loan, convertible to a term loan. The aggregate
principal amount of such loan under the terms of such commitment was to have
been $17.5 million. The commitment from FNBC provided that the interim
construction loan was to have closed on or before March 31, 1995. However, the
parties agreed to various extensions of such closing date. FNBC indicated that
the principal reason for the delay was FNBC's concern with restrictions on and
the possible elimination of video poker gaming in Louisiana. See "Legislative
Action," below. Inasmuch as video poker franchise tax monies generated by the
Company and its tele-tracks were to be used for the repayment of the FNBC loan,
in accordance with the tax relief legislation described herein, any change in
the video poker gaming laws which restricts or limits video poker as a source
of revenue may have an adverse impact on such source of repayment.
Accordingly, final action on the full $17.5 million loan has been delayed until
after the 1996 Louisiana regular legislative session.
During 1995 FNBC provided the Company with short-term interim construction
loans of $2.15 million on July 17, 1995, $4 million on November 7, 1995, and $1
million on November 30, 1995. All of such financing was then consolidated
under a Loan Agreement dated as of December 18, 1995 between the Company and
FNBC (the "Loan Agreement"), pursuant to which the Company borrowed an
aggregate amount of $9,493,050 and utilized a portion of such funds to repay
the principal amount of the prior loans that was outstanding on December 18,
1995. The remaining amount borrowed was utilized to pay construction costs.
Pursuant to the Loan Agreement, FNBC agreed to extend credit to the Company up
to aggregate principal amount of $9,493,050 until October 31, 1996. The Loan
Agreement states that such commitment is not a revolving credit facility, and
the commitment is only to make loans up to such aggregate principal amount.
Accordingly, FNBC has no obligation under the Loan Agreement to lend additional
funds to the Company.
Payment of the principal and interest under the Loan Agreement is to be made on
demand, or if no demand is made, then in 10 monthly installments of $52,740
principal plus interest, beginning January 17, 1996, and one final payment of
all principal plus accrued
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interest on October 31, 1996. The loan bears interest at 9% per annum. On
each monthly payment date, payment of principal and interest is to be made from
the proceeds of the funds received as a result of the video poker tax relief
legislation, which funds are to be on deposit in a separate lockbox, in
accordance with a Disbursement Agreement entered into among Company, FNBC and
Video Services, Inc. ("VSI") dated July 17, 1995. The Disbursement Agreement
provides that VSI acknowledges that the first $2.5 million in video poker
franchise fee payments otherwise due annually to the State of Louisiana are to
be remitted to the Company under the terms of the tax relief legislation. For
each annual period from July 1 through June 30, such funds are to be debited
from VSI's bank account and deposited into a lockbox at FNBC. Such proceeds
are to be used solely for the purpose of making payments of principal and
interest from time to time due under the terms of the Loan Agreement. Any
amount in excess of the amount of debt service, up to $2.5 million annually, is
to be applied as a prepayment of the principal amount of the loan, and any
excess is to be returned to the treasury of the State Louisiana. The Loan
Agreement also provides that any fire insurance proceeds (not including
proceeds payable to any third party) received by the Company are to be used to
prepay the loan.
The indebtedness under the Loan Agreement is secured by (i) a second mortgage
by the Company of all of its real property; (ii) a mortgage by Marie G. Krantz
of all the real property formerly constituting the Jefferson Downs Race Course;
(iii) a security interest in all the Company's accounts, inventory, equipment,
fire insurance proceeds, tax relief monies, construction property, material
contracts and all deposit accounts; (iv) a security interest in certain
investment securities owned by Marie G. Krantz; (v) a security interest in all
furniture, fixtures and equipment owned by the Company, Finish Line and
Jefferson Downs; (vi) a pledge by Richard Katcher, as Trustee u/t/a between
John G. Masoni and John G. Masoni, Trustee, pursuant to a restatement of his
Trust Agreement dated April 19, 1991 as modified on October 24, 1992 (the
"Trust"), Marie G. Krantz, individually and as Voting Trustee, Bryan G. Krantz,
Vickie Krantz and Jefferson Downs of an aggregate of 342,584 shares of common
stock of the Company, constituting all shares of common stock of the Company
beneficially owned by them (see Item 12, "Security Ownership of Certain
Beneficial Owners and Management" herein for a description of the amount of
such shares and the terms of such pledge agreements); (vii) a limited guaranty
of such indebtedness by Marie G. Krantz; and (viii) a guaranty of such
indebtedness by Finish Line.
The Loan Agreement provides that, commencing January 20, 1996, the Company will
deposit monthly into an account at FNBC all "Excess Cash Flow" generated during
the immediately preceding month. Excess Cash Flow is defined as all net income
for the month; plus or minus non-cash items such as depreciation and
amortization; plus or minus the changes in accounts receivable, inventory,
prepaid
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expenses, accounts payable and accrued expenses, and any other operating
balance sheet related activity affecting the cash position; and plus or minus
capital expenditures. This obligation ceases if and when the 1996 Louisiana
regular legislative session adjourns without having theretofore passed any
statute that adversely affects the status of the video poker tax relief or the
existing video poker operations of the Company, Finish Line, or Jefferson
Downs, or that would allow for or require local elections as a condition to the
continuation of video poker operations; or if there is any such legislation
requiring local elections, the voters fail to approve any such adverse change.
Prior to the cessation of such obligation, the Company may not withdraw any
funds in such account, and FNBC has a security interest in such funds.
The Loan Agreement contains certain negative covenants pursuant to which the
Company has agreed that it will not (i) resume construction activities without
first providing FNBC with satisfactory evidence of the source of funding for
the balance of such construction; (ii) enter into any agreement with any
affiliate except to the extent that such agreements are commercially reasonable
and provide for terms which would normally be obtainable in arm's length
transaction with an unrelated third party; and (iii) incur capital
expenditures during any fiscal year in excess of $200,000 without the consent
of FNBC.
In connection with the Loan Agreement, the Company made a payment to Louie J.
Roussel, III of $1 million of the remaining $2 million principal balance owed
to him and agreed that the outstanding principal balance of $1 million will be
due and payable on October 31, 1996.
Insurance Recovery
As of January 31, 1996, the Company had received approximately $19.5 million in
insurance proceeds. Subsequent to the fire, the Company initiated several
legal actions to effect recoveries of certain insurance proceeds. The Company
filed an action against Allianz Underwriters Insurance Company and Royal
Indemnity Company, alleging that under Louisiana law such insurers were liable
to the Company in an amount equal to 10% of the amount of the unpaid insurance
proceeds, plus interest, attorney's fees and costs, for failure to pay the
Company's claims on a timely basis. During 1995, both Allianz and Royal,
without admitting liability, paid the Company certain amounts in settlement of
such actions. The Company also filed an action against Travelers Indemnity
Company of Illinois, in which the Company is seeking a judgment of
approximately $14.8 million, which is in addition to the insurance proceeds
received to date, on the grounds that the insurance policy issued to the
Company by Travelers was a "blanket" policy, thereby providing coverage for the
full insured value. Such actions are pending, and there can be no assurance
that the Company will be successful in any of its claims. See Item 3, "Legal
Proceedings."
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It should also be noted that the insurer for AutoTote Limited ("AutoTote"), the
lessor of the Company's totalisator equipment, filed a subrogation action,
which is pending, against the Company and its general liability insurance
carrier, United National Insurance Company, for the loss of totalisator
equipment destroyed in the fire. The amount sought is approximately $1.2
million. Motions by the parties to determine coverage under the Company's
general liability policy are pending.
Legislative Action
In 1994 legislation was adopted which provides that owners of video poker
devices that are located in licensed establishments owned or operated by
licensed racing associations eligible for emergency relief under the statute
are exempt from the franchise payment otherwise due under the Video Draw Poker
Devices Control Law for a period not to exceed 15 years. The amount of the
franchise payment which otherwise would have been paid to the State of
Louisiana during the exemption period is to be remitted directly to the
licensed racing association, in an amount up to $2.5 million annually, and such
funds are to be used solely for providing emergency relief to the licensed
racing association. The use of funds by the licensed racing association is
subject to review and oversight by a legislative committee which may reduce the
amount of the authorized exemption if the racing association cannot satisfy the
committee that the exemption is necessary for its ongoing economic viability.
The legislation also provides that at such time as the emergency relief granted
under the act exceeds the required annual debt service on any indebtedness
incurred to address the emergency situation, such indebtedness not to exceed
$25 million, the excess of such funds is to be remitted to the state treasury.
During 1995, the Joint Legislative Committee on the Budget approved the
dedication of funds received from the franchise tax relief described above
toward the exclusive use by the Company for making payments of principal and
interest to FNBC.
There is considerable uncertainty in Louisiana at the present time regarding
the future of the gaming industry. The cessation of construction and
subsequent bankruptcy filing by the land-based casino in New Orleans in
November 1995 has adversely affected tax revenues for both the State of
Louisiana and the City of New Orleans. Notwithstanding that loss of revenue,
consideration is being given by the Governor of Louisiana, who was elected in
November 1995, and other state officials to legislation which could curtail
gaming or the use of video poker gaming devices. In particular, the Governor
has indicated that he will call a special session of the legislature for the
purpose of considering legislation which would mandate local elections to
approve or disapprove gaming in a particular parish or locality.
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Possible Future Financing
The Company believes that it was unable during 1995 to obtain the full amount
of financing originally committed by FNBC due to the uncertainty regarding the
future of video poker as a continuing source of revenue. The Company is
hopeful that the 1996 Louisiana regular legislative session will adjourn
without having passed any statute that would adversely affect the status of the
video poker tax relief previously granted to the Company or the existing video
poker operations of the Company or Finish Line, or that would allow for or
require local elections as a condition to the continuation of video poker
operations. No assurance can be given, however, that such legislation will not
be adopted. If adopted, such legislation will adversely affect the ability of
the Company to obtain long-term financing from FNBC in accordance with the
terms of the original commitment.
The Company has received a commitment from VSI to provide a non-interest
bearing loan in the principal amount of $1.5 million, in consideration for
which the Company is to agree to extend both the term of its agreement with VSI
and the term of the option period thereunder by two years. See "Video Poker
Operations" below. VSI's agreement to make such loan is conditioned upon the
closing of the anticipated long-term bank financing. The Company also has
recently received an advance of $1 million from VSI.
In addition to the foregoing, Marie G. Krantz has committed to make a $1
million loan to the Company, which would be conditioned upon the closing of,
and subordinate in right to payment to, the long-term FNBC financing. Although
specific terms of such loan have not been discussed, it is likely that the loan
would be interest-bearing, and that payments would be made after the repayment
of the FNBC financing. The Company is also engaged in discussions with
AutoTote concerning a possible commitment by AutoTote to lend or advance $2.5
million to the Company, such amount to be repaid through a subordinated loan
arrangement or through an extension of the lease terms relating to the
totalisator equipment.
In view of the cessation of construction and the additional expense which is
likely to be incurred as a result of construction delays, it is not certain
that, even if all of such financing is consummated, including the long-term
financing by FNBC in accordance with the terms of the original commitment, the
Company will be able to complete the construction of its new facility as
presently planned. It may be necessary to (i) obtain funds from other sources,
(ii) attempt to increase the amount of long-term financing from FNBC or (iii)
seek to effect savings in the construction costs related to the completion of
the facility. The Company has had no discussions with any other possible
source of such financing, nor has it reached any understanding with FNBC
regarding any increase in the financing which the Company hopes to obtain from
FNBC as originally committed by FNBC. It should also
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be noted that FNBC and the Company are not currently engaged in any discussions
concerning the terms and conditions of the definitive agreements relating to
such long-term financing, given the uncertain legislative climate.
Accordingly, there can be no assurance that definitive agreements will be
reached, or, if reached, that they will be in accordance with the terms of the
original commitment. The foregoing uncertainties raise substantial doubt about
the Company's ability to continue as a going concern. In the event that such
long-term financing is not completed by October 31, 1996, or that the funds
provided through all sources of such financing are insufficient to meet the
Company's needs, the Company may consider a number of alternatives, including
seeking protection from creditors under the United States Bankruptcy Code. See
Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operation."
DESCRIPTION OF BUSINESS
Live Racing Meet
Live Racing at the Fair Grounds Race Course. Annually, upon application and
after hearing, the Racing Commission grants to each of the horse racing tracks
operating in Louisiana certain dates during which live racing meets may be
conducted. Currently four licensees, including the Company, operate live
racing meets in Louisiana at various times during the year.
The Company's live racing meet generally is conducted annually from
Thanksgiving Day to late March. One other track in Louisiana, Delta Downs,
conducts its live racing meet during the same time period as the Company
conducts its live meet. Such track is smaller and conducts its live racing
meet approximately two hundred miles from New Orleans. Delta Downs also
simulcasts to and allows wagering to be accepted on its live races at the
tele-tracks to which the Company simulcasts its live races and at which
wagering on the Company's live races is accepted.
The Company's live racing meet for the fiscal year ended October 31, 1995 was
conducted over 88 racing days. In the prior fiscal year, the Company's live
meet was conducted over 77 racing days, excluding 10 racing days that were lost
as a result of the fire. The total on-track handle, which is the amount of
money handled during the live racing meet through the Company's mutuel machines
at the Fair Grounds Race Course, was $25,134,326 in fiscal 1995, $26,110,964 in
fiscal 1994 and $38,565,606 in fiscal 1993. See "Sources of Revenue."
During its annual live racing meet, the Company attracts thoroughbred horses
from racing stables located in Louisiana and from nationally known racing
stables in Kentucky and elsewhere. Of the 8,311 thoroughbred starters at the
Fair Grounds Race Course
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during the fiscal 1995 racing meet, approximately 41% were Louisiana-bred. The
live racing meet for the fiscal year ended October 31, 1995 featured races with
guaranteed purses as high as $350,000, although the average purse was
approximately $16,000 per race and $159,400 per day. Total purse money
distributed during the 1995 fiscal year was in excess of $14 million.
For the fiscal year ending October 31, 1996, the Racing Commission has granted
the Company a license to conduct its live racing meet during the period from
November 23, 1995 through March 25, 1996, a total of 88 racing days, with live
racing being conducted generally five days a week (Wednesday through Sunday)
and with ten to eleven races during each racing day.
Simulcasting of Live Races. In addition to conducting live horse racing during
the live racing meet, the Company simulcasts its live races to, and allows
wagering to be accepted at, the tele-tracks which it operates in Orleans, St.
Bernard, St. John and LaFourche Parishes, Louisiana, the tele-tracks which are
licensed to the Company and operated by Finish Line, and tele-tracks operated
by the other horse racing tracks in Louisiana. The Company also simulcasts
live races to certain other wagering facilities located outside of Louisiana.
The Company has continued to experience significant increases in the demand for
the Company's races from out-of-state markets. Total handle from such out-of-
state markets during the fiscal 1995 racing season was approximately $92
million, a 119% increase over the previous racing season. The Company earns a
net commission (after payment of purses) of approximately 1.5% of out-of-state
handle.
Off-Track Betting
Ownership and Operation of Tele-Track Facilities. Legislation which was
adopted in 1987 in Louisiana authorizes off-track wagering, and such
legislation regulates the licensure by the Racing Commission of tele-tracks,
the ownership of such facilities, the commissions which can be earned on wagers
and other related matters. Pursuant to such legislation, in 1988 each of the
horse racing tracks then operating in Louisiana was granted a license to
operate tele-tracks at its racetrack and also within a 55-mile radius of its
racetrack, provided that the voters of the parish where the tele-track was to
be located approved the establishment of such a facility. The legislation also
provides that when two pari-mutuel racetracks are located within the same
55-mile radius, any tele-tracks opened in such areas are to be jointly owned
unless one of the eligible racetracks does not wish to participate. In 1987,
the Company and Jefferson Downs, which is now an affiliate of the Company and
which through 1992 conducted live racing at a facility located approximately 12
miles west of the Fair Grounds Race Course, reached an understanding with
respect to the operation of tele-tracks in the parishes located within the
55-mile radius of their respective horse racing tracks. When Jefferson Downs
ceased
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its live racing in 1992, the Company and Jefferson Downs reached an agreement
whereby the Company, through Finish Line, operates the tele-tracks formerly
operated by Jefferson Downs. Total paid attendance at the Company's
tele-tracks (excluding the former Jefferson Downs tele-tracks) during the
fiscal year ended October 31, 1995 was 314,426, compared to 345,905 during
fiscal 1994 and 471,394 during fiscal 1993, and the total off-track handle at
such facilities during the 1995 fiscal year was $53,664,907, compared to
$55,713,253 during fiscal 1994 and $69,922,452 during fiscal 1993. See
"Sources of Revenue" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
During 1992 Jefferson Downs did not renew its license application with the
Racing Commission and, accordingly, did not conduct live racing in 1993. In
August 1992, Jefferson Downs assigned to the Company all of its right, title
and interest in and to the leases on its tele-track facilities in Terrebone,
St. Tammany and Jefferson Parishes, Louisiana, such assignment to be effective
as of the date the Racing Commission approved the transfer to the Company of
all licenses necessary for the operation of such tele-tracks. Such approval
was granted by the Racing Commission in May 1993.
On October 9, 1992, the Company entered into a Management Agreement (the
"Management Agreement") for Finish Line to operate the tele-track facilities
owned by Jefferson Downs and transferred to the Company, as described above.
The Management Agreement is for a term of ten years, commencing November 1,
1992, with the option granted to Finish Line to extend the term for two
additional five-year periods. The Management Agreement provides that Finish
Line is to have the exclusive responsibility for the direction, supervision,
management and operation of such facilities, is to collect all monies from such
operation and is to pay all expenses in connection therewith. The Company is
to receive 0.1% of the gross pari-mutuel handle at such facilities, and Finish
Line is to receive monthly compensation equal to the difference between the
gross receipts collected at such facilities less all expenses (including the
guaranteed payment to the Company) paid by Finish Line. In addition, Finish
Line is to indemnify the Company for, among other things, all obligations under
the leases assigned by Jefferson Downs to the Company. The Company believes
that this arrangement benefits the Company by, among other things, providing
additional funds to be set aside to supplement purses for live racing at the
Fair Grounds Race Course. See "Purse Supplements," below.
Simulcasting to Tele-Track Facilities. When a live racing meet is not in
progress at the Fair Grounds Race Course, horse races are simulcasted from
other tracks then conducting live racing in Louisiana as well as from various
race tracks throughout the United States hosting races of national prominence
to the Company's tele-tracks, to the tele-track facility located at the Fair
Grounds Race
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Course and to other off-track tele-tracks. The Company generally is required
to make payments in the form of host track fees and purse supplements to those
tracks conducting live races which are simulcasted to the Company's
tele-tracks. The Company's tele-tracks generally are open daily, depending on
patron demands and race offerings, for afternoon and evening racing programs
which are simulcasted to the tele-tracks.
Purse Supplements. A portion of the handle generated at tele-track facilities
is required by Louisiana law to be set aside and used to supplement purses at
live racing facilities. Purse supplements are computed on a sliding scale of
5.5%, 6% and 6.5% on the tele-tracks' daily handle. Additionally, purse
supplements of 6.5% of handle are required on all wagers when off-track betting
is conducted at the racing facility of the primary licensee and an additional
1.5% of all "exotic" wagers at tele-track facilities is to be paid as purse
supplements. Race tracks are also allowed to retain the proceeds from uncashed
winning pari-mutuel tickets, up to $250,000 for each licensee's meet. Uncashed
pari-mutuel tickets exceeding $250,000 per race meet are to be remitted to the
State of Louisiana. During the year ended October 31, 1995, the Company
retained approximately $229,000 in such uncashed mutuel tickets as compared to
approximately $300,000 in fiscal 1994 and $369,000 in fiscal 1993.
Video Poker Operations
In June 1991, the Louisiana legislature enacted the Video Draw Poker Devices
Control Law, which grants pari-mutuel facilities the right to install and
operate an unlimited number of video poker machines. Such legislation also
allows other types of businesses, such as bars, truck stops and restaurants, to
operate video poker machines, but restricts the number of machines at those
establishments. See "Regulation." The law requires owners of pari-mutuel
wagering facilities such as the Company to set aside one-half of the net
revenues from such devices in excess of certain amounts and to use such amounts
which are set aside to supplement purses for live racing or, if live racing is
not then being conducted, to place such amounts in an interest-bearing account
and utilize them to supplement purses during the next live racing meet. Any
such funds which are earned from devices located at a tele-track are to be used
for purse supplements by the owner of the tele-track or, if it is jointly
owned, to be divided among the owners in proportion to their ownership
interests.
In February 1992, the Company, Jefferson Downs and Finish Line entered into an
agreement with VSI, whereby VSI was granted the exclusive right and license by
the Company to install, maintain and operate video draw poker devices at the
Fair Grounds Race Course and Jefferson Downs Race Course and at the tele-tracks
operated by the Company, Jefferson Downs and Finish Line. Such agreement is
for an initial term of five years, with an option by VSI to extend
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the term for an additional five years. See "Possible Future Financing" above
for a description of the proposed commitment to extend such term. The
agreement provides that the Company is to receive a percentage of the revenues
from the operation of the devices installed at the Company's facilities. Such
percentage is to be calculated on the basis of the average amount collected
daily from each device during each month, after the payment of prizes, taxes
and fees. See "Sources of Revenue." The devices installed by VSI pursuant to
such agreement remain the property of VSI. As of October 31, 1995, there were
a total of 250 devices in operation at all of the Company's facilities. In
addition, there were a total of 449 devices at the tele-tracks operated by
Finish Line as of October 31, 1995.
The agreement also provides for the Company and Finish Line to share in an
annual promotional fee of $270,000 paid by VSI. During fiscal 1995, by
agreement between the Company and Finish Line, the total amount of such
promotional fee was retained by the Company. Of such amount, $135,000 was set
aside for purse supplements to be paid during the Company's 1995-96 racing
meet.
SOURCES OF REVENUE
General
During the last several fiscal years and in the current and future fiscal
years, off-track betting in connection with live racing meets has had and is
expected to continue to have a substantial impact on horse racing and
pari-mutuel wagering in Louisiana. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Through the development and
operation of the tele-tracks described herein, the Company has endeavored to
create additional revenue producing sites, the revenues from which have
partially offset declines in on-track attendance and handle and related
revenues since those off-track facilities began operation.
The Company's business continues to be seasonal as a result of the Company's
live racing season. The Company has received and should continue to receive a
majority of its revenues during the first and second quarters of its fiscal
year when its live racing meet is held. Prior to the commencement of off-track
wagering, the Company did not earn significant revenues in the third and fourth
quarters of its fiscal year. Because the Company's tele-tracks are now
operated year-round, the Company earns revenues throughout the fiscal year, but
on a smaller scale in the third and fourth quarters than in the first and
second quarters of its fiscal year. In addition, video poker operations are
conducted year-round; however, revenue from video poker operations generally is
higher during the months when live racing is conducted at the Company's race
track, since attendance there is higher during such period.
13
<PAGE> 14
For information regarding the Company's operating revenues, income or loss from
operations, other income, net income or loss and total assets, see "Selected
Financial Data."
Income from Wagering
The principal component of the Company's revenue is generated from pari-mutuel
wagering, both on-track and off-track. In pari-mutuel wagering on horses,
those who wager on the first, second and third place horses share the total
stakes, or pool, less a percentage retained by the Company. The term "pool"
means the total amount wagered to win (first place), to place (second place),
or to show (third place) on every horse in a given race, or exacta and trifecta
wagers on certain combinations of horses. Under the pari-mutuel system,
bettors wager against each other and not against the racing facility, which has
no interest in which horse wins or loses. Racing facilities are authorized
under Louisiana law to retain a stated percentage of the total money handled
through the mutuel machines located at such racing facilities and their
tele-tracks on each racing day. Mutuel commissions range from 17% to 25% of
money handled depending upon the type of wager. For the fiscal year ended
October 31, 1995, the Company received pari-mutuel commissions and related
income of $15.8 million, compared to $16.2 million for fiscal 1994 and $24.2
million for fiscal 1993. Total commission income less pari-mutuel taxes was
$14.1 million for fiscal 1995, $14.5 million for fiscal 1994 and $21.1 million
for fiscal 1993.
The Company also receives, during its live racing meet, a percentage of the
handle from all tele-tracks to which its races are simulcasted, except its own,
in the form of host track fees as compensation for the simulcasting of its
races to such facilities. The Company also pays host track fees to other
racing facilities for the simulcasting of races to the Company's tele-tracks.
For the fiscal year ended October 31, 1995, the Company received host track
fees of $3.9 million and paid host track fees of $1.5 million. During fiscal
1994 the Company received host track fees of $2.5 million and paid host track
fees of $1.5 million and during 1993 the Company received host track fees of
$2.2 million and paid host track fees of $2.0 million.
Breakage, which is the residual amounts remaining in the betting pool after
winnings are paid out to the nearest dime, is retained by the racing facility
and tele-tracks as revenue.
Income from Video Poker Operations
For the fiscal year ended October 31, 1995, revenue from video poker operations
was $1.1 million. In addition, the Company received $703,488 in video poker
tax relief revenues. As previously described, there were a total of 250
devices in
14
<PAGE> 15
operation at the Company's facilities (not including the tele-tracks operated
by Finish Line) as of October 31, 1995.
Other Sources of Revenue
Additional revenue to the Company is generated from program sales, admission
charges collected by the racing facility and tele-tracks, parking, and food and
beverage services, all of which are operated directly by the Company. Pursuant
to its agreement with the publisher of the Daily Racing Form, the Company is
the wholesaler for sales of the Daily Racing Form in the greater New Orleans
area. For two weekends each year, after the live racing meet has concluded,
the infield of the Fair Grounds Race Course is used by a non-profit
organization in New Orleans to host a Jazz and Heritage Festival. As
compensation for the use of its facilities, the Company receives all revenues
from beverage concessions during the Jazz and Heritage Festival. The Company
and the sponsor of the Jazz and Heritage Festival have entered into an
agreement for the use of the Company's facilities through the 1997 Festival.
Revenues from the 1995 Festival were $1.2 million, compared to $1.1 million for
1994 and $0.7 million for 1993.
COMPETITION
The Company continues to face intense competition from other companies in the
gaming industry, including those which offer pari-mutuel wagering. Activities
which compete or which have the potential for competing with the Company's
racing facility, tele-tracks and video poker operations include riverboat and
dockside gambling, state-sponsored lotteries and video poker in restaurants,
bars, hotels and truck stops. All such activities are present in the State of
Louisiana or the Mississippi Gulf Coast area.
Pari-mutuel wagering for live races has experienced declining revenues for the
last several years, not only at the Fair Grounds Race Course but also at other
facilities located in Louisiana. The growth of gaming in the United States in
recent years has been reflected in various forms, including riverboats,
dockside gaming facilities, Native American gaming ventures, land-based
casinos, state-sponsored lotteries, and expanded off-track wagering
opportunities. According to information published by the Research Institute of
the South, gross wagering on live races declined nearly 12% nationally from
1982 to 1994, with much greater decreases in states that have introduced such
other forms of gaming. The impact of the lottery, video poker, and casinos or
riverboats on live racing in Louisiana has been felt by all of the existing
tracks; from 1990 through 1994 the average daily handle, on a statewide basis,
decreased by approximately 44%. Additional forms of gaming which may be
introduced in the future, as well as future expansions, additions and
enhancements to existing facilities by the Company's competitors, could result
in funds
15
<PAGE> 16
being directed away from the Company's on-track and off-track facilities.
Horse Racing
The Company's racing facility and tele-tracks compete for patrons with a number
of sporting events and leisure time and entertainment activities in the New
Orleans area and throughout Louisiana, including race tracks and tele-tracks
owned and operated by three other licensees.
The Company also competes with other racetracks in Louisiana and throughout the
United States in securing high caliber thoroughbred horses to run at the
Company's racetrack. As a result of increased purses which should continue to
be available because of increased purse supplements to the Company, the Company
believes that the quality of racing at the Fair Grounds Race Course has
improved and will continue to improve.
Other Forms of Legalized Gaming
Louisiana Lottery. A state-wide lottery began operations in Louisiana in
September 1991. The Company believes that at its inception the Louisiana
lottery contributed significantly to a decline in the Company's average daily
pari-mutuel handle (consisting of both on-track and off-track wagering) at its
inception; however, the lottery has had little impact during the last several
fiscal years.
Casino Gambling. A number of dockside casinos are currently operating in or
near Biloxi, Mississippi, located on the Mississippi Gulf Coast approximately
60 miles east of New Orleans. Several other such casinos have been proposed
for the same area, and a substantial number of dockside gaming facilities are
in operation in Vicksburg, Greenville, Natchez, Coahoma County and Tunica
County, Mississippi.
The Louisiana Riverboat Economic Development and Gaming Control Act, which
became effective in July 1991, approved the conduct of riverboat gaming
activities on 12 separate waterways in Louisiana. The legislation authorizes
the issuance of up to 15 licenses to operate riverboat casinos within the
State, with no more than six in any one Parish. As of January 1, 1996, 14
licenses had been granted and there were 12 licensed riverboats in operation in
Louisiana, four of which were operating in the New Orleans area.
In 1992, the Louisiana legislature approved a single land-based casino to be
developed in downtown New Orleans. Such legislation provided that the casino
is to be the only such authorized casino in the State of Louisiana. The City
of New Orleans awarded contracts for the development and operation of such
casino project, and in May 1995 temporary gambling operations commenced and
16
<PAGE> 17
construction on the permanent casino facility was begun. Construction was
halted in the Fall of 1995 when the casino filed for bankruptcy and all
gambling and construction operations have ceased. The Company does not believe
that
Video Poker Operations. As described herein, the Video Draw Poker Devices
Control Law allows pari-mutuel facilities to have an unlimited number of video
poker devices at such facilities. Any person who has been granted a license to
sell alcoholic beverages for consumption on the premises may be granted a
license for the placement of devices on such premises; however, with the
exception of pari-mutuel facilities and truck stop facilities, a licensee may
not have more than three such devices. Truck stop facilities may have no more
than 50 devices. Devices which are placed in restaurants are to be operated
only in designated areas which are separate from the dining area of such
restaurants. The Company believes that there are numerous establishments
throughout the New Orleans area at which video poker devices are located;
however, the Company does not believe that the placement of such devices at
such other establishments has had a material adverse effect on the revenue
which has been generated from the operation of such devices at the Company's
racetrack and tele-tracks.
REGULATION
The Company's operation of pari-mutuel wagering at its racetrack and
tele-tracks is subject to extensive regulation pursuant to Louisiana law and
the rules and regulations of the Racing Commission, which govern, among other
things, (i) the awarding of licenses for the conduct of live racing meets; (ii)
the conduct of thoroughbred horse racing; (iii) the types of wagering which may
be offered by the Company and other pari-mutuel facilities; and (iv) the
disposition of revenue generated from wagering. Off-track wagering is also
regulated by the Racing Commission, pursuant to legislation enacted in
Louisiana in 1987 and described elsewhere herein. Such legislation, and
subsequent regulations adopted by the Racing Commission, govern the ownership
and operation of off-track wagering facilities, the commissions which
facilities may earn on wagers and the amounts which must be set aside as purse
supplements, as described elsewhere herein.
The Video Draw Poker Devices Control Law is subject to the regulation by the
gaming enforcement division of the Louisiana State Police. Such legislation
describes the specifications which must be met before devices can be utilized
in Louisiana, and also sets forth certain licensing, accounting and reporting
requirements. See "Legislative Action" above for a discussion of possible
changes to state law which may adversely affect video poker gaming.
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<PAGE> 18
EMPLOYEES
During its live racing season the Company employed on-track approximately 550
persons, including 170 in the mutuel department, 125 in the concessions
department, 65 in the security department and 190 in the administrative,
racing, parking, maintenance and publicity departments.
In connection with tele-track operations, the Company currently employs
approximately 320 persons including 100 in the mutuel department, 60 in the
catering department, 35 in the security department and 25 in the
administrative, admissions, maintenance and publicity departments, some of whom
are employed on-track during the live racing season and are included in the
total employees referred to above.
ITEM 2. PROPERTIES
The Company owns its racetrack site which consists of approximately 145 acres
of land held in fee ownership, situated within a fenced area adjacent to
Gentilly Boulevard in the New Orleans city limits, and within ten minutes drive
from downtown New Orleans. Located on such property is a one-mile oval, sandy
loam race track and a seven-furlong turf track inside the main track.
The Company currently leases its temporary facilities, consisting of the large
main tent previously described, as well as certain modular buildings containing
executive and administrative offices, and totalisator equipment.
The Company owns the newly completed tele-track facility described above, as
well as the new grandstand facility as to which construction commenced during
1995 but has been curtailed, as described above.
The Company also owns 50 modern concrete barns with supporting buildings and
facilities which are located on the property and are capable of quartering
approximately 2,000 horses. There is an all-concrete parking lot which can
accommodate approximately 4,000 vehicles within the fenced area.
Substantially all of the real property and equipment of the Company is subject
to a collateral mortgage in the amount of $10 million which secures the
Company's indebtedness to Louie J. Roussel, III, currently in the principal
amount of $1 million, as described in the Notes to the Company's Financial
Statements included herewith. In addition, all of the Company's real property
is subject to a second collateral mortgage in the aggregate amount of $17.5
million, and all of the Company's furniture, fixtures, equipment, and other
items of personal property are subject to a security
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<PAGE> 19
interest, which secure the Company's indebtedness to FNBC under the Loan
Agreement, as described above.
The Company leases the facilities for its tele-tracks under lease agreements
with various terms. The tele-tracks formerly licensed to Jefferson Downs and
now licensed to the Company are also leased; however, as described herein,
Finish Line has agreed to indemnify the Company for, among other things, all
obligations under the leases assigned by Jefferson Downs to the Company. See
Note 10 of Notes to the Financial Statements included elsewhere herein for a
description of the Company's lease obligations.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to a number of legal proceedings which have arisen as a
result of the December 1993 fire, or in connection with the Company's efforts
to collect insurance proceeds after the fire. The following is a brief
description of such fire-related proceedings:
1. On May 14, 1994 the Company filed an action in the 24th Judicial
District Court in the State of Louisiana against Travelers Indemnity
Company of Illinois ("Travelers") and others. The Company contends
that the insurance policy provided by Travelers provides the Company
with blanket coverage in the amount of $24.1 million in excess of the
$10 million of underlying coverage provided by Allianz Underwriters
Insurance Company ("Allianz") and Royal Indemnity Company ("Royal");
accordingly, the Company maintains that Travelers is liable for the
difference between $24.1 million and the amount already paid
(approximately $9.3 million), plus statutory penalties of 10% of the
amount not paid, interest, attorney's fees and costs. The Company
further contends that, in the event the court determines that the
amount of coverage is less than that claimed by the Company, then the
insurance agent and the insurance broker who arranged for the
insurance, are liable to the Company for any damages. Travelers'
position is that the excess policy did not provide blanket coverage,
and that its liability under such policy is limited to the amount
which it has already paid. Travelers filed a separate action in June
1994 in the U.S. District Court for the Eastern District of Louisiana,
asking for a declaratory judgment that the policy did not provide
blanket coverage. The federal court action was dismissed and the
state court action is proceeding.
2. The Company filed an action against Allianz in March 1994, in the
Civil District Court for Orleans Parish. Allianz subsequently removed
the action to the U. S. District Court for the Eastern District of
Louisiana. The Company contended that Allianz, which was the
Company's primary insurer, failed
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<PAGE> 20
to pay the policy benefits of $5 million on a timely basis, thereby
subjecting it to statutory penalties of 10% of the amount not paid,
plus interest, attorney's fees and costs. The Company also alleged
that Allianz acted in bad faith in its handling of the claim. In
March 1995, prior to the commencement of the trial, the action was
settled without any admission of liability.
3. The Company filed an action against Royal in December 1994, in the
Civil District Court for Orleans Parish, alleging that Royal also
failed to pay on a timely basis under its policy. The issues in this
proceeding were substantially similar to the issues in the litigation
against Allianz described above. In October 1995, prior to the
commencement of the trial, the action was settled.
4. The Company filed an action in December 1994, in the Civil District
Court for Orleans Parish, against ADT Security Systems, the company
which provided and maintained the fire alarm system at the Fair
Grounds Race Course, and other defendants. The complaint seeks
unspecified damages, not otherwise compensated for by insurance, that
were allegedly caused by the negligence of one or more of the
defendants.
5. The Company and its general liability insurance carrier, United
National Insurance Company are defendants in a civil action filed in
December 1994 in the United States District Court for the Eastern
District of Louisiana, by St. Paul Mercury Insurance Company, the
insurer for AutoTote. The complaint alleges that such insurance
company is subrogated to the rights of AutoTote to collect damages,
and that it has paid AutoTote in excess of $1 million for the loss of
totalisator equipment at the Fair Grounds Race Course which was
destroyed in the fire. Subsequently, United National Insurance
Company filed an action against the Company, denying coverage for the
subrogation claim.
As to the pending matters described above, there can be no assurance that the
Company will be successful in any of its claims or defenses. Accordingly, no
assurance can be given that additional recoveries of insurance proceeds, if
any, will reimburse the Company adequately for the loss or destruction of its
property in the fire.
Except as described above, there are no material pending legal proceedings,
other than ordinary routine litigation incidental to its business, to which the
Company is a party or of which any of its property is the subject.
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<PAGE> 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Prior to March 1994, the Company's common shares were listed for trading on the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
System. Since that time, however, the common shares of the Company have not
been listed on NASDAQ or any other established trading market. Trading in the
common shares of the Company generally has been sporadic and trading volume
generally is very low. The range of high and low bid quotations for the two
most recent fiscal years by quarters as set forth below does not necessarily
reflect actual trades, but represents inter-dealer quotations without mark-up,
mark-down or commission, as reported by the National Association of Securities
Dealers, Inc. Quotations subsequent to March 1994 were obtained from Carr
Securities.
<TABLE>
<CAPTION>
Fiscal 1994 1994 1995 1995
Quarter Ended Low Bid High Bid Low Bid High Bid
------------- ------- -------- ------- --------
<S> <C> <C> <C> <C>
January 31 $ 9.00 $13.00 $ 16.00 $ 24.00
April 30 $ 9.00 $12.00 $ 16.00 $ 24.00
July 31 $ 9.00 $12.00 $ 20.00 $ 25.00
October 31 $10.00 $14.00 $ 20.00 $ 25.00
</TABLE>
As of January 31, 1996, there were 457 shareholders of record of the 469,940
issued and outstanding common shares of the Company.
There were no cash dividends declared or paid during fiscal 1995 or fiscal 1994.
The Company paid cash dividends in the amount of $0.05 per share during each of
the four quarters of the fiscal year ended October 31, 1993 to the shareholders
of record on the dates the dividends were declared. Total dividends declared
and paid during fiscal 1993 were $93,652.
The Company is not subject to any restrictions (other than non-contractual
business considerations) affecting its present or
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<PAGE> 22
future ability to pay dividends with respect to its common shares, except that
the provisions of the Loan Agreement effectively preclude the Company from
declaring and paying dividends without the consent of FNBC.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
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ITEM 6. SELECTED FINANCIAL DATA
FAIR GROUNDS CORPORATION
SELECTED FINANCIAL DATA
For the Five Years Ended October 31
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES $23,031,031 $22,371,571 $30,718,482 $32,667,468 $31,913,874
OPERATING EXPENSES 26,394,452 26,094,568 34,308,263 32,192,537 30,505,367
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (3,363,421) (3,722,997) (3,589,781) 474,931 1,408,507
INTEREST EXPENSE 12,318 284,926 502,624 661,092 960,207
OTHER INCOME 2,459,163 605,553 651,950 1,068,874 773,717
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES, MINORITY
INTEREST, EXTRAORDINARY
ITEM, AND CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING
PRINCIPLES (916,576) (3,402,370) (3,440,455) 882,713 1,222,017
PROVISION (BENEFIT)
FOR INCOME TAXES (300,460) (1,878,635) (383,787) 123,509 244,316
MINORITY INTEREST - - 142,661 575,831 532,197
EXTRAORDINARY ITEM - GAIN
FROM FIRE (net of taxes) - 9,312,758 - - -
CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING
PRINCIPLES 104,000 (75,094) - - -
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (512,116) $ 7,713,929 $(3,199,329) $ 183,373 $ 445,504
=========== =========== =========== =========== ===========
COMMON SHARES OUTSTANDING 469,940 469,940 469,940 469,940 469,940
=========== =========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE $ (1.09) $ 16.48 $ (6.83) $ 0.39 $ 0.95
=========== =========== =========== =========== ===========
</TABLE>
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<PAGE> 24
<TABLE>
<S> <C> <C> <C> <C> <C>
CASH DIVIDENDS DECLARED PER SHARE $ None. $ None. $ 0.20 $ 0.15 NONE.
=========== ============ ============ ============ ============
TOTAL ASSETS $30,954,654 $ 26,470,322 $ 20,496,529 $ 20,919,257 $ 20,953,854
=========== ============ ============ ============ ============
NOTES PAYABLE (EXCLUDING
CURRENT PORTION) $ - $ 1,000,000 $ 6,000,000 $ 7,000,000 $ 8,359,721
=========== ============ ============ ============ ============
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Fire. As previously reported, on the night of Friday, December 17, 1993, the
17th racing day in the Company's 87 racing day schedule for 1993-94, after the
conclusion of live racing for the day at the Fair Grounds Race Course, a fire
swept through and destroyed the grandstand and clubhouse facilities and all
their contents. Included in that area was the grandstand with a seating
capacity of approximately 10,000, the clubhouse facilities, the racing paddock,
and substantially all of the administrative, racing operations, and other
offices of the Company. As a result of the fire, racing operations at the Fair
Grounds Race Course, and all operations at the Company's tele-track facilities,
were temporarily suspended.
Immediately after the fire, management determined that it would be in the
Company's best interest to reopen the Fair Grounds Race Course and continue the
live racing schedule as soon as possible. Accordingly, during the remainder of
December 1993, the Company made arrangements for the installation of temporary
racing and patron facilities. During the two and one-half week period from the
date of the fire to January 5, 1994, the temporary facilities were installed
and the property was readied for the reopening of racing. Tele-track
operations were reopened on December 29, 1993, and the Fair Grounds Race Course
was reopened for live racing on January 5, 1994. In total, the Company lost 10
days of its 87 racing day schedule for the year ended October 31, 1994 due to
the fire, resulting in a substantial loss of revenues to the Company.
The Company currently continues to use its temporary facilities, Attendance
and handles continue to be less than the pre-fire levels as a result of the
limited amenities afforded by the temporary facilities. In addition, the
Company continues to feel the effects of competition from other gaming venues
in the greater New Orleans and surrounding areas.
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994
Revenues. During the fiscal years ended October 31, 1995 and 1994, the Company
derived its pari-mutuel income by conducting live racing meets of 88 and 77
days, respectively, and in the operation of its tele-tracks for off-track
wagering. During each such fiscal year, the Company operated tele-tracks in
New Orleans at the Fair Grounds Race Course and on Bourbon Street, and at
locations in Lafourche, St. Bernard and St. John Parishes, Louisiana. On
October 26, 1995, the Company opened a new tele-track facility in Jefferson
Parish. Through Finish Line, the Company operated tele-
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<PAGE> 26
track facilities in Terrebonne, St. Tammany, and Jefferson Parishes, Louisiana,
that were formerly operated by Jefferson Downs Corporation.
For the fiscal year ended October 31, 1995, the Company reported a net loss of
$512,116, compared to net income of $7,713,929 for the fiscal year ended
October 31, 1994. The net income for the fiscal 1994 year was the direct
result of the Company's recognition of an extraordinary gain attributable to
the December 17, 1993 fire. As a result of the fire in fiscal 1994, the
Company recorded an extraordinary gain of $9.3 million, net of related income
taxes of $5.4 million. The extraordinary gain is equal to insurance proceeds
received in excess of the net book value of the destroyed property, plant and
equipment. The extraordinary gain is also net of approximately $145,000 paid
to third party vendors in fiscal 1994 for losses to their property caused by
the fire. The Company had no extraordinary gain during fiscal 1995.
The Company's losses before the extraordinary gain and charge for cumulative
effect of change in accounting for income taxes were $616,116 and $1,523,735
for fiscal years 1995 and 1994, respectively. The significant decrease in the
loss from 1994 to 1995 was primarily the result of an increase in other income
during fiscal 1995.
For the fiscal year ended October 31, 1995, the Company experienced an increase
in operating revenues of $659,460, or 3.0%, from the previous fiscal year. The
increase in operating revenues during fiscal 1995 is the result of a
significant increase in host track fee revenue partially offset by declines in
most other categories of operating revenue. Host track fees increased
$1,391,530, or 55.9%, from fiscal 1994 due to a significant increase in
out-of-state simulcasting of the Company's live races. For the 1995 fiscal
year racing meet, the Company reported $92 million in handle from out-of-state
simulcasting, compared to $42 million in handle for fiscal 1994.
While host track fees increased significantly, most other components of
operating revenue, including commissions, concessions, admissions, parking,
video poker and programs and forms, declined. Such declines are the direct
result of further decreases in attendance and pari-mutuel wagering from 1994.
Comparative in-state pari-mutuel wagering and attendance figures for the fiscal
years ended October 31, 1995 and 1994 are as follows:
26
<PAGE> 27
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Pari-mutuel wagering:
On-track handle $25,134,326 $26,110,964
Off-track handle 53,664,907 55,713,253
----------- -----------
Total Wagering $78,799,233 $81,824,217
=========== ===========
Attendance 445,480 475,557*
=========== ===========
</TABLE>
* Note: Attendance figures for fiscal year ended October 31, 1994 are
estimated.
The decline in total wagering and attendance are primarily the result of the
limited amenities afforded by the temporary facilities as well as increasing
competition from other forms of gaming.
Racing Expenses. Racing expenses for the fiscal year ended October 31, 1995
remained constant, increasing by only $58,262 from the prior fiscal year. Many
components of such racing expenses fluctuated significantly, including an
increase of $449,387,or 6.2%, in purse expense, primarily due to the increase
in out-of-state simulcasting, partially offset by declines in on-track and
off-track wagering. Contracts and services declined by $224,822, or 10.1%,
from the previous fiscal year, due to the decrease in various services and
relating to the temporary racing facilities.
Utility expenses decreased by $142,371, or 19.7%, from fiscal 1994, primarily
due to a change in pari-mutuel scheduling for some of the Company's smaller
tele-track facilities. During 1995, the Company implemented a four-day racing
schedule at such facilities, compared to a five-day schedule during 1994 and
previous years. The company also received during 1995 certain utility refunds
relating to excess charges from prior fiscal years.
General and Administrative Expenses. General and administrative expenses for
the fiscal year ended October 31, 1995 increased by $241,622, or 6.0%, from the
previous fiscal year, primarily as a result of increases in legal, audit and
director fees and an increase in office expense, partially offset by a
reduction in property taxes. Legal, audit and director fees increased
$227,356, or 30.5%, primarily due to the fire-related litigation. Office
expense increased $81,272, or 31.3%, due to increases in telephone expense
relating to increased out-of-state activity. Property tax expense declined by
$231,737, or 49.3%.
Other Income and Expenses. For the fiscal year ended October 31, 1995, other
income increased $2,126,218, or 636%, from the 1994 fiscal year due primarily
to $703,488 from video poker franchise tax exemptions and insurance proceeds in
the amount of $430,073.
27
<PAGE> 28
FISCAL 1994 COMPARED TO FISCAL 1993
Revenues. During the fiscal years ended October 31, 1994 and 1993, the Company
derived its pari-mutuel income by conducting live racing meets of 77 and 86
days, respectively, and in the operation of its tele-tracks for off-track
wagering. During each such fiscal year, the Company operated tele-tracks in
New Orleans at the Fair Grounds Race Course and on Bourbon Street, and at
locations in Lafourche, St. Bernard and St. John Parishes, Louisiana. Through
Finish Line, the Company operated tele-track facilities in Terrebonne, St.
Tammany, and Jefferson Parishes, Louisiana, that were formerly operated by
Jefferson Downs Corporation.
For the fiscal year ended October 31, 1994, the Company reported net income of
$7,713,929 as compared to a loss of $3,199,329 for the fiscal year ended
October 31, 1993. The significant increase in net income for the fiscal 1994
year was the direct result of the Company's recognition of an extraordinary
gain attributable to the December 17, 1993 fire and recognition of a $2.5
million loss on a litigation judgment in fiscal 1993. As a result of the fire
in fiscal 1994, the Company recorded an extraordinary gain of $9.3 million, net
of related income taxes of $5.4 million. The extraordinary gain is equal to
insurance proceeds received in excess of the net book value of the destroyed
property, plant and equipment. The extraordinary gain is also net of
approximately $145,000 paid to third party vendors in fiscal 1994 for losses to
their property caused by the fire.
The Company's loss before the extraordinary gain and charge for cumulative
effect of change in accounting for income taxes was $1,523,735 and $3,199,329
for fiscal years 1994 and 1993, respectively. The fiscal 1993 loss was
primarily the result of recording an estimated liability at October 31, 1993 of
$2.5 million for a litigation judgment against the Company. The 1994 fiscal
year net loss before extraordinary item is primarily the result of the December
17, 1993 fire.
For the fiscal year ended October 31, 1994, the Company experienced a
$8,346,911, or 27%, decline in operating revenues from the previous fiscal
year. The decline in revenues is the direct result of a decrease in total
pari-mutuel wagering and attendance from the fiscal year ended October 31,
1993. Comparative pari-mutuel wagering and attendance figures for the fiscal
years ended October 31, 1994 and 1993 are as follows:
28
<PAGE> 29
<TABLE>
<CAPTION>
1994 1993
----------- ------------
<S> <C> <C>
Pari-mutuel wagering:
On-track handle $26,110,964 $38,565,606
Off-track handle 55,713,253 69,922,452
----------- ------------
Total Wagering $81,824,217 $108,488,058
=========== ============
Attendance 475,557* 668,660
=========== ============
</TABLE>
* Note: Attendance figures for fiscal year ended October 31, 1994 are
estimated.
The 24.6% decline in total wagering and the 28.9% decline in attendance are
primarily the result of the December 17, 1993 fire. As a result of the
declines in wagering and attendance, most of the components of the Company's
operating revenues declined from amounts reported for the fiscal year ended
October 31, 1993.
The Company believes the significant decline in total handle results primarily
from the fire, including actual racing days lost as well as the limited
amenities afforded by the temporary racing facilities, and from other gaming
venues in the New Orleans area, including dockside and riverboat gambling in
neighboring Mississippi and in the New Orleans area and video poker operations
by non-affiliated parties.
During the current racing season, the Company has continued to experience a
decline in on-track handle and handle from tele-track operations. Through 52
days of racing during the current season, on-track handle was $14.5 million,
which is approximately 17% less than the handle for the same number of racing
days during the 1993-94 racing season. Handle generated from the Company's and
Finish Line's tele-track operations has also declined from the prior racing
season. There has also been an approximate 16% decrease in the handle
generated from simulcasts of Fair Grounds races to other tracks and tele-track
facilities in Louisiana. On the other hand, handle generated from simulcasts
of Fair Grounds races to locations outside of Louisiana has increased
significantly. Through 52 racing days, the total out-of-state handle was $52.3
million, compared to $30.5 million for the same period during the prior racing
season.
Racing Expenses. Most of the components of the Company's racing expenses for
the fiscal year ended October 31, 1994 declined in the same proportion as the
decline in operating revenues. Fiscal 1994 depreciation expense, however,
increased over the fiscal year ended October 31, 1993 due to depreciation
associated with the Company's expenditure of $2.68 million for temporary
facilities, which have a useful life of approximately 30 months. Depreciation
expense for the temporary facilities in the amount of $890,000 was reported for
29
<PAGE> 30
the fiscal year ended October 31, 1994. Additionally, for the fiscal year
ended October 31, 1994, the Company incurred approximately $530,000 in racing
expenses relating directly to the temporary facilities at the Fair Grounds Race
Course.
General and Administrative Expenses. General and administrative expenses for
the fiscal year ended October 31, 1994 decreased $2,770,440 or 42% from the
previous fiscal year primarily due to the accrual of a $2.5 million loss from a
litigation judgment during the fiscal year ended October 31, 1993. The accrual
was the result of a summary judgment affirmed by the United States Court of
Appeals against the Company in the amount of approximately $2.5 million for
alleged breach of contract with one of its vendors ("AmTote"). In August 1994,
after discussions among the representatives of the parties, the Company and
AmTote agreed to settle the claim for $2.3 million.
For the fiscal year ended October 31, 1994, the Company experienced significant
fluctuations in certain components of its general and administrative expenses
such as salaries and related taxes and benefits, insurance expense, and legal,
audit and director fees. Fiscal 1994 salaries and related taxes and benefits
declined $304,305, or 19%, from the previous fiscal year due to the Company's
elimination of various administrative positions, and a reduction in executive
salaries which took effect during the latter part of fiscal 1993. Insurance
expense increased $227,339, or 34%, from the fiscal year ended October 31, 1993
due to increases in various premiums as well as payments for insurance
deductibles owed for general liability and workers compensation claims. Fiscal
1994 legal, audit, and director fees increased $176,619, or 31%, from the
previous fiscal year due to various accounting and legal services in connection
with the Company's fire insurance litigation with its insurance carriers.
Other Income and Expenses. For the fiscal year ended October 31, 1994, other
income increased $171,301, or 115%, from the 1993 fiscal year due to an
increase in Jazz and Heritage Festival income, an increase in interest income,
and a decrease in interest expense, offset by an increase in loss on
investments.
For the fiscal year ended October 31, 1994, the Company experienced an increase
over fiscal 1993 in Jazz and Heritage Festival income of $434,461, or 64%, due
to higher attendance at the Festival as a result of favorable weather
conditions. In the previous fiscal year, the Festival experienced inclement
weather. Interest income increased $162,194, or 9.4%, from the previous fiscal
year due to an increase in cash available for investing primarily as a result
of fire insurance proceeds received by the Company. Interest expense decreased
$172,698, or 37.7%, due to a $5 million payment on notes payable to Louie
Roussel, III and Victory Life Insurance Company as discussed in Note 5 of Notes
to the Financial Statements included herewith. Loss on the sale of interests
in partnerships
30
<PAGE> 31
increased $581,361 from the previous fiscal year primarily due to the loss on
the March 1994 sale of the Company's interests in various partnerships.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $6,920,720 during the fiscal year ended
October 31, 1995 compared to an increase of $5,256,885 during the fiscal year
ended October 31, 1994. The decrease in cash and cash equivalents in fiscal
1995 was the result of cash used for investing activities of $13,711,659,
partially offset by cash provided from operating activities of $5,084,796 and
cash provided from financing activities of $1,706,143. The cash used for
investing activities was in connection with the capital expenditures for the
completion of the new tele-track facility and the commencement of construction
of the new clubhouse and grandstand facility. Cash provided from operations
was primarily the result of an increase in accounts payable and accrued
liabilities due to an increase in construction contracts payable relating to
the new grandstand facility. Cash provided from financing sources was
primarily the result of a $2,150,000 bridge loan to the Company from FNBC, as
described elsewhere herein.
As of January 31, 1996, the Company had received $19,478,791 in insurance
proceeds resulting from fire loss claims submitted to the Company's insurance
carriers. The Company has filed suit against one of its insurance carriers, as
described elsewhere herein, seeking to recover an additional approximate $14.8
million under its insurance policy with such carrier.
The Company's new tele-track facility at the Fair Grounds Race Course, which
also serves as a temporary clubhouse area, was opened on December 22, 1994.
The total cost for debris removal and the construction of the tele-track
facility was approximately $3.2 million.
During the Summer of 1994, the Company approved the plans for a new racing
facility and commenced construction of the foundation thereof in August 1994.
The total cost of the facility, together with furniture, fixtures, equipment
and certain fees and permit costs, was anticipated to be approximately $24.3
million at the time construction commenced, which is in addition to the $3.2
million relating to debris removal and construction of the tele-track facility,
as described above.
As of January 31, 1996, construction of the facility was approximately 60%
completed, and the Company had incurred construction costs of approximately
$15.2 million. Insurance proceeds recovered to date and interim financing
provided by FNBC, as described herein, provided the source of funds used in
such construction. However, for the reasons described below, further
construction work on the project has been halted. As a result (i)
31
<PAGE> 32
the cost to complete the project cannot now be determined with any certainty
and (ii) the Company currently anticipates that it will continue to utilize the
temporary tent facilities and the tele-track facility at least during the
remainder of the current racing season and possibly for the next racing season.
As previously reported, the Company received and accepted a commitment letter
dated February 6, 1995 from FNBC for a non-revolving line of credit to be used
as an interim construction loan, convertible to a term loan. The aggregate
principal amount of such loan under the terms of such commitment was to have
been $17.5 million. The commitment from FNBC provided that the interim
construction loan was to have closed on or before March 31, 1995. However, the
parties agreed to various extensions of such closing date. FNBC indicated that
the principal reason for the delay was FNBC's concern with restrictions on and
the possible elimination of video poker gaming in Louisiana. Inasmuch as video
poker franchise tax monies generated by the Company and its tele-tracks were to
be used for the repayment of the FNBC loan, in accordance with the tax relief
legislation described herein, any change in the video poker gaming laws which
restricts or limits video poker as a source of revenue may have an adverse
impact on such source of repayment. Accordingly, final action on the full
$17.5 million loan has been delayed until after the 1996 Louisiana regular
legislative session. During 1995 FNBC provided the Company with short-term
interim construction loans of $2.15 million on July 17, 1995, $4 million on
November 7, 1995, and $1 million on November 30, 1995. All of such financing
was then consolidated under the Loan Agreement, pursuant to which the Company
borrowed an aggregate amount of $9,493,050 and utilized a portion of such funds
to repay the principal amount of the prior loans that was outstanding on
December 18, 1995. The remaining amount borrowed was utilized to pay
construction costs. Pursuant to the Loan Agreement, FNBC agreed to extend
credit to the Company up to aggregate principal amount of $9,493,050 until
October 31, 1996. The Loan Agreement states that such commitment is not a
revolving credit facility, and the commitment is only to make loans up to such
aggregate principal amount. Accordingly, FNBC has no obligation under the Loan
Agreement to lend additional funds to the Company.
Payment of the principal and interest under the Loan Agreement is to be made on
demand, or if no demand is made, then in 10 monthly installments of $52,740
principal plus interest, beginning January 17, 1996, and one final payment of
all principal plus accrued interest on October 31, 1996. The loan bears
interest at 9% per annum. On each monthly payment date, payment of principal
and interest is to be made from the proceeds of the funds received as a result
of the video poker tax relief legislation, which funds are to be on deposit in
a separate lockbox, in accordance with a Disbursement Agreement.
32
<PAGE> 33
In connection with the Loan Agreement, the Company made a payment to Louie J.
Roussel, III of $1 million of the remaining $2 million principal balance owed
to him and agreed that the outstanding principal balance of $1 million will be
due and payable on October 31, 1996.
There is considerable uncertainty in Louisiana at the present time regarding
the future of the gaming industry. The cessation of construction and
subsequent bankruptcy filing by the land-based casino in New Orleans in
November 1995 has adversely affected tax revenues for both the State of
Louisiana and the City of New Orleans. Notwithstanding that loss of revenue,
consideration is being given by the Governor of Louisiana, who was elected in
November 1995, and other state officials to legislation which could curtail
gaming, including the use of video poker gaming devices. In particular, the
Governor has indicated that he will call a special session of the legislature
for the purpose of considering legislation which would mandate local elections
to approve or disapprove gaming in a particular parish or locality.
The Company believes that it was unable during 1995 to obtain the full amount
of financing originally committed by FNBC due to the uncertainty regarding the
future of video poker as a continuing source of revenue. The Company is
hopeful that the 1996 Louisiana regular legislative session will adjourn
without having passed any statute that would adversely affect the status of the
video poker tax relief previously granted to the Company or the existing video
poker operations of the Company or Finish Line, or that would allow for or
require local elections as a condition to the continuation of video poker
operations. No assurance can be given, however, that such legislation will not
be adopted. If adopted, such legislation will adversely affect the ability of
the Company to obtain long-term financing from FNBC in accordance with the
terms of the original commitment.
The Company has received a commitment from VSI to provide a non-interest
bearing loan in the principal amount of $1.5 million, in consideration for
which the Company is to agree to extend both the term of its agreement with VSI
and the term of the option period thereunder by two years. See "Video Poker
Operations" below. VSI's agreement to make such loan is conditioned upon the
closing of the anticipated long-term bank financing. The Company also has
recently received an advance of $1 million from VSI.
In addition to the foregoing, Marie G. Krantz has committed to make a $1
million loan to the Company, which would be conditioned upon the closing of,
and subordinate in right of payment to, the long-term FNBC financing. Although
specific terms of such loan have not been discussed, it is likely that the loan
would be interest-bearing, and that payments would be made after the repayment
of the FNBC financing. The Company is also engaged in discussions with
AutoTote concerning a possible commitment by AutoTote to lend or
33
<PAGE> 34
advance $2.5 million to the Company, such amount to be repaid through a
subordinated loan arrangement or through an extension of the lease terms
relating to the totalisator equipment.
In view of the cessation of construction and the additional expense which is
likely to be incurred as a result of construction delays, it is not certain
that, even if all of such financing is consummated, including the long-term
financing by FNBC in accordance with the terms of the original commitment, the
Company will be able to complete the construction of its new facility as
presently planned. It may be necessary to (i) obtain funds from other sources,
(ii) attempt to increase the amount of long-term financing from FNBC or (iii)
seek to effect savings in the construction costs related to the completion of
the facility. The Company has had no discussions with any other possible
source of such financing, nor has it reached any understanding with FNBC
regarding any increase in the financing which the Company hopes to obtain from
FNBC as originally committed by FNBC. It should also be noted that FNBC and
the Company are not currently engaged in any discussions concerning the terms
and conditions of the definitive agreements relating to such long-term
financing, given the uncertain legislative climate. Accordingly, there can be
no assurance that definitive agreements will be reached, or, if reached, that
they will be in accordance with the terms of the original commitment. The
foregoing uncertainties raise substantial doubt about the Company's ability to
continue as a going concern. In the event that such long-term financing is not
completed by October 31, 1996, or that the funds provided through all sources
of such financing are insufficient to meet the Company's needs, the Company may
consider a number of alternatives, including seeking protection from creditors
under the United States Bankruptcy Code.
IMPACT OF INFLATION
To date, inflation has not had a material effect on the Company's operations.
ITEM 8. FINANCIAL STATEMENTS
The following financial statements of the Company, including the notes thereto,
and the Report of Independent Certified Public Accountants are included
herewith:
Report of Independent Certified Public Accountants
Balance Sheets, October 31, 1995 and 1994
Statements of Operations for the Three Years Ended October 31, 1995
34
<PAGE> 35
Statements of Changes in Stockholders' Equity for the Three Years
Ended October 31, 1995
Statements of Cash Flows for the Three Years Ended October 31, 1995
35
<PAGE> 36
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of the
Fair Grounds Corporation
We have audited the accompanying balance sheets of the Fair Grounds Corporation
as of October 31, 1995 and 1994, and the related statements of operations, of
changes in stockholders' equity, and of cash flows for the years ended October
31, 1995 and 1994. These financial statements and the supplemental schedules
discussed below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of October 31,
1995 and 1994 and the results of its operations and its cash flows for the
years ended October 31, 1995 and 1994 in conformity with generally accepted
accounting principles.
As a result of the December 17, 1993 fire, the accompanying statements of
operations, of changes in stockholders' equity, and of cash flows for the year
ended October 31, 1993 and the schedules listed under Item 14(a)2 herein as of
and for the year ended October 31, 1993 were not audited by us and,
accordingly, we do not express an opinion on them.
36
<PAGE> 37
The accompanying financial statements for 1995 have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 12 to the
financial statements, construction of the Company's new grandstand/clubhouse
facility, which was previously destroyed in 1993 by a fire, has been halted
pending completion of bank and other external financing. The timing and the
amount of any financing ultimately obtained to complete the construction of the
Company's grandstand/clubhouse facility raises substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed under Item 14(a)2
herein are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not a required part of the basic financial
statements. The schedules related to the 1995 and 1994 financial statements
have been subjected to the auditing procedures applied in our audits of the
basic financial statements and, in our opinion, are fairly stated in all
material respects to the financial data required to be set forth herein in
relation to the basic financial statements taken as a whole.
As described in Note 1 to the financial statements, the Company adopted the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities", effective November 1, 1994.
/s/ Rebowe & Company
Metairie, Louisiana
January 19, 1996
37
<PAGE> 38
FAIR GROUNDS CORPORATION
BALANCE SHEETS
October 31
<TABLE>
<CAPTION>
ASSETS 1995 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,118,590 $ 8,039,310
Cash and cash
equivalents - restricted 154,909 -
Accounts receivable 854,281 593,200
Mutuel settlements 172,385 98,560
Securities available for sale 457,900 1,376,297
Insurance proceeds receivable - 487,341
Inventory 80,565 73,858
Deferred income taxes 59,940 20,940
Refundable income taxes - 566,289
Prepaid expenses 557,033 360,387
----------- -----------
Total Current Assets 3,455,603 11,616,182
----------- -----------
OTHER ASSETS 71,264 34,574
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 13,881,970 10,206,873
Construction in progress 15,207,395 4,723,474
Land improvements 4,270,535 4,188,282
Temporary facilities 2,686,044 2,680,917
Automotive equipment 818,111 783,642
Machinery and equipment 789,347 680,562
Furniture and fixtures 171,497 155,672
----------- -----------
Total 37,824,899 23,419,422
Less: accumulated depreciation
and amortization (13,683,393) (11,886,137)
----------- -----------
Depreciable property - net 24,141,506 11,533,285
Land 3,286,281 3,286,281
----------- -----------
Property - net 27,427,787 14,819,566
----------- -----------
TOTAL ASSETS $30,954,654 $26,470,322
=========== ===========
</TABLE>
(Continued)
38
<PAGE> 39
FAIR GROUNDS CORPORATION
BALANCE SHEETS (CONTINUED)
October 31
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable - current $ 3,706,143 $ 1,000,000
Accounts payable 897,016 550,489
Construction contract
payable 4,864,199 1,654,820
Accrued liabilities:
Deferred purses 5,666,212 5,500,485
Host track fees 270,439 144,338
Uncashed mutuel tickets 259,606 284,388
Other 252,528 547,009
Deferred revenues 50,149 53,580
----------- -----------
Total Current Liabilities 15,966,292 9,735,109
----------- -----------
NOTES PAYABLE - 1,000,000
----------- -----------
DEFERRED INCOME TAXES 4,020,035 4,199,886
----------- -----------
Total Liabilities 19,986,327 14,934,995
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
----------- -----------
STOCKHOLDERS' EQUITY
Capital stock - no par value;
authorized 600,000 shares,
issued and outstanding
469,940 shares 1,525,092 1,525,092
Additional paid-in capital 1,942,350 1,942,350
Retained earnings 7,601,742 8,113,858
Unrealized loss on securities
available for sale (54,884) -
----------- -----------
Total 11,014,300 11,581,300
Less: treasury stock at cost,
1,760 shares (45,973) (45,973)
----------- -----------
Total Stockholders' Equity 10,968,327 11,535,327
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $30,954,654 $26,470,322
=========== ===========
</TABLE>
See accompanying notes to financial statements.
39
<PAGE> 40
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS
For the Years Ended October 31
<TABLE>
<CAPTION>
Unaudited
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Pari-mutuel commissions $15,766,962 $16,236,356 $24,154,352
Breakage 355,283 345,219 610,086
Uncashed mutuel tickets 229,358 299,586 368,886
----------- ----------- -----------
Total 16,351,603 16,881,161 25,133,324
Less: pari-mutuel tax (2,204,735) (2,425,262) (4,070,957)
----------- ----------- -----------
Commission income 14,146,868 14,455,899 21,062,367
Host track fees 3,878,400 2,486,870 2,243,653
----------- ----------- -----------
Total Mutuel Income $18,025,268 $16,942,769 $23,306,020
Concessions 1,596,941 1,627,681 2,547,670
Admissions (net of taxes) 339,319 458,825 890,965
Parking 14,401 36,992 140,239
Video poker 1,132,127 1,354,792 1,492,109
Programs and forms 1,317,547 1,462,243 1,803,726
Miscellaneous 605,428 488,269 537,753
----------- ----------- -----------
Total Operating Revenues $23,031,031 $22,371,571 $30,718,482
----------- ----------- -----------
RACING EXPENSES
Purses 7,754,856 7,305,469 10,121,228
Salaries and related taxes and benefits 4,895,632 4,960,205 6,276,511
Contracts and services 1,997,706 2,222,528 1,915,244
Depreciation 1,797,256 1,856,388 1,577,937
Host track fees 1,481,528 1,454,358 2,013,887
Program paper, forms and other supplies 1,250,947 1,392,729 1,665,728
Utilities 580,424 722,795 858,979
Advertising and promotion 701,860 636,834 760,879
Cost of sales - concessions 688,965 634,943 1,092,789
Repairs and maintenance 317,102 336,781 611,641
Rent 271,794 256,923 239,199
Miscellaneous 511,590 411,445 500,631
----------- ----------- -----------
Total Racing Expenses $22,249,660 $22,191,398 $26,734,653
----------- ----------- -----------
</TABLE>
(Continued)
40
<PAGE> 41
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS (CONTINUED)
For the Years Ended October 31
<TABLE>
<CAPTION>
Unaudited
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
GENERAL AND ADMINISTRATIVE
EXPENSES
Salaries and related taxes and benefits $1,287,744 $1,261,149 $1,565,454
Insurance 918,356 900,513 673,174
Property taxes 238,570 470,307 459,602
Legal, audit and director fees 973,249 745,893 569,274
Contracts and services 163,972 154,356 182,121
Office expenses 340,923 259,651 353,177
Litigation settlement - (200,000) 2,500,000
Miscellaneous 221,978 311,301 370,808
---------- ---------- ----------
Total General and Administrative Expenses $4,144,792 $3,903,170 $6,673,610
---------- ---------- ----------
LOSS FROM OPERATIONS (3,363,421) (3,722,997) (3,589,781)
OTHER INCOME (EXPENSE)
Jazz and Heritage Festival income - net $1,153,749 $1,112,887 $ 678,426
Video poker tax relief 703,488 - -
Insurance settlements 618,182 - -
Losses on sale and write-down of partnership investments - (604,363) (57,079)
Interest expense (12,318) (284,926) (502,624)
Interest income 95,825 179,376 17,182
Short-term loan closing costs (101,799) - -
Unrealized loss on securities - (104,000) -
Equity in earnings from unconsolidated
investments in affiliates - 59,849 13,421
Loss on sale of property, plant and equipment - (4,119) -
Loss on sale of securities available for sale (10,282) (34,077) -
---------- ---------- ----------
Total Other Income $2,446,845 $ 320,627 $ 149,326
---------- ---------- ----------
</TABLE>
(Continued)
41
<PAGE> 42
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS (CONTINUED)
For the Years Ended October 31
<TABLE>
<CAPTION>
Unaudited
1995 1994 1993
--------- ----------- -----------
<S> <C> <C> <C>
LOSS BEFORE INCOME TAXES, MINORITY INTEREST,
EXTRAORDINARY ITEM, AND CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES $(916,576) $(3,402,370) $(3,440,455)
PROVISION (BENEFIT) FOR INCOME TAXES (300,460) (1,878,635) (383,787)
MINORITY INTEREST IN EARNINGS OF SUBSIDIARY - - 142,661
--------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING PRINCIPLES (616,116) (1,523,735) (3,199,329)
EXTRAORDINARY ITEM - GAIN FROM FIRE
(net of $5,363,801 of related
income taxes in 1994) - 9,312,758 -
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
INVESTMENTS IN 1995 AND INCOME TAXES IN 1994 104,000 (75,094) -
--------- ----------- -----------
NET INCOME (LOSS) $(512,116) $ 7,713,929 $(3,199,329)
========= =========== ===========
</TABLE>
(Continued)
42
<PAGE> 43
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS (CONTINUED)
For the Years Ended October 31
<TABLE>
<CAPTION>
Unaudited
1995 1994 1993
------ ------ ---------
<S> <C> <C> <C>
PER SHARE OF COMMON STOCK:
LOSS BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING PRINCIPLES $(1.32) $(3.25) $(6.83)
EXTRAORDINARY ITEM, NET OF INCOME TAXES .- 19.89 .-
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES .23 (.16) .-
------ ------ ------
NET INCOME (LOSS) $(1.09) $16.48 $(6.83)
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
43
<PAGE> 44
FAIR GROUNDS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended October 31
<TABLE>
<CAPTION>
Unrealized
Loss On
Additional Securities Total
Capital Paid-In Retained Available Treasury Stockholders'
Stock Capital Earnings For Sale Stock Equity
---------- ---------- ---------- --------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1992 $1,525,092 $1,942,350 $3,692,910 $ - $ (45,973) $ 7,114,379
Net loss (unaudited) - - (3,199,329) - - (3,199,329)
Cash Dividend
(per share $0.20)
(unaudited) - - (93,652) - - (93,652)
---------- ---------- ---------- --------- --------- -----------
Balance, October 31, 1993
(unaudited) 1,525,092 1,942,350 399,929 - (45,973) 3,821,398
Net income - - 7,713,929 - - 7,713,929
---------- ---------- ---------- --------- --------- -----------
Balance, October 31, 1994 1,525,092 1,942,350 8,113,858 - (45,973) 11,535,327
Net loss - - (512,116) - - (512,116)
Unrealized loss on
securities available
for sale - - - (54,884) - (54,884)
---------- ---------- ---------- --------- --------- -----------
Balance, October 31, 1995 $1,525,092 $1,942,350 $7,601,742 $ (54,884) $ (45,973) $10,968,327
========== ========== ========== ========= ========= ===========
</TABLE>
See accompanying notes to financial statements.
44
<PAGE> 45
FAIR GROUNDS CORPORATION
STATEMENTS OF CASH FLOWS
For the Years Ended October 31
<TABLE>
<CAPTION>
Unaudited
1995 1994 1993
--------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(512,116) $7,713,929 $(3,199,329)
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating activities:
Extraordinary item - gain from fire - (9,312,758) -
Depreciation 1,797,256 1,856,388 1,577,937
Gain (loss) on sale of property - 4,119 -
Equity in earnings from unconsolidated
investments in affiliates - (59,849) (13,421)
Provision for deferred taxes (218,851) (1,312,346) (322,308)
Loss on sale and write-down of partnership - 604,363 57,079
Unrealized loss on marketable securities - 104,000 -
Charge for cumulative effect of change in
accounting for income taxes and investment
securities - available for sale (104,000) 75,094 -
Loss on sale of investment securities 10,282 34,077 -
Loss on advance to affiliate - 7,500 -
Litigation settlement - (200,000) 2,500,000
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable (328,198) (2,617) (332,434)
Insurance proceeds receivable 487,341 - -
Inventory (6,707) 55,392 5,466
Refundable income taxes 566,289 (504,810) 140,306
Prepaid expenses (196,646) 41,172 54,886
Cash and cash equivalents - restricted (154,909) - -
</TABLE>
(Continued)
45
<PAGE> 46
FAIR GROUNDS CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
For the Years Ended October 31
<TABLE>
<CAPTION>
Unaudited
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Increase (decrease) in:
Accounts payable and accrued liabilities 3,582,759 (476,787) 1,955,563
Deferred purses 165,727 496,343 -
Deferred revenues (3,431) (93,129) (105,242)
Minority interest - (73,859) (13,328)
----------- ---------- ----------
Total Adjustments 5,596,912 (8,757,707) 5,504,504
----------- ---------- ----------
Net cash provided by (used for) operating activities 5,084,796 (1,043,778) 2,305,175
----------- ---------- ----------
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Capital expenditures (14,625,149) (8,130,078) (240,866)
Acquisition of partnership interest, net of cash acquired - (172) -
Proceeds from insurance claims - 18,838,556 -
Payments to third parties on insurance claims - (145,052) -
Proceeds from sale of equity investments in affiliates - 535,000 -
Investment proceeds paid to affiliate - (214,000) -
Purchase of securities available for sale (763,872) (1,445,287) (1,703,557)
Proceeds from sale of securities available for sale 1,714,052 1,860,983 -
Distributions from investments in affiliates - - 45,000
Repayments on loans to affiliates - 2,802 27,682
Deposits (36,690) (2,089) 5,316
Proceeds from sale of property - - 71,895
----------- ---------- ----------
Net cash provided by (used for) investing activities (13,711,659) 11,300,663 (1,794,530)
----------- ---------- ----------
</TABLE>
(Continued)
46
<PAGE> 47
FAIR GROUNDS CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
For the Years Ended October 31
<TABLE>
<CAPTION>
Unaudited
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS USED FOR FINANCING ACTIVITIES
Proceeds from short-term borrowings 3,533,443 1,000,000 350,000
Video poker tax relief payments (703,488) - -
Principal repayments of short-term borrowings (1,123,812) (1,000,000) (450,000)
Principal repayments of long-term borrowings - (5,000,000) (1,044,441)
Cash dividends paid - - (93,652)
---------- ---------- ----------
Net cash provided from (used for) financing activities 1,706,143 (5,000,000) (1,238,093)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,920,720) 5,256,885 (727,448)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,039,310 2,782,425 3,509,873
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $1,118,590 $8,039,310 $2,782,425
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
47
<PAGE> 48
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Preparation of October 31, 1993 Financial Statements
As a result of a fire, an audit of the October 31, 1993 financial statements
was not possible due to the destruction of the accounting records and
therefore, no opinion was expressed by the Company's independent certified
public accountants with respect to the financial statements as of October 31,
1993 and the fiscal year then ended. Management believes all material
adjustments which are necessary for a fair presentation of fiscal 1993
financial statements have been recorded.
Nature of Business
The Company conducts a live fall/spring race meeting for thoroughbred horses
and participates in inter-track wagering as a host track and as a receiving
track. In addition, the Company currently operates five off-track betting
facilities located in Southeast Louisiana, as well as a tele-track facility
located at the Fair Grounds Race Course.
Uninsured Cash Deposits
As of October 31, 1995 and 1994, the Company had deposits in various financial
institutions in the aggregate of $1,718,335 and $8,023,281, respectively. Such
deposits exceeded insured limits as of October 31, 1995 and 1994 by $1,206,763
and $1,491,622, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
48
<PAGE> 49
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents - Restricted
Cash of approximately $48,000 is restricted to pay certain future loan related
costs in accordance with a bank note payable obtained in fiscal 1995. In
addition, the Company has a certificate of deposit of approximately $107,000 as
of October 31, 1995 that is pledged as a security deposit for the Company's
worker's compensation program.
Inventory
Inventory consists primarily of food and beverage items and is stated at the
lower of cost or market. Cost is determined by the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is provided by
the straight-line method. The estimated useful lives of the buildings range
from 20 to 40 years. Lives of other depreciable assets range from
approximately 3 to 20 years. Depreciation on the Company's temporary
facilities is provided by the straight-line method over an estimated useful
life of 3 years. For financial reporting purposes, leasehold improvements are
amortized over the lesser of the term of the related lease or the estimated
useful lives of the assets.
Deferred Revenues
Promotional fees received by the Company are deferred and recognized as income
over the following racing meet.
Securities Available for Sale
Effective November 1, 1994, the Company adopted a new accounting standard for
investment securities in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities. This accounting standard requires the Company to classify
its securities as held to maturity, available for sale, or trading. The
Company has classified all of its securities as available for sale and accounts
for them at fair value with the unrealized gain or loss shown as a separate
component of stockholders' equity. The effect of this accounting change is
applied prospectively; therefore, there is no restatement of prior year
amounts. Prior to November 1, 1994, the Company accounted for investment
securities in accordance with
49
<PAGE> 50
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SFAS No. 12, and, accordingly, investment securities were carried at the lower
of aggregate cost or market. The Company has reported the cumulative effect of
the change in its method of accounting for investment securities of $104,000 in
its Statement of Operations for the year ending October 31, 1995. The Company
records realized gains and losses on investment securities as they are sold,
using the specific identification method.
Uncashed Mutuel Tickets
Holders of uncashed winning pari-mutuel tickets have until 90 days after the
end of a given race meet to cash their winning tickets. Tickets that expire
become revenues of the Company, up to a maximum of $250,000 per race meet.
Uncashed pari-mutuel tickets exceeding $250,000 per race meet are remitted to
the State of Louisiana.
Income Taxes
Effective November 1, 1993, the Company adopted Financial Accounting Standards
Board's Statement of Financial Accounting Standards ("SFAS") 109, Accounting
for Income Taxes. The adoption of SFAS 109 supersedes APB Opinion 11, which
was applied in fiscal year 1993 and prior. Under SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement amounts of assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that included the
enactment date.
Pursuant to APB Opinion 11, which was applied in fiscal year 1993 and prior,
deferred income taxes are recognized for income and expense items that are
reported in different years for financial reporting and income tax purposes
using the tax rate applicable for the year of the calculation. Under this
method, deferred taxes are not adjusted for subsequent changes in tax rates.
The Company has reported the cumulative effect of the change in its method of
accounting for income taxes of approximately $75,000 in its Statement of
Operations for the year ending October 31, 1994.
50
<PAGE> 51
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred Purses
Deferred purses include those amounts required by Louisiana law to be withheld
from commissions earned by an off-track betting licensee and paid as purse
supplements during the licensee's succeeding live racing meet.
Net Income (Loss) Per Share
Net income (loss) per share is determined by dividing net income (loss) by the
weighted average number of common shares outstanding during the period. Per
share amounts were determined using 468,180 common shares outstanding.
Reclassifications
Certain reclassifications of previously reported amounts have been made to
conform with fiscal 1995 presentation. Such reclassifications had no effect on
previously reported net income.
NOTE 2 - EXTRAORDINARY ITEM - DECEMBER 17, 1993 FIRE
On December 17, 1993, a fire destroyed the grandstand and clubhouse areas at
the Fair Grounds Race Course. The net book value of assets destroyed in the
fire was approximately $4.5 million. The Company believes that its property
and casualty insurance policies provide coverage in the aggregate amount of
approximately $34 million for buildings, contents, fixtures, equipment, items
of personal property, loss of income from operations ("business interruption"),
and loss of works of art. The Company has submitted claims to its insurance
carriers and through October 31, 1995 had recovered an aggregate of
$19,478,791, of which the Company has paid approximately $145,000 to certain
third parties as a result of claims filed for property owned by them and
destroyed by the fire. The Company has filed a civil action against one of its
insurance carriers in an attempt to recover an additional approximate $14.8
million.
The Company and its tele-tracks were forced to cease operations for ten racing
days in fiscal 1994 as a result of the fire until temporary facilities could be
built. Temporary facilities were built at an aggregate cost of $2.7 million.
The Company reopened its tele-track facilities on December 29, 1993 and resumed
live racing operations on January 5, 1994.
51
<PAGE> 52
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 2 - EXTRAORDINARY ITEM - DECEMBER 17, 1993 FIRE ((CONTINUED)
As a result of the fire, the Company recorded for the fiscal year ended October
31, 1994, an extraordinary gain of $9.3 million, net of related income taxes of
$5.4 million. The extraordinary gain is equal to insurance proceeds, which
includes $1,500,000 of business interruption insurance proceeds, in excess of
the $4.5 million net book value of the destroyed property, plant and equipment.
NOTE 3 - STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES
Cash paid during the following fiscal years for:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Interest $245,296 $312,121 $502,624
</TABLE>
The 1995 cash paid for interest includes capitalized interest of $232,979,
which is included in Construction in Progress at October 31, 1995.
There were no noncash investing or financing activities for fiscal years ended
October 31, 1995, 1994, and 1993.
NOTE 4 - SECURITIES AVAILABLE FOR SALE
At October 31, 1995, securities were classified as available for sale and
consisted of the following:
<TABLE>
<CAPTION>
Gross
Amortized Market Unrealized
Cost Value Loss
--------- -------- ----------
<S> <C> <C> <C>
Preferred and common stocks $303,534 $269,900 $(33,634)
Municipal bond funds 209,250 188,000 (21,250)
-------- -------- --------
$512,784 $457,900 $(54,884)
======== ======== ========
</TABLE>
During fiscal year ending October 31, 1995, proceeds from sales of securities
available for sale were $1,714,052 and gross realized losses from such sales
were $10,282.
At October 31, 1994, investment securities were accounted for at the lower of
aggregate cost or market. The total cost and market value of the investment
securities was $1,480,297 and $1,376,297, respectively, with an unrealized loss
of $104,000 charged to operations in fiscal 1994.
52
<PAGE> 53
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 5 - NOTES PAYABLE
<TABLE>
<CAPTION>
October 31
---------------------------
1995 1994
---------- ----------
<S> <C> <C>
Victory Life Insurance Company;
Demand note, interest at the prime rate,
8.75% at October 31, 1995, secured by a
first mortgage note on certain property. $1,500,000 $1,500,000
Louie J. Roussel, III;
Demand note, interest at the prime rate,
8.75% at October 31, 1995, secured by a
first mortgage note on certain property. 500,000 500,000
First National Bank of Commerce ("FNBC");
Note, interest at 0.5% over the New York prime
rate (9.25% at October 31, 1995) secured
by a second mortgage note on certain property, and
342,584 common shares of the Company owned
in the aggregate by the Trust, the Krantzes, and
Jefferson Downs, due on January 17, 1996. 1,494,477 -
INAC Corp.;
Installment note - insurance premium financing;
interest at 6.98%, due February 1996. 211,666 -
---------- ----------
3,706,143 2,000,000
Less: Current portion (3,706,143) (1,000,000)
---------- ----------
Long-term portion $ - $1,000,000
========== ==========
</TABLE>
On July 17, 1995, FNBC provided a short-term interim loan to the Company in the
amount of $2,150,000 ($1,494,477 outstanding balance as of October 31, 1995)
for construction costs relating to the rebuilding of the grandstand and
clubhouse facilities. As a result of this loan, the Company became eligible to
receive the benefit of
53
<PAGE> 54
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 5 - NOTES PAYABLE (CONTINUED)
the video poker franchise tax exemption which was signed into law in 1994 under
the Video Poker Emergency Relief Act. During fiscal 1995 the Company
recognized $703,488 in video poker tax relief pertaining to the exemption.
These monies were applied to the interim loan and related interest.
See Note 13 related to subsequent events affecting notes payable.
NOTE 6 - INCOME TAXES
As discussed in Note 1, effective November 1, 1993, the Company adopted SFAS
109. The cumulative effect of the adoption of SFAS 109 of $75,094, as
determined as of November 1, 1993, is included as a reduction of income in the
accompanying fiscal year 1994 Statement of Operations. Prior years' financial
statements have not been restated to apply the provisions of SFAS 109.
The components of the income tax provisions (benefits) are as follows:
<TABLE>
<CAPTION>
October 31
--------------------------------------------
1995 1994 1993
---------- ----------- ---------
<S> <C> <C> <C>
Current:
Federal $ - $ (469,048) $(56,495)
State - (97,241) (4,984)
---------- ----------- ---------
Total - (566,289) (61,479)
Deferred (300,460) (1,312,346) (322,308)
---------- ----------- ---------
Total $ (300,460) $(1,878,635) $(383,787)
========== =========== =========
</TABLE>
For the year ended October 31, 1995 and 1994, the tax effects of temporary
differences that gave rise to significant portions of the deferred tax assets
and deferred tax liabilities are presented below along with a summary of
activity in the valuation allowance.
<TABLE>
<CAPTION>
October 31
------------------------
1995 1994
------- -------
<S> <C> <C>
Current deferred tax asset:
General liability insurance $59,940 $22,940
------- -------
</TABLE>
54
<PAGE> 55
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 6 - INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
October 31
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Non-current deferred tax assets:
Property 118,787 57,941
Net operating loss carryforward 765,122 550,974
Capital loss carryforward 24,110 107,187
----------- -----------
Total non-current deferred tax assets 908,019 716,102
Non-current deferred tax liability
Deferred tax gain on fire (4,808,801) (4,808,801)
----------- -----------
Net non-current deferred tax liability $(3,900,782) $(4,092,699)
=========== ===========
Valuation allowance at November 1, 1993 $107,187 $872,090
Valuation allowance utilized during the year (107,187) (872,090)
Valuation allowance established during the year 119,253 107,187
----------- -----------
Valuation allowance at October 31, 1994 $ 119,253 $ 107,187
=========== ===========
</TABLE>
A reconciliation of the provision (benefit) for taxes on income at the
Company's federal statutory income tax rate to the tax provision (benefit) for
financial reporting purposes for fiscal year ending October 31, 1995 and 1994
is as follows:
<TABLE>
<CAPTION>
October 31
--------------------------
1995 1994
--------- -----------
<S> <C> <C>
Expected tax benefit $(276,276) $(1,156,806)
State income taxes (24,377) (102,071)
Change in valuation allowance 12,066 (764,903)
Non-deductible expenses 159,356 70,295
Additional realizable carryback credits (81,609) -
Additional realizable carry-forward net operating losses (89,620) -
Current statutory rate in excess of effective carryback rate - 74,850
--------- -----------
Actual tax benefit $(300,460) $(1,878,635)
========= ===========
</TABLE>
55
<PAGE> 56
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 6 - INCOME TAXES (CONTINUED)
A reconciliation of the provision (benefit) for taxes on income at the
Company's federal statutory income tax rate to the tax provision (benefit) for
financial reporting purposes for fiscal year ending October 31, 1993 is as
follows:
<TABLE>
<S> <C>
Expected tax at statutory federal income tax rates
Increase (decrease) in taxes resulting from: $(1,218,260)
State income taxes net of federal tax benefit (107,493)
Non-deductible contributions, penalties, and other expenses 16,966
Reduction for unrealized deferred tax benefit 925,000
-----------
Actual tax expense (benefit) $ (383,787)
===========
</TABLE>
The timing differences in the recognition of revenues and expenses for tax and
financial reporting purposes that result in a deferred tax expense as of
October 31, 1993 are as follows:
<TABLE>
<S> <C>
Excess book depreciation $(159,294)
Current book expense not deductible in the current year (885,181)
Prior year book expense deductible in the current year -
Earnings from equity investments in excess of current book recognition (100,677)
State income taxes net of federal income tax (102,156)
Reduction for unrealizable deferred tax benefit 925,000
---------
Deferred tax expense $(322,308)
=========
</TABLE>
As of October 31, 1995, the Company has a net operating loss carryforward and a
capital loss carryforward for financial statement and tax return purposes of
approximately $2.1 million and $10,282, respectively, which, if unused, begin
to expire in 2009 and 1999, respectively.
56
<PAGE> 57
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 6 - INCOME TAXES (CONTINUED)
SFAS 109 requires an evaluation of the future realization of a tax benefit of
existing deductible temporary differences or a net operating loss carryforward.
This realization ultimately depends on sufficient taxable income of the
appropriate character, including reversals of existing taxable temporary
differences.
In future years, the Company will have reversals of taxable temporary
differences that will offset the net operating loss carryforwards of $2.1
million. At October 31, 1995 a valuation allowance has been established for
the Company's deferred tax asset for a portion of its net operating and capital
loss carryovers due to the uncertainty of its future realization.
The Company has recorded a deferred tax liability of $4,808,801 as a result of
the deferred gain on the fire for income tax purposes. The Company intends to
reinvest all fire insurance proceeds into new facilities currently under
construction within the two year roll-over period. Once constructed, the
Company will have a difference between the book and tax basis of such
facilities. This taxable difference will reverse out with the scheduled
depreciation of such assets.
At October 31, 1994 current income taxes of $555,000 related to the $1.5
million of business interruption insurance received are included net of the
extraordinary gain from the fire.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Fire Related Litigation
The Company is a party to a number of legal proceedings which have arisen as a
result of the December 1993 fire further described in Note 2, or in connection
with the Company's efforts to collect insurance proceeds after the fire. The
following is a brief description of such fire-related proceedings:
1. On May 14, 1994 the Company filed an action in the 24th Judicial
District Court in the State of Louisiana against Travelers Indemnity
Company of Illinois ("Travelers"), and others. The Company contends
that the insurance policy provided by Travelers provides the Company
with blanket coverage in the amount of $24.1 million in excess of the
$10 million of underlying coverage provided by Allianz Underwriters
Insurance Company ("Allianz") and Royal Indemnity Company ("Royal");
accordingly, the Company maintains that Travelers is liable for the
difference between
57
<PAGE> 58
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
$24.1 million and the amount already paid (approximately $9.3
million), plus statutory penalties of 10% of the amount not paid,
interest, attorney's fees and costs. The Company further contends
that, in the event the court determines that the amount of coverage is
less than that claimed by the Company, then the insurance agent and
the insurance broker who arranged for the insurance are liable to the
Company for any damages. Travelers' position is that the excess
policy did not provide blanket coverage, and that its liability under
such policy is limited to the amount which it has already paid.
Travelers filed a separate action in June 1994 in the U.S. District
Court for the Eastern District of Louisiana, asking for a declaratory
judgment that the policy did not provide blanket coverage. The
federal court action has now been dismissed and the state court action
is proceeding.
2. The Company filed an action against Allianz in March 1994 in the Civil
District Court for the Parish of Orleans, State of Louisiana. Allianz
subsequently removed the action from state court to the United States
District Court for the Eastern Division of Louisiana. The Company
contended that Allianz, which was the Company's primary property
insurer, failed to pay the policy benefits of $5 million on a timely
basis, thereby subjecting it to a statutory penalty of 10% of the
amount not paid, interest, attorney's fees and costs. The Company
also alleged that Allianz acted in bad faith in its handling of the
claim. In March 1995, prior to commencement of the trial, the action
was settled without any admission of liability.
3. The Company filed an action against Royal in December 1994, in the
Civil District Court for Orleans Parish, alleging that Royal also
failed to pay on a timely basis under its policy. The issues in this
proceeding were substantially similar to the issues in the litigation
against Allianz described above. In October 1995, prior to the
commencement of the trial, the action was settled.
4. The Company filed an action in December 1994, in the Civil District
Court for Orleans Parish, against ADT Security Systems, the company
which provided and maintained the fire alarm system at the Fair
Grounds Race Course, and other defendants. The complaint seeks
unspecified damages, not otherwise compensated for by insurance, that
were allegedly caused by the negligence of one or more of the
defendants.
58
<PAGE> 59
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
5. The Company is a defendant, along with its general liability insurance
carrier, United National Insurance Company, in a civil action filed in
December 1994 in the United States District Court for the Eastern
District of Louisiana by St. Paul Mercury Insurance Company, the
insurer for AutoTote. The complaint alleges that such insurance
company is subrogated to the rights of AutoTote to collect damages,
and that it has paid AutoTote in excess of $1 million for the loss of
totalisator equipment at the Fair Grounds Race Course which was
destroyed in the fire. Subsequently, United National Insurance
Company has filed suit against the Company seeking to deny coverage
for such subrogation claim.
As to the pending matters described above, there can be no assurance that the
Company will be successful in any of its claims or defenses. Accordingly, no
assurance can be given that additional recoveries of insurance proceeds, if
any, will reimburse the Company adequately for the loss or destruction of its
property in the fire.
Except as described above, there are no material pending legal proceedings,
other than ordinary routine litigation incidental to its business, to which the
Company is a party or of which any of its property is the subject.
Status of Construction of Facilities
A new tele-track facility and temporary clubhouse area was opened on December
22, 1994. The total cost for debris removal and the construction of the
tele-track was approximately $3.2 million.
During the Summer of 1994, the Company approved the plans for a new main
facility. The total cost of the facility, together with furniture, fixtures,
equipment and certain fees and permit costs, was anticipated to be
approximately $25.3 million at the time construction commenced.
As of October 31, 1995, construction of the facility was approximately 60%
completed, and the Company had incurred construction costs of approximately
$15.2 million. Insurance proceeds recovered to date and interim bank financing
provided the source of funds used in such construction. However, for the
reasons described below, further construction work on the project has been
halted. As a result, the cost and timing to complete the project cannot now be
determined with any certainty.
59
<PAGE> 60
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Construction Financing
As previously reported, the Company received and accepted a commitment letter
dated February 6, 1995 from FNBC for a non-revolving line of credit to be used
as an interim construction loan, convertible to a term loan. The aggregate
principal amount of such loan under the terms of such commitment was to have
been $17.5 million. The commitment from FNBC provided that the interim
construction loan was to have closed on or before March 31, 1995. However, the
parties agreed to various extensions of such closing date. FNBC indicated that
the principal reason for the delay was FNBC's concern with restrictions on and
the possible elimination of video poker gaming in Louisiana. Inasmuch as video
poker franchise tax monies generated by the Company and its tele-tracks were to
be used for the repayment of the FNBC loan, in accordance with the tax relief
legislation described below, any changes in the video poker gaming laws which
restricts or limits video poker as a source of revenue may have an adverse
impact on such source of repayment. Accordingly, final action on the full
$17.5 million loan has been delayed until after the 1996 Louisiana regular
legislative session.
In 1994, legislation was adopted which provides that owners of video poker
devices that are located in licensed establishments owned or operated by
licensed racing associations eligible for emergency relief under the statute
are exempt from the franchise payment otherwise due under the Video Draw Poker
Devices Control Law for a period not to exceed 15 years. The amount of the
franchise payment which otherwise would have been paid to the State of
Louisiana during the exemption period is to be remitted directly to the
licensed racing association, in an amount up to $2.5 million annually, and such
funds are to be used for providing emergency relief to the licensed racing
association. The use of funds by the licensed racing association is subject to
review and oversight by a legislative committee, which may reduce the amount of
the authorized exemption if the racing association cannot satisfy the committee
that the exemption is necessary for its ongoing economic viability. The
legislation also provides that at such time as the emergency relief granted
under the act exceeds the required annual debt service on any indebtedness
incurred to address the emergency situation, such indebtedness not to exceed
$25 million, the excess of such funds is to be remitted to the state treasury.
During 1995, the Joint Legislation Committee on the Budget approved the
dedication of funds received from the franchise tax relief described above
toward the exclusive use by the Company for making principal and interest
payments to FNBC.
60
<PAGE> 61
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Interim Financing
During 1995, FNBC provided the Company with short-term interim construction
loans of $2.15 million on July 17, 1995. In addition, as further described in
Note 13, FNBC provided the Company with an additional $4 million on November 7,
1995, and $1 million on November 30, 1995. As also described in Note 13, all
of such financing was then consolidated under a Loan Agreement dated as of
December 18, 1995 between the Company and FNBC, pursuant to which the Company
borrowed an aggregate amount of $9,493,050 and utilized a portion of such funds
to repay the principal amount of the prior loans that was outstanding on
December 18, 1995. The remaining amount borrowed was utilized to pay
construction costs.
Possible Future Financing
The Company believes that it was unable during 1995 to obtain the full amount
of financing originally committed by FNBC due to the uncertainty regarding the
future of video poker as a continuing source of revenue. The Company is
hopeful that the 1996 Louisiana regular legislative session will adjourn
without having passed any statute that would adversely affect the status of the
video poker tax relief previously granted to the Company or the existing video
poker operations of the Company or Finish Line, or that would allow for or
require local elections as a condition to the continuation of video poker
operations. No assurance can be given, however, that such legislation will not
be adopted. If adopted, such legislation will adversely affect the ability of
the Company to obtain long-term financing from FNBC in accordance with the
terms of the original commitment.
The Company has received a commitment from VSI to provide a non-interest
bearing loan in the principal amount of $1.5 million, in consideration for
which the Company is to agree to extend both the term of its agreement with VSI
and the term of the option period thereunder by two years. The loan from VSI
is conditioned upon the closing of the long-term bank financing.
In addition to the foregoing, Marie G. Krantz (Chairman of the Board of
Directors and Treasurer of the Company) has committed to make a $1 million loan
to the Company, which would be conditioned upon the closing of, and subordinate
in right of payment to the permanent FNBC financing. Although specific terms
of such loans have not been discussed, it is likely that the loan would be
interest-bearing, and that payments would
61
<PAGE> 62
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
be made after the repayment of the FNBC financing. The Company is also engaged
in discussions with AutoTote concerning a possible commitment by AutoTote to
lend or advance $2.5 million to the Company, such amount to be repaid through a
subordinated loan arrangement or through an extension of the lease terms
relating to the totalisator equipment.
See Note 12 - Contingencies - Going Concern as to the Company's ability to
finance the completion of construction of its facilities and to continue as a
going concern.
NOTE 8 - AMTOTE LITIGATION SETTLEMENT
The Company was a defendant in a lawsuit filed in federal court in Louisiana by
American Totalisator Company, Inc. ("AmTote"), for alleged breach of contract.
In 1992, AmTote was awarded a judgment against the Company in the amount of
$2.2 million plus attorney's fees, costs and interest. As a result of the
judgment, the Company recorded an estimated liability of $2.5 million for the
year ended October 31, 1993. In September 1993, the federal court of appeals
affirmed the judgment in favor of AmTote. In August 1994, after discussions
among the representatives of the parties, the Company and AmTote settled the
claim for $2.3 million.
NOTE 9 - RELATED PARTY TRANSACTIONS
Marie G. Krantz, Chairman of the Board of Directors and Treasurer of the
Company, has voting control over 339,604 shares of common stock of the Company
(72.27% of the outstanding common stock of the Company) owned by the Masoni
Trust. In addition, Marie G. Krantz and Bryan G. Krantz together are the
beneficial owners of 100% of the outstanding shares of Jefferson Downs
Corporation.
62
<PAGE> 63
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 9 - RELATED PARTY TRANSACTIONS (CONTINUED)
In August 1992, the Company entered into a Management Agreement with Finish
Line Management Corporation ("Finish Line"), which is beneficially owned by
Marie G. Krantz and Bryan G. Krantz, to operate five tele-track facilities
previously operated by Jefferson Downs for a period of ten years, commencing
November 1, 1992, with the option granted to Finish Line to extend the term of
the Management Agreement for two additional five year periods. The Management
Agreement provides that Finish Line is to have the exclusive responsibility for
the direction, supervision, management and operation of such facilities, is to
collect all monies from such operation and is to pay all expenses in connection
therewith. The Company is to receive a monthly payment of 0.1% of the gross
pari-mutuel handle at such facilities plus purse supplements, and Finish Line
is to receive monthly compensation equal to the difference between the gross
receipts collected at such facilities less all expenses (including the payment
to the Company described herein) paid by Finish Line. In addition, Finish Line
is to indemnify the Company for, among other things, all obligations under the
leases assigned by Jefferson Downs to the Company. During the fiscal years
ended October 31, 1995, 1994 and 1993, the Company received $67,593, $87,788
and $51,182, respectively, from Finish Line in accordance with the Management
Agreement.
Accounts receivable from Finish Line were $237,632 and $272,248 at October 31,
1995 and 1994, respectively.
The following table reflects the host track fees and purse supplement receipts
from Finish Line for the fiscal years ended October 31, 1995, 1994, and 1993.
<TABLE>
<CAPTION>
Received by the Company
and Paid by Finish Line
for the Years Ended October 31
--------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Host track fees $ 520,267 $ 483,294 $ 491,876
========== ========== ==========
Purse supplement receipts $2,448,955 $2,450,827 $2,580,000
========== ========== ==========
</TABLE>
63
<PAGE> 64
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 9 - RELATED PARTY TRANSACTIONS (CONTINUED)
Marie G. Krantz and Bryan G. Krantz are each 50% owners of Continental
Advertising, Inc. ("Continental"). During fiscal years ended October 31, 1995
and 1994, the Company made advances to Continental of $462,321 and $394,000,
respectively, for advertising services rendered by Continental. Due to the
fire and related destruction of accounting records discussed in Note 1 to the
financial statements, the Company is unable to report on transactions with
Continental for the fiscal year ended October 31, 1993. It is management's
opinion that such transactions would be immaterial to the Company's financial
statements. As of October 31, 1995 and 1994, the Company was due and included
in accounts receivable $28,575 and $120,449 from Continental, respectively.
In February 1992, the Company, Jefferson Downs and Finish Line entered into an
agreement with Video Services, Inc. ("VSI"), whereby VSI was granted the
exclusive right and license by the Company to install, maintain and operate
video draw poker devices at the Fair Grounds Race Course, Jefferson Downs Race
Course and at the tele-tracks then operated by the Company, Jefferson Downs and
Finish Line. Such agreement is for an initial term of five years, with an
option by VSI to extend the term for an additional five years. The agreement
provides that the Company is to receive a percentage of the revenues from the
operation of the devices installed at the Company's facilities (not including
the facilities operated for the Company by Finish Line). Such percentage is to
be calculated on the basis of the average amount collected daily from each
device during each month, after the payment of prizes, taxes and fees.
One-half of the net revenues from such devices, after deduction of certain
amounts, are required by State Statute to be paid as purse supplements during
the live racing meet. In addition, this agreement entitles the Company and
Finish Line to share in a $270,000 annual promotional fee paid by VSI. In
fiscal 1995, 1994 and 1993, upon agreement of the Company and Finish Line, the
Company received the total promotional fee of $270,000. Of this amount,
$135,000 was set aside each year as purse supplements to be paid during the
upcoming racing season.
The devices which have been installed and are to be installed by VSI remain the
property of VSI. As of October 31, 1995, 1994 and 1993, there were a total of
250, 182 and 304 devices, respectively, in operation at all of the Company's
facilities. In addition, there were a total of 449, 508 and 467 devices in
operation at the Finish Line facilities as of October 31, 1995, 1994 and 1993,
respectively.
64
<PAGE> 65
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 9 - RELATED PARTY TRANSACTIONS (CONTINUED)
Gross video poker revenues and related purse supplements for the years ended
October 31, 1995, 1994, and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Gross video poker revenue $1,132,127 $1,354,792 $1,492,109
========== ========== ==========
Purse supplements $ 433,443 $ 540,258 $ 474,401
========== ========== ==========
</TABLE>
In February 1992 the Company and Jefferson Downs also became shareholders in
Southern Video Services, Inc. ("SVS"), a Louisiana corporation which is an
affiliate of VSI. Jefferson Downs subsequently transferred its interest to
Marie Krantz and Bryan Krantz. SVS was organized for the purpose of operating
video poker devices in authorized locations in Louisiana other than facilities
covered by the agreement with VSI, as described above. Each of the Company and
the Krantzes as a group own shares of non-voting common stock of SVS,
constituting approximately 17% of the total common stock of SVS outstanding.
VSI and Louisiana Ventures, Inc., which is also a shareholder of SVS, are
affiliates of United Gaming, Inc., which owns and operates coin-operated gaming
devices in Nevada and Louisiana.
NOTE 10 -LEASES
The Company has various operating leases for the use of buildings and parking
facilities to operate off-track betting facilities in Louisiana. The location,
lease terms, and monthly payments are as follows:
<TABLE>
<CAPTION>
Monthly
Location Lease Term Payment
-------- ---------- -------
<S> <C> <C>
St. Bernard Parish, January 1, 1995 to
Louisiana January 31, 1999 $ 6,000
LaPlace, Louisiana February 1, 1995 to
January 31, 1996 $ 4,166
- ---------------------------------------------------------------------------------------------
Bourbon Street - March 15, 1991 to
New Orleans, March 14, 1999 $10,000
Louisiana
- ---------------------------------------------------------------------------------------------
Thibodeaux, May 1, 1995 to
Louisiana April 30, 1996 $ 2,100
- ---------------------------------------------------------------------------------------------
Metairie, August 1, 1995 to
Louisiana January 31, 1996 $ 8,200
February 1, 1996 to
July 31, 1997 $ 8,500
=============================================================================================
</TABLE>
65
<PAGE> 66
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 10 - LEASES (CONTINUED)
The tele-tracks formerly licensed to Jefferson Downs and now licensed to the
Company are also leased; however, as described herein, Finish Line has agreed
to indemnify the Company for, among other things, all obligations under the
leases assigned by Jefferson Downs to the Company.
In December 1993, the Company entered into a three year lease on the modular
buildings that house the executive, administrative, and operations personnel
and the totalisator equipment being used by the Company. Rent expense relating
to this lease for the years ended October 31, 1995 and 1994 is approximately
$71,000 and $49,000, respectively.
Future obligations over the primary lease terms, not including renewal periods,
of the Company's long-term leases (other than the leases assigned by Jefferson
Downs to the Company) as of October 31, 1995 are as follows:
<TABLE>
<CAPTION>
Year Ending
October 31
-----------
<S> <C>
1996 $ 352,092
1997 255,666
1998 192,000
1999 63,000
Thereafter -
----------
Total $ 862,758
==========
</TABLE>
In 1990, the Company entered into an agreement with Autotote Limited whereby
Autotote Limited is to provide wagering services for the Company until November
1997, including all computer and other related services to carry out the
totalisator function for the Company. The Company has agreed to pay Autotote
Limited 0.0045% of the total on-track pari-mutuel handle of the Company, plus
fixed equipment rental fees for its off-track betting facilities. The minimum
to be paid to Autotote Limited for each year of the agreement is $200,000. No
estimates of future obligations under this agreement have been included in the
above table. For the fiscal years ended October 31, 1995 and 1994, the Company
incurred $200,000 in minimum rental fees and $503,175 and $346,383,
respectively, in equipment and contingent rental fees in connection with its
agreement with Autotote Limited. Such rental fees were recorded as racing
expenses - contracts and services. Due to the fire and related destruction of
accounting records discussed in Note 1 to the financial statements, the amounts
of minimum and contingent rental fees for fiscal 1993 can not be determined.
66
<PAGE> 67
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 11 - STOCK OPTION PLAN
The Company has a stock option plan where all incentive stock options granted
under the Plan are intended to qualify as incentive stock options under Section
422(b) of the Internal Revenue Code. Under the Plan, the option price per
share must be at least equal to 100% of the fair market value per share of the
common shares of the Company on the date of the grant. An aggregate of 20,000
common shares have been reserved for issue and may be granted up to February
28, 2001. No options were granted or exercised during fiscal years ending
October 31, 1995, 1994 or 1993. No options were outstanding at October 31,
1995.
NOTE 12 - CONTINGENCIES - GOING CONCERN
The accompanying financial statements for 1995 have been prepared assuming that
the Company will continue as a going concern. In view of the cessation of
construction and the additional expense which is likely to be incurred as a
result of construction delays, it is not certain that, even if all of the
financing, as described in Note 7, is consummated, including the long-term
financing by FNBC in accordance with the terms of the original commitment, the
Company will be able to complete the construction of its new facility as
presently planned. It may be necessary to (i) obtain funds from other sources,
(ii) attempt to increase the amount of long-term financing from FNBC or (iii)
seek to effect savings in the construction costs related to the completion of
the facility. The Company has had no discussions with any other possible
source of such financing, nor has it reached any understanding with FNBC
regarding any increase in the financing which the Company hopes to obtain from
FNBC as originally committed by FNBC. It should also be noted that FNBC and
the Company are not currently engaged in any discussions concerning the terms
and conditions of the definitive agreements relating to such long-term
financing, given the uncertain legislative climate. Accordingly, there can be
no assurance that definitive agreements will be reached, or, if reached, that
they will be in accordance with the terms of the original commitment. The
foregoing uncertainties raise substantial doubt about the Company's ability to
continue as a going concern. In the event that such long-term financing is not
completed by October 31, 1996, or that the funds provided through all sources
of such financing are insufficient to meet the Company's needs, the Company may
consider a number of alternatives, including seeking protection from creditors
under the United States Bankruptcy Code.
67
<PAGE> 68
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 13 - SUBSEQUENT EVENTS
On December 18, 1995, First National Bank of Commerce of New Orleans ("FNBC")
provided the Company with a short-term interim construction loan in the amount
of $9,493,050, which included approximately $921,300 of the remaining principal
balance of the $2,150,000 previously loaned to the Company in July 1995 and
approximately $5,000,000 loaned to the Company in November 1995, for
construction costs relating to the rebuilding of the grandstand and clubhouse
facilities.
Pursuant to the loan agreement, FNBC agreed to extend credit to the Company up
to an aggregate principal amount of $9,493,050 until October 31, 1996. The
loan agreement states that such commitment is not a revolving credit facility,
and the commitment is only to make loans up to such aggregate principal amount.
Accordingly, FNBC has no obligation under the loan agreement to lend additional
funds to the Company.
Payment of the principal and interest under the loan agreement is to be made on
demand, or if no demand is made, then in 10 monthly installments of $52,740
principal plus interest, beginning January 17, 1996, and one final payment of
all principal plus accrued interest on October 31, 1996. The loan bears
interest at 9% per annum. On each monthly payment date, payment of principal
and interest is to be made from the proceeds of the funds received as a result
of the video poker tax relief legislation, which funds are to be on deposit in
a separate lockbox, in accordance with a Disbursement Agreement entered into
among Company, FNBC and Video Services, Inc. ("VSI") dated July 17, 1995. The
Disbursement Agreement provides that VSI acknowledges that the first $2.5
million in video poker franchise fee payments otherwise due annually to the
State of Louisiana are to be remitted to the Company under the terms of the tax
relief legislation. For each annual period from July 1 through June 30, such
funds are to be debited from VSI's bank account and deposited into a lockbox at
FNBC. Such proceeds are to be used solely for the purpose of making payments
of principal and interest from time to time due under the terms of the loan
agreement. Any amount in excess of the amount of debt service, up to $2.5
million annually, is to be applied as a prepayment of the principal amount of
the loan, and any excess of the debt service is to be returned to the Treasury
of the State of Louisiana. The loan agreement also provides that any fire
insurance proceeds (not including proceeds payable to any third party),
received by the Company are to be used to prepay the loan.
68
<PAGE> 69
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)
The indebtedness under the loan agreement is secured by (i) a second mortgage
by the Company of all of its real property; (ii) a mortgage by Marie G. Krantz
of all the real property formerly constituting the Jefferson Downs Race Course;
(iii) a security interest in all the Company's accounts, inventory, equipment,
fire insurance proceeds, tax relief monies, construction property, material
contracts and all deposit accounts; (iv) a security interest in certain
investment securities owned by Marie G. Krantz; (v) a security interest in all
furniture, fixtures and equipment owned by the Company, Finish Line and
Jefferson Downs; (vi) a pledge by Richard Katcher, as Trustee u/t/a between
John G. Masoni and John G. Masoni, Trustee, pursuant to a restatement of his
Trust Agreement dated April 19, 1991 as modified on October 24, 1992 (the
"Trust"), Marie G. Krantz, individually and as Voting Trustee, Bryan G. Krantz,
Vickie Krantz and Jefferson Downs of an aggregate of 342,584 shares of common
stock of the Company, constituting all shares of common stock of the Company
beneficially owned by them; (vii) a limited guaranty of such indebtedness by
Marie G. Krantz and Finish Line; and a guaranty of such indebtedness by Finish
Line.
The loan agreement provides that, commencing January 20, 1996, the Company will
deposit monthly into an account at FNBC all "Excess Cash Flow" generated during
the immediately preceding month. Excess Cash Flow is defined as all net income
for the month; plus or minus non-cash items such as depreciation and
amortization; plus or minus the changes in accounts receivable, inventory,
prepaid expenses, accounts payable and accrued expenses, and any other
operating balance sheet related activity affecting the cash position; and plus
or minus capital expenditures. This obligation ceases if and when the 1996
regular session of the Louisiana Legislature adjourns without having passed any
statute that adversely affects the status of the video poker tax relief or the
existing video poker operations of the Company or Finish Line, or that would
allow for or require local elections as a condition to the continuation of
video poker operations; of if there is any such legislation requiring local
elections, the voters fail to approve any such adverse change. Prior to the
cessation of such obligation, the Company may not withdraw any funds in such
account, and FNBC has a security interest in such funds.
The loan agreement contains certain negative covenants pursuant to which the
Company has agreed that it will not (i) resume construction activities without
first providing FNBC with satisfactory evidence of the source of funding for
the balance of such construction; (ii) enter into any agreement with any
affiliate except to the extent that such agreements are commercially reasonable
and provide for terms which would
69
<PAGE> 70
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Years Ended October 31, 1995, 1994 and 1993 (Unaudited)
NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)
normally be obtainable in an arm's length transaction with an unrelated third
party; and (iii) incur capital expenditures during any fiscal year in excess of
$200,000 without the consent of FNBC.
On December 26, 1995, the Company paid $1,000,000 of principal on the
$2,000,000 remaining balances related to its promissory notes held by Louie J.
Roussel, III and agreed to pay the remaining $1,000,000 in principal on October
31, 1996.
In January 1996, the Company received an advance of $1,000,000 from VSI, which
the Company plans to repay in six equal monthly installments beginning in
February 1996.
70
<PAGE> 71
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table shows each director and executive officer of the Company,
his or her age, present positions and offices with the Company, principal
occupation and the name and principal business of the corporation or other
organization in which such occupation has been carried on, and, with respect to
each director, the year he or she first became a director of the Company and
directorships in certain other corporations, based upon information furnished
to the Company by each such director and executive officer or otherwise
available to the Company. Unless otherwise indicated, each director and
executive officer has engaged in the occupations stated below for at least the
last five years. No family relationships exist between or among any director
or executive officer of the Company, except that Bryan G. Krantz is the son of
Marie G. Krantz.
<TABLE>
<CAPTION>
Director
Name Age Since
- ---- --- --------
<S> <C> <C>
Directors
KATHERINE F. DUNCAN 68 1991
Private investor; Director of
Planned Giving of Audubon
Institute, Inc., which
operates the Audubon Zoo
and the Aquarium of the Amer-
icas, since July 1991;
Vice President and Secretary of
Foster Company, a company
engaged in the sale and
rental of decorative awn-
ings and special-event
tents, prior to July 1991.
RICHARD KATCHER 77 1994
Practicing attorney with
Baker and Hostetler, Cleveland,
Ohio
</TABLE>
71
<PAGE> 72
<TABLE>
<S> <C> <C>
BRYAN G. KRANTZ 35 1990
President and General Manager
of the Company since April 1990;
Vice President of Jefferson Downs
Corporation, a company which
owns a racing track that was used
until November 1992 to conduct live
horse racing, and which owns an off-
track betting facility in Louisiana;
General Manager of Jefferson Downs
Corporation prior to May 1990;
President of Finish Line Management
Corporation, which operates certain
off-track betting facilities in
Louisiana.
MARIE G. KRANTZ 60 1990
Chairman of the Board of Directors
and Treasurer of the Company since
April 1990; Chairman of the Board and
President of Jefferson Downs
Corporation; Secretary/Treasurer
of Finish Line Management Corporation.
RONALD J. MAESTRI 55 1991
Athletic Director, University of
New Orleans.
CHARMAINE R. MOREL 61 1987
Assistant to the Financial Manager,
Mike's on the Avenue, a restaurant in
New Orleans, since October 1991;
Secretary-Treasurer of Empire
Land Corporation, a corporation
engaged in oil and gas production,
prior to October 1991; Secretary-
Treasurer of Victory Management Group,
Inc., an insurance holding company,
from January 1993 to December 1995.
DONALD L. PELTIER 69 1977
Practicing attorney with
Peltier, Morvant & Cavell (or its
predecessor); Chairman of the
Board of Argent Bank (or its
predecessor), a banking institution.
</TABLE>
72
<PAGE> 73
Executive Officers (In Addition to Those Listed Above)
<TABLE>
<S> <C> <C>
WILLIAM A. HOF 61 -
Vice President of the Company since
February 1992; Director of Operations;
Director of Operations of Jefferson
Downs prior to the closing of its
facility in November 1992.
MERVIN MUNIZ, JR. 53 -
Vice President of the Company;
Racing Secretary
GORDON M. ROBERTSON 54 -
Vice President of the Company since
February 1992; Chief Financial Officer
since August 1990; General Manager of
Jefferson Downs prior to November 1992.
JOAN B. STEWART 62 -
Secretary of the Company
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the annual and
long-term compensation for services in all capacities to the Company for the
fiscal years ended October 31, 1995, October 31, 1994 and October 31, 1993, for
the chief executive officer of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------------------------------
Other
Annual
Name and Compen-
Principal Position Year Salary Bonus sation
- ------------------ ---- -------- -------------------------
<S> <C> <C> <C> <C>
BRYAN G. KRANTZ
President and General Manager 1995 $ 75,000 0 $3,600(1)
1994 75,000 0 3,600(1)
1993 75,000 0 3,600(1)
</TABLE>
73
<PAGE> 74
(1) Consists of the annual retainer paid to Mr. Krantz as a director.
INFORMATION CONCERNING STOCK OPTION PLAN
In 1991, the Board of Directors of the Company adopted, and the shareholders
ratified, the Fair Grounds Corporation Stock Option Plan (the "Stock Option
Plan"). The Stock Option Plan, which is administered by a committee of the
Board of Directors, provides that options to purchase up to 20,000 common
shares of the Company may be granted to key employees, as determined by the
committee. Key employees may be granted options for common shares of any
value; however, the aggregate fair market value of common shares with respect
to which incentive stock options are exercisable by an optionee during any
calendar year may not exceed $100,000. The committee has the authority to
determine the number of common shares that an optionee may purchase upon
exercise of an option. The exercise price per share may not be less than the
fair market value per share of the Company's common shares at the time an
option is granted. Each option granted will be exercisable only during the
term fixed by the committee, and may not be exercisable prior to the expiration
of six months from the date of the grant. Options granted under the Stock
Option Plan may be either "incentive stock options" for purposes of the
Internal Revenue Code or nonqualified stock options. During the fiscal year
ended October 31, 1995, no options were granted or exercised under the Stock
Option Plan. There are currently no options outstanding under the Stock Option
Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following non-employee directors served on the Compensation Committee of
the Board of Directors of the Company during the fiscal year ended October 31,
1995: Richard Katcher, Charmaine R. Morel and Donald L. Peltier. As described
herein, Mr. Katcher is trustee of the Trust which is the beneficial owner of
339,604 common shares of the Company, constituting approximately 72.5% of the
common shares issued and outstanding, which shares are held by Marie G. Krantz
as Voting Trustee. In connection with the financing described herein, the
Trust entered into a Pledge Agreement pursuant to which it pledged and granted
to FNBC a security interest in the common shares of the Company beneficially
owned by the Trust. See Item 12, "Security Ownership of Certain Beneficial
owners and Management," for a description of the terms of such Pledge
Agreement.
74
<PAGE> 75
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
BENEFICIAL OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of common shares of the Company, as of January 1, 1996, of (i) each
person who, to the knowledge of the Company, owns beneficially more than 5% of
the outstanding common shares of the Company, (ii) each director and nominee
for election as a director, (iii) the executive officer listed in the summary
compensation table and (iv) all directors and executive officers of the Company
as a group. The information set forth in the following table is based upon
statements filed by such persons with the Securities and Exchange Commission
and information otherwise available to the Company. Unless otherwise
indicated, each person has sole voting and investment power of the common
shares of the Company beneficially owned by him or her.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
OF BENEFICIAL OF
BENEFICIAL OWNER OWNERSHIP CLASS(A)
- ---------------- ----------------- --------
<S> <C> <C>
Katherine F. Duncan 480 *
Richard Katcher 339,604(b)(e) 72.5%
Marie G. Krantz 340,584(c)(e) 72.7%
Bryan G. Krantz 2,600(d)(e) *
Ronald J. Maestri 480 *
Charmaine R. Morel 480 *
Donald L. Peltier 2,513(f) *
All Directors and Executive Officers as a Group 346,537(g) 74.0%
</TABLE>
* Less than 1% of Class
(a) For purposes of this table, the percentage of class beneficially owned
has been computed,in accordance with Rule 13d-3(d)(1) under the
Securities Exchange Act of 1934, on the basis of 468,180 common shares
outstanding on January 1, 1996.
(b) Richard Katcher, as Trustee u/t/a between John G. Masoni and John G.
Masoni, Trustee, pursuant to a restatement of his Trust Agreement
dated April 19, 1991 as modified on October 24, 1992 (the "Trust"),
has reported to the Commission that the Trust is the beneficial owner
of 339,604 common shares, constituting approximately 72.5% of the
common shares issued and outstanding, which are held by Marie G.
Krantz as Voting Trustee, and that the Trust has the sole power to
dispose or to direct the disposition of such common shares. The
address of this beneficial owner is 3200 National City Center,
Cleveland, Ohio.
(c) Marie G. Krantz has reported to the Commission that she is the
beneficial owner of 380 common shares held directly by her and of 100
common shares
75
<PAGE> 76
held by Jefferson Downs, constituting less than 1% of the common
shares issued and outstanding, and that she may be deemed to be the
beneficial owner of the 340,104 common shares held by her as Voting
Trustee. In her capacity as Voting Trustee, Marie G. Krantz has the
sole power to vote or to direct the vote of the 340,104 common shares
held by her as Voting Trustee. She has the sole power to vote or to
direct the vote and the sole power to dispose or to direct the
disposition of the 380 common shares held directly by her. She may be
deemed to share with Bryan G. Krantz the power to vote or to direct
the vote and the power to dispose or to direct the disposition of the
100 common shares held by Jefferson Downs. Ms. Krantz's address is
1751 Gentilly Boulevard, New Orleans, Louisiana 70119.
(d) Bryan G. Krantz has reported to the Commission that he is the
beneficial owner of 500 common shares held by Marie G. Krantz as
Voting Trustee, constituting less than 1% of the common shares issued
and outstanding, 2,000 common shares held jointly by him and his wife,
constituting less than 1% of the common shares issued and outstanding
and 100 shares held by Jefferson Downs, constituting less than 1% of
the common shares issued and outstanding. Bryan G. Krantz has the
sole power to dispose or direct the disposition of the 500 common
shares held by Marie G. Krantz as Voting Trustee, and shares with his
wife the power to vote or direct the vote and to dispose or direct the
disposition of the 2,000 common shares held jointly with her. He may
be deemed to share with Marie G. Krantz the power to vote or to direct
the vote and the power to dispose or to direct the disposition of the
100 common shares held by Jefferson Downs. Mr. Krantz's address is
1751 Gentilly Boulevard, New Orleans, Louisiana 70119.
(e) The Trust and the Krantzes, who are the beneficial owners of an
aggregate of 342,584 common shares, constituting approximately 73.2%
of the common shares outstanding, have reported to the Commission that
they constitute a "group" within the meaning of section 13(d)(3) of
the Exchange Act. By virtue of their beneficial ownership of common
shares of the Company and the matters set forth in filings made by
them under Section 13(d) of the Exchange Act, the Trust, Marie G.
Krantz and Bryan G. Krantz may be deemed to be controlling persons of
the Company. See "Pledge of Common Shares to FNBC" below, for a
description of the pledge agreements in favor of FNBC, as security for
the Company's obligations under the Loan Agreement.
(f) Includes 679 common shares held directly by Mr. Peltier and 1,834
common shares of the Company held by members of Mr. Peltier's family
who have given Mr. Peltier powers of attorney to vote and dispose of
such common shares.
(g) The number of common shares shown as beneficially owned includes any
directors qualifying shares held by each director.
PLEDGE OF COMMON SHARES TO FNBC
As described above, all of the 342,584 common shares of the Company owned in
the aggregate by the Trust, Marie Krantz, Bryan Krantz, Vickie Krantz and
Jefferson Downs are subject to pledge agreements (the "Pledge Agreements") in
favor of FNBC, as security for the Company's obligations under the Loan
Agreement described elsewhere herein. Pursuant to the Pledge Agreements, each
such shareholder has granted to FNBC a security interest in all common shares
of the Company owned by such shareholder, and in any additional common shares
which may be received. So long as the Company's indebtedness under the Loan
Agreement remains outstanding, the
76
<PAGE> 77
common shares subject to the Pledge Agreements may not be sold, transferred or
disposed of in any way. Unless and until an event of default occurs, each
shareholder is entitled to exercise all voting rights and receive all dividends
with respect to such shares. In the event of a default, including a default
under any other guaranty or security agreement entered into in connection with
the Loan Agreement, FNBC will be entitled, among other things, to transfer all
or part of the pledged shares into its name, exercise all voting rights and
sell all or any part of such shares. Any such sale of all or a substantial
portion of the common shares subject to the Pledge Agreements would result in a
change of control of the Company. For a description of certain events of
default under the loan Agreement and related documents, see Item 1, "Business -
Developments During 1995."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1992 Jefferson Downs, a corporation owned by Marie G. Krantz and Bryan
G. Krantz, did not renew its license application with the Louisiana Racing
Commission for live racing and, accordingly, did not conduct live racing in
1993. In August 1992, Jefferson Downs assigned to the Company all of its
right, title and interest in and to the leases on its tele-track facilities in
Terrebone, St. Tammany and Jefferson Parishes, Louisiana. Such assignment was
effective on May 27, 1993, the date the Louisiana Racing Commission approved
the transfer to the Company of all licenses necessary for the operation of such
tele-tracks.
During 1992 the Company entered into a Management Agreement (the "Management
Agreement") with Finish Line. The Management Agreement provides that Finish
Line is to operate the former Jefferson Downs tele-track facilities described
above for a period of ten years, commencing November 1, 1992, with the option
granted to Finish Line to extend the term of the Management Agreement for two
additional five-year periods. The Management Agreement provides that Finish
Line is to have the exclusive responsibility for the direction, supervision,
management and operation of such facilities, is to collect all monies from such
operation and is to pay all expenses in connection therewith. The Company is
to receive 0.1% of the gross pari-mutuel handle at such facilities, and Finish
Line is to receive monthly compensation equal to the difference between the
gross receipts collected at such facilities less all expenses (including the
payment to the Company described above) paid by Finish Line. In addition,
Finish Line is to indemnify the Company for, among other things, all
obligations under the leases assigned by Jefferson Downs to the Company.
During the fiscal year ended October 31, 1995, Finish Line paid the Company
$67,593 under the Management Agreement, host track fees of $520,267 and purse
supplements of $2,448,955. As of October 31, 1995, the Company had accounts
receivable from Finish Line in the aggregate amount of $237,632.
77
<PAGE> 78
The Company, Jefferson Downs and Finish Line are parties to an agreement with
VSI, whereby VSI has the exclusive right and license to install, maintain and
operate video draw poker devices at the Fair Grounds Race Course and Jefferson
Downs Race Course and at the tele-tracks operated by the Company, Jefferson
Downs and Finish Line. Such agreement was entered into in November 1992 for an
initial term of five years, with an option by VSI to extend the term for an
additional five years. The agreement provides that the Company is to receive a
percentage of the revenues from the operation of the devices installed at the
Company's facilities. Such percentage is to be calculated on the basis of the
average amount collected daily from each device during each month, after the
payment of prizes, taxes and fees. The devices which have been installed and
are to be installed by VSI pursuant to such agreement remain the property of
VSI. As of October 31, 1995, there were a total of 250 devices in operation at
all of the Company's facilities (excluding the tele-tracks operated for the
Company by Finish Line) and 449 devices in operation at facilities managed by
Finish Line. In fiscal 1995, the Company received gross revenue of $1,132,127,
including amounts to be paid as purse supplements of $433,443. In addition,
such agreement provides that the Company, Jefferson Downs and Finish Line are
entitled to receive an annual promotional allowance from VSI in the aggregate
amount of $270,000, which for the fiscal year ended October 31, 1995 was paid
in full to the Company. The agreement also provides for advances annually
from VSI against future revenues of up to $1 million in the aggregate to the
Company, Jefferson Downs and Finish Line. The Company received all of such
advance during the year ended October 31, 1995 and has also received such an
advance during the current fiscal year. The Company anticipates that it will
continue to receive revenues pursuant to the agreement with VSI.
The Company and Marie and Bryan Krantz are also shareholders in Southern Video
Services, Inc. ("SVS"), a Louisiana corporation which is an affiliate of VSI.
SVS was organized for the purpose of operating video poker devices in
authorized locations in Louisiana other than the facilities covered by the
agreement with VSI, as described above. Each of the Company and Marie and
Bryan Krantz as a group owns shares of nonvoting common stock of SVS,
constituting approximately 17% of the total common stock of SVS outstanding.
VSI and Louisiana Ventures, Inc., which is also a shareholder of SVS, are
affiliates of United Gaming, Inc., which owns and operates coin-operated gaming
devices in Nevada and Louisiana. SVS is not actively engaged in any business
in Louisiana.
Marie Krantz is a director, the President and the owner of 66 2/3% of the
outstanding common stock, and Bryan Krantz is a director, Vice President and
the owner of 33 1/3% of the outstanding common stock, of Jefferson Downs.
Marie Krantz is a director, executive officer and the owner of 66 2/3% of the
outstanding common stock, and Bryan Krantz is a director, executive officer and
the owner of 33 1/3% of the outstanding common stock, of Finish Line. By
virtue
78
<PAGE> 79
of such positions and ownership and their positions with and relationship with
such entities, the Company, Finish Line and Jefferson Downs may be deemed to be
affiliates.
Marie Krantz and Bryan Krantz each own 50% of the outstanding common stock of
Continental Advertising, Inc. ("Continental"), an advertising agency which
provided advertising services to the Company during the last fiscal year.
During the 1995 fiscal year, the Company made advances to Continental of
$462,321. As of October 31, 1995, the Company was due $28,575 from
Continental. The Company expects to continue to utilize Continental's services
during the current fiscal year.
As described elsewhere herein, the Company and FNBC are parties to the Loan
Agreement, and the Company's indebtedness thereunder has been guaranteed by
Marie Krantz and Finish Line. In addition, Marie G. Krantz has granted FNBC a
security interest in certain investment securities held by her, and Finish Line
and Jefferson Downs have granted to FNBC a security interest in substantially
all of the property, furniture, fixtures and equipment owned by each such
corporation. For a description of the terms and conditions of the Loan
Agreement and the security interests granted to FNBC, see Item 1, "Business -
Developments During 1995." Also in connection with the Loan Agreement, each of
Marie Krantz, Bryan Krantz, Vickie Krantz, Richard Katcher and Jefferson Downs
has pledged to FNBC all of the common shares of the Company owned by such
shareholder. For a description of the terms and conditions of the pledge
agreements relating to such shares, see Item 12, "Securities Ownership of
Certain Beneficial Owners and Management."
From time to time, persons who are officers, directors or principal
shareholders of the Company own or have interests in horses racing at the
Company's race track. Such races are conducted under the rules and regulations
of the Louisiana Racing Commission, and no officer, director or principal
shareholder receives any extra or special benefits not shared by all others so
racing.
79
<PAGE> 80
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following unaudited financial statements are included in Part II,
Item 8:
<TABLE>
<CAPTION>
Financial Statements Page
- -------------------- ----
<S> <C>
Report of Independent Certified Public
Accountant 36
Balance Sheets, October 31, 1995 and 1994 37
Statements of Operations for the Three Years
Ended October 31, 1995 40
Statements of Changes in Stockholder's
Equity for the Three Years Ended
October 31, 1995 44
Statements of Cash Flows for the Three
Years Ended October 31, 1995 45
Notes to Financial Statements 48
(a)(2) The following unaudited financial statement
schedules for the years ended October 31, 1995,
1994 and 1993 are filed herewith:
Schedule II - Amounts Receivable from
Related Parties 88
Schedule V - Property, Plant and Equipment 89
Schedule VI - Accumulated Depreciation and
Amortization of Property, Plant and Equipment 90
Schedule IX - Short-Term Borrowings 91
(b) Report on Form 8-K: None
(c) Exhibits: The following exhibits are filed as part of this report. Those exhibits which have been
previously filed and incorporated herein by reference are identified by reference to the previous
filing.
(3)(a) Articles of Incorporation of Fair Grounds Corporation, as amended
</TABLE>
80
<PAGE> 81
<TABLE>
<S> <C> <C>
(incorporated herein by reference to Exhibit (3)(a) to the Form 10-K of the Company
for the fiscal year ended October 31, 1991, filed on January 29, 1992).
(3)(b) *
Amended and Restated By-Laws of Fair Grounds Corporation (incorporated herein by
reference to Exhibit (3)(b) to the Form 10-K of the Company for the fiscal year
ended October 31, 1990).
(9) *
Voting Trust Agreement dated as of August 31, 1993, by and among Bryan G. Krantz
and Richard Katcher, Trustee, as grantors, and Marie G. Krantz as Voting Trustee
(incorporated herein by reference to exhibit 2 to Amendment No. 3 to Schedule 13D
filed by such persons on October 13, 1993).
(10)(a) *
Agreement dated December 1, 1987, between Fair Grounds Corporation and Jefferson Downs, Inc.
(incorporated herein by reference to Exhibit (10)(a) to the Form 10-K of the Company for
the fiscal year ended October 31, 1988).
(10)(b) *
Agreement dated March 30, 1988, between Fair Grounds Corporation and Jefferson Downs, Inc.
(incorporated herein by reference to Exhibit (10)(b) to the Form 10-K of the Company for the fiscal
year ended October 31, 1988).
(10)(c) *
Agreement dated March 29, 1989, between Fair Grounds Corporation and Jefferson Downs, Inc.
(incorporated herein by reference to Exhibit (10)(c) to the Form 10-K of the Company for the fiscal
year ended October 31, 1989).
(10)(d) *
Agreement dated November 3, 1989, between Fair Grounds Corporation and Jefferson Downs, Inc.
(incorporated herein by reference to Exhibit (10)(d)
</TABLE>
81
<PAGE> 82
<TABLE>
<S> <C> <C>
to the Form 10-K of the Company for the fiscal year ended October 31, 1989).
(10)(e) *
Net Commercial Lease Agreement dated November 10, 1988, between Pelican Homestead and Savings
Association and Fair Grounds Corporation (incorporated herein by reference to Exhibit (10)(e) to
the Form 10-K of the Company for the fiscal year ended October 31, 1989).
(10)(f) *
Lease of Commercial Property dated February 1, 1989, between Mereaux and Nunez, Inc. and Fair
Grounds Corporation (incorporated herein by reference to Exhibit (10)(f) to the Form 10-K of the
Company for the fiscal year ended October 31, 1989).
(10)(g) *
Lease Agreement dated March 8, 1989, between Richard F. Keyworth and Fair Grounds Corporation
(incorporated herein by reference to Exhibit (10)(g) to the Form 10-K of the Company for the fiscal
year ended October 31, 1989).
(10)(h) *
Promissory Note dated November 19, 1989, in the principal amount of $5,000,000 from Fair Grounds
Corporation to National Savings Life Insurance Company (incorporated herein by reference to Exhibit
(10)(h) to the Form 10-K of the Company for the fiscal year ended October 31, 1989).
(10)(i) *
Promissory Note dated November 19, 1989, in the principal amount of $4,980,000 from Fair Grounds
Corporation to Louie J. Roussel, III (incorporated herein by reference to Exhibit (10)(i) to the
Form 10-K of the Company for the fiscal year ended October 31, 1989).
(10)(j) *
Promissory Note dated December 27, 1990, in the principal amount of
</TABLE>
82
<PAGE> 83
<TABLE>
<S> <C> <C>
$4,980,000 from Fair Grounds Corporation to Louie J. Roussel, III (incorporated herein by
reference to Exhibit (10)(j) to the Form 10-K of the Company for the fiscal year ended
October 31, 1990).
(10)(k) *
Promissory Note dated December 27, 1990, in the principal amount of $5,000,000 from Fair Grounds
Corporation to Victory Life Insurance Company (incorporated herein by reference to
Exhibit (10)(k) to the Form 10-K of the Company for the fiscal year ended October 31, 1990).
(10)(l) *
Fair Grounds Corporation Stock Option Plan (incorporated herein by reference to Appendix A to the
definitive Information Statement of the Company dated February 26, 1991).
(10)(m) *
Commercial Lease Agreement dated April 1, 1991 between Blake's Superette, Inc. and Fair Grounds
Corporation (incorporated herein by reference to Exhibit (10)(m) to the Form 10-K of the Company for
the fiscal year ended October 31, 1991, filed on January 29, 1992).
(10)(n) *
Lease Agreement dated November 21, 1991 between Jefferson Downs Corporation and Fair Grounds
Corporation (incorporated herein by reference to Exhibit (10)(n) to the Form 10-K of the Company for
the fiscal year ended October 31, 1991, filed on January 29, 1992).
(10)(o) *
Agreements regarding Purchase and Sale of Partnership Interests by and between Jefferson Downs
Corporation and Fair Grounds Corporation, dated as of August 11, 1992. (Incorporated herein by
reference to Exhibit (10)(o) to the Form 10-K of the Company for the fiscal
</TABLE>
83
<PAGE> 84
<TABLE>
<S> <C> <C>
year ended October 31, 1992, filed on February 15, 1993.)
(10)(p) *
Assignments of Lease by Jefferson Downs Corporation to Fair Grounds Corporation, dated as of
August 31, 1992. (Incorporated herein by reference to Exhibit (10)(p) to the Form 10-K of the
Company for the fiscal year ended October 31, 1992, filed on February 15, 1993.)
(10)(q)
Management Agreement by and between Finish Line Management Corp. and Fair Grounds Corporation,
dated October 9, 1992. (Incorporated herein by reference to Exhibit (10)(q) to the Form 10-K
of the Company for the fiscal year ended October 31, 1992, filed on February 15, 1993.)
(10)(r) *
Letter of Intent between K-III Information Group and Fair Grounds Corporation, dated
November 20, 1992. (Incorporated herein by reference to Exhibit (10)(r) to the Form 10-K
of the Company for the fiscal year ended October 31, 1992, filed on February 15, 1993.)
(10)(s) *
Incentive Stock Option Agreement between Fair Grounds Corporation and William H. Kurtz, dated as of
February 4, 1992. (Incorporated herein by reference to Exhibit (10)(s) to the Form 10-K of the
Company for the fiscal year ended October 31, 1992, filed on February 15, 1993.)
(10)(t) *
Agreement dated February 28, 1992, by and between Video Services, Inc., Fair Grounds Corporation,
Jefferson Downs Corporation and Finish Line Management Corp. (Incorporated herein by reference to
Exhibit (10)(t) to the Form 10-K of the Company for the fiscal year ended
</TABLE>
84
<PAGE> 85
<TABLE>
<S> <C>
October 31, 1992, filed on February 15, 1993.)
(10)(u)
Loan Agreement dated as of December 18, 1995, between Fair Grounds Corporation and First National Bank
of Commerce
(10)(v)
Disbursement Agreement dated as of July 17, 1995 by and among Fair Grounds Corporation, Vide Services,
Inc. and First National Bank of Commerce
(10)(w)
Commercial Security Agreement dated as of July 17, 1995 between Fair Grounds Corporation and First
National Bank of Commerce
</TABLE>
* Incorporated herein by reference as indicated.
85
<PAGE> 86
SIGNATURES
Pursuant to the requirements of Section 12 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.
FAIR GROUNDS CORPORATION
By: /s/ Bryan G. Krantz
--------------------------
Date: February 15, 1996 Bryan G. Krantz, President
-----------------
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.
Name Capacity Date
- -------------- -------- -----------
PRINCIPAL EXECUTIVE OFFICER:
/s/ Bryan G. Krantz
- ------------------------------
Bryan G. Krantz President February 15, 1996
PRINCIPAL FINANCIAL OFFICER:
/s/ Gordon M. Robertson
- ------------------------------
Gordon M. Robertson Chief Financial February 15, 1996
Officer
PRINCIPAL ACCOUNTING OFFICER:
/s/ Jill P. Incaprera
- ------------------------------
Jill P. Incaprera Principal February 15, 1996
Accounting
Officer
86
<PAGE> 87
<TABLE>
<S> <C> <C>
DIRECTORS:
/s/ Marie G. Krantz
- --------------------------------
Marie G. Krantz Director February 15, 1996
and Chairman
of the Board
/s/ Bryan G. Krantz
- --------------------------------
Bryan G. Krantz Director February 15, 1996
and President
/s/ Katherine F. Duncan
- --------------------------------
Katherine F. Duncan Director February 15, 1996
/s/ Ronald J. Maestri
- --------------------------------
Ronald J. Maestri Director February 15, 1996
/s/ Charmaine R. Morel
- --------------------------------
Charmaine R. Morel Director February 15, 1996
/s/ Donald L. Peltier
- --------------------------------
Donald L. Peltier Director February 15, 1996
</TABLE>
87
<PAGE> 88
SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES
For The Years Ended October 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Balance at Deductions Balance at
Beginning Amounts Amount End of Period
Name of Debtor of Period Additions Collected Sold Current Non-Current
- -------------- --------- --------- --------- ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C>
1995
====
None.
1994
====
Intertrack Partners of Madison (b) $232,872 $ - $ 595 $232,277 $ - $ -
Intertrack Partners of Rapides (b) 286,305 - 1,289 285,016 - -
Intertrack Partners of Ouachita (c) 7,500 - 7,500 - - -
Fast, Inc. 16,864 - 2,118 14,746 - -
-------- ------ -------- -------- -------- --------
$543,541 $ - $ 11,502 $532,039 $ - $ -
======== ====== ======== ======== ======== ========
1993 (Unaudited)
====
Intertrack Partners of Rapides (b) $288,914 $ - $ 2,609 $ - $ 3,668 $282,637
Intertrack Partners of Ouachita (c) 27,600 - 20,100 - - 7,500
Fast, Inc. (a) 18,546 - 1,682 - 1,682 15,182
-------- ------ -------- -------- -------- --------
$335,060 $ - $ 24,391 $ - $ 5,350 305,319
======== ====== ======== ======== ======== ========
Intertrack Partners of Madison
eliminated through
1993 consolidation 232,872
--------
$543,541
========
</TABLE>
(a) Note receivable at 9% interest, payable in yearly installments through
December 1999.
(b) Note receivable at 9% interest, payable in quarterly installments
through December 2019.
(c) Advance, no repayment terms stated at this time.
88
<PAGE> 89
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
For the Years Ended October 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Balance at Assets Balance
Beginning Additions Retirements Destroyed at End
Description of Period at Cost or Sales By Fire of Period
- ----------- ---------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
OCTOBER 31, 1995
Land $ 3,286,281 $ - $ - $ - $ 3,286,281
Buildings and improvements 10,206,873 3,675,097 - - 13,881,970
Temporary facilities 2,680,917 5,127 - - 2,686,044
Construction in progress 4,723,474 14,119,779 (3,637,088) - 15,207,395
Machinery and equipment 1,464,204 143,254 - - 1,607,458
Furniture and fixtures 155,672 15,825 - - 171,497
Land improvements 4,188,282 82,253 - - 4,270,535
----------- ----------- ----------- ------------ -----------
$26,705,703 $18,042,565 $(3,637,088) $ - $41,111,180
=========== =========== =========== ============ ===========
OCTOBER 31, 1994
Land $ 3,286,281 $ - $ - $ - $ 3,286,281
Buildings and improvements 19,419,664 20,022 - (9,232,813) 10,206,873
Temporary facilities - 2,680,917 - - 2,680,917
Construction in progress - 4,723,474 - - 4,723,474
Machinery and equipment 3,860,902 453,062 (14,980) (2,834,780) 1,464,204
Furniture and fixtures 497,557 27,216 - (369,101) 155,672
Land improvements 4,382,941 - - (194,659) 4,188,282
----------- ----------- ----------- ------------ -----------
$31,447,345 $ 7,904,691 $ (14,980) $(12,631,353) $26,705,703
=========== =========== =========== ============ ===========
OCTOBER 31, 1993 (Unaudited)
Land $ 3,401,281 $ - $ - $ - $ 3,401,281
Buildings and improvements 20,038,877 183,559 - - 20,222,436
Machinery and equipment 4,002,872 44,181 (1,401) - 4,045,652
Furniture and fixtures 536,985 13,126 - - 550,111
Land improvements 4,456,666 - (73,725) - 4,382,941
----------- ----------- ----------- ------------ -----------
$32,436,681 $ 240,866 $ (75,126) $ - 32,602,421
=========== =========== =========== ============
Intertrack Partners of Madison
effects of consolidation (1,155,076)
-----------
$31,447,345
===========
</TABLE>
89
<PAGE> 90
SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
For the Years Ended October 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Balance at Assets Balance
Beginning Depreciation Retirements Destroyed at End
Description of Period Expense or Sales By Fire of Period
- ----------- ---------- ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
OCTOBER 31, 1995
Buildings and improvements $ 6,832,699 $ 746,330 $ - $ - $ 7,579,029
Temporary facilities 890,667 747,810 - - 1,638,477
Machinery and equipment 1,009,981 103,196 - - 1,113,177
Furniture and fixtures 119,920 9,158 - - 129,078
Land improvements 3,032,870 190,762 - - 3,223,632
------------ ----------- --------- ----------- -----------
$ 11,886,137 $ 1,797,256 $ - $ - $13,683,393
============ =========== ========= =========== ===========
OCTOBER 31, 1994
Buildings and improvements $ 12,085,279 $ 665,712 $ - $(5,918,292) $ 6,832,699
Temporary facilities - 890,667 - - 890,667
Construction in progress - - - - -
Machinery and equipment 3,027,123 99,797 (10,861) (2,106,078) 1,009,981
Furniture and fixtures 360,305 10,117 - (250,500) 119,920
Land improvements 2,920,357 190,095 - (77,582) 3,032,870
------------ ----------- --------- ----------- -----------
$ 18,393,064 $ 1,856,388 $ (10,861) $(8,352,454) $11,886,137
============ ============ ========= =========== ===========
OCTOBER 31, 1993 (Unaudited)
Buildings and improvements $ 11,162,679 $ 1,028,865 $ - $ - $12,191,544
Machinery and equipment 2,920,321 269,166 - - 3,189,487
Furniture and fixtures 350,340 32,290 - - 382,630
Land improvements 2,651,451 244,385 - - 2,895,836
------------ ----------- --------- ----------- -----------
$ 17,084,791 $ 1,574,706 $ - $ - 18,659,497
============ =========== ========= =========== ===========
Intertrack Partners of Madison
effects of consolidation (266,433)
-----------
$18,393,064
===========
</TABLE>
90
<PAGE> 91
SCHEDULE IX
SHORT-TERM BORROWINGS
For the Years Ended October 1995, 1994 and 1993
<TABLE>
<CAPTION>
Weighted Maximum Average
Average Amount Amount Average
Category of Balance Interest Outstanding Outstanding Interest
Aggregate at End Rate at End During the During the Rate During
Borrowings of Period of Period Period Period the Period
- ----------- --------- ----------- ----------- ----------- -----------
(Note B)
<S> <C> <C> <C> <C> <C>
Notes payable:
1995 $3,706,143 9.00% $4,454,117 $2,425,563 9.60%
1994 $ - 7.75% $1,000,000 $ 416,000 7.75%
1993 (Unaudited) $ - 7.00% $ 450,000 $ 200,000 7.00%
</TABLE>
NOTES:
(A) The average amount outstanding during the year represents the average
monthly principal balances outstanding during the year.
(B) The weighted average interest rates during the year were computed by
dividing the actual interest on short-term borrowings by the average
short-term borrowings.
91
<PAGE> 92
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ----
<S> <C> <C>
(10)(u) Loan Agreement dated as of December 18, 1995, between Fair Grounds 93
Corporation and First National Bank of Commerce
(10)(v) Disbursement Agreement dated as of July 17, 1995 by and among Fair 125
Grounds Corporation, Vide Services, Inc. and First National Bank of
Commerce
(10)(w) Commercial Security Agreement dated as of July 17, 1995 between Fair 136
Grounds Corporation and First National Bank of Commerce
(27) Financial Data Schedule (included in electronic filing only)
</TABLE>
92
<PAGE> 1
EXHIBIT 10(u)
93
<PAGE> 2
=================================================================
LOAN AGREEMENT
dated as of
December 18, 1995
Between
FAIR GROUNDS CORPORATION
and
FIRST NATIONAL BANK OF COMMERCE
=================================================================
94
<PAGE> 3
LOAN AGREEMENT
THIS LOAN AGREEMENT dated as of December 18, 1995, by and
between FAIR GROUNDS CORPORATION, a Louisiana corporation ("Debtor"), and FIRST
NATIONAL BANK OF COMMERCE, a national banking association ("Bank").
W I T N E S S E T H:
WHEREAS, Debtor has applied to Bank for a multiple advance
loan in an aggregate amount not to exceed Nine Million Four Hundred Ninety
Three Thousand Fifty and No/100 (U.S. $9,493,050.00) Dollars, and Bank has
agreed to provide such credit facility to Debtor subject to the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
hereunder set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1. Defined Terms. As used in this Agreement, and
unless the context requires a different meaning, the following terms have the
meanings indicated:
"Agreement" shall mean this Loan Agreement, as the same may from time
to time be amended, modified or supplemented and in effect.
"Bank" shall mean First National Bank of Commerce, a national banking
association.
"Business Day" means a day other than a Saturday, Sunday or legal
holiday for commercial banks under the laws of the State of Louisiana
or a day on which national banks are authorized to be closed in New
Orleans, Louisiana.
"Cash Collateral Account" shall mean the demand deposit account
maintained by Debtor with Bank into which all Excess Cash Flow shall
be deposited in accordance with the provisions of Section 6.10 hereof.
"Collateral" shall mean any interest in any kind of property or assets
pledged, mortgaged or otherwise
95
<PAGE> 4
subject to an Encumbrance in favor of Bank pursuant to the Collateral
Documents.
"Collateral Documents" shall collectively refer to the Guaranties, the
Mortgages, the Security Agreements, the Stock Pledges, and any and all
other documents in which an Encumbrance is created on any property of
the Debtor or of any third person to secure payment of the
Indebtedness of Debtor or any part thereof.
"Commitment" shall mean the agreement by Bank to make Loans to Debtor
in accordance with the provisions of Article II hereof.
"Commitment Amount" means, with respect to Bank's obligation to make
Loans to Debtor hereunder, in an aggregate amount not to exceed
$9,493,050.00.
"Corporate Guarantor" shall mean Finish Line Management Corp., a
Louisiana corporation, together with its successors and assigns.
"Debt" shall mean any and all amounts and/or liabilities owing from
time to time by Debtor to any Person, including the Bank, direct or
indirect, liquidated or contingent, now existing or hereafter arising,
including without limitation (i) indebtedness for borrowed money; (ii)
unfunded portions of commitments for money to be borrowed; (iii) the
amounts of all standby and commercial letters of credit and bankers
acceptances, matured or unmatured, issued on behalf of Debtor; (iv)
guaranties of the obligations of any other Person, whether direct or
indirect, whether by agreement to purchase the indebtedness of any
other Person or by agreement for the furnishing of funds to any other
Person through the purchase or lease of goods, supplies or services
(or by way of stock purchase, capital contribution, advance or loan)
for the purpose of paying or discharging the indebtedness of any other
Person, or otherwise; (v) the present value of all obligations for the
payment of rent or hire of property of any kind (real or personal)
under leases or lease agreements required to be capitalized under
GAAP, and (vi) trade payables and operating leases incurred in the
ordinary course of business or otherwise.
"Debtor" shall mean Fair Grounds Corporation, a Louisiana corporation,
together with its successors and assigns.
96
<PAGE> 5
"Default" shall mean an event which with the giving of notice or the
lapse of time (or both) would constitute an Event of Default
hereunder.
"Disbursement Agreement" shall mean that certain Disbursement
Agreement dated as of July 17, 1995, by and among Debtor, Bank and
Video Services, Inc., as the same was approved by the Louisiana
Department of Public Safety and Corrections by letter from James
Dixon, Chief Attorney for the Louisiana Department of Public Safety
and Corrections, to the Bank, Debtor and Video Services, Inc. dated
July 24, 1995, as the same may be amended or modified from time to
time.
"Encumbrances" shall mean individually, collectively and
interchangeably any and all presently existing and/or future
mortgages, liens, privileges, servitudes, rights-of-way and other
contractual and/or statutory security interests and rights of every
nature and kind that, now and/or in the future may affect the property
of Debtor or Guarantors or any part or parts thereof.
"Environmental Laws" shall mean the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42
U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 49 U.S.C. Section
6901, et seq., the Louisiana Environmental Affairs Act, La. R.S.
30:2001 et seq., or other applicable Governmental Requirements or
regulations adopted pursuant to any of the foregoing.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Event of Default" shall mean individually, collectively and
interchangeably any of the Events of Default set forth below in
Section 8.1 hereof.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION.
"Fair Grounds Mortgage" shall collectively refer to (i) that certain
Collateral Mortgage Note made by Debtor dated November 30, 1995,
payable to the order of bearer on demand in the principal sum of
$17,500,000.00, (ii) that certain Collateral Mortgage executed by
Debtor on November 30, 1995, and recorded under Mortgage Office
Instrument No. 341417, Notarial Archives No. 95-52709 of
97
<PAGE> 6
the records of Orleans Parish, Louisiana, affecting the real estate
comprising the New Orleans Fair Grounds Race Course, New Orleans,
Louisiana, all as more fully described therein, (iii) that certain
Pledge of Collateral Mortgage Note by Debtor in favor of Bank dated
November 30, 1995, whereby the foregoing Collateral Mortgage Note made
by Debtor, as secured by the Collateral Mortgage executed by the
Debtor, was pledged to Bank as security for the Indebtedness of
Debtor, (iv) all UCC-1 Financing Statements executed by Debtor as
debtor in favor of Bank as secured party related to the property
affected by the Collateral Mortgage, including without limitation that
UCC-1 Financing Statement recorded under File No. 36-100975 of the
records of Orleans Parish, Louisiana on December 1, 1995, and (v) all
amendments or modifications to any of the foregoing documents.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION.
"GAAP" shall mean, at any time, accounting principles generally
accepted in the United States as then in effect.
"Governmental Requirement" shall mean any applicable state, federal or
local law, statute, ordinance, code, rule, regulation, order or
decree.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION.
"Indebtedness" shall mean, at any time, the indebtedness of Debtor
evidenced by the Note issued pursuant to this Agreement, in principal,
interest, costs, expenses and reasonable attorneys' fees and all other
fees and charges, together with all commitment fees and other
indebtedness and costs and expenses for which Debtor is responsible
under this Agreement or under any of the Related Documents. In
addition, the word "Indebtedness" also includes, as to Debtor, any
and all other loans, extensions of credit, obligations, debts and
liabilities, plus interest thereon, of Debtor that may now and in the
future be owed to or incurred in favor of Bank, as well as all claims
by Bank against Debtor, whether existing now or later; whether they
are voluntary or involuntary, due or to become due, direct or indirect
or by way of assignment, determined or undetermined, absolute or
contingent, liquidated or unliquidated; whether Debtor may be liable
individually or jointly with others, of every nature and kind
whatsoever, in principal, interest, costs, expenses and
98
<PAGE> 7
reasonable attorneys' fees and all other fees and charges; whether
Debtor may be obligated as principal obligor, guarantor, surety,
accommodation party or otherwise.
"Individual Guarantor" shall mean Marie G. Krantz, together with her
heirs, successors and assigns.
"Jefferson Downs Mortgage" shall collectively refer to (i) that
certain Collateral Mortgage Note made by Individual Guarantor on April
12, 1995, payable to the order of bearer on demand in the principal
sum of $17,500,000.00, (ii) that certain Collateral Mortgage executed
by Individual Guarantor on April 12, 1995, and recorded in MOB 3693,
folio 495 and in COB 2916, folio 307 of the records of Jefferson
Parish, Louisiana, as security for the foregoing Collateral Mortgage
Note, affecting the real estate comprising the former Jefferson Downs
Race Course, Kenner, Louisiana, all as more fully described therein,
(iii) that certain Pledge of Collateral Mortgage Note by Individual
Guarantor in favor of Bank dated April 12, 1995, whereby the foregoing
Collateral Note made by Individual Guarantor, as secured by the
Collateral Mortgage executed by Individual Guarantor, was pledged to
Bank as security for the Indebtedness of Debtor, (iv) all UCC-1
Financing Statements executed by Individual Guarantor as debtor in
favor of Bank as secured party related to the property affected by the
Collateral Mortgage, including without limitation that UCC-1 Financing
Statement recorded under File No. 36-96322 of the records of Orleans
Parish, Louisiana on July 19, 1995, and (v) all amendments or
modifications to any of the foregoing documents.
"John Masoni Trust" shall mean that certain trust established pursuant
to that certain Third Restatement of John G. Masoni Trust Agreement
dated as of April 19, 1991, by and between John G. Masoni and John G.
Masoni, Trustee, as heretofore amended by that certain Modification of
Third Restatement of John G. Masoni Trust Agreement dated August 7,
1991, and as further amended by that certain Modification of Third
Restatement of John G. Masoni Trust Agreement dated October 24, 1992.
"Loan Documents" shall mean this Agreement, the Note, the Collateral
Documents and any other Related Documents.
"Loans" shall mean loans made by Bank under the Note to Debtor in
accordance with and subject to the terms of the Commitment.
99
<PAGE> 8
"Lockbox Account" shall have the meaning ascribed to such term in the
Disbursement Agreement.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION.
"Mortgages" shall mean, collectively, the Fair Grounds Mortgage and
the Jefferson Downs Mortgage.
"Note" shall mean, collectively, that certain promissory note dated of
even date herewith made by Debtor payable to the order of Bank in
principal amount of $9,493,050.00, as said Note is more fully
described in Section 2.2 hereof, together with any and all extensions,
renewals, modifications and substitutions therefor.
"Permitted Encumbrances" shall have the meaning ascribed to such term
in Section 7.4 hereof.
"Person" shall mean an individual or a corporation, partnership,
trust, joint venture, incorporated or unincorporated association,
joint stock company, government, or an agency or political subdivision
thereof, or other entity of any kind.
"Related Documents" shall mean and include individually, collectively,
interchangeably and without limitation all promissory notes, credit
agreements, loan agreements, guaranties, security agreements,
mortgages, collateral mortgages, deeds of trust, and all other
instruments and documents, whether now or hereafter existing, executed
in connection with the Indebtedness.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION.
"Stock Pledges" shall mean, collectively, (i) that certain Pledge
Agreement dated as of July 17, 1995, by and between Richard Katcher,
as Trustee of the John Masoni Trust, and Bank (with Marie G. Krantz,
Voting Trustee, and Bryan G. Krantz as intervenors), as amended by
First Amendment to Pledge Agreement dated November 7, 1995, by and
between Richard Katcher, as Trustee of the John Masoni Trust, and Bank
(with Marie G. Krantz, Voting Trustee, and Bryan Krantz as
intervenors), (ii) that certain Pledge Agreement dated as of July 17,
1995, by and between Marie G. Krantz, Voting Trustee, and Bank (with
Richard Katcher, as Trustee of the John Masoni Trust, and Bryan G.
Krantz as intervenors), (iii) that certain Pledge Agreement dated as
of July 17, 1995, by
100
<PAGE> 9
and among Bryan G. Krantz, Marie G. Krantz, Voting Trustee, and Bank
(with Richard Katcher, as Trustee of the John Masoni Trust, as
intervenor), (iv) that certain Pledge Agreement dated as of July 17,
1995, by and among Bryan G. Krantz, Vickie Krantz and Bank, (v) that
certain Pledge Agreement dated as of July 17, 1995, by and between
Marie G. Krantz and Bank, (vi) that certain Pledge Agreement dated as
of July 17, 1995, by and between Jefferson Downs Corporation and Bank,
and (vii) any and all amendments and modifications of any of the
foregoing instruments.
"Subsidiaries" shall mean at any date with respect to any Person all
the corporations of which such Person at such date, directly or
indirectly, owns 50% or more of the outstanding capital stock
(excluding directors' qualifying shares), and "Subsidiary" means any
one of the Subsidiaries.
"Tax Relief" shall mean all of Debtor's rights to those certain
benefits arising pursuant to the video poker franchise fee exemption
authorized by La. R.S. 33:4862.21, for which Debtor has been qualified
by letter dated September 30, 1994, from Melinda Schwegman, Lieutenant
Governor of the State of Louisiana and Chairperson of the Interim
Emergency Board of the State of Louisiana, addressed to Senator B.B.
Rayburn, Chairman of the Joint Legislative Committee on the Budget,
and by resolution of the Joint Legislative Committee on the Budget
dated March 2, 1995, and all additional rights of Debtor and of Bank
with respect thereto arising pursuant to the Disbursement Agreement.
"Termination Date" shall mean the earlier to occur of (i) October 31,
1996, or (ii) the date of termination of the Commitment pursuant to
Article VII hereof.
"UCC" shall mean the Uniform Commercial Code, Commercial Laws-Secured
Transactions (La. R.S. 10-9-101 et seq.) in the State of Louisiana, as
amended from time to time, provided that if by reason of mandatory
provisions of law, the perfection or effect of perfection or
non-perfection of the the Bank's Encumbrances against the Collateral
is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of Louisiana "UCC" means the Uniform
Commercial Code as in effect in such other jurisdiction.
Section 1.2. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance
101
<PAGE> 10
with GAAP, and all financial data submitted pursuant to this Agreement shall be
prepared in accordance with GAAP.
ARTICLE II
THE LOANS
Section 2.1. The Commitment. Subject to the terms and
conditions of this Agreement, Bank agrees to extend credit to Debtor during the
period from the date hereof until the Termination Date by making loans
("Loans") to Debtor from time to time; provided, however, that at no time shall
Bank be obligated to make any Loan requested by Debtor pursuant to the terms
hereof, to the extent that the amount of such requested Loan, when added to
aggregate principal amount of all prior Loans made by Bank to Debtor under this
Agreement, would exceed the Commitment Amount. Debtor hereby recognizes and
agrees with Bank that the Commitment is not a revolving credit facility, and
that Bank's Commitment shall be only to make Loans up to an aggregate principal
amount of $9,493,050.00.
Section 2.2. The Note. Debtor's obligation to repay the
Loans made by Bank shall be evidenced by a multiple advance promissory note of
Debtor (said promissory note of Debtor being herein referred to as the "Note")
payable to the order of Bank in the principal sum of $9,493,050.00, dated the
date of this Agreement, with a final maturity of October 31, 1996. The Note
shall bear interest at a fixed rate of nine percent (9.0%) per annum. Interest
on the Note shall be payable on the seventeenth day of each month commencing
January 17, 1995, and continuing on the same day of each month thereafter until
the Note is paid in full. The Note shall also be payable in principal
installments of $52,740.00 per month commencing January 17, 1995, and
continuing on the 17th day of each month thereafter until the Termination Date,
at which time all principal and accrued interest outstanding under the Note
shall be due and payable in full. Simple interest under the Note will be
assessed utilizing a 360-day daily interest factor over the number of days in
an actual calendar year (365 days or 366 days in a leap year).
Section 2.3. Manner and Notice of Borrowing Under the
Commitment. Requests for Loan advances under the Commitment may be made by
Debtor in person, in writing or through telephone calls to Bank and such
requests shall be fully authorized by Debtor if made by any one of the persons
designated by Debtor in writing to Bank. Bank shall have the right, but not
the obligation, to verify any telephone requests by calling the person who made
the request at the telephone number designated by Debtor in writing to Bank.
Requests for advances must be received by not later than 11:00 a.m. (Central
Time) on the third Business Day prior to the date of the
102
<PAGE> 11
proposed advance. Not later than 2:00 p.m. (Central Time) on the third
Business Day following Bank's receipt of such request for a Loan advance,
assuming all conditions of this Agreement for such advance has been satisfied,
Bank will make such advance. The amount thereof shall be credited by Bank to
the checking account maintained in the name of Debtor with Bank and the credit
advice resulting therefrom shall be mailed to Debtor. Bank's copy of such
credit advice indicating such deposit to the account of Debtor shall be deemed
conclusive evidence of Debtor's indebtedness to Bank in connection with such
borrowing. The aggregate outstanding amount of principal and interest due by
Debtor at any given time under the Commitment shall be and constitute the
indebtedness of Debtor to Bank under the Note.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION.
Section 2.5. Origination Fee. Debtor has paid Bank an
origination fee in the amount of $15,000.00 for its Commitment hereunder, the
prior receipt of which is hereby acknowledged by Bank.
Section 2.6. Use of Proceeds. Debtor's initial Loan
hereunder shall be used to refinance all amounts previously advanced to Debtor
in connection with its construction activities at the Fair Grounds Race Course
in New Orleans, Louisiana, including all amounts due under Debtor's promissory
notes dated July 17, 1995, November 1, 1995 and November 30, 1995, in the
respective principal amounts of $2,150,000.00, $4,000,000.00 and $1,000,000.00,
each payable to the order of Bank. All subsequent proceeds of the Loans shall
also be used by Debtor to finance the payment of obligations related to the
construction work done on the grandstand and related facilities at the Fair
Grounds Race Course in New Orleans, Louisiana (or to reimburse Debtor for the
payment of such expenses). Bank shall not be obligated to honor any request
for a Loan advance until Debtor provides Bank with a written explanation of
intended use of the proceeds of each such Loan request, and Debtor shall
thereafter, upon written request of Bank, provide Bank with evidence
establishing Debtor's actual use of such Loan proceeds.
ARTICLE III
SECURITY FOR THE INDEBTEDNESS
Section 3.1. Security. The Indebtedness of Debtor shall be
secured by the following:
(a) the Security Agreements;
103
<PAGE> 12
(b) the Mortgages;
(c) the Stock Pledges; and
(d) the Guaranties of the Corporate Guarantor and
of the Individual Guarantor.
Section 3.2. Collateral Release Agreements. Bank hereby
agrees that upon the reduction of the principal balance due under the Note to
an amount which equals not more than 77% of the fair market value of the liquid
collateral pledged to Bank pursuant to that certain Investment Property
Security Agreement by Individual Guarantor in favor of Bank dated November 7,
1995 (the fair market value of such collateral being determined from time to
time by Bank in its sole discretion), Bank will release and cause to be
cancelled from the public records of Jefferson Parish, Louisiana the Jefferson
Downs Mortgage. Thereafter, Bank shall have no further obligations to make
Loan advances to Debtor unless, after giving effect to such Loan advance, the
value of such collateral would continue to equal or exceed at least 77% of the
total principal balance of the Note. The value of such collateral at the date
of this Agreement is approximately $5,400,000.00. The Bank reserves the right
to assess any appreciation or depreciation in the value of such collateral from
time to time in its sole discretion.
Alternatively, Bank also agrees that upon the reduction of the
principal balance due under the Note to $4,500,000.00, Bank shall release all
liquid collateral pledged to Bank by Individual Guarantor pursuant to that
certain Investment Property Security Agreement by Individual Guarantor in favor
of Bank dated November 7, 1995, except for liquid collateral with a value of
not less than $2,730,000.00 at such time (with Individual Guarantor to be
obligated thereafter to maintain pledged securities in the pledged account with
a fair market value of not less than $2,730,000.00 at all times), which
collateral to be retained in pledge shall be chosen at Bank's discretion based
upon the types of investments then subject to such agreement. Upon such
release of collateral, Bank shall have no further obligation to make Loan
advances hereunder.
The foregoing agreements to release are alternative, and both options
may not be selected by Debtor as long as any Indebtedness remains unpaid. In
addition, both agreements to release collateral contained in this Section are
expressly contingent upon there not being any Default or Event of Default
(except for any Default or Event of Default resulting from any adverse change
to the Tax Relief and the video poker operations of Debtor, Corporate Guarantor
or Jefferson Downs Corporation) in existence hereunder at the time either such
release is requested by Debtor or given by Bank.
104
<PAGE> 13
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1. Conditions Precedent to Loans. The obligation
of Bank to make any Loan hereunder shall be subject to the satisfaction and the
continued satisfaction of the following conditions precedent:
(a) Debtor shall have executed and delivered (or caused to have
been executed and delivered) to Bank this Agreement, the Collateral Documents,
the Note and all other documents required by this Agreement, and Corporate
Guarantor shall have delivered its Guaranty of the Indebtedness to Bank, all in
form and substance and in such number of counterparts as may be required by
Bank;
(b) The representations and warranties of Debtor, Corporate
Guarantor and Individual Guarantor as set forth herein, or any Loan Document
furnished to Bank in connection herewith, shall be and remain true and correct;
(c) Bank shall have received a favorable legal opinion of counsel
to Debtor and Guarantors and all grantors of each of the Collateral Documents,
in form, scope and substance satisfactory to Bank;
(d) Bank shall have received certified resolutions of Debtor,
Jefferson Downs Corporation and Corporate Guarantor authorizing the execution
of all documents contemplated hereby;
(e) Bank shall have received all fees, charges and expenses which
are due and payable as specified in this Agreement or any Related Document;
(f) No Default or Event of Default shall exist or shall result
from the making of a Loan;
(g) Debtor and Guarantors shall have each provided Bank with all
financial statements, reports and certificates required by this Agreement;
(h) Bank's counsel shall have reviewed the corporate structure and
articles of incorporation of Debtor and Corporate Guarantor, and shall be
satisfied with the validity, due authorization and enforceability of all Loan
Documents,
(i) There shall have been no change to the corporate structure of
Debtor and of Corporate Guarantor than from what has been previously
represented to Bank;
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(j) Bank shall have received evidence acceptable to Bank and its
counsel that its Encumbrances affecting the Collateral shall have a first
priority position, subject only to Permitted Encumbrances;
(k) Bank shall have received a mortgagee's policy of title
insurance in the amount of $9,493,050.00, insuring that the Fair Grounds
Mortgage creates a valid first priority Encumbrance on the property affected
thereby free and clear of all defects, and Encumbrances (except for Permitted
Encumbrances), naming the Bank as the insured thereunder, in the form of ALTA
Loan Policy-1970 or such other similar form acceptable to the Bank, containing
endorsements for lien protection, hazardous waste liens, REM, future advance,
survey, zoning and such other endorsements as the Bank may request, and the
Bank shall have also received evidence that all premiums with respect to such
policy has been paid;
(l) Bank shall have received an endorsement to its existing policy
of title insurance insuring the Jefferson Downs Mortgage which increases the
coverage of said policy to $9,000,000.00;
(m) Bank and the title insurance company issuing the title policy
on the Fair Grounds Mortgage shall have received a survey satisfactory to them
of the property affected by the Fair Grounds Mortgage certified to the Bank and
the title insurance company in a manner satisfactory to them, by an independent
professional licensed land surveyor satisfactory to the Bank and the title
insurance company, which shall be made in accordance with the minimum standards
established by the State of Louisiana for the preparation of land surveys and
for land surveyors, and shall include a survey certificate executed by the
surveyor;
(n) Bank shall have received original or certified true copies of
paid insurance policies in compliance with Section 6.6 hereof;
(o) Bank shall have received evidence satisfactory to it that any
and all Encumbrances (other than Permitted Encumbrances) affecting the
Collateral (including, without limitation, (1) the lien in favor of LTH
Construction, Inc. recorded in MIN 337354, NA # 95-48103, of the records of
Orleans Parish, Louisiana, (2) the lien in favor of Metropolitan Erection
Company, Inc. recorded in MIN 337579, NA # 95-48486 of the records of Orleans
Parish, Louisiana, and (3) the lien in favor of York Construction Co., Inc.,
recorded in MIN 337671, NA # 95-48583) have been released; and
(p) All filings, registrations and recordings shall have been
properly filed, registered or recorded in each recording jurisdiction in order
to create and perfect the Encumbrances in favor of the Bank with respect to the
property affected by the Collateral Documents.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
Debtor represents and warrants to Bank as follows:
Section 5.1. Corporate Matters; Power and Authority of
Parties to the Collateral Documents. Debtor and Corporate Guarantor are
corporations duly created, validly existing and in good standing under the laws
of the State of Louisiana, and are duly qualified and in good standing as
foreign corporations in all other jurisdictions where the failure to qualify
would have an adverse effect upon the ability of either of them to perform
their obligations under this Agreement and all Related Documents. Debtor has
the power to enter into this Agreement, issue the Note, mortgage and grant
security interests in the Collateral in the manner and for the purposes
contemplated by the Collateral Documents to which it is a party. Guarantors
have the power to enter into and to execute and deliver their respective
Guaranties and the other Collateral Documents to which they are a party. All
grantors of the Stock Pledges have the power to execute and deliver the Stock
Pledges to which each of them is a party and to perform their respective
obligations thereunder. Debtor and Corporate Guarantor each have the corporate
power to perform its obligations under all Loan Documents to which each of them
is a party. The making and performance by Debtor of the Loan Documents to
which it is a party, and the making and performance by Corporate Guarantor of
its Guaranty and any other Loan Documents to which it may be a party, have all
been duly authorized by all necessary corporate action (including all necessary
shareholder action), and do not and will not violate any provision of any law,
rule, regulation, order, writ, judgment, decree, determination or award
presently in effect having applicability to Debtor or Corporate Guarantor or
the articles of incorporation or by-laws of Debtor or of Corporate Guarantor.
The making and performance by Debtor and the Guarantors (and all other parties
to the Stock Pledges) of the Loan Documents to which they are a party do not
and will not result in a breach of or constitute a default under any indenture
or loan or credit agreement or any other agreement or instrument to which any
such Person is a party or by which any of them may be bound or affected, or
result in, or require, the creation or imposition of any mortgage, deed of
trust, pledge, lien, security interest or other charge or encumbrance of any
nature (other than as contemplated by the Loan Documents) upon or with respect
to any of the properties now owned or hereafter acquired by any of such
Persons, and none of such Persons is in default under or in violation of any
such order, writ, judgment, decree, determination, award, indenture, agreement
or instrument. Each of the Loan Documents to which Debtor, the Guarantors, and
the other grantors of the Stock Pledges are parties constitutes legal, valid
and binding obligations of each such
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Person in the capacities indicated in such Loan Documents, enforceable in
accordance with its terms.
Section 5.2. Financial Statements. All financial statements
of Debtor and of the Corporate Guarantor, copies of which have been delivered
to Bank, are complete and correct and fairly present the financial condition of
such Persons as of the date or dates thereof. Each of said financial
statements were prepared in conformity with GAAP applied on a basis consistent
with the preceding year. No Material Adverse Change has occurred since said
dates in the financial position or in the results of operations of Debtor and
of Corporate Guarantor in their businesses taken as a whole. The financial
statement of the Individual Guarantor at the date thereof, copies of which have
been delivered to Bank, fairly present the financial position of Individual
Guarantor at the date thereof, and no Material Adverse Change has occurred
since said date in the financial position of Individual Guarantor.
Section 5.3. Title to Collateral. Debtor, Guarantors and the
other parties to the Collateral Documents have good and marketable title to the
Collateral, free and clear of all Encumbrances other than Permitted
Encumbrances. The Collateral Documents constitute legal, valid and perfected
first Encumbrances on the property interests covered thereby, subject only to
Permitted Encumbrances.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION.
Section 5.5. Approvals. No authorization, consent, approval
or formal exemption of, nor any filing or registration with, any governmental
body or regulatory authority (federal, state or local) (except which may have
previously been obtained), and no vote, consent or approval of the shareholders
of Debtor or Corporate Guarantor is or will be required in connection with the
execution and delivery by Debtor, Guarantors and of the other parties to the
Collateral Documents of the Loan Documents or the performance by such Persons
of their respective obligations hereunder and under the other Loan Documents.
Section 5.6. Licenses. Debtor and Corporate Guarantor each
possess adequate franchises, licenses and permits to own its properties and to
carry on its business as presently conducted.
Section 5.7. Adverse Agreements. None of the Debtor,
Guarantors, nor the other parties to the Collateral Documents is a party to any
agreement or instrument, or subject to any charter or other restriction,
materially and adversely affecting the respective business, properties, assets,
or operations of any of them or their condition (financial or otherwise), and
none of them is in default in the performance, observance or fulfillment of any
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of the obligations, covenants or conditions contained in any agreement or
instrument to which any of them is a party, which default would constitute a
Material Adverse Change to any of them.
Section 5.8. Default or Event of Default. No Default or
Event of Default hereunder has occurred or is continuing or will occur as a
result of the giving effect hereto.
Section 5.9. Employee Benefit Plans. Each employee benefit
plan as to which Debtor or Corporate Guarantor may have any liability complies
in all material respects with all applicable requirements of law and
regulations, and (i) no Reportable Event (as defined in ERISA) has occurred
with respect to any such plan, (ii) Debtor and Corporate Guarantor have not
withdrawn from any such plan or initiated steps to do so, and (iii) no steps
have been taken to terminate any such plan.
Section 5.10. Investment Company Act. Neither Debtor nor
Corporate Guarantor is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
Section 5.11. Public Utility Holding Company Act. Neither
Debtor nor Corporate Guarantor is a "holding company," or a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
Section 5.12. Regulations G, T and U. Neither Debtor nor
Corporate Guarantor is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing
or carrying margin stock (within the meaning of Regulations G, T and U of the
Board of Governors of the Federal Reserve System), and none of the proceeds of
the Loans will be used for the purpose of purchasing or carrying such margin
stock.
Section 5.13. Location of Debtor's Offices and Records. The
chief places of businesses of Debtor and of Corporate Guarantor, and the
offices where Debtor and Corporate Guarantor keep their respective records
concerning the Collateral owned by them, are as follows:
Debtor: 1751 Gentilly Blvd.
New Orleans, LA 70119
Corporate Guarantor: 1300 Sunset Blvd.
Kenner, LA 70065
Section 5.14. Information. All information heretofore or
contemporaneously herewith furnished by Debtor and Guarantors to Bank for the
purposes of or in connection with this Agreement or any transaction
contemplated hereby is, and all information hereafter furnished by or on behalf
of Debtor and Guarantors to Bank will be,
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true and accurate in every material respect on the date as of which such
information is dated or certified; and none of such information is or will be
incomplete by omitting to state any material fact necessary to make such
information not misleading.
Section 5.15. Environmental Matters. Except as may have been
disclosed in writing to Bank prior to the date hereof, no properties of any of
the Debtor or Guarantors (including specifically, but without limitation, the
property affected by the Mortgages) has ever been, and ever will be so long as
this Agreement remains in effect, used for the generation, manufacture,
storage, treatment, disposal, release or threatened release of any hazardous
waste or substance, as those terms are defined in the Environmental Laws,
except in compliance with such Environmental Laws. Except as may have been
disclosed in writing by Debtor or the Guarantors to Bank, Debtor represents and
warrants that it and each of the Guarantors is in compliance with all
Environmental Laws affecting them and their properties.
Section 5.16. Status of First Mortgage on Fair Grounds Race
Course. The principal balance due on the indebtedness of Debtor secured by the
first mortgage by Debtor affecting the property covered by the Fair Grounds
Mortgage (which is more fully described in Section 7.4(e) hereof) does not
exceed $2,000,000.00 as of the date hereof, and the amount of accrued interest
on such debt does not exceed $30,000.00 as of the date hereof. No default
exists under such indebtedness or mortgage as of the date hereof.
Section 5.17. Survival of Representations and Warranties.
Debtor understands and agrees that Bank is relying upon the above
representations and warranties in making the above referenced loans to Debtor.
Debtor further agrees that the foregoing representations and warranties shall
be continuing in nature and shall remain in full force and effect until such
time as the Indebtedness shall be paid in full, or until this Agreement shall
be terminated, whichever is the last to occur.
ARTICLE VI
AFFIRMATIVE COVENANTS
In addition to the covenants contained in the Collateral
Documents, which covenants are hereby ratified and confirmed by Debtor, Debtor
covenants and agrees with Bank as follows:
Section 6.1. Financial Statements. Debtor will furnish or
cause to be furnished to Bank:
(a) within twenty (20) days following the end of each
calendar month and within forty-
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five (45) days following the end of each calendar
quarter of Debtor, financial statements consisting of
the balance sheets of Debtor and of Corporate
Guarantor as of the end of such month or quarter, and
statements of income and statements of cash flow of
Debtor and of Corporate Guarantor for such month or
quarter and for the fiscal year through such month or
quarter, plus, in the case of quarterly reports, the
10-Q statements of Debtor, all certified by the chief
financial officers of Debtor and of Corporate
Guarantor, respectively, and which 10-Q statements
shall have been prepared in accordance with GAAP
consistently applied,
(b) as soon as available and in any event within one
hundred twenty (120) days following the close of
fiscal years of Debtor and of Corporate Guarantor,
audited financial statements of Debtor and of
Corporate Guarantor consisting of a balance sheet as
at the end of such fiscal year and statements of
income, and statement of cash flow for such fiscal
year, setting forth in each case in comparative form
the corresponding figures for the preceding fiscal
year, certified by independent public accountants of
recognized standing acceptable to Bank,
(c) within twenty (20) days after the end of each
calendar month, a certificate signed by the chief
financial officer of Debtor, certifying that he or
she has reviewed this Agreement and to the best of
his or her knowledge no Default or Event of Default
has occurred, or if such Default or Event of Default
has occurred, specifying the nature and extent
thereof,
CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE
COMMISSION.
(e) such other necessary financial information concerning
the Debtor, the Guarantors or the parties to the
Stock
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Pledge as Bank may reasonably request
from time to time.
Section 6.2. Notice of Default; Litigation; ERISA Matters.
Debtor will give written notice to Bank as soon as reasonably possible and in
no event more than five (5) Business Days of (i) the occurrence of any Default
or Event of Default hereunder of which it has knowledge or should have
knowledge, (ii) the filing of any actions, suits or proceedings against any of
the Debtor, Guarantors or other parties to the Collateral Documents in any
court or before any governmental authority or tribunal of which they have
knowledge or should have knowledge which could cause a Material Adverse Change
with respect to any of such Person, (iii) the occurrence of a reportable event
under, or the institution of steps by either Debtor or Corporate Guarantor to
withdraw from, or the institution of any steps to terminate, any employee
benefit plan as to which Debtor or Corporate Guarantor may have liability, or
(iv) the occurrence of any other action, event or condition of any nature of
which they have knowledge which may cause, or lead to, or result in, any
Material Adverse Change.
Section 6.3. Maintenance of Corporate Existence, Properties
and Liens. Each of Debtor and Corporate Guarantor will (i) continue to engage
in the business presently being operated by it; (ii) maintain its corporate
existence and good standing in each jurisdiction in which it is required to be
qualified; (iii) keep and maintain all franchises, licenses and properties
necessary in the conduct of its business in good order and condition; (iv) duly
observe and conform to all material requirements of any governmental
authorities relative to the conduct of its business or the operation of its
properties or assets; (v) maintain in favor of Bank a first perfected lien and
security interest in the Collateral, subject only to other Permitted
Encumbrances; and (vi) cause the Guaranties to be maintained in full force and
effect (subject to the terms of the Guaranty of the Individual Guarantor which
allows for the termination of the Guaranty of the Individual Guarantor on March
31, 1996, if no Event of Default then exists and is continuing).
Section 6.4. Collateral Schedules and Locations. As often as
Bank shall reasonably require, Debtor shall deliver to Bank schedules of such
Collateral, including such information as Bank may require, including without
limitation names and addresses of account debtors and agings of accounts
receivable and the location of all inventory and equipment owned by Debtor.
Such information shall be submitted for Debtor and for or on behalf of other
parties granting any of the Collateral Documents.
Section 6.5. Taxes. Debtor shall pay or cause to be paid
when due (and shall cause the Guarantors to pay or cause to be paid when due),
all taxes, local and special assessments, and governmental and other charges of
every type and description, that
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may from time to time be imposed, assessed and levied against any of them and
their properties. Debtor further agrees to furnish Bank with evidence that
such taxes, assessments, and governmental and other charges due by Debtor and
Guarantors have been paid in full and in a timely manner. Debtor and
Guarantors may withhold any such payment or elect to contest any lien if Debtor
or Guarantors are in good faith conducting an appropriate proceeding to contest
the obligation to pay and so long as Bank's interest in the Collateral is not
jeopardized.
Section 6.6. Required Insurance. Debtor and Guarantors shall
maintain insurance with insurance companies in such amounts and against such
risks as is usually carried by owners of similar businesses and properties in
the same general areas in which each of them operates, and as shall be
reasonably satisfactory to Bank. With respect to the property affected by the
Mortgages, Debtor shall maintain (and shall cause the Individual Guarantor to
maintain) the types of insurance coverages required by the Mortgages, and
Debtor shall provide Bank (and shall cause the Individual Guarantor to provide
Bank) with all evidence of such insurance coverages as required by the
Mortgages. Debtor shall also maintain (and shall cause Corporate Guarantor and
Jefferson Downs Corporation to maintain) all insurance coverages required by
the Security Agreements and provide Bank with evidence of such insurance as
required by the Security Agreements.
Debtor agrees to provide Bank (and to cause Individual
Guarantor, Corporate Guarantor and Jefferson Downs Corporation to provide to
Bank) with originals or certified copies of such policies of insurance. Debtor
agrees to promptly furnish Bank with copies of all renewal notices and, if
requested by Bank, with copies of receipts for paid premium (and Debtor shall
cause Individual Guarantor to do likewise). Debtor shall provide Bank with
originals or certified copies of all renewal or replacement policies of
insurance no later than fifteen (15) days before any such existing policy or
policies should expire. If the insurance policies required hereunder and
renewals thereof are held by persons other than Debtor, Debtor agrees to supply
original or certified copies of the same to Bank within the time periods
required above.
Section 6.7. Performance of Loan Documents. Debtor shall
duly and punctually pay and perform its obligations under the Note, under this
Agreement (as the same may at any time be amended or modified and in effect)
and under each of the Loan Documents to which it is a party, in accordance with
the terms hereof and thereof.
Section 6.8. Compliance with Environmental Laws. Debtor
shall comply with and shall cause Guarantors and all of its and their
employees, agents, invitees or sublessees to comply with all Environmental Laws
with respect to the disposal of industrial refuse or waste, and/or the
discharge, procession, treatment, removal,
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transportation, storage and handling of hazardous or toxic wastes and
substances, and pay immediately when due the cost of removal of any such waste
or substances from, and keep their properties (including specifically but
without limitation the properties affected by the Mortgages) free of any lien
imposed pursuant to any such laws, rules, regulations or orders.
Debtor shall give notice to Bank as soon as reasonably
possible and in no event more than five (5) days after it receives knowledge of
any compliance orders, environmental citations, or other notices from any
governmental entity relating to any environmental condition relating to its
properties or the properties of Guarantors or elsewhere for which it or any of
the Guarantors may have legal responsibility with a full description thereof;
Debtor agrees to take any and all reasonable steps, and to perform any and all
reasonable actions necessary or appropriate to promptly comply with any such
citations, compliance orders or Environmental Laws requiring Debtor or any such
Guarantor(s) to remove, treat or dispose of such hazardous materials, wastes or
conditions at the sole expense of Debtor or any such Guarantor(s), to provide
Bank with satisfactory evidence of such compliance, and to cause Guarantors to
do all of the foregoing in a similar manner; provided, however, that nothing
contained herein shall preclude Debtor and Guarantors from contesting any such
compliance orders or citations if such contest is made in good faith,
appropriate reserves are established for the payment for the cost of compliance
therewith, and Bank's security interest in any such property affected thereby
(or the priority thereof) is not jeopardized.
Regardless of whether any Event of Default hereunder shall
have occurred and be continuing, Debtor (i) releases and waives any present or
future claims against Bank for indemnity or contribution in the event Debtor or
either of the Guarantors becomes liable for remediation costs under and
Environmental Laws, and (ii) agrees to defend, indemnify and hold harmless Bank
from any and all liabilities (including strict liability), actions, demands,
penalties, losses, costs or expenses (including, without limitation, reasonable
attorneys fees and remedial costs), suits, administrative orders, agency demand
letters, costs of any settlement or judgment and claims of any and every kind
whatsoever which may now or in the future (whether before or after the
termination of this Agreement) be paid, incurred, or suffered by, or asserted
against Bank by any person or entity or governmental agency for, with respect
to, or as a direct or indirect result of, the presence on or under, or the
escape, seepage, leakage, spillage, discharge, emission, or release from or
onto the property of Debtor or either of the Guarantors of any hazardous
materials, wastes or conditions regulated by any Environmental Laws,
contamination resulting therefrom, or arising out of, or resulting from, the
environmental condition of such property or the applicability of any
Environmental Laws relating to hazardous materials (including, without
limitation, CERCLA or any so called federal, state or local "super fund" or
"super lien" laws,
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statute, ordinance, code, rule, regulation, order or decree) regardless of
whether or not caused by or within the control of Bank (the costs and/or
liabilities described in (i) and (ii) above being hereinafter referred to as
the "Liabilities"). The covenants and indemnities contained in this Section
6.8 shall survive termination of this Agreement.
Section 6.9. Further Assurances. Debtor will, at any time
and from time to time, execute and deliver (and cause Guarantors and the other
parties to the Collateral Documents to execute and deliver) such further
instruments and take such further action as may reasonably be requested by
Bank, in order to cure any defects in the execution and delivery of, or to
comply with or accomplish the covenants and agreements contained in this
Agreement or the Collateral Documents.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION.
Section 6.11. Operations. Debtor shall conduct its business
affairs in a reasonable and prudent manner and in compliance with all
applicable federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
compliance with all minimum funding standards and other requirements of ERISA
of 1974, and other laws applicable to any employee benefit plans which it may
have, and shall cause Guarantors to do likewise.
Section 6.12. Change of Location. Debtor shall, within ten
(10) Business Days prior to any such addition or change, notify Bank in writing
of any proposed changes in the location of its inventory and equipment and
business, or of any change in the place of business of the Guarantors.
Section 6.13. Employee Benefit Plans. So long as this
Agreement remains in effect, Debtor will maintain each employee benefit plan as
to which it may have any liability, in compliance with all applicable
requirements of law and regulations, and shall cause Corporate Guarantor to do
likewise.
Section 6.14. Field Audits; Other Information. Debtor shall
allow Bank's employees and agents access to their books and records and
properties during normal business hours to perform field audits from time to
time. Debtor will provide Bank with such other information as Bank may
reasonably request from time to time, and shall cause Guarantor to do likewise.
Section 6.15. First Mortgage. Debtor shall cause the
principal balance due on the debt secured by the first mortgage on the Fair
Grounds Race Course (described in Section 7.4(e) hereof) to remain at or below
$2,000,000.00, and shall keep current all payments due on such indebtedness in
accordance with the terms
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thereof, and shall provide Bank with evidence of such loan balance to Bank from
time to time upon request by Bank.
ARTICLE VII
NEGATIVE COVENANTS
In addition to the negative covenants contained in the
Collateral Documents executed by Debtor, which covenants are hereby ratified
and confirmed by Debtor, Debtor covenants and agrees with Bank as follows:
Section 7.1. Limitations on Fundamental Changes. Debtor
shall not change the nature of its business, form any subsidiary or enter into
any transaction of merger or consolidation without the prior written consent of
the Bank, nor shall it liquidate or dissolve itself.
Section 7.2. Disposition of Assets. Debtor shall not convey,
sell, lease, assign, transfer or otherwise dispose of, any of its property,
business or assets whether now owned or hereafter acquired except property
disposed of in the ordinary course of business, provided that, if such property
is to be replaced, the net cash proceeds of each such transaction are applied
to obtain a replacement item or items within 30 days of the disposition
thereof. Debtor shall not assign, encumber or alienate in any way (nor shall
it fail to maintain in full force and effect) any licenses, permits and other
governmental approvals (including specifically, but without limitation,
off-track betting licenses, video poker licenses, other gaming licenses and
racing licenses) of any kind or nature which relate to the operation of its
business.
Section 7.3. Construction Activities. Debtor shall not
resume any construction activities related to the reconstruction of the Fair
Ground Race Course Grandstand and related facilities (other than activities
necessary to maintain the existing facilities to prevent deterioration) without
first providing Bank with satisfactory evidence of its source of funding for
any such construction activities.
Section 7.4. Encumbrances. Debtor shall not create, incur,
assume or permit to exist any Encumbrances on any of its property now owned or
hereafter acquired, nor shall Debtor allow Guarantors or any other parties to
the Stock Pledges to create, incur, assume or permit to exist any Encumbrances
affecting the Collateral, except for the following (hereinafter referred to as
the "Permitted Encumbrances"):
(a) Encumbrances for taxes, assessments, or other
governmental charges not yet due or which are being
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contested in good faith by appropriate action
promptly initiated and diligently conducted, if such
reserves as shall be required by GAAP shall have been
made therefor.
(b) Encumbrances of landlords, vendors, carriers,
warehousemen, mechanics, laborers and materialmen
arising by law in the ordinary course of business for
sums either not yet due or being contested in good
faith by appropriate action promptly initiated and
diligently conducted, if such reserves as shall be
required by GAAP shall have been made therefor.
(c) Inchoate liens arising under ERISA to secure the
contingent liabilities, if any, permitted by this
Agreement.
(d) The pledge of the Collateral and any other liens in
favor of the Bank to secure the Indebtedness of the
Debtor to the Bank.
(e) The existing collateral mortgage affecting the
property affected by the Fair Grounds Mortgage
recorded at MOB 2431, folio 320, NA #513277 of the
records of Orleans Parish, Louisiana, as amended by
that certain amendment thereto recorded at MOB 2581A,
folio 188, NA # 732108 of the records of Orleans
Parish, Louisiana (to the extent and only to the
extent that Bank has received a representation from
the holder of the note secured by such mortgage that
the principal balance thereunder does not exceed the
sum of $2,000,000.00, and an agreement from such
holder of the note secured by that mortgage that no
additional advances will be made thereunder).
(f) The existing mortgage affecting the property affected
by the Jefferson Downs Mortgage recorded at MOB 3508,
folio 57 of the records of Jefferson Parish,
Louisiana (to the extent and only to the extent that
such mortgage remains fully subordinate to the
Jefferson Downs Mortgage).
Section 7.5. Other Agreements. Debtor will not enter into
any agreement containing any provision which would be violated or breached by
the performance of its obligations hereunder or under any instrument or
document delivered or to be delivered by it hereunder or in connection
herewith.
Section 7.6. Transactions with Affiliates. Debtor will not
enter into any agreement with any affiliated Person or entity except to the
extent that such agreements are commercially
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reasonable which provide for terms which would normally be obtainable in an
arm's length transaction with an unrelated third party.
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION.
ARTICLE VIII
EVENTS OF DEFAULT
Section 8.1. Events of Default. The occurrence of any one or
more of the following shall constitute an Event of Default:
Default under the Indebtedness. Should Debtor default in the
payment of principal or interest under the Note or any other part of the
Indebtedness and such default shall not be cured within ten days of the
occurrence thereof.
Default under this Agreement. Should Debtor violate or fail
to comply fully with any of the terms and conditions of, or default under, this
Agreement, or should Debtor or any other party to the Collateral Documents fail
to comply fully with any of the terms and conditions of this Agreement which
pertain to such Person and such default not be cured within ten days of the
occurrence thereof (provided, however, that no cure period shall be available
for a default in the obligation to maintain insurance coverages required
hereby).
Default Under Other Agreements. Should any event of default
occur or exist under any of the Related Documents or should Debtor, either
Guarantor or any other party to the Collateral Documents violate, or fail to
comply fully with, any terms and conditions of any of the Collateral Documents
or Related Documents, or should any Guarantor violate, or fail to comply fully
with, any terms and conditions of the Guaranties or any of their respective
obligations contained in the Related Documents and such default not be cured
within ten days of the occurrence thereof (provided, however, that no cure
period shall be available for a default in the obligation to maintain insurance
coverages required thereby).
Other Defaults in Favor of Bank. Should Debtor or either
Guarantor default under any other loan, extension of credit, security
agreement, or other obligation in favor of Bank and fail to cure same in
accordance with any applicable cure periods.
Default in Favor of Third Parties. Should Debtor, either
Guarantor or any other party to the Collateral Documents default under any
loan, extension of credit, security agreement, purchase or sales agreement, or
any other agreement, in favor of any other
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creditor or person that may materially affect any of the Collateral, or such
Person's ability to perform its obligations under this Agreement or any Related
Document, and fail to cure same in accordance with any applicable cure periods.
Insolvency. The following occurrences, in addition to the
failure or suspension of Debtor or Corporate Guarantor, shall constitute an
Event of Default hereunder:
(a) Filing by Debtor, either of the Guarantors, or any of the
other parties to the Collateral Documents of a voluntary
petition or any answer seeking reorganization, arrangement,
readjustment of its debts or for any other relief under any
applicable bankruptcy act or law, or under any other
insolvency act or law, now or hereafter existing, or any
action by Debtor, either of the Guarantors, or any of the
other parties to the Collateral Documents consenting to,
approving of, or acquiescing in, any such petition or
proceeding; the application by Debtor, either of the
Guarantors, or any of the other parties to the Collateral
Documents for, or the appointment by consent or acquiescence
of, a receiver or trustee of Debtor, either of the Guarantors,
or any of the other parties to the Collateral Documents for
all or a substantial part of the property of any such Person;
the making by Debtor, either of the Guarantors, or any of the
other parties to the Collateral Documents, of an assignment
for the benefit of creditors; the inability of Debtor, either
of the Guarantors, or any of the other parties to the
Collateral Documents or the admission by Debtor, either of the
Guarantors, or any of the other parties to the Collateral
Documents in writing, of its or their inability to pay its or
their debts as they mature (the term "acquiescence" means the
failure to file a petition or motion in opposition to such
petition or proceeding or to vacate or discharge any order,
judgment or decree providing for such appointment within sixty
(60) days after the appointment of a receiver or trustee); or
(b) Filing of an involuntary petition against Debtor, either of
the Guarantors, or any of the other parties to the Collateral
Documents in bankruptcy or seeking reorganization,
arrangement, readjustment of its debts or for any other relief
under any applicable bankruptcy act or law, or under any other
insolvency act or law, now or hereafter existing and such
petition remains
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undismissed or unanswered for a period of sixty (60) days from
such filing; or the insolvency appointment of a receiver or
trustee of Debtor, either of the Guarantors, or any of the
other parties to the Collateral Documents for all or a
substantial part of the property of any such Person and such
appointment remains unvacated or unopposed for a period of
sixty (60) days from such appointment, execution or similar
process against any substantial part of the property of
Debtor, either of the Guarantors, or the John Masoni Trust
and such warrant remains unbonded or undismissed for a period
of sixty (60) days from notice to Debtor, either of the
Guarantors, or any of the other parties to the Collateral
Documents of its issuance.
Dissolution Proceedings. Should proceedings for the
dissolution or appointment of a liquidator of Debtor, Corporate Guarantor,
Jefferson Downs Corporation or the John Masoni Trust be commenced.
Death or Incapacity of the Individual Guarantor. Should
Individual Guarantor or Bryan G. Krantz die or become incapacitated.
False Statements. Should any representation or warranty of
any of the Debtor made in connection with the Indebtedness (or by either
Guarantor or any of the other parties to the Collateral Documents in any of the
Loan Documents) prove to be incorrect or misleading in any material respect
when made or reaffirmed.
Material Adverse Change. Should a Material Adverse Change
occur at any time and not be cured within ten days of the occurrence thereof.
Upon the occurrence of an Event of Default, all Commitments of
Bank under this Agreement will terminate immediately (including any obligation
to make any further Loans), and, at Bank's option, the Note and all
Indebtedness of Debtor will become immediately due and payable, all without
notice of any kind to Debtor, except that in the case of type described in the
"Insolvency" subsection above, such acceleration shall be automatic and not
optional.
Upon the occurrence of an Event of Default, Bank may proceed
to realize upon the Collateral under the terms of the Collateral Documents and
exercise any other rights which it has by law or contract (which rights shall
be cumulative in nature), including without limitation, the right to apply any
funds then or thereafter on deposit in the Lockbox Account and in the Cash
Collateral Account towards payment of the Indebtedness.
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Section 8.2. Waivers by Debtor. Except as otherwise provided
for in this Agreement and by applicable law, Debtor waives (i) presentment,
demand and protest and notice of presentment, dishonor, notice of intent to
accelerate, notice of acceleration, protest, default, nonpayment, maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, accounts, contract rights, documents, instruments, chattel paper and
guaranties at any time held by Bank on which Debtor may in any way be liable
and hereby ratify and confirm whatever Bank may do in this regard, (ii) all
rights to notice and a hearing prior to Bank's taking possession or control of,
or to Bank's replevy, attachment or levy upon, the Collateral or any bond or
security which might be required by any court prior to allowing Bank to
exercise any of its remedies, and (iii) the benefit of all valuation, appraisal
and exemption laws. Debtor acknowledges that it has been advised by counsel of
their choice with respect to this Agreement, the other Collateral Documents,
and the transactions evidenced by this Agreement and other Collateral
Documents.
ARTICLE IX
MISCELLANEOUS
Section 9.1. No Waiver; Modification in Writing. No failure
or delay on the part of Bank in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. No amendment,
modification or waiver of any provision of this Agreement or of the Note, nor
consent to any departure by any Debtor therefrom, shall in any event be
effective unless the same shall be in writing signed by or on behalf of Bank
and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No notice to or demand
on any Debtor in any case shall entitle such Debtor to any other or further
notice or demand in similar or other circumstances.
Section 9.2. Payment on Non-Business Day. Whenever any
payment to be made hereunder or on account of the Note shall be scheduled to
become due on a day which is not a Business Day, such payment may be made on
the next succeeding Business Day, and such extension of time shall in such case
be included in computing interest and fees payable hereunder or on account of
the Note.
Section 9.3. Addresses for Notices. All notices and
communications provided for hereunder shall be in writing and, shall be mailed,
by certified mail, return receipt requested, or delivered as set forth below
unless any person named below shall notify the others in writing of another
address, in which case notices and
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communications shall be mailed, by certified mail, return receipt requested, or
delivered to such other address.
If to Bank:
First National Bank of Commerce
210 Baronne Street
P.O. Box 60279
New Orleans, LA 70160-0279
Attention: Hospitality Division
with a copy to:
Wm. Blake Bennett, Esq.
Liskow & Lewis
One Shell Square, 50th Floor
New Orleans, LA 70139-5001
If to Debtor:
Fair Grounds Corporation
1751 Gentilly Boulevard
P.O. Box 52529
New Orleans, LA 70152
Attention: Bryan G. Krantz
with a copy to:
David R. Sherman, Esq.
Chehardy, Sherman, Ellis,
Breslin & Murray
Suite 1100
One Galleria Boulevard
Metairie, LA 70001
Section 9.4. Fees and Expenses. Debtor agrees to pay all
fees, costs and expenses of Bank in connection with the preparation, execution
and delivery of this Agreement, and all Related Documents to be executed in
connection herewith and subsequent modifications or amendments to any of the
foregoing, including without limitation, the reasonable fees and disbursements
of counsel to Bank, and to pay all costs and expenses of Bank in connection
with the enforcement of this Agreement, the Note or the other Loan Documents,
including reasonable legal fees and disbursements arising in connection
therewith. Debtor also agrees to pay, and to save Bank harmless from any delay
in paying stamp and other similar taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of this
Agreement, the Note, the other Loan Documents, or any modification thereof.
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Section 9.5. Security Interest and Right of Set-off. Bank
shall have a continuing security interest in, as well as the right to set-off
the obligations of Debtor hereunder against, all funds which Debtor may
maintain on deposit with Bank (with the exception of funds deposited in
Debtor's accounts in trust for third parties or funds deposited in pension
accounts, IRA's, Keogh accounts and All Saver Certificates or funds which are
dedicated to the payment of purses), and Bank shall have a lien upon and a
security interest in all property of Debtor in Bank's possession or control
which shall secure the Indebtedness of Debtor.
Section 9.6. Waiver of Marshalling. Debtor shall not at any
time hereafter assert any right under any law pertaining to marshalling
(whether of assets or liens) and Debtor expressly agrees that Bank may execute
or foreclose upon the Collateral in such order and manner as Bank, in its sole
discretion, deems appropriate (except as set forth in that certain letter
agreement dated November 7, 1995, by and between Bank and Individual
Guarantor).
Section 9.7. Governing Law. This Agreement and the Note
shall be deemed to be contracts made under the laws of the State of Louisiana
and for all purposes shall be construed in accordance with the laws of said
State.
Section 9.8. WAIVER OF JURY TRIAL; SUBMISSION TO
JURISDICTION. (a) DEBTOR AND BANK HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO WHICH DEBTOR AND BANK MAY BE PARTIES, ARISING OUT OF OR IN ANY
WAY PERTAINING TO (i) THE NOTE, (ii) THIS AGREEMENT, (iii) THE COLLATERAL
DOCUMENTS OR (iv) THE COLLATERAL. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER
CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH
ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO
THIS AGREEMENT. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY
THE DEBTOR AND THE BANK, AND THE DEBTOR AND THE BANK HEREBY REPRESENT THAT NO
REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE
THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.
THE DEBTOR AND THE BANK EACH FURTHER REPRESENT THAT IT HAS BEEN REPRESENTED IN
THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
(b) THE DEBTOR HEREBY IRREVOCABLY CONSENTS TO THE
JURISDICTION OF THE STATE COURTS OF LOUISIANA AND THE FEDERAL COURTS IN
LOUISIANA AND AGREE THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR BROUGHT TO
ENFORCE THE PROVISIONS OF THE NOTE, THIS AGREEMENT AND/OR THE COLLATERAL
DOCUMENTS MAY BE BROUGHT IN ANY COURT HAVING SUBJECT MATTER JURISDICTION.
Section 9.9. Severability. If a court of competent
jurisdiction finds any provision of this Agreement to be invalid or
unenforceable as to any person or circumstance, such finding shall
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not render that provision invalid or unenforceable as to any other persons or
circumstances. If feasible, any such offending provision shall be deemed to be
modified to be within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all other
provisions of this Agreement in all other respects shall remain valid and
enforceable.
Section 9.10. Headings. Article and Section headings used in
this Agreement are for convenience only and shall not affect the construction
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
FAIR GROUNDS CORPORATION
By:_________________________________
Bryan G. Krantz, President
FIRST NATIONAL BANK OF COMMERCE
By:_________________________________
Stephen M. Valdes, Vice President
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EXHIBIT 10(v)
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DISBURSEMENT AGREEMENT
THIS DISBURSEMENT AGREEMENT (this "Agreement"), dated as of July 17,
1995, is made and entered into by and among FAIR GROUNDS CORPORATION, a
Louisiana corporation ("Borrower"), VIDEO SERVICES, INC., a Louisiana
corporation ("VSI"), and FIRST NATIONAL BANK OF COMMERCE, a national banking
association ("Bank").
WITNESSETH,
That,
WHEREAS, pursuant to Act 44 of the 1994 Regular Session of the
Louisiana Legislature (the "Act"), owners of video draw poker devices located
in licensed establishments owned or operated by a licensed racing association
eligible for emergency relief as determined by the Interim Emergency Board (the
"Board") shall be exempt from the franchise payment otherwise due on such
machines as required in R.S. 33:4862.11 for a period of time to be determined
by the Board, up to a maximum period of fifteen years; and,
WHEREAS, the Act provides that the use of funds received by a licensed
racing association pursuant to the Act shall be subject to review and prior
approval by the Joint Legislative Committee on the Budget (the "Committee"),
and shall be subject to the continued oversight by the Committee; and,
WHEREAS, Borrower has applied to Bank for a loan in an amount not to
exceed the principal sum of $17.5 million (the "Loan") to finance the
reconstruction of the New Orleans Fair Grounds Grandstand, Clubhouse and Off
Track Betting Facility; and,
WHEREAS, the Borrower has applied for the franchise fee payment
exemption authorized by the Act, and the Board, pursuant to its letter dated
September 30, 1994, has determined that Borrower is a licensed racing
association eligible for the relief authorized by the Act, and the Committee,
pursuant to its Resolution dated March 2, 1995, further has reviewed the terms
of the Loan, and has granted its prior approval of the dedication of the funds
received from the franchise tax exemption towards the exclusive use by Borrower
for making repayments of interest and principal which may be due to the Bank
under the Loan, and has further determined that VSI shall be entitled to an
exemption from the franchise fee payments otherwise due pursuant to R.S.
33:4862.11 in an annual amount not to exceed the lesser of (a) $2,500,000.00,
or (ii) the amount of debt service due on the Loan annually (including, without
limitation, any mandatory prepayment provisions required pursuant to the terms
of the Loan as presently envisioned or as the same may be modified from time to
time by agreement of the Borrower and the Bank; and,
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<PAGE> 3
WHEREAS, VSI is the owner of the video draw poker devices located in
the licensed video poker gaming establishments owned and/or operated by
Borrower; and,
WHEREAS, the Borrower has established its demand deposit account with
Bank, which account has been established in the name of Fair Grounds
Corporation under account no. 1106-01807 (hereinafter referred to as the
"Lockbox Account"), into which all proceeds of the franchise fee payment
exemption authorized by Act 44 (and no other funds) shall be deposited; and,
WHEREAS, the parties desire to enter into this Agreement to provide
for the manner of disbursement of funds received by the Bank in the Lockbox
Account.
NOW, THEREFORE, the parties hereto agree as follows:
1.
VSI acknowledges that, pursuant to the Act, an amount not to exceed
the first $2,500,000.00 in video poker franchise fee payments otherwise due to
the State of Louisiana from video poker gaming devices owned by VSI and located
upon licensed video poker gaming establishments owned and/or operated by
Borrower during each annual period shall be remitted to Borrower in accordance
with the terms of the Act. Borrower and Bank agree, and VSI acknowledges, that
such funds, for each annual period running from July 1 through June 30, shall
be debited from VSI's account with Bank (account no. 110511832) (the "VSI
Account") and credited to the Lockbox Account. Notwithstanding the foregoing,
the initial annual period during which such transfers of funds are to be made
shall not commence until the later to occur of (i) July 1, 1995, or (ii) the
date on which funds are first advanced under the Loan (such later date being
herein called the "Commencement Date"), and shall end on June 30, 1996.
Simultaneously with the initial advance of funds under the Loan, Borrower and
Bank shall execute a certificate attesting to such advance and shall forward a
copy of said certificate to VSI and to the Video Gaming Division of the Gaming
Enforcement Section of the Office of State Police, Louisiana Department of
Public Safety and Corrections (the "Division"). The copy of such certificate
to be sent to the Division shall be sent by certified mail, return receipt
requested, to Public Safety Services, Finance Manager, P.O. Box 66909, Baton
Rouge, LA 70896. Such transfers of funds shall be made on each date (a
"Transfer Date") after the Commencement Date on which the Division would have
swept the aforesaid account of VSI with Bank to collect the franchise fees
which would have otherwise been due except for the exemption provided by the
Act, and each such transfer of funds shall be in the amount which the Division
would have otherwise collected from VSI's bank account,
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all as shown on the invoices to be provided to VSI and Bank by the Division in
the form attached hereto as Exhibit "A." VSI agrees that such transfers of
funds are to be made under the authority provided for in La. R.S.
33:4862.21(B), which requires that VSI remit directly to the Fair Grounds
Corporation all franchise payments otherwise due to the State of Louisiana
during such exemption period. VSI agrees that its account with Bank shall at
all times contain the amount of funds required by invoices submitted by the
Division for each such "Sweep Date" set forth in such invoices and authorizes
Bank to make the debits from its account as contemplated hereby (all to the
extent, and only to the extent, that the Division acknowledges that the terms
of this Agreement are acceptable to it); provided, however, that in no event
shall the State of Louisiana, the Division or VSI incur any liability to the
Bank or to the Borrower in the event that VSI fails to keep such funds
available in its account or otherwise fails to remit such funds to the Lockbox
Account on a Transfer Date. VSI's sole responsibility hereunder shall be to
the State of Louisiana and the Division, and to remit payments to the Borrower
to the extent required by the Act, provided that by remitting such payments to
the Borrower, VSI does not violate any contrary instructions provided to it by
the Division. In the event that VSI's account does not contain the amounts set
forth in the invoices submitted to it by the Division for transfers to the
Lockbox Account as authorized hereby on any Transfer Date, Bank and Borrower
hereby agree to notify the Division and VSI of such fact as soon as possible,
but in no event later than the third business day following any such
occurrence. Bank and Borrower shall give notice to the Division of such
occurrence by sending such notice by facsimile to Public Safety Services,
Finance Manager, P.O. Box 66909, Baton Rouge, LA 70896, fax no. (504) 925-4990
and to VSI at 520 Elmwood Park Blvd., Suite 100, Harahan, LA 70123, fax no.
(504) 733-7702.
2.
Borrower hereby understands and agrees that the Lockbox Account has
been established to receive the proceeds of the franchise fee payment exemption
provided by the Act directly from VSI, and that, pursuant to the terms of the
Act, such proceeds shall be used for the sole and exclusive purpose of making
payments of interest and principal from time to time due under the terms of the
Loan. Accordingly, Borrower hereby understands and agrees that Borrower shall
have no direct access to any funds from time to time on deposit in the Lockbox
Account, nor shall Borrower have any right to request any withdrawals from the
Lockbox Account other than to make payments on the Loan as such payments become
due under the terms of any promissory note and/or loan agreement from time to
time governing the Loan.
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3.
Borrower hereby recognizes and acknowledges that it has executed a
promissory note dated July 17, 1995, made by the Borrower payable to the order
of the Bank in the principal sum of $2,150,000.00 (the "Initial Note"), which
will evidence the initial advances by Bank under the Loan. Borrower hereby
authorizes Bank to make withdrawals from the funds from time to time on deposit
in the Lockbox Account and to apply such monies towards payment of the Initial
Note, and/or any additional note or notes hereafter given by Borrower to Bank
to evidence any part or parts of the Loan, as such payments become due and
payable, whether such payments become due as scheduled or by acceleration upon
the occurrence of a default under the terms of the Loan (and the passage of any
cure periods applicable thereto).
4.
Borrower hereby understands and agrees that in the event that the Bank
receives, during any annual period during which the franchise fee exemption
afforded by the Act remains effective, an amount in the Lockbox Account in
excess of the lesser of (i) $2,500,000.00, or (ii) the amount of debt service
due and payable on the Loan during such period, the Act mandates that such
funds (the "Excess Funds") be returned to the treasury of the State of
Louisiana for deposit into the Video Draw Poker Device Fund. Borrower hereby
authorizes Bank to return such Excess Funds received in the Lockbox to the
treasury of the State of Louisiana for deposit into the Video Draw Poker Device
Fund. Such Excess Funds shall be remitted to the State treasury by
transferring any such Excess Funds into the Department of Public Safety and
Corrections Video Poker Account (account no. 000405965) which is maintained
with the Bank.
5.
The sole undertakings of Bank under this Agreement shall be to (1)
hold the funds from time to time on deposit in the Lockbox Account on behalf of
Borrower, subject to requirements of the Act, and to either apply such funds to
the payment of the Loan and/or to return any Excess Funds to the treasury of
the State of Louisiana, and (2) in the event that the Loan is fully satisfied,
to forward and deliver any remaining funds in the Lockbox Account to the
treasury of the State of Louisiana (or to whomever else may be legally entitled
to such monies thereof at such time). In addition, the Bank (along with VSI
and Borrower) agrees that the
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Legislative Auditor of the State of Louisiana and/or the Office of the
Governor, Division of Administration auditors shall have the option of auditing
all accounts relating to this Agreement. The Bank also agrees to provide a
statement of account relating to the Lockbox Account to the Division on a
quarterly basis beginning with the date of the first transfer of funds from
VSI's account with the Bank into the Lockbox Account. Such statements are to
be furnished by regular U.S. mail to Public Safety Services, Finance Manager,
P.O. Box 66909, Baton Rouge, LA 70896. Borrower hereby agrees to reimburse
VSI and/or the Bank for all direct out-of-pocket expenses incurred by it in
satisfying its obligations under this Agreement.
6.
Borrower acknowledges that no payment of any proceeds accruing from
the franchise fee payment exemption authorized by the Act shall be paid to or
received by Borrower, except through deposits into the Lockbox Account. In the
event that Borrower should for any reason receive any payments arising from the
franchise fee payment exemption authorized by the Act, Borrower shall hold such
funds in trust for and on behalf of Bank, and shall immediately cause such
funds to be deposited into the Lockbox Account, with such funds being held in
trust for Bank by Borrower over any interim period.
7.
Borrower hereby appoints Bank as its agent to hold the monies from
time to time on deposit in the Lockbox Account in accordance with the
requirements of the Act and this Agreement, and authorizes Bank to act on its
behalf under this Agreement and to exercise such powers hereunder and
thereunder as are specifically delegated to or required of Bank under the
terms of the Act and this Agreement, together with such powers as may be
reasonably incidental thereto; provided however, that Bank shall not be
required to take any action which, in the reasonable opinion of Bank, either
exposes Bank to personal liability or is contrary to the Act or this Agreement.
Borrower agrees that VSI's only obligation is to put into the VSI Account the
sums required by the invoices sent by the Division and to cooperate with any
audits required by paragraph 5 of this Agreement, to the extent required by the
Act, and Borrower agrees to indemnify VSI (other than for this obligation) and
the Bank, along with each of their respective officers, directors, employees,
attorneys, and agents (each an "Indemnified Party") from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or
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<PAGE> 7
nature whatsoever which may be imposed on, incurred by, or asserted against
such Indemnified Party in any way relating to or arising out of this Agreement
or the treatment of funds from time to time on deposit in the Lockbox Account,
or any action taken or omitted by such Indemnified Party under this Agreement
or with respect to the Lockbox Account, other than for liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from such Indemnified Party's gross
negligence or willful misconduct, provided further that it is the intention of
Borrower to indemnify each Indemnified Party for the consequences of its own
negligence except gross negligence and willful misconduct. Without limiting
the generality of the foregoing, Borrower agrees to reimburse each Indemnified
Party promptly upon demand for any out-of-pocket expenses (including reasonably
attorney's fees) incurred by such Indemnified Party in the connection with the
administration, enforcement of, or the preservation of any rights or
obligations of Bank hereunder or under the Act. The payment obligations and
indemnities contained in this paragraph shall survive the payment or sale of
the Loan and the termination of this Agreement. The aforesaid payment
obligations and indemnities are made expressly for the benefit of, and shall be
enforceable by, any Indemnified Party.
8.
Neither Bank nor any other Indemnified Party shall be liable for any
action taken or omitted by it or them hereunder, or in connection herewith, (i)
with the consent or at the request of the Division or any state official acting
on behalf of the Committee, the Board, or the Louisiana state treasury, or (ii)
in the absence of its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, Bank and/or VSI (as
appropriate): (i) may consult with legal counsel, independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (ii) makes no warranty or
representation to the Division or to the State of Louisiana or any agency
thereof for any statements, warranties or representations made by Borrower to
Bank in connection with the Loan or in connection with this Agreement; (iii)
shall not be responsible to the Division or to the State of Louisiana or any
agency thereof for the due execution, legality, validity, enforceability or
genuineness of this Agreement by Borrower, (iv) Bank shall not be responsible
for any act or omission by VSI and/or Borrower in handling any video poker
franchise fee payments or video gaming proceeds which would otherwise be due as
franchise fee payments but for the Act; (v) VSI shall have no liability under
this Agreement other than to fund its account in accordance with
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invoices provided by the Division and to cooperate with any audits required by
paragraph 5 of this Agreement, to the extent required by the Act; and (vi)
shall incur no liability under or in respect of this Agreement by acting upon
any notice or consent (whether oral or written and whether by telephone,
telegram, cable, telex or facsimile), certificate or other instrument or
writing (which may be by telegram, cable, telex or facsimile) believed by it to
be genuine and communicated, signed or sent by the proper person or persons.
Nothing contained in this paragraph shall be construed to relieve the Bank of
its obligations to give notices and copies of bank statements to the Division
and to remit any Excess Funds to the State treasury in accordance with this
Agreement. Nothing contained in this Agreement shall be construed as relieving
VSI from placing in the VSI Account all sums required by the Video Poker
Devices Control Law, La. R.S. 33:4862.1, et seq., and otherwise complying with
the rules and regulations of the Division.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement by and through their duly undersigned representatives, as of the
date and year first above written.
FAIR GROUNDS CORPORATION
By:____________________________
Bryan G. Krantz,
President
VIDEO SERVICES, INC.
By:_____________________________
Title:__________________________
FIRST NATIONAL BANK OF COMMERCE
By:____________________________
Title:_________________________
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ACKNOWLEDGMENT
STATE OF LOUISIANA
PARISH OF ORLEANS
BE IT KNOWN, that on this __ day of July, 1995, before me, the
undersigned Notary Public, duly commissioned and qualified within and for the
State and Parish aforesaid, personally came and appeared Bryan G. Krantz, to me
known to be the identical person who executed the above and foregoing
instrument in his capacity as President of Fair Grounds Corporation, who
declared and acknowledged to me, Notary, that he executed the above and
foregoing instrument as the free act and deed of said corporation, for the
uses, purposes and benefits therein expressed.
_____________________________
Notary Public
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ACKNOWLEDGMENT
STATE OF ____________________
PARISH OR COUNTY OF _________
BE IT KNOWN, that on this __ day of July, 1995, before me, the
undersigned Notary Public, duly commissioned and qualified within and for the
State and Parish aforesaid, personally came and appeared _________________, to
me known to be the identical person who executed the above and foregoing
instrument in his capacity as ______________ of Video Services, Inc., who
declared and acknowledged to me, Notary, that he executed the above and
foregoing instrument as the free act and deed of said corporation, for the
uses, purposes and benefits therein expressed.
________________________
Notary Public
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ACKNOWLEDGMENT
STATE OF ____________________
PARISH OR COUNTY OF _________
BE IT KNOWN, that on this __ day of July, 1995, before me, the
undersigned Notary Public, duly commissioned and qualified within and for the
State and Parish aforesaid, personally came and appeared ___________________,
to me known to be the identical person who executed the above and foregoing
instrument in his capacity as _________________ of First National Bank of
Commerce, who declared and acknowledged to me, Notary, that he executed the
above and foregoing instrument as the free act and deed of said national
banking association, for the uses, purposes and benefits therein expressed.
______________________
Notary Public
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EXHIBIT 10(w)
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COMMERCIAL SECURITY AGREEMENT
<TABLE>
<S> <C>
Grantor: Fair Grounds Corporation Lender: First National
1751 Gentilly Blvd. Bank Of Commerce
New Orleans, LA 70119 P.O. Box 60279
TIN: 72-0361770 New Orleans, LA 70160
TIN: 72-0269760
</TABLE>
THIS COMMERCIAL SECURITY AGREEMENT is entered into between the Fair Grounds
Corporation, a Louisiana corporation (referred to below as "Grantor"); and
First National Bank of Commerce (referred to below as "Lender"). For valuable
consideration, Grantor hereby pledges to Lender, and grants to Lender a
continuing security interest in, the Collateral to secure Grantor's present and
future Indebtedness and agrees that Lender shall have the rights stated in this
Agreement with respect to the Collateral, in addition to all other rights which
Lender may have by law or otherwise.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement:
Accounts. The word "Accounts" shall mean all accounts as defined in
Section 9-106 of the UCC, now owned or hereafter acquired by Grantor.
The word "Accounts" shall also mean and include all other receivables,
contract rights, instruments, documents, notes and all other similar
obligations and indebtedness that may now and in the future be owed to
or held by Grantor from whatever source arising, and all monies and
proceeds payable thereunder, and all of Grantor's rights and remedies
to collect and enforce payment and performance thereof.
Agreement. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time.
Collateral. The word "Collateral" means individually, collectively
and interchangeably any and all of Grantor's present and future
rights, title and interest in and to the following described property,
together with any and all present and future additions thereto,
substitutions therefor, and replacements thereof:
(a) the Accounts;
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(b) the Inventory;
(c) the Equipment;
(d) the Fire Insurance Proceeds;
(e) the General Intangibles;
(f) the Tax Relief;
(g) the Construction Property;
(h) the Jazz Fest Contract;
(i) the VSI Contract;
(j) the Management Agreement;
(k) all deposit accounts of Grantor maintained by Grantor
with Lender, all cash deposited therein from time to
time, and other monies and properties of any kind of
Grantor in the possession or under the control of
Lender;
(l) all books and records, including without limitation
computer lists, credit files, computer programs,
tapes, disks, punch cards, data processing software,
transaction files, master files, printouts (and other
computer materials and records) of Grantor pertaining
to any of the foregoing Collateral; and
(m) all Proceeds and products of any or all of the
Collateral described in clauses (a) through (l)
hereof.
Construction Property. The words "Construction Property" mean
individually, collectively and interchangeably any and all existing or
future contracts or agreements of Grantor of any kind or nature
dealing with the reconstruction of the New Orleans Fair Grounds Race
Course in New Orleans, Louisiana, or with the related construction
and/or modification of any new or existing facilities in any way
related to racing or wagering activities or the administration
thereof, any and all rights of Grantor in and to all goods, materials,
equipment, machinery and/or inventory used and/or to be used in such
construction activities provided for therein, whether located at the
Fair Grounds Race Course at 1751 Gentilly Boulevard, New Orleans,
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Louisiana, or elsewhere, all documents of title, warehouse receipts,
bills of lading and all attachments and accessions related thereto,
whether added now or later, all plans and specifications, blueprints,
drawings, models, and other renderings of the work related thereto,
all building permits and other permits required for such activities,
all agreements of Grantor with any contractors, architects or
engineers related thereto, all rights of Grantor in and to any payment
or performance bonds provided to Grantor in connection with such work,
all products and proceeds derived from or to be derived therefrom,
including without limitation, . . . [CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE COMMISSION]. . . and all rights of
Grantor to collect or enforce payment and performance thereof, as well
as to enforce any guarantees of any of the foregoing, including
without limitation, Grantor's books, records, files, computer disks
and software, and all other rights that Grantor may have with regard
thereto.
Encumbrances. The word "Encumbrances" means individually,
collectively and interchangeably any and all presently existing and/or
future mortgages, liens, privileges and other contractual and/or
statutory security interests and rights of every nature and kind that,
now and/or in the future may affect the Collateral or any part or
parts thereof.
Equipment. The word "Equipment" means all goods classified as
equipment as such term is defined in Section 9-109(2) of the UCC, now
owned or hereafter acquired by Grantor or held on consignment,
wherever located.
Event of Default. The words "Event of Default" mean individually,
collectively, and interchangeably any of the Events of Default set
forth below in the section titled "Events of Default."
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION.
General Intangibles. The words "General Intangibles" mean all general
intangibles as defined in Section 9-106 of the UCC, including without
limitation (i) all contractual rights and obligations or indebtedness
owing to Grantor (other than Accounts) from whatever source arising;
(ii) all things and actions, rights represented by judgments and
claims arising out of tort and other claims related to the Collateral,
including the right to assert and otherwise be the proper party of
interest to commence and prosecute actions; (iii) all goodwill,
patents, patent licenses, trademarks, trademark licenses, trade names,
service marks, trade secrets, rights and intellectual property,
copyrights,
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permits and other licenses of any kind or nature whatsoever (including
all of Grantor's racing, off-track betting and video poker licenses,
to the fullest extent allowed by applicable law); (iv) and all rights
or claims in respect of refunds for taxes paid or to the Tax Relief.
Grantor. The word "Grantor" means Fair Grounds Corporation, a
Louisiana corporation, its successors and assigns.
Guarantor. The word "Guarantor" means and includes individually,
collectively, interchangeably and without limitation, each and all of
the guarantors and/or sureties in connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means the Indebtedness of
Grantor arising under or pursuant to the Note, in principal, interest,
costs, expenses and attorneys' fees and all other fees and charges,
together with all other indebtedness and costs and expenses for which
Grantor is responsible under this Agreement or under any of the
Related Documents. In addition, the word "Indebtedness" also includes
any and all other loans, extensions of credit, obligations, debts and
liabilities, plus interest thereon, of Grantor, or any one or more of
them, that may now and in the future be owed to or incurred in favor
of Lender, as well as all claims by Lender against Grantor, or any one
or more of them, whether existing now or later; whether they are
voluntary or involuntary, due or to become due, direct or indirect or
by way of assignment, determined or undetermined, absolute or
contingent, liquidated or unliquidated; whether Grantor may be liable
individually or jointly with others, of every nature and kind
whatsoever, in principal, interest, costs, expenses and attorneys'
fees and all other fees and charges; and whether Grantor may be
obligated as guarantor, surety, accommodation party or otherwise.
Inventory. The word "Inventory" means all goods classified as
inventory as such term is defined in Section 9-109(4) of the UCC, now
owned or hereafter acquired by Grantor or held on consignment,
wherever located.
Jazz Fest Contract. The words "Jazz Fest Contract" mean that certain
Agreement dated as of October 1, 1992, by and between Grantor and The
New Orleans Jazz & Heritage Foundation, Inc.
Lender. The word "Lender" means First National Bank of Commerce, its
successors and assigns, and any subsequent holder or holders of
Grantor's Note, or any interest therein.
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Management Agreement. The words "Management Agreement" mean that
certain Management Agreement dated October 7, 1992, by and between
Grantor and Finish Line Management Corp.
Note. The word "Note" means that certain promissory note dated of
even date herewith made by Grantor payable to the order of Lender in
the principal sum of $2,150,000.00, together with all extensions,
renewals, or modifications thereof, and any and all promissory note or
notes given in connection with the refinancing of any part of the
indebtedness evidenced thereby.
Permitted Liens shall mean (i) Encumbrances securing Indebtedness,
(ii) Encumbrances for taxes, assessments or governmental charges which
are not yet due and payable or which are being contested in good faith
so long as adequate reserves for such taxes, assessments or charges
have been established or are being maintained, provided Lender's lien
is not jeopardized, and (iii) Encumbrances relating to workers'
compensation laws, unemployment insurance laws, social security or
pension laws or similar legislation which are not yet due and payable
or which are being contested in good faith so long as adequate
reserves for such taxes, assessments or charges have been established
or are being maintained, provided Lender's lien is not jeopardized.
Pledgor. The word "Pledgor" means and includes (i) Bryan G. Krantz,
(ii) Marie G. Krantz, (iii) Vickie Krantz, (iv) Jefferson Downs
Corporation, a Louisiana corporation, (v) Richard Katcher, in his
capacity as trustee of that certain trust (the "Trust") established
pursuant to that certain Third Restatement of John G. Masoni Trust
Agreement dated as of April 19, 1991, by and between John G. Masoni
and John G. Masoni, Trustee, as heretofore amended by that certain
Modification of Third Restatement of John G. Masoni Trust Agreement
dated October 24, 1992 (the "Trust Agreement"), and (vi) the Trust.
Proceeds. The word "Proceeds" means all proceeds as defined in
Section 9-306(1) of the UCC, and includes all cash and non-cash
proceeds, and includes proceeds of such proceeds, in each case whether
now existing or hereafter arising.
Related Documents. The words "Related Documents" mean and include
individually, collectively, interchangeably and without limitation all
promissory notes, credit or loan agreements, guaranties, security
agreements, mortgages, collateral mortgages, deeds of trust, and all
other instruments and documents, whether now or hereafter existing,
executed in connection with Grantor's Indebtedness to Lender.
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<PAGE> 7
Security Interest. The words "Security Interest" mean the security
interest in the Collateral granted hereunder.
Tax Relief. The words "Tax Relief" mean all of Grantor's rights to
those certain benefits arising pursuant to the video poker franchise
fee exemption authorized by La. R.S. 33:4862.21, for which Grantor has
been qualified by letter dated September 30, 1994, from Melinda
Schwegman, Lieutenant Governor of the State of Louisiana and
Chairperson of the Interim Emergency Board of the State of Louisiana,
addressed to Senator B.B. Rayburn, Chairman of the Joint Legislative
Committee on the Budget, and by resolution of the Joint Legislative
Committee on the Budget dated March 2, 1995.
UCC. The word "UCC" means the Uniform Commercial Code, Commercial
Laws-Secured Transactions (La. R.S. 10:9-101 et seq.) in effect in the
State of Louisiana, as amended from time to time, provided that if by
reason of mandatory provisions of law, the perfection or effect of
perfection or non-perfection of the Security Interest in the
Collateral is governed by the Uniform Commercial Code as in effect in
a jurisdiction other than the State of Louisiana, "UCC" means the
Uniform Commercial Code as in effect in such other jurisdiction for
purpose of the provisions hereof related to such perfection or effect
of perfection or non-perfection.
VSI Contract. The words "VSI Contract" mean that certain Agreement
dated March 9, 1992, by and among Grantor, Video Services, Inc.,
Jefferson Downs Corporation, and Finish Line Management Corp.
CONTINUING SECURITY INTEREST TO SECURE PRESENT AND FUTURE INDEBTEDNESS.
Grantor does hereby grant a continuing security interest in the Collateral in
favor of Lender to secure any and all present and future Indebtedness of
Grantor in favor of Lender, as may be outstanding from time to time, with the
continuing preferences and priorities provided under applicable Louisiana law.
NO LIABILITY. The Security Interests are granted as security only and shall
not subject Lender to, or transfer in any way affect or modify, any obligation
or liability of Grantor with respect to any of the Collateral or any
transaction in connection therewith.
DURATION OF THIS AGREEMENT. This Agreement shall remain in full force and
effect until such time as this Agreement and the Security Interests created
hereby are terminated and cancelled by Lender under a written cancellation
instrument in favor of Grantor.
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OBLIGATIONS OF GRANTOR. Grantor represents, warrants and covenants to Lender
as follows:
Organization. Grantor is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State of
Louisiana.
Authorization. Grantor's execution, delivery and performance of this
Agreement have been duly authorized, and do not conflict with, and
will not result in a violation of, or constitute or give rise to an
event of default under Grantor's articles of incorporation or by-laws,
or any agreement or other instrument which may be binding upon
Grantor, or under any law or governmental regulation or court decree
or order applicable to Grantor and/or its properties.
Perfection of Security Interest. Grantor agrees to execute such
financing statements and to take whatever other actions are requested
by Lender to perfect and continue Lender's Security Interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender
any and all of the documents evidencing or constituting the
Collateral, and Grantor will note Lender's Security Interest upon any
and all chattel paper if not delivered to Lender for possession by
Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary
to perfect or to continue the Security Interest granted in this
Agreement. Lender may at any time, and without further authorization
from Grantor, file a carbon, photographic, facsimile, or other
reproduction of any financing statement or of this Agreement for use
as a financing statement. Grantor will reimburse Lender for all
expenses for the perfection, termination, and the continuation of the
perfection of Lender's Security Interest in the Collateral. Grantor
promptly will notify Lender of any change in Grantor's name including
any change to the assumed business names of Grantor. Grantor also
promptly will notify Lender of any change in Grantor's tax
identification number. Grantor further agrees to notify Lender in
writing prior to any change in address or location of Grantor's
principal governance office. Grantor represents and warrants to
Lender that Grantor has provided Lender with Grantor's correct IRS tax
identification number and that Grantor has no other tax identification
numbers. Grantor promptly shall notify Lender should Grantor apply
for or obtain a new tax identification number.
No Violation. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is
a party, and its articles of
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incorporation and by-laws do not prohibit any term or condition of this
Agreement.
Enforceability of Collateral. To the extent the Collateral consists
of Accounts, chattel paper, or General Intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and fully
complies with applicable state and federal laws and regulations
concerning form, content and manner of preparation and execution, and
all persons appearing to be obligated on the Collateral have authority
and capacity to contract and are in fact obligated as they appear to
be on the Collateral, free of any offset, compensation, deduction or
counterclaim. At the time any Account becomes subject to a Security
Interest in favor of Lender, the Account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by
the account debtor, for merchandise held subject to delivery
instructions or theretofore shipped or delivered pursuant to a
contract of sale, or for services theretofore performed by Grantor
with or for the account debtor; there shall be no setoffs or
counterclaims against any such Account; and no agreement under which
any deductions or discounts may be claimed shall have been made with
the account debtor except those disclosed to Lender in writing.. .
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]. . . .
Removal of Collateral. To the extent the Collateral consists of
Accounts or General Intangibles, the records concerning the Collateral
shall be kept and maintained at Grantor's main business address at
1751 Gentilly Boulevard, New Orleans, LA 70119, and also at Grantor's
place of business at 1300 Sunset Blvd., Kenner, LA 70065, or at such
other locations as are acceptable to Lender. Except for sales of
Inventory in the ordinary course of business, Grantor shall not remove
the Collateral from its existing locations without the prior written
consent of Lender.
Transactions Involving Collateral. Except for Inventory sold or
Accounts collected in the ordinary course of Grantor's business,
Grantor shall not sell, offer to sell, or otherwise transfer or
dispose of the Collateral except for sales of Inventory during the
normal course of Grantor's business and dispositions of Equipment
which has become obsolete or which is being replaced in the normal
course of Grantor's business (collectively, "Permitted Dispositions").
. . [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]. . . . This includes security interests even if junior in
right to the Security Interests granted under this Agreement. Unless
waived by Lender, all proceeds from any disposition (other than
Permitted Dispositions) of the Collateral (for whatever reason) shall
be held in trust
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for Lender and shall not be commingled with any other funds; provided
however, this requirement shall not constitute consent by Lender to
any sale or other disposition (other than Permitted Dispositions).
Upon receipt, Grantor shall immediately deliver any such proceeds to
Lender.
Title, Authority, Binding Effect. Grantor represents and warrants to
Lender that it holds good and marketable title to the Collateral, free
and clear of all Encumbrances except for Permitted Liens and the
Lender's Security Interest. No financing statement covering any of
the Collateral is on file in any public office other than those which
reflect the Security Interest created by this Agreement or to which
Lender has specifically consented. Grantor further represents and
warrants that it has requisite authority to enter into this Agreement
in favor of Lender and to grant to Lender the Security Interest in the
Collateral as provided herein. Grantor additionally represents and
warrants that this Agreement is binding upon Grantor as well as
Grantor's successors and assigns, and is legally enforceable in
accordance with its terms. The foregoing representations and
warranties and all other representations and warranties of Grantor
under this Agreement shall be continuing and shall survive the
termination of this Agreement.
Collateral Schedules and Locations. As often as Lender shall
reasonably require, and insofar as the Collateral consists of
Accounts, Grantor shall deliver to Lender schedules of such
Collateral, including such information as Lender may require,
including without limitation names and addresses of account debtors
and agings of accounts.
Repairs and Maintenance. Grantor shall keep and maintain and shall
cause others to keep and maintain the Collateral in good order, repair
and merchantable condition. Grantor shall further make and/or cause
all necessary repairs to be made to the Collateral, including the
repair and restoration of any portion of the Collateral that may be
damaged, lost or destroyed. In addition, Grantor shall not, without
the prior written consent of Lender, make or permit to be made any
alterations to any of the Collateral that may reduce or impair the
Collateral's use, value or marketability. Furthermore, Grantor shall
not, nor shall Grantor permit others to abandon, commit waste, or
destroy the Collateral or any part or parts thereof.
Taxes. Grantor shall promptly pay or cause to be paid when due, all
taxes, local and special assessments, and governmental and other
charges of every type and description, that may from time to time be
imposed, assessed and levied against the Collateral or against
Grantor. Grantor further agrees to furnish Lender with evidence that
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such taxes, assessments, and governmental and other charges have been
paid in full and in a timely manner. Grantor may withhold any such
payment or elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay
and so long as Lender's interest in the Collateral is not jeopardized.
Compliance With Governmental Requirements. Grantor shall comply
promptly with all laws, ordinances and regulations of all governmental
authorities applicable to the production, disposition, or use of the
Collateral. Grantor may contest in good faith any such law, ordinance
or regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Lender's interest in the Collateral,
in Lender's reasonable opinion, is not jeopardized. Grantor shall not
use the Collateral, in any manner that would damage, depreciate or
diminish its value (other than for damage, depreciation and
diminishment in value to the Collateral caused by Grantor's normal
business operations) or that may result in cancellation or termination
of insurance coverage. Grantor additionally agrees not to do or
suffer to be done anything that may increase the risk of fire or other
hazards to the Collateral.
Hazardous Substances. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used for the generation,
manufacture, storage, treatment, disposal, release or threatened
release of any hazardous waste or substance, as those terms are
defined in the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986,
Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and
Recovery Act, 49 U.S.C. Section 6901, et seq., or other applicable
state or Federal laws, rules, or regulations adopted pursuant to any
of the foregoing, except in compliance with such laws and regulations.
The representations and warranties contained herein are based on
Grantor's due diligence in investigating the Collateral for hazardous
waste. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor
becomes liable for cleanup or other costs under any such laws, and (b)
agrees to indemnify and hold harmless Lender from and against any and
all claims and losses resulting from a breach of this provision of
this Agreement. This obligation to indemnify shall survive the
payment of the Indebtedness and the satisfaction of this Agreement.
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Required Insurance. So long as this Agreement remains in effect,
Grantor shall, at its sole cost, keep and/or cause others, at their
expense, to keep the portions of the Collateral consisting of tangible
property constantly insured against loss by fire, by hazards included
within the term "extended coverage," and by such other hazards
(including flood insurance to the extent any of the Collateral is
located in flood zones "A" or "B") as may be required by Lender. Such
insurance shall be in an amount not less than the full replacement
value of such Collateral, or such other amount or amounts as Lender
may require or approve in writing. Grantor shall further provide and
maintain, at its sole cost and expense, comprehensive general
liability insurance, naming both Grantor and Lender as parties
insured, protecting against claims for bodily injury, death and/or
property damage arising out of the use, ownership, possession,
operation and condition of the Collateral, and further containing a
broad form contractual liability endorsement covering Grantor's
obligations to indemnify Lender as provided hereunder. During the
course of any construction activities involving the Collateral,
Grantor shall further provide and maintain, at its sole cost and
expense, builder's all risk insurance coverage against "all risks of
physical loss," including loss by fire, theft, vandalism, malicious
mischief, explosion, windstorm, collapse, sprinkler leakage, and
extended coverage in an amount not less than the full replacement
value of the Collateral. Grantor shall also maintain, or cause to be
maintained, workers' compensation insurance for all contractors,
subcontractors and for Grantor to the fullest extent required by law.
Grantor may purchase such insurance from any insurance company or
broker that is acceptable to Lender, provided that such approval may
not be unreasonably withheld. All such insurance policies, including
renewals and replacements, must also be in form and substance
acceptable to Lender, and must additionally contain a Lender's loss
payable or other endorsement in favor of Lender, providing in part
that (a) all proceeds and returned premiums under such policies of
insurance will be paid directly to Lender, and (b) no act or omission
on the part of Grantor, or any of its officers, agents, employees or
representatives, nor breach of any warranty contained in such
policies, shall affect the obligations of the insurer to pay the full
amount of any loss to Lender. Such policies of insurance must also
contain a provision prohibiting cancellation or the alteration of such
insurance without at least thirty (30) days' prior written notice to
Lender of such intended cancellation or alteration.
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Grantor agrees to provide Lender with originals or certified copies of
such policies of insurance. Grantor further agrees to promptly
furnish Lender with copies of all renewal notices and, if requested by
Lender, with copies of receipts for paid premiums. Grantor shall
provide Lender with originals or certified copies of all renewal or
replacement policies of insurance no later than fifteen (15) days
before any such existing policy or policies should expire. If
Grantor's insurance policies and renewals are held by another person,
Grantor agrees to supply original or certified copies of the same to
Lender within the time periods required above.
Grantor agrees to notify immediately Lender in writing of any material
casualty to or accident involving the Collateral, whether or not such
casualty or loss is covered by insurance. Grantor further agrees to
promptly notify Grantor's insurance company and to submit an
appropriate claim and proof of claim to the insurance company in the
event that any Collateral is lost, damaged, or destroyed as a result
of an insured hazard. Lender may submit such a claim and proof of
claim to the insurance company on Grantor's behalf, should Grantor
fail to do so promptly for any reason. Grantor hereby irrevocably
appoints Lender as its agent and attorney-in-fact, such agency being
coupled with an interest, to make, settle and adjust claims (other
than with respect to claims giving rise to Fire Insurance Proceeds)
under such policy or policies of insurance and to endorse the name of
Grantor on any check or other item of payment for the proceeds
thereof; it being understood, however, that unless one or more Events
of Default exist under this Agreement, Lender will not settle or
adjust any such claim without the prior approval of Grantor (which
approval shall not be unreasonably withheld).
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION.
Lender's receipt of such insurance proceeds and the application of
such proceeds as provided herein shall not, however, affect the lien
of this Agreement. Nothing under this section shall be deemed to
excuse Grantor from its obligations promptly to repair, replace or
restore any lost or damaged Collateral, whether or not the same may be
covered by insurance (unless Lender requires that such insurance
proceeds be applied to reduce the Indebtedness), and whether or not
such proceeds of insurance are available, and whether such proceeds
are sufficient in amounts to complete such repairs, replacement or
restoration to the satisfaction of the Lender. Furthermore, unless
otherwise confirmed by Lender in writing, the application or release
of any insurance proceeds by Lender shall not be deemed to
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cure or waive any Event of Default under this Agreement. Any
proceeds which have not been disbursed within six (6) months after
their receipt and which Grantor has not committed to the repair or
restoration of the Collateral shall be used to prepay the
Indebtedness.
Insurance Reports. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the then current value on
the basis of which insurance has been obtained and the manner of
determining that value; and (f) the expiration date of the policy. In
addition, Grantor shall upon request by Lender (however not more often
than annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the
Collateral.
Prior Encumbrances. To the extent applicable, Grantor shall fully and
timely perform any and all of its obligations under any prior
Encumbrances affecting the Collateral. Without limiting the
foregoing, Grantor shall not commit or permit to exist any breach of
or default under any such prior Encumbrances. Grantor shall further
promptly notify Lender in writing upon the occurrence of any event or
circumstances that would, or that might, result in a breach of or
default under any such prior Encumbrance. Grantor shall further not
modify or extend any of the terms of any prior Encumbrance or any
Indebtedness secured thereby, or request or obtain any additional
loans or other extensions of credit from any third party creditor or
creditors whenever such additional loan advances or other extensions
of credit may be directly or indirectly secured, whether by cross-
collateralization or otherwise, by the Collateral, or any part or
parts thereof, with possible preference and priority over Lender's
Security Interest. Grantor additionally agrees to use its best
reasonable efforts to obtain, upon request by Lender, and in form and
substance as may then be satisfactory to Lender, appropriate waivers
and/or subordinations of any lessor's liens or privileges, vendor's
liens or privileges, purchase money security interests, and any other
Encumbrances that may affect the Collateral at any time; and if such
waivers or subordinations cannot be obtained by Grantor to cause to be
paid such claims giving rise to any prior Encumbrances affecting the
Collateral.
Future Encumbrances. Except for Permitted Liens, Grantor shall not,
without the prior written consent of Lender, grant any Encumbrance
that may affect the Collateral, or any
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part or parts thereof, nor shall Grantor permit or consent to any
Encumbrance attaching to or being filed against any of the Collateral
in favor of anyone other than Lender. Grantor shall further promptly
pay when due all statements and charges of mechanics, materialmen,
laborers and others incurred in connection with the alteration,
improvement, repair and maintenance of the Collateral, or otherwise
furnish appropriate security or bond, so that no future Encumbrance
may ever attach to or be filed against any Collateral. Grantor
additionally agrees to obtain, upon request by Lender, and in form and
substance as may then be satisfactory to Lender, appropriate waivers
and/or subordinations of any lessor's liens or privileges, vendor's
liens or privileges, purchase money Security Interests, and any other
Encumbrances that may affect the Collateral at any time.
Notice of Encumbrances. Grantor shall immediately notify Lender in
writing upon the filing of any attachment, lien, judicial process,
claim, or other Encumbrance. Grantor additionally agrees to notify
Lender immediately in writing upon the occurrence of any default, or
event that with the passage of time, failure to cure, or giving of
notice, might result in a default under any of Grantor's obligations
that may be secured by any presently existing or future Encumbrance,
or that might result in an Encumbrance affecting the Collateral, or
should any of the Collateral be seized or attached or levied upon, or
threatened by seizure or attachment or levy, by any person other than
Lender.
Books and Records. Grantor will keep proper books and records with
regard to Grantor's business activities and the Collateral in which a
security interest is granted hereunder, in accordance with generally
accepted accounting principles, applied on a consistent basis
throughout, which books and records shall at all reasonable times be
open to inspection and copying by Lender or its designated agents.
Lender shall also have the right to inspect Grantor's books and
records, and to discuss Grantor's affairs and finances with Grantor's
officers and representatives, at such reasonable times as Lender may
designate.
Construction Activities. The plans and specifications which comprise
part of the Construction Property are in final form and are
satisfactory to Grantor and its contractors (subject to possible
change orders, to the extent permitted hereby), and to the extent
required by applicable law, to all applicable governmental
authorities; such plans and specifications, to Borrower's knowledge,
do not violate any zoning ordinance or restrictive covenant applicable
to any of the Collateral or the real estate upon which such Collateral
is located; Grantor has obtained all applicable
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permits and approvals necessary to undertake the activities
contemplated by the construction contracts and plans and
specifications comprising part of the Construction Property; and no
default exists under any of the construction contracts comprising part
of the Construction Property.
Stock Pledges. Contemporaneously herewith, Pledgors have collectively
pledged to Lender stock certificates evidencing not less than 72% of
the currently outstanding shares of capital stock of Grantor.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until the occurrence of
an Event of Default, Grantor may have possession and beneficial use of all the
Collateral (other than proceeds of the Tax Relief and the Fire Insurance
Proceeds) and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest
in such Collateral. If an Event of Default exists, Lender may exercise its
rights to collect the Accounts and to notify account debtors to make payments
directly to Lender for application to the Indebtedness. Lender or Lender's
agents may also periodically contact individual obligors and debtors to verify
the amounts then owing under such obligations, to determine whether such
obligors and debtors have any offsets or counterclaims against the Accounts
and/or Grantor and to inquire about such other matters as Lender may deem
necessary or desirable. If Lender at any time has possession of any
Collateral, whether before or after an Event of Default, Lender shall be deemed
to have exercised reasonable care in the custody and preservation of the
Collateral if Lender takes such action for that purpose as Grantor shall
request or as Lender, in Lender's sole discretion, shall deem appropriate under
the circumstances, but failure to honor any request by Grantor shall not of
itself be deemed to be a failure to exercise reasonable care. Lender shall not
be required to take any steps necessary to preserve any rights in the
Collateral against prior parties, nor to protect, preserve or maintain any
security interest given to secure the Collateral.
ADDITIONAL COVENANTS. Grantor additionally agrees:
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.
Aging of Accounts. Grantor will periodically, at such intervals
requested by Lender, furnish Lender with an aging of that part of the
Collateral consisting of Accounts, together with a certificate
executed by an officer of Grantor, in such form and containing such
representations
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and warranties regarding the accounts as Lender may reasonably
require.
Notice to Obligors. Upon request by Lender after the occurrence of an
Event of Default, Grantor will immediately notify individual obligors
with regard to the Collateral, advising such obligors and/or debtors
of the fact that Lender has been granted a Security Interest in their
obligations. In the event that Grantor should fail to provide such
notices for any reason upon request by Lender, Grantor agrees that
Lender may forward appropriate notices to such obligors and debtors,
either in Lender's name or in the name of Grantor.
Additional Documents. Grantor shall at any time, from time to time,
one or more times, upon written request by Lender, execute and deliver
such further documents and do any and all such further acts and things
as Lender may reasonably request, within its sole discretion, to
effect the purposes of this Agreement.
Verifications. Grantor additionally agrees that Lender or Lender's
agents may periodically contact Account Debtors in order to verify the
amounts then owing under such obligations, to determine whether such
debtors have any offsets or counterclaims against Grantor, and such
other matters about which Lender may inquire. In addition, Lender
shall have the right to have its agent visit the construction site at
the Fair Grounds Race Course to monitor such construction activities,
to verify the amounts owed by Grantor under such construction
contracts, to determine whether the work is progressing on schedule,
to determine whether any default exist under any such construction
contracts, and such other matters about which Lender may inquire.
Grantor agrees to reimburse Lender on demand for the reasonable costs
it incurs in monitoring such construction activities.
Notification of Lender. Grantor will promptly deliver to Lender all
written notices, and will promptly give Lender written notice of any
other notices received by Grantor with respect to the Collateral, and
Lender will promptly give like notice to Grantor of any such notices
received by Lender or its nominee.
EXPENDITURES BY LENDER. Grantor recognizes and agrees that Lender may incur
certain expenses in connection with Lender's exercise of rights under this
Agreement. If not discharged or paid when due, Lender may (but shall not be
obligated to) discharge or pay any amounts required to be discharged or paid by
Grantor under this Agreement, including without limitation all taxes,
Encumbrances and other claims, at any time levied or placed on the Collateral.
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Lender also may (but shall not be obligated to) pay all costs for insuring,
maintaining and preserving the Collateral, including without limitation, the
purchase of insurance protecting only Lender's interest in the Collateral.
Lender may further take such other action or actions and incur such additional
expenditures as Lender may deem to be necessary and proper to cure or rectify
any actions or inactions on Grantor's part as may be required under this
Agreement. Nothing under this Agreement or otherwise shall obligate Lender to
take any such actions or to incur any such additional expenditures on Grantor's
behalf, or as making Lender in any way responsible or liable for any loss,
damage, or injury to the Collateral, to Grantor, or to any other person or
persons, resulting from Lender's election not to take such actions or to incur
such additional expenses. In addition, Lender's election to take any such
actions or to incur such additional expenditures shall not constitute a waiver
or forbearance by Lender of any Event of Default under this Agreement. All
such expenditures incurred or paid by Lender for such purposes will then bear
interest at the default rate charged under the Notes from the date incurred or
paid by Lender to the date of repayment. All such expenses shall become a part
of the Indebtedness and will be payable on demand. This Agreement also will
secure payment of these amounts. Such right shall be in addition to all other
rights and remedies to which Lender may be entitled upon the occurrence of an
Event of Default.
EVENTS OF DEFAULT. The following actions or inactions or both shall constitute
Events of Default under this Agreement:
Default under Indebtedness. Should Grantor fail to pay any portion of
the Indebtedness within ten (10) days of the date any such portion of
the Indebtedness is due and payable.
Default under this Agreement. Should Grantor violate, or fail to
comply fully with any of the terms and conditions of, or default under
this Agreement, and such default shall continue for thirty (30) days
after written notice of such default is given by Lender to Grantor
(provided, however, that no notice or cure period shall apply with
respect to Grantor's failure to maintain any insurance required by
this Agreement).
Default Under Other Agreements. Should any Event of Default occur or
exist under any Related Document, including without limitation, any
event of default specified in any loan or credit agreement now or
hereafter governing any portion of the Indebtedness, or should any
default occur under any of the Jazz Fest Contract, the VSI Contract,
the Management Agreement or any of the construction contracts
comprising part of the Construction Property, and such default shall
continue for thirty (30) days after written notice of such default is
given by Lender to Grantor.
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Other Defaults in Favor of Lender. Should Grantor default under any
other loan, extension of credit, security agreement, or obligation in
favor of Lender, and such default shall continue for thirty (30) days
after written notice of such default is given by Lender to Grantor.
Default in Favor of Third Parties. Should Grantor, any Pledgor, or
any Guarantor default under any loan, extension of credit, security
agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any
of Grantor's or such Guarantor's property, or Grantor's or such
Guarantor's ability to perform their respective obligations under this
Agreement, or any Related Document, or pertaining to the Indebtedness,
and such default shall continue to exist after the passage of any
applicable cure period pertaining to same.
Insolvency. Should the suspensions, failure or insolvency, however
evidenced, of Grantor, any Pledgor, or any Guarantor of the Note occur
or exist.
Readjustment of Indebtedness. Should proceedings for readjustment of
Indebtedness, reorganization, composition or extension under any
insolvency law be brought by or against Grantor, any Pledgor, or any
Guarantor.
Assignment for Benefit of Creditors. Should Grantor, any Pledgor, or
any Guarantor file proceedings for a respite or make a general
assignment for benefit of creditors.
Receivership. Should a receiver of all or any part of Grantor's
property, or the property of any Pledgor or any Guarantor, be applied
for or appointed.
Dissolution Proceedings. Should proceedings for the dissolution or
appointment of a liquidator of Grantor, any Pledgor, or any Guarantor
be commenced.
False Statements. Should any representation or warranty of Grantor,
any Pledgor or any Guarantor made in connection with the Indebtedness
prove to be incorrect or misleading in any material respect.
Defective Collateralization. Should this Agreement or any of the
Related Documents cease to be in full force and effect (including
failure of any Collateral documents to create a valid and perfected
security interest or lien) at any time and for any reason, and Grantor
shall fail to cooperate with Lender in curing same within ten (10)
days of Lender's written request to Grantor for such cooperation.
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CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION.
Termination of Racing License, OTB Licenses or Video Poker Licenses.
Should any of the licenses required by Grantor for the conduct of
racing activities, pari-mutuel wagering activities, the operation of
off-track betting facilities presently operated by it or by Finish
Line Management Corp. on its behalf, or for video poker gaming at any
of its places of businesses be terminated, revoked, suspended, or not
renewed when required for the continuation of such activities, or
should any legislation allowing off-track betting or video poker
activities be ruled unconstitutional pursuant to a final judgment by a
court of proper jurisdiction.
Failure to Prepay Indebtedness with the Fire Insurance Proceeds.
Should Grantor fail to remit to Lender towards prepayment of the
Indebtedness any of the Fire Insurance Proceeds immediately upon
receipt of same (it being understood that such prepayments will be
applied to the installments due on the Indebtedness in an inverse
order of maturity).
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the Louisiana Commercial Laws (La.R.S. 10:1-101 et seq.).
In addition and without limitation, Lender may exercise any one or more of the
following rights and remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to
pay, immediately due and payable, without notice and further demand
for payment.
Seizure and Sale of Collateral In Louisiana. In the event that Lender
elects to commence appropriate Louisiana foreclosure proceedings under
this Agreement, Lender may cause the Collateral, or any part or parts
thereof, to be immediately seized wherever found, and sold, whether in
term of court or in vacation, under ordinary or executory process, in
accordance with applicable Louisiana law, to the highest bidder for
cash, with or without appraisement, and without the necessity of
making additional demand upon or notifying Grantor or placing Grantor
in default, all of which are expressly waived.
Confession of Judgment. For purposes of foreclosure under Louisiana
executory process procedures, Grantor confesses judgment and
acknowledges to be indebted unto and in favor of Lender, up to the
full amount of the Indebtedness, in
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principal, interest, costs, expenses, attorneys' fees and other fees
and charges. Grantor further confesses judgment and acknowledges to
be indebted unto and in favor of Lender in the amount of all
additional advances that Lender may make on Grantor's behalf pursuant
to this Agreement, together with interest thereon, up to a maximum of
two (2) times the face amount of the aforesaid Note. To the extent
permitted under applicable Louisiana law, Grantor additionally waives:
(a) the benefit of appraisal as provided in Articles 2332, 2336, 2723
and 2724 of the Louisiana Code of Civil Procedure, and all other laws
with regard to appraisal upon judicial sale; (b) the demand and three
(3) days' delay as provided under Articles 2639 and 2721 of the
Louisiana Code of Civil Procedure; (c) the notice of seizure as
provided under Articles 2293 and 2721 of the Louisiana Code of Civil
Procedure; (d) the three (3) days' delay provided under Article 2331
and 2722 of the Louisiana Code of Civil Procedure; and (e) all other
benefits provided under Articles 2331, 2722 and 2723 of the Louisiana
Code of Civil Procedure and all other Articles not specifically
mentioned above.
Keeper. Should any or all of the Collateral be seized as an incident
to an action for the recognition or enforcement of this Agreement, by
executory process, sequestration, attachment, writ of fieri facias or
otherwise, Grantor hereby agrees that the court issuing any such order
shall, if requested by Lender, appoint Lender, or any agent designated
by Lender, or any person or entity named by Lender at the time such
seizure is requested, or any time thereafter, as Keeper of the
Collateral as provided under La. R.S. 9:5136, et seq. Such a Keeper
shall be entitled to reasonable compensation. Grantor agrees to pay
the reasonable fees of such Keeper, which are hereby fixed at $50.00
per hour, which compensation to the Keeper shall also be secured by
this Agreement.
Deliver Collateral. This provision applies, to the extent applicable,
if and when the Collateral for any reason is located outside the State
of Louisiana following the occurrence of any Event of Default, or
should there be a subsequent change in Louisiana law permitting such
remedies. Lender may require Grantor to deliver to Lender all or any
portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require
Grantor to assemble the Collateral and make it available to Lender at
a place to be designated by Lender. Lender also shall have full power
to enter upon the property of Grantor to take possession of and remove
the Collateral. If the Collateral contains other goods not covered by
this Agreement at the time of repossession, Grantor agrees Lender may
take such other goods, provided
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that Lender makes reasonable efforts to return them to Grantor after
repossession.
Public or Private Sale of Collateral. To the extent that any of the
Collateral is then in Lender's possession, Lender shall have full
power to sell, lease, transfer, or otherwise deal with the Collateral
or proceeds thereof in its own name or that of Grantor. Lender may
sell the Collateral at public auction or private sale. Unless the
Collateral threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Lender will give Grantor
reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given
at least ten (10) days before the time of the sale or disposition.
All expenses relating to the disposition of the Collateral, including
without limitation the expenses of retaking, holding, insuring,
preparing for sale and selling the Collateral, shall become a part of
the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid. Grantor agrees that any such sale shall be conclusively
deemed to be conducted in a commercially reasonable manner if it is
made consistent with the standard of similar sales of Collateral by
commercial banks in New Orleans, Louisiana.
Appoint Receiver. This provision applies if and when the Collateral
for any reason is located outside the State of Louisiana following the
occurrence of any Event of Default, or should Louisiana law change or
be interpreted to permit such a remedy. Lender shall have the
following rights and remedies regarding the appointment of a receiver:
(a) lender may have a receiver appointed as a matter of right, (b) the
receiver may be an employee of Lender and may serve without bond, and
(c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement.
Collect Revenues, Apply Accounts. Lender shall have the right, at its
sole option and election, at any time, after an Event of Default has
occurred, to directly collect and receive all proceeds and/or payments
arising under or in any way accruing from the Collateral, as such
amounts become due and payable. In addition, Lender shall have the
right to apply the monies contained in any of Grantor's deposit
accounts with Lender to the Indebtedness then outstanding. In order
to permit the foregoing, Grantor unconditionally agrees to deliver to
Lender, immediately following demand, any and all of Grantor's
records, ledger sheets, and other documentation, in the form requested
by Lender, with regard
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to the Collateral and any and all proceeds and/or payments applicable
thereto.
Lender shall have the further right, if an Event of Default then
exists, where appropriate and within Lender's sole discretion, to file
suit, either in Lender's own name or in the name of Grantor, to
collect any and all proceeds and payments that may then and/or in the
future be due and owing under this Agreement and if as a result of
such it is necessary for Lender to attempt to collect any such
proceeds and/or payments from the obligors therefor, Lender may
compromise, settle, extend, or renew for any period (whether or not
longer than the original period) any obligation or Indebtedness
thereunder or evidenced thereby, or surrender, release, or exchange
all or any part of said obligation or Indebtedness, without affecting
the liability of Grantor under this Agreement or under the
Indebtedness. To that end, Grantor hereby irrevocably constitutes and
appoints Lender as its attorney-in-fact, coupled with an interest and
with full power of substitution, to take any and all such actions and
any and all other actions permitted hereby, either in the name of
Grantor or Lender.
Additional Expenses. In the event that it should become necessary for
Lender to conduct a search for any of the Collateral in connection
with any foreclosure action, or should it be necessary to remove the
Collateral, or any part or parts thereof, from the premises in which
or on which the Collateral is then located, and/or to store and/or
refurbish such Collateral, Grantor agrees to reimburse Lender for the
cost of conducting such a search and/or removing and/or storing and/or
refurbishing such Collateral, which additional expense shall also be
secured by the lien of this Agreement.
Specific Performance. Lender may, in addition to the foregoing
remedies, or in lieu thereof, in Lender's sole discretion, commence an
appropriate action against Grantor seeking specific performance of any
covenant contained herein, or in aid of the execution or enforcement
of any power herein granted.
Obtain Deficiency. Lender may obtain a judgment against Grantor for
any deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the rights
provided in this Agreement and any Related Documents.
Other Rights and Remedies. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at
law, in equity, or otherwise. To the extent that the perfection of
the security interest in the
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Collateral or the enforcement thereof is governed by the law of any
state other than Louisiana, then the Lender shall have all the rights
and remedies of a secured party under the Uniform Commercial Code as
passed and amended in that state and under any other applicable law.
Cumulative Remedies. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of Grantor
under this Agreement, after Grantor's failure to perform, shall not
affect Lender's right to declare a default and to exercise its
remedies.
REGISTRATION OF STOCK. Grantor acknowledges that Pledgors have
contemporaneously herewith pledged certain shares of the common stock of
Grantor as security for the Indebtedness, and that Pledgors have agreed that
upon the occurrence of an Event of Default, Lender shall have the right to sell
such shares of stock at public or private sales. If any consent, approval, or
authorization of any federal, state, municipal or other governmental
department, agency or authority should be necessary to effectuate any sale or
other disposition of such stock, or any partial sale or other disposition of
such stock, Grantor will execute all applications and other instruments as may
be required in connection with securing any such consent, approval or
authorization and will otherwise use its best efforts to secure same. If
Lender shall determine to exercise its right to sell all or any part of such
stock and if in the opinion of counsel to Lender it is advisable to have such
stock or the portion thereof to be sold registered under the provisions of the
Securities Act of 1933, as amended (the "Act"), Grantor hereby agrees, at its
own cost and expense (i) to execute and deliver, and to cause its directors and
officers to execute and deliver, all such instruments and documents, and to do
or cause to be done all other such acts and things, as may be necessary or, in
the opinion of the Lender, advisable to register such stock, or the portion
thereof to be sold, under the provisions of the Act and to cause the
registration statement relating thereto to become effective and to remain
effective for such period as prospectuses are required by law to be furnished,
and to make or cause to be made all amendments and supplements thereto and to
the related prospectus which, in the opinion of the Lender, are necessary or
advisable, all in conformity with the requirements of the Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto, (ii)
to make available to its security holders as soon as practicable an earnings
statement (which need not be audited) covering a period of at least 12 months,
beginning with the first month after the effective date of
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any such registration statement, which earnings statement will satisfy the
provisions of Section 11(a) of the Act, (iii) to use its best efforts to
qualify such stock under state Blue Sky or securities laws and to obtain the
approval of any governmental authorities for the public sale of such stock,
including all necessary gaming authorities' approvals, as requested by the
Lender, and (iv) at the request of the Lender, to indemnify and hold harmless
the Lender, the holder or holders of the Indebtedness and any underwriters,
including any person controlling any of the foregoing, from and against any
loss, liability, claim, damage and expense, including reasonable attorneys'
fees incurred in connection therewith, under the Act or otherwise insofar as
such loss, liability, claim, damage or expense arises out of or is based upon
any actual or alleged untrue statement of a material fact contained in such
registration statement or supplement thereto, or arises out of or is based upon
any omission or alleged omission to state therein a material fact required to
be stated or necessary to make the statements therein not misleading, such
indemnification to remain operative regardless of any investigation made by or
on behalf of the Lender, the holder or holders of the Indebtedness or any
underwriters, including any person controlling any of the foregoing; provided,
however, that Grantor shall not be liable in any case to the extent that any
such loss, liability, claim, damage or expenses arises out of or is based on an
untrue statement or alleged untrue statement or an omission or an alleged
omission made in reliance upon and in conformity with written information
furnished specifically to Grantor by Lender, any holder or holder of the
Indebtedness or any underwriter.
Expenses payable by Grantor in connection with any disposition of the stock of
the Pledgors under the provisions above shall include, but shall not be limited
to, all costs of a registration under the Act of any such stock pursuant to any
applicable regulation under the Act, brokers' or underwriters' commissions,
fees or discounts, accounting and legal fees, costs of printing and other
expenses of transfer and sale. Grantor agrees to pay to Lender on demand
following any Event of Default and in advance of any such registration, sale or
other realization on such stock, such amount which, in the estimation of
counsel to the Lender, will cover all of such costs and expenses described
above, and all other costs and expenses of enforcing the Indebtedness and of
realizing on such stock, including reasonable attorneys' fees and legal
expenses.
ASSIGNMENT OF INDEBTEDNESS. Grantor hereby recognizes and agrees that Lender
may assign all or any portion of Grantor's Indebtedness to one or more third
party creditors. Such transfers may include, but are not limited to, sales of
participation interests in Grantor's Indebtedness. Grantor specifically agrees
and consents to all such transfers and assignments. Grantor additionally
agrees that any and all of Grantor's Indebtedness in
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favor of such a third party assignee, for the limited purposes set forth above,
will be secured by the Collateral.
PROTECTION OF LENDER'S SECURITY RIGHTS. Grantor will be fully responsible for
any losses that Lender may suffer as a result of anyone other than Lender
asserting any rights or interest in or to the Collateral. Grantor agrees to
appear in and to defend all actions or proceedings purporting to affect
Lender's security interests in any of the Collateral subject to this Agreement
and any of the rights and powers granted Lender hereunder. In the event that
Grantor fails to do what is required of it under this Agreement, or if any
action or proceeding is commenced naming Lender as a party or affecting
Lender's security interests or the rights and powers granted under this
Agreement, then Lender may, without releasing Grantor from any of its
obligations under this Agreement, do whatever Lender believes to be necessary
and proper within its sole discretion to protect the security of this
Agreement, including without limitation making additional advances on Grantor's
behalf as provided herein.
INDEMNIFICATION OF LENDER. Grantor agrees to indemnify, to defend and to save
and hold Lender harmless from any and all claims, suits, obligations, damages,
losses, costs, expenses (including without limitation Lender's attorneys'
fees), demands, liabilities, penalties, fines and forfeitures of any nature
whatsoever that may be asserted against or incurred by Lender arising out of or
in any manner occasioned by this Agreement and the exercise of the rights and
remedies granted Lender hereunder. The foregoing indemnity provisions shall
survive the cancellation of this Agreement as to all matters arising or
accruing prior to such cancellation, and the foregoing indemnity shall survive
in the event that Lender elects to exercise any of the remedies as provided
under this Agreement following default hereunder.
EXECUTION OF ADDITIONAL DOCUMENTS. Grantor agrees to execute all additional
documents, instruments and agreements that Lender may deem to be necessary and
proper, within its sole discretion, in form and substance satisfactory to
Lender, to keep this Agreement in effect, and to consummate fully all of the
transactions contemplated hereby and by any other agreement, instrument or
document heretofore, now or at any time or times hereafter executed by Grantor
and delivered to Lender.
INSPECTION; AUDITS. Lender and its agents may periodically enter upon
Grantor's premises at reasonable hours and inspect the Collateral. Lender and
its agents may also periodically conduct audits of the Collateral and may
further inspect and audit Grantor's books and records that in any way pertain
to the Collateral and any part or parts thereof.
APPLICATION OF PAYMENTS. Grantor agrees that all payments and other sums and
amounts received by Lender under the Indebtedness
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or under this Agreement, shall be applied: first, to reimburse Lender for its
costs of collecting the same (including but not limited to, reimbursement of
Lender's reasonable attorneys' fees); second, to the repayment of interest on
any Indebtedness; and finally, to the payment of principal on the Indebtedness
then outstanding, which may be applied in such order and priority as Lender may
determine within its sole discretion.
TAXATION. In the event that there should be any change in law with regard to
taxation of security agreements or the debts they secure, Grantor agrees to pay
any taxes, assessments or charges that may be imposed upon Lender as a result
of this Agreement.
EFFECT OF WAIVERS. Grantor has waived, and/or does by these presents waive,
presentment for payment, protest, notice of protest and notice of nonpayment
under all of the Indebtedness secured by this Agreement. Grantor has further
waived, and/or does by these presents waive, all pleas of division and
discussion, and all similar rights with regard to the Indebtedness, and agrees
that Grantor shall remain liable, together with any and all Guarantors of the
Indebtedness, on a "solidary" or "joint and several" basis. Grantor further
agrees that discharge or release of any party who is, may, or will be liable to
Lender under any of the Indebtedness, or the release of the Collateral or any
other Collateral directly or indirectly securing repayment of the same, shall
not have the effect of releasing or otherwise diminishing or reducing the
actual or potential liability of Grantor and/or any other party or parties
guaranteeing payment of the Indebtedness, who shall remain liable to Lender,
and/or of releasing any Collateral or other Collateral that is not expressly
released by Lender.
Grantor additionally agrees that Lender's acceptance of payments other than in
accordance with the terms of any agreement or agreements governing repayment
of the Indebtedness, or Lender's subsequent agreement to extend or modify such
repayment terms, shall likewise not have the effect of releasing Grantor,
and/or any other party or parties guaranteeing payment of the Indebtedness,
from their respective obligations to Lender, and/or of releasing any of the
Collateral or other Collateral directly or indirectly securing repayment of the
Indebtedness. In addition, no course of dealing between Grantor and Lender,
nor any failure or delay on the part of Lender to exercise any of the rights
and remedies granted to Lender under this Agreement, or under any other
agreement or agreements by and between Grantor and Lender, shall have the
effect of waiving any of Lender's rights and remedies. Any partial exercise of
any rights and remedies granted to Lender shall furthermore not constitute a
waiver of any of Lender's other rights and remedies, it being Grantor's intent
and agreement that Lender's rights and remedies shall be cumulative in nature.
Grantor further agrees that, upon the occurrence of any Event of Default under
this Agreement, any waiver or forbearance
162
<PAGE> 28
on the part of Lender to pursue the rights and remedies available to Lender,
shall be binding upon Lender only to the extent that Lender specifically agrees
to any such waiver or forbearance in writing. A waiver or forbearance as to
one Event of Default shall not constitute a waiver of forbearance as to any
other Event of Default. None of the warranties, conditions, provisions and
terms contained in this Agreement or any other agreement, documents, or
instrument now or hereafter executed by Grantor and delivered to Lender, shall
be deemed to have been waived by any act or knowledge of Lender, its agents,
officers or employees; but only by an instrument in writing specifying such
waiver, signed by a duly authorized officer of Lender and delivered to Grantor.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement.
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Agreement. No alteration of or
amendment to this Agreement shall be effective unless given in writing
and signed by the party or parties sought to be charged or bound by
the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender in the State of Louisiana. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Louisiana.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of Lender's
costs and expenses, including reasonable attorneys' fees and legal expenses,
incurred in connection with the enforcement of this Agreement. Lender may pay
someone else to help enforce this Agreement, and Grantor shall pay the costs
and expense of such enforcement. Costs and expenses include Lender's
reasonable attorneys' fees and legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Grantor also shall pay all court costs and such additional fees as may be
directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
Notices. Any notice or demand which, by any provision of this Agreement, is
required or permitted to be given or served by the Lender to or on the Grantor
shall be deemed to have been sufficiently given and served for all purposes (if
mailed) five calendar days after being deposited, postage prepaid, in the
163
<PAGE> 29
United States mail, registered or certified mail, or (if delivered by express
courier) one calendar day after being delivered to such courier, or (if
delivered in person) the same day as delivery or (if delivered by facsimile
transmission) on the day reception is confirmed, in each case addressed (until
another address or addresses are given in writing by the Grantor to the Lender)
to the Grantor as follows:
Fair Grounds Corporation
1751 Gentilly Blvd.
New Orleans, LA 70119
Telecopy No.: (504) 944-1211
Attn: Gordon Robertson,
Vice President and
Chief Financial Officer
with copies to:
Chehardy, Sherman, Ellis, Breslin & Murray
Suite 1100
One Galleria Blvd.
Metairie, LA 70001
Attn: David R. Sherman, Esq.
Telecopy No.: (504) 833-8080
and
Richard Katcher, Trustee
Four Commerce Park Square
23200 Chagrin Boulevard
Suite 600
Cleveland, Ohio 44122
Telecopy No.: (216) 464-7609
Any notice or demand which, by any provision of this Agreement, is
required or permitted to be given or served by the Grantor to or on the Lender
shall be deemed to have been sufficiently given and served for all purposes
(if mailed) five calendar days after being deposited, postage prepaid, in the
United States mail, registered or certified mail, or (if delivered by express
courier) one calendar day after being delivered to such courier, or (if
delivered in person) the same day as delivery or (if delivered by facsimile
transmission) on the day reception is confirmed, in each case addressed (until
another address or addresses are given in writing by the Lender to the Grantor)
to the Lender as follows:
164
<PAGE> 30
First National Bank of Commerce
210 Baronne Street
New Orleans, Louisiana 70112
Attn: Hospitality Lending Division,
Louis Ballero, Senior Vice President
Telecopy No.: (504) 561-1738
with a copy to:
Liskow & Lewis
One Shell Square
50th Floor
New Orleans, Louisiana 70139-5001
Attn: Wm. Blake Bennett, Esq.
Telecopy No.: (504) 592-5108
Power of Attorney. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover all
sums of money or other property which may now or hereafter become due, owing or
payable from the Collateral; (b) to execute, sign and endorse any and all
claims, instruments, receipts, checks, drafts or warrants issued in payment for
the Collateral; (c) to settle or compromise any and all claims arising under
the Collateral (other than claims giving rise to Fire Insurance Proceeds and
the claims with respect to the ADT Lawsuit), and, in the place and stead of
Grantor, to execute and deliver its release and settlement for the claim; and
(d) to file any claim or claims or to take any action or institute or take part
in any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in full
force and effect until renounced by Lender.
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstances, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any such
offending provision shall be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of this Agreement in
all other respects shall remain valid and enforceable.
Sole Discretion of Lender. Whenever Lender's consent or approval is required
under this Agreement, the decision as to whether or not to consent or approve
shall be in the sole and exclusive discretion of Lender and Lender's decision
shall be final and
165
<PAGE> 31
conclusive; provided, however, that Lender shall not arbitrarily or
capriciously withhold such consent.
Successors and Assigns Bound; Solidary Liability. Grantor's obligations and
agreements under the Agreement shall be binding upon Grantor's successors and
assigns. In the event that there is more than one Grantor under this
Agreement, all of the agreements and obligations made and/or incurred by
Grantors under this Agreement shall be on a "solidary" or "joint and several"
basis.
GRANTOR AND LENDER ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS SECURITY
AGREEMENT, AND AGREE TO ITS TERMS. THIS AGREEMENT IS DATED JULY 17, 1995.
GRANTOR:
FAIR GROUNDS CORPORATION
By:_______________________________
Its:______________________________
LENDER:
FIRST NATIONAL BANK OF COMMERCE
By:_______________________________
Its:______________________________
166
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