SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
AMENDMENT 1
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________TO___________
Commission file number 000-25306
EQUUS GAMING COMPANY L.P.
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1719877
------------------------------ --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
650 Munoz Rivera Avenue
Doral Building, 7th Floor
Hato Rey, PR 00918
---------------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
(787) 753-0676
---------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
---------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date (July 31, 2000). 9,300,381
Class A Units
1
<PAGE>
EQUUS GAMING COMPANY L.P.
FORM 10 Q
INDEX
PAGE
NUMBER
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Operations for the Six Months and Three
Months ended June 30, 2000 and 1999 (Unaudited) 3
Consolidated Statements of Comprehensive Income (Loss) for the
Six months and Three Months Ended
June 30, 2000 and 1999 (Unaudited) 5
Consolidated Balance Sheets at June 30, 2000 (Unaudited)
and December 31, 1999 (Audited) 6
Consolidated Statement of Changes in Partners' Deficit for the
Six Months Ended June 30, 2000 (Unaudited) 8
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999 (Unaudited) 9
Notes to Consolidated Financial Statements 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations 22
Liquidity and Capital Resources 26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 2. Material Modifications of Rights of Registrant's Securities 29
Item 3. Default upon Senior Securities 29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 5. Other Information 29
Item 6. Exhibits and Reports on Form 8-K 29
Signatures 80
2
<PAGE>
<TABLE>
<CAPTION>
EQUUS GAMING COMPANY L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
2000 1999
------------ ------------
(AS RESTATED)
<S> <C> <C>
REVENUES:
Commissions on wagering $32,428,432 $33,355,001
Net revenues from lottery services 170,348 265,538
Other revenues 1,659,429 2,056,264
Gain on sale of assets 179,500 -
------------ ------------
34,437,709 35,676,803
------------ ------------
EXPENSES:
Payments to horseowners 15,632,350 16,425,853
Salaries, wages and employee benefits 5,010,090 5,473,900
Operating expenses 5,370,370 3,953,395
General and administrative 1,915,263 1,774,659
Marketing, television and satellite costs 2,500,104 2,212,498
Financial expenses 4,902,172 4,147,602
Depreciation and amortization 1,915,688 1,722,287
------------ ------------
37,246,037 35,710,194
------------ ------------
(LOSSES) EARNINGS BEFORE INCOME TAXES, MINORITY (2,808,328) (33,391)
INTERST AND EXTRAORDINARY ITEMS
PROVISION FOR INCOME TAXES 198,071 329,914
------------ ------------
(LOSSES) EARNINGS BEFORE MINORITY INTEREST AND (3,006,399) (363,305)
EXTRAODINARY ITEMS
MINORITY INTEREST IN (LOSSES) EARNINGS (193,450) (430,705)
------------ ------------
(LOSSES) EARNINGS BEFORE EXTRAORDINARY ITEMS (2,812,949) 67,400
EXTRAORDINARY ITEMS - DISCOUNT ON EARLY
REDEMPTION OF FIRST MORTGAGE NOTES - 22,680
------------ ------------
NET (LOSSES) EARNINGS $(2,812,949) $ 90,080
============ ============
ALLOCATION OF NET (LOSSES) EARNINGS:
General partners $ (28,129) $ 901
Limited partners (2,784,820) 89,179
------------ ------------
$(2,812,949) $ 90,080
------------ ------------
BASIC AND DILUTED PER UNIT AMOUNTS: $ (0.34) $ 0.01
============ ============
WEIGHTED AVERAGE UNITS OUTSTANDING 8,364,824 7,141,891
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements
3
<PAGE>
<TABLE>
<CAPTION>
EQUUS GAMING COMPANY L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30,
(UNAUDITED)
2000 1999
------------ ------------
(AS RESTATED)
<S> <C> <C>
REVENUES:
Commissions on wagering $15,912,221 $16,045,600
Net revenues from lottery services 62,461 123,045
Other revenues 660,782 522,472
Gain on sale of assets 179,500 -
------------ ------------
16,814,964 16,691,117
------------ ------------
EXPENSES:
Payments to horseowners 7,662,483 8,032,784
Salaries, wages and employee benefits 2,561,563 2,561,110
Operating expenses 2,911,628 1,789,963
General and administrative 989,367 996,186
Marketing, television and satellite costs 1,371,419 1,282,458
Financial expenses 2,456,338 2,073,647
Depreciation and amortization 960,605 846,343
------------ ------------
18,913,403 17,582,491
------------ ------------
(LOSSES) EARNINGS BEFORE INCOME TAXES, MINORITY (2,098,439) (891,374)
INTEREST AND EXTRAORDINARY ITEMS
PROVISION (BENEFIT) FOR INCOME TAXES 42,382 (8,573)
------------ ------------
(LOSSES) EARNINGS BEFORE MINORITY INTEREST AND (2,140,821) (882,801)
EXTRAODINARY ITEMS
MINORITY INTEREST IN (LOSSES) EARNINGS 64,844 (370,243)
------------ ------------
(LOSSES) EARNINGS BEFORE EXTRAORDINARY ITEMS (2,205,665) (512,558)
EXTRAORDINARY ITEMS - DISCOUNT ON EARLY
REDEMPTION OF FIRST MORTAGE NOTES - 22,680
------------ ------------
NET (LOSSES) EARNINGS $(2,205,665) $ (489,878)
============ ============
ALLOCATION OF NET (LOSSES) EARNINGS:
General partners $ (22,057) $ (4,899)
Limited partners (2,183,608) (484,979)
------------ ------------
$(2,205,665) $ (489,878)
------------ ------------
BASIC AND DILUTED PER UNIT AMOUNTS: $ (0.26) $ (0.06)
============ ============
WEIGHTED AVERAGE UNITS OUTSTANDING 8,364,824 8,401,143
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements
4
<PAGE>
<TABLE>
<CAPTION>
EQUUS GAMING COMPANY L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE SIX AND THREE MONTHS ENDED JUNE 30,
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30,
2000 1999
------------ ----------
(AS RESTATED)
<S> <C> <C>
NET (LOSSES) EARNINGS $(2,812,949) $ 90,080
OTHER COMPREHENSIVE (LOSSES) INCOME:
Currency translation adjustments 221,071 130,761
------------ ----------
COMPREHENSIVE (LOSSES) INCOME $(2,591,878) $ 220,841
------------ ----------
FOR THE THREE MONTHS ENDED JUNE 30,
2000 1999
------------ ----------
(AS RESTATED)
NET (LOSSES) EARNINGS $(2,205,665) $(489,878)
OTHER COMPREHENSIVE (LOSSES) INCOME:
Currency translation adjustments 337,033 65,239
------------ ----------
COMPREHENSIVE (LOSSES) INCOME $(1,868,632) $(424,639)
------------ ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements
5
<PAGE>
<TABLE>
<CAPTION>
EQUUS GAMING COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, DECEMBER 31,
2000 1999
------------- ---------------
(UNAUDITED) (AUDITED)
(AS RESTATED)
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
Unrestricted $ 1,725,446 $ 1,888,995
Restricted 157,164 418,938
------------- ---------------
1,882,610 2,307,933
------------- ---------------
PROPERTY AND EQUIPMENT:
Land 7,705,446 7,786,980
Building and improvements 56,910,950 56,512,072
Equipment 14,612,758 13,967,887
------------- ---------------
79,229,154 78,266,939
Accumulated depreciation (20,198,079) (18,409,886)
------------- ---------------
59,031,075 59,857,053
------------- ---------------
DEFERRED COSTS, NET:
Financing 2,356,054 2,510,487
Costs of Panama contract 1,925,000 1,980,000
Other 739,943 501,505
------------- ---------------
5,020,997 4,991,992
------------- ---------------
OTHER ASSETS:
Accounts receivable, net 1,866,900 1,577,634
Notes receivable 2,109,931 1,506,599
Other assets 1,420,131 701,362
------------- ---------------
5,396,962 3,785,595
------------- ---------------
$ 71,331,644 $ 70,942,573
============= ===============
</TABLE>
The accompanying notes are an integral part of these consolidated statements
6
<PAGE>
<TABLE>
<CAPTION>
EQUUS GAMING COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(continued)
LIABILITIES AND PARTNERS' DEFICIT
JUNE 30 DECEMBER 31
2000 1999
-------------- -------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
FIRST MORTGAGE NOTES: (AS RESTATED)
Principal, net of note discount of
$736,611 and $885,446 $ 53,717,389 $ 53,568,554
Accrued interest 265,900 265,900
-------------- -------------
53,983,289 53,834,454
-------------- -------------
OTHER LIABILITIES:
Accounts payable and accrued liabilities 15,581,853 11,660,824
Outstanding winning tickets and refunds 984,642 1,130,389
Notes payable 6,032,781 6,226,082
Bonds payable 4,000,000 4,000,000
Capital lease obligations 2,746,394 3,235,507
-------------- -------------
29,345,670 26,252,802
-------------- -------------
DEFERRED INCOME TAXES 3,564,866 3,165,800
-------------- -------------
MINORITY INTEREST 1,814,990 2,474,810
-------------- -------------
COMMITMENTS AND CONTINGENCIES, SEE NOTE 2
PARTNERS' DEFICIT
General Partner (807,797) (781,879)
Limited Partners - 10,383,617 units authorized:
(9,300,381 units issued and outstanding of which
935,557 are in treasury stock in 2000 and 1999) (16,569,374) (14,003,414)
-------------- -------------
(17,377,171) (14,785,293)
-------------- -------------
$ 71,331,644 $ 70,942,573
============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements
7
<PAGE>
<TABLE>
<CAPTION>
EQUUS GAMING COMPANY L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
---------- ------------- -------------
<S> <C> <C> <C>
BALANCES, DECEMBER 31, 1999 $(781,879) $(14,003,414) $(14,785,293)
Net losses for the period (As restated) (28,129) (2,784,820) (2,812,949)
Currency translation adjustments (As restated) 2,211 218,860 221,071
---------- ------------- -------------
BALANCES, JUNE 30, 2000 (AS RESTATED) $(807,797) $(16,569,374) $(17,377,171)
========== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements
8
<PAGE>
<TABLE>
<CAPTION>
EQUUS GAMING COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
2000 1999
------------ ------------
(AS RESTATED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (losses) earnings $(2,812,949) $ 90,080
------------ ------------
Adjustments to reconcile net (losses) earnings to
net cash provided by operating activities-
Depreciation and amortization 2,373,958 2,064,747
Deferred income tax provision 198,071 277,772
Currency translation adjustments (245,299) 66,243
Minority interest (193,450) (6,961)
Extraordinary item - 22,680
Decrease (increase) in assets-
Accounts receivable (289,267) (403,609)
Prepayments and other assets (718,769) 478,482
Deferred costs (434,659) (148,862)
Increase (decrease) in liabilities-
Accrued interest on first mortgage notes - (51,106)
Accounts payable and accrued liabilities 4,122,024 (1,876,911)
Outstanding winning tickets and refunds (145,747) 540,463
------------ ------------
Total adjustments 4,666,862 962,938
------------ ------------
Net cash provided by operating activities 1,853,913 1,053,018
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (758,127) (6,123,358)
(Increase) decrease in notes receivable, net (603,332) 386,042
------------ ------------
Net cash used in investing activities (1,361,459) (5,737,316)
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements
9
<PAGE>
<TABLE>
<CAPTION>
EQUUS GAMING COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
(continued)
2000 1999
------------ ------------
(AS RESTATED)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of First Mortgage Notes $ - $(3,048,320)
Contribution by minority stockholders - 40,158
Payments to affiliates - (200,000)
Loan proceeds from financial institutions 720,000 1,075,000
Payments on notes payable and capital
lease obligations (1,482,776) (934,578)
Increase in defered costs (155,001) (7,499)
Issuance of units - 3,051,600
Cash distributions to minority partners of HDA - (18,106)
------------ ------------
Net cash used in financing activities (917,777) (41,745)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (425,323) (4,726,043)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,307,933 6,637,267
------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,882,610 $ 1,911,224
============ ============
SUPPLEMENTAL INFORMATION:
Interest paid $ 4,497,528 $ 4,057,925
Income taxes paid - -
NON-CASH TRANSACTIONS:
Equipment acquired through capital leases 80,362 395,038
Contribution of non-cash assets, net of liabilities
by Los Comuneros S.A. (see Note 1) - 1,959,842
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
10
<PAGE>
EQUUS GAMING COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
Equus Gaming Company L.P. (the "Company"), a Virginia limited partnership,
is engaged in thoroughbred racing, wagering and other gaming businesses in the
Caribbean, Central and South America. Through its subsidiaries, the Company
operates four racetracks and manages an extensive off-track betting ("OTB")
system in the various countries where the Company operates.
The Company has a 99% interest in Housing Development Associates S.E.
("HDA"), the owner of El Comandante Race Track ("El Comandante"), the only
licensed thoroughbred racing facility in Puerto Rico. El Comandante has been
operated since January 1, 1998 by the wholly owned subsidiary of HDA, El
Comandante Management Company, LLC ("ECMC"). HDA has recently organized two
wholly-owned subsidiaries: Satellites Services International, Inc. ("SSI") and
Agency Betting Network, Inc. ("ABN"). SSI will provide up-link services,
satellite time (contracted from a third party), and leasing of video and data
telecommunication equipment to transmit (or simulcast) live races from and to
the Company's racetracks and OTB agencies, including live races from outside the
Company's operational territories to the Company's agency distribution network
in order to increase the level of wagering revenues through the OTB systems.
ABN is establishing and operating an OTB agency system in Colombia for Los
Comuneros Race Track in Medellin, Colombia ("Los Comuneros").
The Company has a 55% interest in Galapagos, S.A. ("Galapagos"), the
operator since April 1995 of the V Centenario Race Track in the Dominican
Republic ("V Centenario") and a 51% interest in Equus Entertainment de Panama,
S.A. ("Equus-Panama"), the operator since January 1, 1998 of the Presidente
Remon Race Track in the Republic of Panama ("Presidente Remon"). Both
racetracks are government-owned and operated by the Company's subsidiaries under
long-term contracts.
The Company also has since 1999 a controlling 50% interest in Equus
Comuneros S.A. ("Equus-Comuneros"), the owner and operator of Los Comuneros for
approximately $2.1 million. In 1999 Equus-Comuneros received as a capital
contribution from the minority stockholder, Los Comuneros S.A., all assets and
liabilities that were employed by the prior operator of Los Comuneros. The
assets mainly consisted of land, buildings and equipment for approximately $4.7
million and liabilities of approximately $2.6 million. The liabilities included
mainly accounts payable to vendors and horseowners and certain financial
obligations with various maturities through 2004.
CONSOLIDATION AND PRESENTATION
The consolidated financial statements as of June 30, 2000 and for the six
months ended June 30, 2000 and 1999 are unaudited but include all adjustments
(consisting of normal recurring adjustments) which management considers
necessary for a fair presentation of the results of operations of the interim
periods. The operating results for the six months ended June 30, 2000 are not
necessary indicative of the results that may be expected for the year. Net
earnings (losses) per unit are calculated based on weighted average of Units
outstanding. Outstanding warrants to purchase Units do not have a material
dilutive effect on the calculation of earnings per Unit.
11
<PAGE>
In this amended 10Q, the Company restated the financial statements to
correct certain information primarily related to: (1) reclassification of
interest income from other revenues to be netted with interest expense; (2)
recomputation of the currency translation adjustment for Colombia based on
revised information. This adjustment was made to operating expenses in the
statement of operations and also to the comprehensive statement of income
(loss), to correct information not properly computed in prior quarters; (3)
recomputation of cumulative adjustments for minority interest which was not
calculated properly in this and prior quarters; (4) increase in the federal
income tax provision by approximately $40,000.
Although the Company had the option under Regulation S-K (requiring at
fiscal year end appropriate reconciliation and description of any adjustments to
quarterly reports previously reported in a Form 10Q for any quarter (17 CFR
229.302 (a) )) to report the effect of the above corrections at the end of the
fiscal year, the Company decided to make the adjustments for this and prior
quarters in the amended 10Q of June 30, 2000.
The above adjustments (2) ,(3) and (4) resulted in the following:
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
JUNE 30, 2000 JUNE 30, 2000
As Previously As As Previously As
Reported Restated Reported Restated
--------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 34,882,048 $34,437,709 $ 17,259,303 $16,814,964
Expenses 37,522,275 37,246,037 19,189,641 18,913,403
--------------- ------------ --------------- ------------
(2,640,227) (2,808,328) (1,930,338) (2,098,439)
Provision for income taxes 157,803 198,071 2,114 42,382
--------------- ------------ --------------- ------------
(2,798,030) (3,006,399) (1,932,452) (2,140,821)
Minority interest (588,343) (193,450) (330,049) 64844
--------------- ------------ --------------- ------------
Net loss $ (2,209,687) $(2,812,949) $ (1,602,403) $(2,205,665)
=============== ============ =============== ============
Basic and diluted net
loss per unit $ (0.26) $ (0.34) $ (0.19) $ (0.26)
</TABLE>
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States ('GAAP") requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, if any, at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
These unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in financial
statements prepared in accordance with GAAP have been condensed or omitted.
While management believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these financial statements
be read in conjunction with the financial statements and the notes of the
Company included in the Company's Annual Report filed on Form 10-K for the year
ended December 31, 1999.
12
<PAGE>
The Company consolidates the entities in which it has a controlling
interest. The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries after eliminating all significant
inter-company transactions. All of the entities included in the consolidated
financial statements are hereinafter referred to collectively, when practicable,
as the "Company".
The Company has minority partners in HDA, Galapagos, Equus-Panama and
Equus-Comuneros. Therefore, the Company recorded minority interest based on the
earnings and (losses) of these consolidated subsidiaries that are attributable
to the minority partners, as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS, FOR THE THREE MONTHS
ENDED JUNE 30 ENDED JUNE 30,
----------------------------------------------
2000 1999 2000 1999
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
SUBSIDIARY:
HDA $ (12,090) $ 22,110 $(13,586) $ 11,760
Galapagos - - - -
Equus-Panama 113,750 (49,923) 88,003 (79,073)
Equus-Comuneros (295,110) (402,892) (9,573) (302,930)
---------- ---------- --------- ----------
$(193,450) $(430,705) $ 64,844 $(370,243)
---------- ---------- --------- ----------
</TABLE>
In general, the minority interest is calculated based on the ownership
interest of the minority partners. HDA has a minority partner owning a 1%
interest. Galapagos' minority partners own a 45% interest. However, during
the six months ended June 30, 2000 and 1999 the Company did not recognize
minority interest in Galapagos' losses amounting to $188,054 and $181,094
respectively, because the minority partners have no legal obligation to fund
such losses in excess of their investment. As of June 30, 2000 the accumulated
losses not allocated to the minority partners amounts to $1,275,124.
Equus-Panama minority partners own a 49% interest. Equus-Comuneros minority
partners own a 50% interest.
CURRENCIES
The Company consolidates its accounts with Galapagos and Equus-Comuneros
whose functional currency are the Dominican Republic peso and the Colombian
peso, respectively. The United States dollars ("US$") are also a recording
currency in these countries. US$ are exchanged into these foreign currencies
("FC$") and vice versa through commercial banks and/or the central banks of the
respective countries. The Company remeasures the monetary assets and
liabilities of the foreign subsidiaries that were recorded in US$ into the FC$
using the exchange rates in effect at the balance sheet date (the "current
rate") and all other
assets and liabilities and capital accounts, at the historical rates. The
Company then translates the financial statements of the foreign subsidiaries
from FC$ into US$ using the current rates, for all assets and liabilities, and
the average exchange rates prevailing during the year, for revenues and
expenses.
For the six months ended June 30, 2000 and 1999, net exchange losses
resulting from re - measurement of accounts, together with losses from foreign
currency transactions, amounted to $235,846 and $91,126, respectively, which
amounts are included as operating expenses. Accumulated net loss from changes
in exchange rates due to the translation of assets and liabilities of the
foreign subsidiaries are included in partners' deficit and at June 30, 2000 and
December 31, 1999 amounted to $435,430 and $656,501, respectively.
13
<PAGE>
The current exchange rates in Dominican Republic as of June 30, 2000 and
December 31, 1999 were US$1.00 to FC$16.35 and US$1.00 to FC$16.00,
respectively. The average exchange rates in Dominican Republic prevailing
during the six months ended June 30, 2000 and 1999, were US$1.00 to FC$16.27,
US$1.00 to FC$16.00, respectively. The current exchange rate in Colombia as of
June 30, 2000 and 1999 were US$1.00 to FC$2,139 and $US1.00 to FC$1,500. The
average exchange rate in Colombia prevailing during the six months ended in June
30, 2000 and 1999 were US$1.00 to FC$2,016 and US$1.00 to FC$1,500. The Company
also consolidates its accounts with Equus-Panama whose functional currencies are
the Panama Balboas and the US$. Because these currencies are of equivalent
value, there is no effect attributed to foreign currency transactions of
Equus-Panama.
2. COMMITMENTS AND CONTINGENCIES:
HORSEOWNERS' AGREEMENTS
The Company has separate agreements with the horseowners association of
each country that establishes the amount payable to horseowners as purses in
exchange for the availability of thoroughbred horses for races. Payments to
horseowners are, in general, based on a percentage of wagering.
The Panama contract expires in December 2007. It provides for minimum
guaranteed payments to horseowners in 1999 and 1998 of $4.1 million and $3.8
million, respectively (including loans of $200,000 each year). The Dominican
Republic contract expires in December 2005. The Colombia contract expires on
December 31, 2009. It provides for certain minimum guaranteed payments to
horseowners during the first three years ($1.2 million in 2000, increased in
2001 and 2002 in accordance with an inflation factor).
The new Puerto Rico 10-year contract expires on December 31, 2010. It
provides for : (1) distribution of "Take" or commissions on wagering on a 50/50
basis between Horseowners and El Comandante Management Company (no change from
prior contract) ; (2) a one-time payment made on July 31, 2000 of $1 million to
Horseowners for Autotote fees charged in prior years ; (3) and a cost sharing
agreement (generally on a 50/50 basis) to defray operating expenses totaling
$2.7 million, of which El Comandante will be responsible for $1.4 million, over
the next 10 years. (copy of agreement included in Part II - Other Information)
WAGERING SERVICES AGREEMENTS
The Company has separate agreements with Autotote Systems, Inc.
("Autotote") for providing wagering services, software and equipment to each
racetrack, necessary for the operation of the off-track betting system.
Payments under these contracts are summarized as follows:
<TABLE>
<CAPTION>
EL COMANDANTE V CENTENARIO REMON LOS COMUNEROS
--------------- -------------- ------------- -------------
Expiration date March 2005 March 2005 January 2008 (d)
<S> <C> <C> <C> <C>
Cost of services, as a
percentage of wagering 0.65% 0.65% (a) 1.00% 1.20%
Minimum amount per year $ 800,800 $ 200,000 (b) $ 330,000 (c) $ -
</TABLE>
14
<PAGE>
(a) Galapagos also receives services for the distribution system of the
electronic lottery. Fees to Autotote are 2% of gross sales at lottery
agencies and 1% of gross sales at OTB agencies.
(b) During 2000, management expects to renegotiate for a fixed fee over the
handle instead of a guarantee minimum payment.
(c) Based on a minimum monthly payment of $27,500 for 2000, increased each
subsequent year, up to $36,000 in 2007. For the year 1999 the minimum
annual payment was $300,000. During 2000, management expects to
renegotiate for a fixed fee over the handle instead of a guaranteed
minimum payment.
(d) On August 10, 2000, the Colombia operations communicated the
termination of its contract with Autotote for failure to provide
required equipment and services under the existing contract. The
resolution of this termination is being contested at the present time.
OTHER LONG-TERM AGREEMENTS
The Company has also entered in other long-term contracts that are
essential for the operation of its racetracks such as to guarantee television
coverage in Puerto Rico. ECMC has an agreement with S&E Network, Inc. (S&E")
that requires the purchase of television time for a minimum of 910 hours at the
rate of $725 (effective February 1997) per hour, adjusted annually by CPI, or at
the rate of $900 per hour, also subject to CPI adjustments, if television time
after 7:00 PM is needed. The contract is non-cancelable by either party during
the initial term, which expires on December 2006. The term is automatically
extended for successive 5 years periods by request of ECMC. During this
extended term, the contract can be canceled by S&E, upon payment of liquidating
damages of $2 million plus CPI after January 1997.
3. FIRST MORTGAGE NOTES:
On December 15, 1993, pursuant to a private offering, (i) El Comandante
Capital Corp. ("ECCC"), a single-purpose wholly owned subsidiary of HDA, issued
first mortgage notes in the aggregate principal amount of $68 million (the
"First Mortgage Notes") under an indenture (the "Indenture") between ECCC, HDA
and Banco Popular de Puerto Rico, as trustee (the "Trustee"), and (ii) Housing
Development Associates Management Company ("HDAMC") issued Warrants to purchase
68,000 shares of Class A Common Stock of HDAMC. In March 1995, the Warrants
automatically became exercisable to purchase an aggregate of 1,205,232 units of
the Company from HDAMC. Upon issuance of the Warrants, HDA recorded note
discount of $2,040,000 equal to the fair value of the Warrants. Such note
discount is being amortized using the interest method over the term of the First
Mortgage Notes.
The First Mortgage Notes mature on December 15, 2003 and bear interest at
11.75% payable semiannually. Payment of the First Mortgage Notes is guaranteed
by HDA. The First Mortgage Notes are secured by a first mortgage on El
Comandante and by certain other collateral which together encompass a lien on
(i) the fee interests of HDA in the land and fixtures comprising El Comandante,
(ii) all related equipment, structures, machinery and other property, including
intangible property, ancillary to the operations of El Comandante, and (iii)
substantially all of the other assets and property of HDA, including the capital
stock of ECCC owned by HDA.
15
<PAGE>
During the past three years HDA has made early redemptions of First
Mortgage Notes in connection with certain transactions. The Company has also
purchased in the open market First Mortgage Notes which the Company intends to
hold until maturity in cancellation of required partial redemptions in 2000 and
2001, as explained below. Following is a summary of these transactions:
<TABLE>
<CAPTION>
HELD BY THE
FACE COMPANY AT (PREMIUM)
TYPE OF TRANSACTION DATE VALUE 30-JUN-2000 DISCOUNT
-------------------------------- -------- ----------- ------------ --------
<S> <C> <C> <C> <C>
Redemption Mar-1997 $ 737,000 $ - $ -
Redemption Sep-1997 2,500,000 - (250,000)
Purchase in open market Dec-1998 7,500,000 7,500,000 1,000,000
Redemption, reduced by amount
of notes held by the Company Jan-1999 2,620,000 (380,000) (262,000) (a)
Purchase in open market May-1999 189,000 189,000 22,680
----------- -----------
$13,546,000 $7,309,000
----------- -----------
<FN>
(a) Recorded as an expense by the Company in 1998
</TABLE>
In connection with these transactions, the Company wrote-off a portion of
the note discount and deferred financing costs.
ECCC is required to partially redeem First Mortgage Notes commencing on
December 15, 2000. The stated maturities of the First Mortgage Notes, reduced
by prior redemptions, are as follows (in thousands):
<TABLE>
<CAPTION>
DUE DURING THE YEAR GROSS PURCHASED IN NET
ENDING DECEMBER 31, AMOUNT OPEN MARKET AMOUNT
--------------------- -------- -------------- -------
<S> <C> <C> <C>
2000 $ 563 $ 563 $ -
2001 10,200 6,746 3,454
2002 10,200 - 10,200
2003 40,800 - 40,800
-------- -------------- -------
61,763 7,309 54,454
Less - discount (826) (90) (736)
-------- -------------- -------
$ 60,937 $ 7,219 $53,718
-------- -------------- -------
</TABLE>
HDA may also redeem First Mortgage Notes at the following redemption
prices (expressed as percentages of principal amount), in each case together
with accrued and unpaid interest:
DURING THE 12 MONTH PERIOD
BEGINNING ON DECEMBER 15,
--------------------------
2000 101.50%
2001 100.00%
HDA is required to purchase First Mortgage Notes, at face value, to the
extent that HDA has accumulated excess cash flow, asset sales with net proceeds
in excess of $5 million (to the extent these proceeds are not invested in HDA's
racing business within a year), or a total taking or casualty, or in the event
of a change of control of HDA.
16
<PAGE>
The Indenture contains certain covenants, one of which restricts the amount
of distributions by HDA to its partners, including the Company. Permitted
distributions are limited to approximately 48% of HDA's consolidated net
earnings. In connection with certain approval required from noteholders, HDA
agreed to temporarily reduce these distributions by 17%. HDA is permitted to
make additional cash distributions to partners and other Restricted Payments, as
defined under the Indenture, equal to 44.25% of the excess of HDA's cumulative
consolidated net income after December 31, 1993 over the cumulative amount of
the 48% Distributions, provided that HDA meets a certain minimum debt coverage
ratio. HDA has not met this debt coverage ratio. For the six months ended June
30, 2000 HDA advanced to the Company approximately $750,000 against its
allowable future distributions of profits, which, technically, is not in
conformity with the terms of the Indenture. HDA intends to cure this default
with the declaration of future permitted distributions.
4. BONDS AND NOTES PAYABLE AND CAPITAL LEASES:
The Company's outstanding notes payable consist of the following:
<TABLE>
<CAPTION>
BALANCE AT
MATURITY INTEREST JUNE 30, DECEMBER 31,
BORROWER DESCRIPTION DATE RATE 2000 1999
----------------- -------------- ------------ ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
HDA/ECMC Note payable (a) 15-Dec-01 P+1.00% $ 4,875,000 $5,500,000
HDA Line of credit (b) 15-Dec-01 P+1.00% 500,000 -
Equus-Panama Term loan (c) 25-Apr-2000 10.75% - 56,364
Equus-Panama Line of credit (d) various 10.75% 293,725 204,955
Equus-Comuneros Term loans (e) various variable 364,056 464,763
------------ ----------
$ 6,032,781 $6,226,082
------------ ----------
</TABLE>
At June 30, 2000 and December 31, 1999, the prime rate (P) was 9.50% and
8.50%, respectively.
(a) Considered Refinancing Indebtedness under the terms of the Indenture.
Secured by First Mortgage Notes purchased in the open market
(see Note 3). Payable in quarterly installments commencing on March 31,
2000. The principal payment due on June 30, 2000 of $625,000 was
extended by the bank and paid on August 24, 2000. All interest payments
have been paid on their due dates.
(b) Revolving line of credit secured by the First Mortgage Notes purchased
in the open market ( See Note 3). HDA has a $500,000 revolving line of
credit available until December 15, 2001 for its operational needs.
Interest is calculated on balances outstanding at a rate equivalent to one
point over prime rate. Principal is due upon maturity on December 15, 2001.
(c) The loan was paid off on April 25, 2000.
(d) Available to finance loans to Panama horseowners for the acquisition of
horses. Payable in equal monthly installments, principal and interest,
with various maturity dates from April 25, 2000 to December 26, 2000.
17
<PAGE>
(e) Secured by a certificate of deposit for $140,000, which is included in
the accompanying balance sheet as of December 31, 1999 as restricted
cash. Management is in the process of renegotiating the terms of these
financial obligations. Interest rates range from 7% to 14.01% over
Colombia's Fixed Term Deposit (FTD) rate. FTD at June 30, 2000 was 10.98%.
The Company also guarantees a $250,000 loan of the operator of the
restaurant at Presidente Remon. The proceeds of this loan were used by
Equus-Panama to finance improvements to the restaurant.
In October 1998, Equus-Panama issued $4 million in unsecured bonds pursuant
to a public offering. Interest is payable at 11% rate per annum on a quarterly
basis. The bonds may be redeemed by Equus-Panama prior to June 30, 2001 at a
redemption price of 102% of the principal amount and thereafter at par. There
are certain restrictions that limit the capacity of Equus-Panama to incur
indebtedness and pay dividends to shareholders.
18
<PAGE>
The following table summarizes future minimum payments on capital leases,
notes payable and bonds of the Company and its consolidated subsidiaries:
<TABLE>
<CAPTION>
DUE DURING THE TWELVE CAPITAL NOTES BONDS
MONTHS ENDING JUNE 30, LEASES PAYABLE PAYABLE
---------------------- ----------- ----------- ----------
<S> <C> <C> <C>
2001 $1,330,987 $2,626,683 $ -
2002 801,240 3,554,947 600,000
2003 617,903 42,096 1,000,000
2004 484,150 34,454 1,200,000
2005 95,703 3,648 1,200,000
----------- ----------- ----------
3,329,983 6,261,828 4,000,000
Imputed interest (583,589) (229,047) -
----------- ----------- ----------
$2,746,394 $6,032,781 $4,000,000
----------- ----------- ----------
</TABLE>
5. RELATED PARTY TRANSACTIONS:
The following represents a summary of amounts accrued for services rendered
by or from certain related parties, namely, EMC, American Community Properties
Trust ("ACPT") and Interstate General Company L.P. ("IGC") during the six and
three months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED JUNE 30 ENDED JUNE 30
NATURE OF SERVICE 2000 1999 2000 1999
--------------------------- -------- -------- ------- -------
<S> <C> <C> <C> <C>
Support agreement $ 16,200 $ 16,200 $ 8,100 $ 8,100
Rent office space 21,000 21,000 10,500 10,500
Director fees 43,500 43,500 18,000 20,750
Services of James J. Wilson 67,500 67,500 33,750 33,750
-------- -------- ------- -------
$148,200 $148,200 $70,350 $73,100
======== ======== ======= =======
</TABLE>
On June 13, 2000 the Company received a cash advance from Interstate
Business Corporation (IBC) of $400,000. This advance was not a loan and carried
no interest. The advance was repaid by the Company to IBC prior to June 30,
2000.
6. LEGAL PROCEEDINGS:
Certain of the Company's subsidiaries are presently named as defendants in
various lawsuits and might be subject to certain other claims arising out of its
normal business operations. Management, based in part upon advice from legal
counsel, believes that the results of such actions will not have a material
adverse impact on the Company's financial position or results of operations.
19
<PAGE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
As of June 30, 2000 the fair value of the First Mortgage Notes was
approximately $47,920,000 (as compared with its carrying value of $53,717,389)
based on the market price quoted by a brokerage firm that trades the First
Mortgage Notes. The carrying value of notes payable, capital leases and notes
receivable approximates fair value because these obligations bear interest at
variable rates. The carrying value of accounts receivable and accounts payable
approximates fair value due to the short-term maturity thereof.
8. SEGMENT INFORMATION:
The Company has identified four reportable segments, based on geographical
considerations: Puerto Rico, Dominican Republic, Colombia and Panama. The
accounting policies of the segments are the same as those described in the
summary of accounting policies. The Company evaluates performance based on
profit or loss before income taxes, not including nonrecurring gains and losses
and foreign exchange gains and losses. The following presents the segment
information for the six and three months ended June 30, 2000 and 1999 (in
thousands):
20
<PAGE>
<TABLE>
<CAPTION>
PUERTO DOMINICAN
2000 - SIX MONTHS RICO REPUBLIC COLOMBIA PANAMA TOTAL
-------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Commissions on wagering $25,616 $ 1,618 $ 730 $ 4,464 $32,428
Total revenues 26,758 2,042 839 4,799 34,438
Financial expenses 4,421 15 160 306 4,902
Depreciation and amortization 1,326 172 109 309 1,916
Earnings (Loss) before income
taxes and minority interest (1,295) (418) (1,328) 232 (2,809)
Capital improvements 1,289 45 (748) 173 759
Total assets 54,332 1,865 5,568 9,566 71,331
1999 - SIX MONTHS
Commissions on wagering $26,285 $ 1,982 $ 662 $ 4,426 $33,355
Total revenues 27,549 2,678 875 4,574 35,676
Financial expenses 3,733 28 105 281 4,147
Depreciation and amortization 1,154 165 126 277 1,722
Earnings (Loss) before income
taxes and minority interest 1,268 (402) (797) (102) (33)
Capital improvements 4,911 16 866 330 6,123
Total assets 51,243 1,569 6,195 8,864 67,871
2000 - QUARTER
Commissions on wagering $12,487 $ 833 $ 365 $ 2,228 $15,913
Total revenues 12,862 1,043 426 2,484 16,815
Financial expenses 2,217 7 79 154 2,457
Depreciation and amortization 665 92 48 155 960
Earnings (Loss) before income
taxes and minority interest (1,395) (119) (764) 180 (2,098)
Capital improvements 714 10 (786) 129 67
1999 - QUARTER
Commissions on wagering $12,722 $ 903 $ 425 $ 1,996 $16,046
Total revenues 13,336 1,127 166 2,061 16,690
Financial expenses 1,876 12 42 143 2,073
Depreciation and amortization 582 64 60 140 846
Earnings (Loss) before income
taxes and minority interest 208 (340) (597) (162) (891)
Capital improvements 3,216 6 243 199 3,664
</TABLE>
Effective January 1, 1998 EEC, which is based in Puerto Rico, provides
management services to the foreign countries in connection with the operation of
the racetracks and the off-track betting system. Fees for these services
represent intersegment revenue. For the six months ended June 30, 2000 Puerto
Rico recognized revenue of approximately $80,000 attributable to Dominican
Republic, and $154,000 attributable to Panama.
21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's results of operations are principally attributed to its
interests in thoroughbred horse race tracks in four countries, each of which is
owned and/or operated by a subsidiary: (i) El Comandante in Puerto Rico, owned
by Housing Development Associates S.E. ("HDA") and operated since January 1,
1998 by El Comandante Management Company, LLC ("ECMC"), (ii) V Centenario in the
Dominican Republic, operated since April 1995 by Galapagos S.A., (iii)
Presidente Remon in Panama, operated since January 1, 1998 by Equus
Entertainment de Panama, S.A. ("Equus-Panama") and (iv) Los Comuneros in
Medellin, Colombia, owned and operated since early 1999 by Equus Comuneros, S.A.
("Equus-Comuneros").
The following discussion compares the results of operations of the Company
for the three months and six months ended June 30, 2000 with the results for the
three months and six months ended June 30, 1999.
THE COMPANY'S RESULTS OF OPERATIONS
QUARTER AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO QUARTER AND SIX MONTHS
-----------------------------------------------------------------------------
ENDED JUNE 30, 1999
-------------------
REVENUES
Consolidated Revenues increased in the second quarter ended June 30, 2000
by $124,000, or 0.7%, as compared to the same quarter in 1999. During the six
months ended June 30, 2000, revenues decreased $1,239,000, (3.5%), from the same
period in 1999. This decrease was primarily attributable to temporary
interruptions in simulcast of live races from Puerto Rico to Dominican Republic
and agency operations during the first quarter.
COMMISSIONS ON WAGERING
Commissions on wagering decreased by $134,000, (0.8%), to $15,912,000 for
the second quarter ended June 30, 2000 as compared to $16,046,000 in the second
quarter of 1999. During the six months ended June 30, 2000, commissions on
wagering decreased $927,000, (2.8%), to $32,428,000 from $33,355,000 in the same
period for 1999. The decrease in commissions was attributable to the following
operations: El Comandante ($669,000) and Galapagos ($364,000). However, Panama
and Colombia operations reflect an increase of $38,000 and $68,000,
respectively.
In January 2000, the Puerto Rico horseowners unilaterally decided to cancel
the approval of simulcast of live races from Puerto Rico to the Dominican
Republic in order to put pressure on recent contract negotiations. It was not
until the middle of February that this action was reversed by the Racing Board.
This suspension had an adverse economic impact on commissions on wagering for
the Dominican Republic and Puerto Rico. This resulted in a reduction in
commissions on wagering of approximately $300,000 in the first quarter of the
year. However, in July of 2000 the Puerto Rico Horseowners' Association reached
an agreement with El Comandante Management Company and a new 10-year contract
was signed by both parties.
PUERTO RICO. Commissions on wagering at El Comandante decreased $235,000,
(1.8%), to $12,487,000 in the second quarter of 2000 as compared to $12,722,000
in the second quarter of 1999. During the six months ended June 30, 2000,
commissions on wagering decreased $669,000, (2.5%), to $25,616,000 as compared
to $26,285,000 for the six months ended June 30, 1999. The decrease in
commissions was attributable to interruptions in simulcast of races to Dominican
Republic and agency operations.
22
<PAGE>
PANAMA. Commissions on wagering at Presidente Remon increased by $232,000
(11.6%) to $2,228,000 in the second quarter of 2000 as compared to $1,996,000 in
the second quarter of 1999. During the six months ended June 30, 2000,
commissions on wagering increased $38,000, (0.9%), to $4,464,000 as compared to
$4,426,000 for the six months ended June 30, 1999. The increase is attributable
to improved racing programs and greater number of simulcast of live races from
the United States.
DOMINICAN REPUBLIC. Commissions on wagering at V Centenario ("Galapagos")
decreased by $70,000 (7.8%) to $833,000 in the second quarter of 2000 as
compared to $903,000 in the second quarter of 1999. During the six months ended
June 30, 2000, commissions on wagering decreased $364,000, (18.4%), to
$1,618,000 as compared to $1,982,000 for the six months ended June 30, 1999.
This decrease was primarily attributable to a temporary interruption of the
simulcast races from Puerto Rico and its impact on the racing program in the
Dominican Republic, as well as lower number of agencies in operation due to
transmission and telecommunications interruptions.
NET REVENUES FROM LOTTERY SERVICES
Net revenues from lottery services by Galapagos in the Dominican Republic
during the three and the six months ended June 30, 2000 decreased by $61,000 and
$95,000, respectively, as compared to the same periods in 1999. The decrease in
revenues was due to a reduction in the amount billed to the lottery operator as
reimbursement for telephone line costs, pursuant to an amendment to the
contract.
On June 30, 2000 Autotote breached Galapagos' service agreement to the
Lottery Operations [Dominican International Electronic Lottery, Inc. (LEIDSA)]
by providing directly the same services and refusing to pay to Galapagos its
service fees under the service contract. During the months of July and August
2000, Galapagos did not receive any payments for the service fees under its
service agreement. In late August 2000, the Company started the process of
preparing for legal action for breach of contract to recover its service fees
under the service agreement.
OTHER REVENUES
Other revenues during the three and the six months ended June 30, 2000
increased by $139,000, and decreased by $397,000, respectively, as compared to
the same period in 1999.
In June 30, 2000 restated 10Q, there was also an adjustment reclassifying
approximately $445,000 from other revenues, to be netted with interest expense
in consolidated statement of operations.
GAIN ON SALE OF ASSETS
The gain of $179,500 is attributable to operations in Panama from the sale
of television license for UHF channel no longer needed for agency operations.
23
<PAGE>
EXPENSES
Total expenses during the three and the six months ended June 30, 2000
increased by $1,331,000 and $1,536,000, respectively, as compared to the same
periods in 1999.
PAYMENTS TO HORSEOWNERS
Payments of purses to horseowners during the three and the six months ended
June 30, 2000 decreased by $371,000 (4.6%) and $794,000 (4.8%), respectively,
as compared to the same period in 1999.
El Comandante contract with horseowners expired in April 1998. However,
the Puerto Rico Racing Board extended the contract as an interim measure until
the Company and the horseowners reach a new agreement. In July of 2000, the
horseowners reached and signed a new 10-year contract with El Comandante
Management Company.
FINANCIAL EXPENSES
Financial expenses during the three and the six months ended June 30, 2000
increased by $382,000 (18%) and $755,000 (18%), respectively, as compared to the
same periods in 1999. This increase is primarily attributable to use of line of
credit facilities for development of agency operations, including additional
agencies and improvements in simulcast and transmission of races.
DEPRECIATION AND AMORTIZATION
Depreciation and Amortization during the three and the six months ended
June 30, 2000 increased by $115,000 (14%) and $193,000 (11%), respectively, as
compared to the same period in 1999 primarily due to additions in capital
improvements to the facilities at El Comandante during 1999.
OTHER EXPENSES
Other expenses during the three and the six months ended June 30, 2000
increased by $1,204,000 and $1,380,000, respectively, as compared to the same
period in 1999. This increase is primarily attributable to new operations,
including a cost reduction and restructuring plan implemented by management
during the first quarter of 2000.
<TABLE>
<CAPTION>
OTHER EXPENSES BY COUNTRY
INCREASE (DECREASE) IN SECOND QUARTER ENDED JUNE 30, 2000 WHEN COMPARED WITH 1999
Salaries, wages Operating General and Marketing , TV Net (decrease)
Country and benefits expenses administrative and satellite increase
-------------- -------------- ---------- ---------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Puerto Rico $ 26,000 $ 603,000 $ 125,000 $ 80,000 $ 834,000
Dominican Rep. (111,000) (71,000) (37,000) (67,000) (286,000)
Panama 22,000 320,000 (48,000) 35,000 329,000
Colombia 64,000 110,000 112,000 41,000 327,000
-------------- ---------- ---------------- --------------- -----------
$ 1,000 $ 962,000 $ 152,000 $ 89,000 $1,204,000
============== ========== ================ =============== ===========
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
OTHER EXPENSES BY COUNTRY
INCREASE (DECREASE) FOR SIX MONTHS ENDED JUNE 30, 2000 WHEN COMPARED WITH 1999
Salaries, wages Operating General and Marketing , TV Net (decrease)
Country and benefits expenses administrative and satellite increase
-------------- -------------- ----------- ---------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Puerto Rico $ (373,000) $ 972,000 $ 296,000 $ 339,000 $1,234,000
Dominican Rep. (180,000) (92,000) 8,000 (140,000) (404,000)
Panama 60,000 239,000 (32,000) 6,000 273,000
Colombia 28,000 62,000 104,000 83,000 277,000
-------------- ---------- ---------------- --------------- -----------
$ (465,000) $1,181,000 $ 376,000 $ 288,000 $1,380,000
============== =========== ================ =============== ===========
</TABLE>
OPERATING AND SATELLITE EXPENSES - The increase in operating expenses and
marketing/satellite expenses for the three and six months ended June 30, 2000,
as compared to the same periods in 1999, primarily relate to the additional
expenses for the planning, engineering and startup expenses on the wagering
system and leased satellite time. The Company was not able to recover these
additional operating expenses since the new equipment is not yet in service and
the fixed monthly lease cost for the satellite time has not been utilized and
recovered in revenues.
PROVISION FOR INCOME TAXES
The provision for income tax is primarily related to deferred Puerto Rico
income taxes on the Company's income and losses related to its interest in El
Comandante, without taking into account results of operations of Galapagos,
Equus-Panama or Equus-Comuneros. Due to accumulated losses, none of these
foreign subsidiaries requires a provision for income taxes.
MINORITY INTEREST
The Company's minority interest is attributed to the income and losses
allocable to the minority partners of HDA, Galapagos, Equus-Panama and
Equus-Comuneros. Since the accumulated losses of Galapagos allocable to
minority partners had exceeded their investment, for the six months ended June
30, 2000 and 1999, the Company did not recognize minority interest in losses of
Galapagos of $188,054 and $181,094, respectively. During 2000: (i) if and
while Galapagos continues generating losses, no minority interest in Galapagos'
net losses will be recognized by the Company, and (ii) if Galapagos generates
profits, no minority interest in Galapagos' net income will be recognized by the
Company up to $1,275,124.
25
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
The Company is the owner of HDA and its consolidated subsidiaries. The
principal source of cash of Equus Gaming Company L.P. (the "Company" or, when
referred to the individual entity, "Equus") is related to its ownership interest
in Housing Development Associates S.E. ("HDA"), the owner and operator (through
its wholly owned subsidiary, El Comandante Management Company LLC, "ECMC") of El
Comandante Race Track in Puerto Rico. Due to certain restrictions under HDA's
indenture for the issuance of its 11.75% First Mortgage Notes due 2003 (the
"Indenture"), cash held by HDA or its consolidated subsidiaries (including ECMC)
is restricted to ensure payment of interest and certain obligations on such
First Mortgage Notes.
The following is a discussion of the liquidity and capital resources of the
Company, including HDA and its consolidated subsidiaries, ECMC, Agency Betting
Network, Inc. ("ABN"), and Satellites Services International, Inc. ("SSI").
The net cash flows from the other foreign subsidiaries of the Company (Equus
Comuneros, S.A., Equus Entertainment de Panama, S.A. and Galapagos, S.A) did not
materially affect the consolidated cash flows of the Company for the three and
six months ended June 30, 2000
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY (AND ITS CONSOLIDATED
SUBSIDIARIES)
Cash and cash equivalents of the Company and its consolidated subsidiaries
increased by APPROXIMATELY $600,000 DURING the second quarter of 2000. The
Company has historically met its liquidity requirements principally from cash
flow generated by (i) the operations of El Comandante Race Track in Puerto Rico
and (ii) short-term loans and capital leases for acquisition of new equipment.
During the three and six months ended June 30, 2000 the principal uses of
cash of the Company and its consolidated subsidiaries for its financing and
investing activities were as follows:
(i) Capital improvements and acquisition of equipment for El Comandante for
approximately $1,289,000, for the Dominican Republic $45,000, and for
Panama $173,000.
(ii) Payments on capital leases for equipment used in El Comandante
operations.
(iii) The Company continues to invest in Colombia through ABN, wholly-owned
subsidiary of HDA. For the six months ended June 30, 2000 the
Company has invested $1.6 million.
In addition to cash available to the Company at the beginning of the year and
cash flows from operations during 2000, the Company obtained additional funds
for its financing and investing transactions (as described above) principally
from the following sources:
(i) $500,000 in advances taken under a line of credit.
(ii) Capital leases to purchase equipment for El Comandante operations and
certain equipment for the operations of SSI, consisting of an up-link
earth station located in Panama, necessary to carry races via satellite
in simulcast operations.
For the remainder of the year 2000 the projected principal uses of cash of the
Company's activities, other than operating activities of El Comandante, are:
26
<PAGE>
(i) Capital improvements to El Comandante race track and principal payments
on existing capital leases.
(ii) Principal payments amounting to $1,250,000 on the $5.5 million term
loan.
(iii) Additional investments in ABN for its Colombian operations and
reduction of certain financial obligations assumed from Equus-Comuneros
of approximately $1 million.
(iv) Additional investments in SSI, principally for the acquisition of the
VSAT equipment and system for the agencies within the Company's OTB
system and the payment of satellite time contracted from a third party.
In addition to cash flow from operating activities of El Comandante, the
Company expects to obtain funds for its other transactions from credit
facilities with certain financial institutions. Also, the Company is currently
negotiating a $2 million credit facility with a financial institution so that
HDA and the Company are able to properly fund the development and operations of
the off-track betting for ABN in Colombia and meet the expected level of
increased wagering from this operation.
INVESTMENTS IN TELECOMMUNICATIONS EQUIPMENT AND MARKET EXPANSION
The Company's top management has developed and recently implemented strategic
financial plans designed to improve capital resources, liquidity and capital
investments in the Company's distribution network and core assets.
As a result, the Company is in the process of securing credit facilities
with a financial institution to (1) finance the acquisition and installation of
high-technology video and data transmission system (VSAT) with a communications
center or HUB that will be cheaper, more efficient and reliable than
conventional phone lines and television air time, and (2) to finance the
purchase of outstanding notes (over $54 million) in order to allow the Company
to make the necessary capital investments to increase the level of wagering
through a combination of increase in the number of off-track betting agencies
and improved racing program, including simulcast of live races from many
jurisdictions to our network.
The Company's operational plans call for the installation over the next 12
to 18 months of more than 2,000 VSAT (video and data communication) units for
the OTB agencies in all of its operations, including Puerto Rico, Dominican
Republic, Panama and Colombia with a communications up-link satellite control
center based in Puerto Rico. Satellite Services International, Inc. (SSI), a
wholly-owned subsidiary of HDA (HUB) and the Company, will be the service
provider for all telecommunications and satellite usage time, and will charge
each of its affiliated companies a fee for the equipment and satellite time
usage for transmissions (simulcast) of races from several countries.
As a result of these capital investments in high-technology and extensive
high-tech distribution network, improved cash flow from better financing, and
market expansion efforts, the Company plans to increase consolidated wagering
commissions during 2000 and future years.
LONG-TERM COMMITMENTS. In addition to capital leases, long-term cash
commitments of the Company (excluding foreign subsidiaries) are a $5.5 million
term loan and the First Mortgage Notes.
27
<PAGE>
In December 1999 HDA obtained a $5.5 million term loan, considered
Refinancing Indebtedness under the terms of the indenture. The loan is secured
by the First Mortgage Notes purchased by the Company in the open market.
Interest is payable monthly at a rate equivalent to one point over prime rate.
Principal is payable in quarterly installments commencing on March 31, 2000
until maturity on December 15, 2001. Two principal payments of $625,000 on
this term loan were made on March 31, 2000 and August 24, 2000. The remaining
maturity dates of this term loan are as follows (in thousands):
YEAR ENDING
DECEMBER 31, AMOUNT
-------------- --------
2000 $ 1,250
2001 3,000
--------
$ 4,250
========
HDA's First Mortgage Notes bear interest at 11.75%, payable semiannually on
June 15 and December 15, and are secured by El Comandante assets. The First
Mortgage Notes are redeemable, at the option of HDA, at redemption prices
(expressed as percentages of principal amount): if redeemed during the 12-month
period beginning December 15 of years 1999 at 102.75%, 2000 at 101.5%, and 2001
and thereafter at 100% of principal amount, in each case together with accrued
and unpaid interest. The stated maturity dates of First Mortgage Notes, as
reduced by prior redemptions made by HDA and by the Notes purchased by ECMC in
the open market, are as follows (in thousands):
YEAR ENDING NET AMOUNT
DECEMBER 31, (FACE VALUE)
-------------- ------------
2001 $ 3,454
2002 10,200
2003 40,800
------------
$ 54,454
============
To the extent First Mortgage Notes are not acquired in the open market or
redeemed, Management expects to refinance this obligation not later than
December 2002.
For the six months ended June 30, 2000, HDA advanced to Equus approximately
$750,000 against its allowable future distributions of profits, which
technically is not in conformity with the terms of the Indenture.
NEW HORSEOWNERS' CONTRACT IN PUERTO RICO. The new contract is effective
July 1, 2000 and expires on December 31, 2010. El Comandante and the
Horseowners settled their dispute regarding the Autotote fees allocated and
charged to Horseowners from April 1998 to December 1999. El Comandante paid the
Horseowners $1,037,403 on July 31, 2000 to settle the allocation of Autotote
fees to Horseowners. In return, the Horseowners agreed to increase the racing
program by adding three imported races per live racing day, increasing the
number of races per day from 7 to 8, and guaranteeing a minimum of at least 8
horses in each race. Additionally, the Horseowners agreed to complement the
live racing program in Puerto Rico with simulcast of races from other racetracks
to Puerto Rico. El Comandante Race Track will receive three simulcast races per
racing day from tracks located in the United States and other jurisdictions.
28
<PAGE>
GOVERNMENT MATTERS. El Comandante's horse racing and pari-mutuel wagering
operations are subject to substantial government regulation. Pursuant to the
Puerto Rico Horse Racing Industry and Sport Act (the "Racing Act"), the Racing
Board and the Puerto Rico Racing Administrator (the "Racing Administrator")
exercises regulatory control over El Comandante's racing and wagering
operations. For example, the Racing Administrator determines the monthly racing
program for El Comandante and approves the number of annual race days in excess
of the statutory minimum of 180. The Racing Act also apportions payments of
monies wagered that would be available as commissions to ECMC. The Racing Board
consists of three persons appointed to four-year terms by the Governor of Puerto
Rico. The Governor also appoints the Racing Administrator for a four-year term.
FORWARD-LOOKING STATEMENT
Certain matters discussed and statements made within this Form 10-Q are
forward-looking statements within the meaning of the Private Litigation Reform
Act of 1995 and as such may involve known and unknown risks, uncertainties, and
other factors that may cause the actual results, performance or achievements of
the Company to be different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Although the Company
believes the expectations reflected in such forward-looking statements are based
on reasonable assumptions, it can give no assurance that its expectations will
be attained. These risks are detailed from time to time in the Company's filing
within the Securities and Exchange Commission or other public statements.
PART II - OTHER INFORMATION
ITEMS 1 EXHIBIT A - PUERTO RICO HORSEOWNERS' AGREEMENT DATED JULY 1, 2000
29
<PAGE>
CONTRACT
---------
In San Juan, Puerto Rico, this 1st. day of July, 2000.
APPEAR
------
As Party of the First Part: CONFEDERACION H PICA DE PUERTO RICO INC., a non
--------------------------
for profit corporation organized and operating under the laws of the
Commonwealth of Puerto Rico, represented in this act by its president Mr. Rub n
Valdez, of legal age, married, engineer and resident of Guaynabo, Puerto Rico,
hereinafter referred to as CONFEDERACION or THE CONFEDERACION.
As Party of the Second Part: EL COMANDANTE MANAGEMENT COMPANY, LLC., a
------------------------------
limited liability company, established under the laws of the State of Delaware
and legally registered to do business in the Commonwealth of Puerto Rico,
represented in this act by its President Mr. Gerald Wiemann, of legal age,
businessman, married and resident of San Juan, Puerto Rico, hereinafter referred
to as ECMC.
Both parties have the legal capacity to enter into the present contract and
thus freely
30
<PAGE>
STATE
ONE: The owner of the license to operate El Comandante Racetrack is Housing
---
Development Associates, S. E. (HDA) which in turn is possessed in 99% by Equus
Entertainment Corporation (Equus) and in 1% by Interstate Business Corporation
(IBC). These three entities will also execute this contract to agree, signify
and represent that they will, jointly with ECMC , be obliged under this contract
and will jointly be responsible of executing and complying with all and any
obligations that emerge from the present contract, and further will execute this
contract to comply with the order of the Racing Board entered on the 5th of May
1998 on case No. JH-97-50 ("Reorganizacion de las Operaciones y Gerencia del
Hipodromo El Nuevo Comandante").
HDA is a special partnership established under the laws of the state of
Virginia and duly authorized to do business in the Commonwealth of Puerto Rico
(ELA) represented in this act by Richard C. Voories, who has been duly
authorized by the partnership to appear in this act and execute this contract.
IBC is a corporation established under the laws of the State of Delaware
and duly authorized to do business in the ELA, represented in this act by
Richard C. Voories, who has been duly authorized by the corporation to appear in
this act and execute this contract.
31
<PAGE>
EQUUS is a corporation established and operating under the laws of the ELA
represented in this act by Richard C. Voories, who has been duly authorized by
the Board of Directors of the corporation to appear in this act and execute this
contract.
The corresponding documents and certifications empowering the persons that
will sign this contract representing the entities named in this numeral will be
made available to all other parties at the moment of signing and executing this
contract.
TWO: DEFINITIONS. In addition to the words and terms elsewhere defined in
---- -----------
this Agreement, the following words and terms hereinbefore and hereinafter used
shall have the following meanings:
ACT. Law No. 83 of the Legislature of Puerto Rico, approved July 2,
---
1987, as amended, and all future acts supplemental hereto or amendatory thereof.
32
<PAGE>
BASE YEAR BUDGET. Is defined as the budget which is based upon actual past
-----------------
experience and agreed to by the parties as a means to provide a level of
understanding and guidance for the parties on which to base future annual
budgets. The "Base Year Budget" is not to be considered by the parties as
either a minimum budget or a maximum budget (unless stated otherwise in this
contract). It is understood that anywhere in this contract that a base year
budget is established that funding for these budgets will be made in equal
amounts on a monthly basis (unless stated otherwise in this contract) by both
parties into a separate trust account for said budget. Payments from said Trust
account will require signatures and/or authorization of both parties. The Base
Year Budget will be considered the Annual Budget for the First Year of the
Contract.
CONFEDERATION. Collectively or individually, as the case may be,
--------------
Confederacion Hipica de Puerto Rico, Inc., each of its present members and each
of the persons becoming members of the Confederacion Hipica de Puerto Rico, Inc.
during the Term.
EL COMANDANTE RACE TRACK. The race track owned by Housing Development
---------------------------
Associates, S.E. and operated by ECMC located in Canovanas, Puerto Rico.
HANDLE. The total amount of moneys wagered on races less any/all voids,
-------
cancellations and/or refunds.
HORSE OWNER. An individual, a partnership or a corporation and/or a
-------------
syndicate, owner of any race horse or race horses, duly licensed as such owner
by the appropriate Puerto Rico Governmental Body.
33
<PAGE>
LICENSE. The license issued by the Puerto Rico Racing Commission to
--------
operate the El Comandante Race Track.
ORDER. Any award, decision, injunction, judgment, order, ruling, subpoena,
------
or verdict entered, issued, made, or rendered by any Governmental Body or by any
arbitrator.
PROGRAM PURSES. The purses established from time to time by the Puerto
----------------
Rico Racing Commission to be awarded on each particular race which is run in El
Comandante Race Track.
PUERTO RICO. The Commonwealth of Puerto Rico.
------------
PURSES. Collectively, the Program Purses and the Supplemental Purses,
-------
including the Horse Owners' revenue from Simulcasting, Impresos and
Entertainment Center.
RACING DAY. Any day or night during which a full racing program shall have
----------
been run.
RACING YEAR. The calendar year.
-------------
SIMULCAST/SIMULCASTING. Is the live audio and visual transmission of a
-----------------------
race or races to and/or from another location for para-mutuel wagering purposes.
SUPPLEMENTAL PURSES (RETROACTIVE/RETROACTIVO PURSES). The balance of the
--------------------------------------------------------
Horse Owners share of the Take as defined in this Agreement, after the deduction
for the regular authorized purses (commonly known as "program purses") and any
other deductions authorized as part of this contract.
TAKE. The aggregate dollar amount to be deducted, pursuant to the Act,
-----
from the Handle to be divided between ECMC and the Horse Owners in accordance
with this Agreement.
34
<PAGE>
TERM. As defined in Paragraph Five (5).
-----
TRI-PARTY COMMITTEE. A three party committee composed of Horse Owner(s),
--------------------
the track management and the Racing Administrator's representative(s). The
primary objective of which is to plan, schedule and prepare the Daily Racing
Program, Conditions Book and the Racing Plan.
THREE: ECMC, HDA, IBC and Equus are the owners and operators "El Comandante"
-----
race track located in Canovanas, Puerto Rico. From here on they shall be
referred to, in group as ECMC".
FOUR: THE CONFEDERACION states that it appears as the representative of not
-----
less than Two Thirds (2/3) of all of the owners of race horses in Puerto Rico
presently licensed as such, which race at El Comandante, and that it enters into
this Contract on its own behalf and on behalf of each of said individual horse
owners. ECMC agrees, that so long as this contract shall be in force, and THE
CONFEDERACION continues to represent no less than two thirds (2/3) of all
horseowners, it will recognize CONFEDERACION as the exclusive agent and
representative of said horse owners for the negotiation of any problems common
to all or a majority of the horse owners at "EL COMANDANTE".
35
<PAGE>
FIVE: Terms of the Contract: The Contract will commence on July 1st, 2000 and
----- ----------------------
expire on December 31, 2010.
a. If the Racing License now held by ECMC and/or its affiliates,
subsidiaries or parent companies is not renewed, then this contract will expire
on December 31, 2004.
SIX: Distribution of Take: The "take" as defined by the Racing Law and
--- -----------------------
Regulations will be divided in a proportion of 50% for THE CONFEDERACION and 50%
for ECMC. It is specifically understood and agreed that the obligation of ECMC
to pay the purse moneys referred to in this paragraph and to make the payments
to THE CONFEDERACION referred to in paragraph ten (10), shall be expressly
subject to and conditioned upon each and every one of the following conditions:
36
<PAGE>
a) That the present license of ECMC to operate a race track granted by
Resolution of the Racing Board of Puerto Rico is maintained throughout the term
of this contract or renewed by appropriate resolution of the Racing Board for
the extended term of this contract, if any. Said licence to include the terms
providing for the right to operate a racetrack in the San Juan Region of Puerto
Rico and the right to conduct all types of authorized betting, both at the track
and off track, anywhere in the Commonwealth of Puerto Rico, based on races held
at El Comandante, and the number of racing days at El Comandante as authorized
by the Racing Board.
b) El Comandante shall not have any option to terminate this Contract
under paragraph 6(a) above in the event the renewal of its license is granted on
a non-exclusive basis, as long as no other racetrack is authorized in the San
Juan Region during the term of this Contract.
c) The obligation of ECMC to make the payments to THE CONFEDERACION
referred to above shall also be expressly subject to and conditioned to THE
CONFEDERACION continuing to have as members 2/3 of all licensed horse owners.
If at any time during the term of this Contract THE CONFEDERACION ceases to have
as its members 2/3 of the licensed horse owners, the obligation of ECMC to make
the payments referred to in this paragraph hereof shall cease and terminate at
the option of ECMC. THE CONFEDERACION agrees to provide ECMC, at its request,
from time to time, with an up-to-date listing of the membership of THE
CONFEDERACION.
37
<PAGE>
SEVEN: Additional Guarantees: EL COMANDANTE MANAGEMENT COMPANY, (ECMC) will
----- ----------------------
guarantee to THE CONFEDERACION and/or Horse Owners an amount for purses of up to
an added one million dollars for the years 2000 and 2001 under the following
terms:
a) Adopt 1999 as the base year for calculation of the guarantee.
During that year, ECMC distributed to THE CONFEDERACION $25,032.256.75
(including the Horse Owners share of simulcasting fees) as their share of the
Take.
b) In the event that THE CONFEDERACION'S /Horse Owners' share of the
Take for each of the years 2000 and 2001 is equal to or below that of 1999, ECMC
will contribute to the Horse Owners/CONFEDERACION the amount of ONE MILLION
DOLLARS ($1,000,000) for purses.
c) In the event, that THE CONFEDERACION/Horse Owners share of the Take
for the years 2000 and 2001 is higher than the amount distributed to them in
1999, the added one million dollar guarantee will be reduced on a dollar for
dollar basis accordingly.
38
<PAGE>
EIGHT: PAYMENT AND DISTRIBUTION OF PURSES: The take and/or purse monies to be
-----
distributed by ECMC during any contract year of this Contract, as provided
herein, shall be allocated as between the various classes and categories of
horses and the various races run each racing day during the racing year and as
between the horses participating in each race in accordance with the Horse
Racing Law and its Regulations, the Regulations of the Racing Board of Puerto
Rico and the Racing Plan (Plan de Carreras) issued in connection therewith.
Except as may be otherwise required or requested by the Racing Board of
Puerto Rico or other appropriate governmental authority, the aforesaid purse
monies allocated as aforesaid, less deductions therefrom which may be required
by law (such as the excise tax on purses) and less other required or authorized
deductions, shall be paid as follows:
(1) The excise taxes on purses deducted by ECMC from any of the said
monies shall be paid by it to the Secretary of the Treasury of Puerto Rico.
(2) Pay to THE CONFEDERACION the dues payable by every member of THE
CONFEDERACION, the deduction of which is hereby authorized by THE CONFEDERACION
and by all the members of THE CONFEDERACION. THE CONFEDERACION will inform ECMC
the name of every new member of THE CONFEDERACION so that the deduction of the
dues may be done promptly by ECMC. THE CONFEDERACION will hold ECMC harmless
with respect to any claims made as a result of any such deduction of dues and
payment of the same to THE CONFEDERACION.
39
<PAGE>
(3) The balance of the regular authorized purses (commonly known as
"program purses") remaining after the deductions aforesaid and any other
deductions which may be required or authorized, shall be made available by ECMC
to be paid directly to the horse owners within forty eight (48) hours of the
time they are earned, or at such later time in accordance with the regulations
of the Racing Administration, as the net regular purses to the individual horse
owners entitled thereto.
(4) Additional purses (retroactivo) -calculated so that the regular
purses and the additional purses total fifty per cent (50%) of the "take" as
provided herein- less the aforesaid deductions and any other deductions which
may be required or authorized, including payments duly authorized by owners on
horse financing loans, shall be paid by ECMC to THE CONFEDERACION and to the
members of THE CONFEDERACION on or before the first five (5) business days of
the month following the month in which the applicable racing days were held,
provided further that ECMC will make three weekly advances of 25% of the amount
of the additional purses paid for the previous month, to be adjusted at the
final payment for the month, and subject to increase or reduction of the advance
payments if an increase or reduction in the current month's payment is
reasonably anticipated by ECMC, with excise taxes and other required or
authorized payments deducted therefrom, towards payment of said additional
purses.
40
<PAGE>
(5) There shall be a recapitulation at the end of each contract year
of all purse monies paid by ECMC during such year.
A. In the event that the aggregate of all such payments
shall have exceeded the percentage of ECMC's "take" during such year, such
excess shall be repaid to ECMC by THE CONFEDERACION (to the extent the
overpayment has been made to THE CONFEDERACION as opposed to horse owners who
were not members of THE CONFEDERACION) within ten (10) business days after the
end of such racing year. In the Alternative, ECMC may, at its option, on notice
to THE CONFEDERACION, reimburse itself for such excess from any monies which may
be or thereafter become payable to THE CONFEDERACION (or its members) under this
contract.
41
<PAGE>
B. In the event that the aggregate of all such payments
shall have been less than the percentage of ECMC's "take" during such year then
ECMC will pay such difference to THE CONFEDERACION within the first ten (10)
business days after the end of such contract year.
NINE: Veterinary Clinic: THE CONFEDERACION / Horse Owners and ECMC will share
---- -----------------
(half and half) the payment of the debt, including interests, incurred by THE
CONFEDERACION with Banco Popular de Puerto Rico for capital Improvements of the
veterinary clinic, amounting to the principal amount remaining of the original
loan amount of $591,006.23. As of June 30, 2000 the balance of principal is
$526,006.23 and the accrued interests amount to $56,308.12 or the amount
currently certified by Banco Popular de Puerto Rico). ECMC will also share 50%
of the cost of any new equipment purchased for the Veterinary Clinic since the
date in which the Clinic was remodelled, but only to the extent of the equipment
that was paid in total from CONFEDERACION funds, as evidenced by Exhibit "C"
which amounts to $134,493.77. The cost of this equipment must be supported by
actual invoices, documented payments (cancelled checks) by THE CONFEDERACION and
an actual physical inventory on premises.
42
<PAGE>
This operation will maintain a standard schedule of charges to be assessed
to any/all veterinarians for use of this facility.
ECMC will be solely responsible for the maintenance and repair of the
physical structure (building, roof) as well as the surrounding grounds.
THE CONFEDERACION will be solely responsible for the operation and
management of the Clinic, including repairs and maintenance of the equipment and
the interior of said veterinary clinic facilities. Said facility must be
maintained in a first class operating condition.
THE CONFEDERACION and ECMC agree to fund the annual budget for the
operation, maintenance and repair of the veterinary clinic on a 50 / 50 basis
for the duration of this contract. THE CONFEDERACION and ECMC herein establish
the amount of $457,156.00 as the "Base Year Budget" detailed in Exhibit A. This
amount will serve as a minimum for the parties to establish future annual
budgets throughout the life of this contract. The "Base Year Budget" and each
future annual budget for the veterinary clinic, will include but not be limited
43
<PAGE>
to, such cost as; labor cost, purchase and repair of equipment, repairs and
maintenance of said veterinary clinic. However, the budget will not include any
----
drugs, medicine, food, bandages, wraps and/or any other horse or animal related
material / supplies. The annual budget for the subsequent calendar years must
be prepared by THE CONFEDERACION, with complete documentation and details, and
submitted to ECMC for review and approval no later than September 30th of each
year. Once the annual budget has been finalized and approved, ECMC will have no
liability to make up any budget deficit in the operation and management of said
facilities. In order to maintain accountability, THE CONFEDERACION will provide
to ECMC, twice a year, a Profit and Loss Statement of the Veterinary Clinic.
The statement will also include a comparison of to the approved annual budget
and will be certified by an Officer of THE CONFEDERACION as to it being a true
and actual representation of the financial position of the Veterinary Clinic.
TEN: Administrative Expenses: ECMC will contribute to THE CONFEDERACION each
------------------------
year during the term of this contract an amount of $90,000 for their
administrative expenses. ECMC will have the right to request supporting
documentation for the use of this money anytime it is considered necessary. ECMC
will pay these monies in equal monthly instalments.
44
<PAGE>
ELEVEN: Other Contributions to Horse Owners: For the duration of the contract
------------------------------------
ECMC and THE CONFEDERACION agree to fund on a 50/50 basis the monies necessary
to pay:
A. The premium of the health plan for the Jockeys (medical plan, life
insurance and accident insurance) and Trainers (medical plan only). Note: the
Jockeys may substitute, on a dollar for dollar basis, the cost of valets in lieu
of the cost of the Life Insurance.
B. The State Insurance Fund policy for the Jockeys.
THE CONFEDERACION and ECMC herein establish as "Base Year Budgets" for
item "A" the following amounts $251,000.00 for the jockeys' health plan and
$272,000.00 for the trainers' health plan. The future Annual budgets for
"A" will be considered maximum budgets and any cost over runs will be the
responsibility of the respective Trainers or Jockey Associations.
The amounts to be paid in "A" will be based upon a jointly (ECMC and
CONFEDERACION) approved annual budget. When requested to do so by THE
CONFEDERACION, ECMC will remit its 50% share of the amount due in "B" above,
45
<PAGE>
directly to THE CONFEDERACION for payment by THE CONFEDERACION. Actual payment
for the amounts due, in "A" will only be made upon submittal of actual invoices
by the Jockeys Association and Trainers Association. THE CONFEDERACION agrees
that its 50% share of all amounts due in ""A" above, will be remitted by ECMC
directly to the Jockeys Association or Trainers Association respectively. If
requested, ECMC will provide evidence to THE CONFEDERACION that supports actual
payments made to the Jockeys Association or Trainers Association. ECMC and/or
THE CONFEDERACION will have the right to audit the records of the Jockeys
Association and Trainers Association to insure compliance with payment of the
Health Insurance Plans by these Associations. ECMC will have the right to
request documentation from THE CONFEDERACION to show proof of payment for the
State Insurance Fund Policy for the Jockeys.
TWELVE: CLASICO DEL CARIBE - HORSE RACING HALL OF FAME - CAMARERO. AWARDS -
-----------------------------------------------------------------------
OTHER ACTIVITIES
-----------------
The cost for the Clasico del Caribe, Racing Hall of Fame, Camarero Awards
and other special activities will be borne on a 50 -50 basis by both parties,
based upon a jointly prepared and mutually agreed upon annual budget. It is
agreed by both parties that the cost to finance the Clasico del Caribe will be
borne by both parties in this way, both when Puerto Rico is the host country and
when Puerto Rico is a visiting country.
46
<PAGE>
ECMC and THE CONFEDERACION agree to share these costs in the aforementioned
way (50 - 50), after the deduction of any sponsorship income (cash and/or the
value of any other form of sponsorship) related to same.
THE CONFEDERACION and ECMC, as hereinafter detailed, establish the "Base
Year Budgets" which will also be used as a level of understanding and guidelines
by both parties to establish the future annual budgets for the items and/or
events object of this section. The "Base Year Budgets", as detailed in Exhibits
B(i), B(ii), B(iii) and B(iv), agreed to by the parties are the following: (i)
Clasico del Caribe (Host Country) $500,000.00; (ii) Camarero Awards: $26,000.00;
(iii) Horse Racing Hall of Fame: $32,000.00;(iv) Clasico Del Caribe, (Visiting
Country): $60,000.00.
The Clasico del Caribe, when held outside of Puerto Rico will be
simulcasted, and both ECMC and THE CONFEDERACION agree to jointly petition the
Racing Board to approve said simulcasting, and to accept wagers for the same in
Puerto Rico. This simulcast will include any other special races approved by
The Confederacion del Caribe.
47
<PAGE>
THIRTEEN: Settlement of Autotote Account: CONFEDERACION and ECMC will jointly
-------------------------------
desist from the case now pending before the Supreme Court of Puerto Rico
regarding the Autotote fees that were deducted from the purse account (Case no.
CC-1999-0305). ECMC will comply with the Order of the Racing Board on the SEA
HIPICO case (Case No. JH-98-48). El Comandante Management Company will pay THE
CONFEDERACION the total of all the monies deducted to the aforementioned
institution from April 1st, 1998 to present (without interests). From this
date, ECMC will not deduct from the Horse Owners share of the Take any
contribution for payment of the Autotote account. Payment of the Autotote fees
which amounts to $1,037,403.27 will be made to THE CONFEDERACION on or before
July 31, 2000.
FOURTEEN: Racetrack and Backstretch Investment: ECMC will invest an additional
-------- -------------------------------------
$3,000,000 in the racetrack including the backstretch and stable area during the
period of the contract.
FIFTEEN: Telephone Betting: THE CONFEDERACION and ECMC will together request,
------- ------------------
from the Racing Board, the approval of Telephone Account Betting. The Telephone
Account Betting system is to be established in order to attract new racing fans
(women, business people, younger adults) and bettors whom currently will not or
cannot go to the Sea-Hipico Agency or attend the race track. It is agreed that
the current agency fee received by the Sea-Hipico Agencies will be retained by a
separate entity that will own and operate the Telephone Account Betting system.
This agency fee to the Telephone Account Betting entity will always be the same
as the Sea-Hipico Agency fee.
48
<PAGE>
SIXTEEN: Tax Incentives: THE CONFEDERACION and ECMC will promote and request
-------- ----------------
from the Central Government, the Legislature, the Racing Administration and the
Racing Board, Tax Incentives for the racing industry including but not limited
to:
a. Investment tax credits for the acquisition of Thoroughbred horses.
b. Allow the horse owners to charge their losses in the operation of
their stables against the income of other business or their personal income.
c. Eliminate the six percent (6%) excise tax to purses.
d. Elimination or reduction of the Government share of the "Impresos"
service charge. The amount of the reduction received, if any, to be split 50/50
between THE CONFEDERACION and ECMC.
49
<PAGE>
SEVENTEEN: Illegal Horse Betting: THE CONFEDERACION and ECMC will promote
---------- ------------------------
changes in the Penal Code to establish higher penalties for persons involved in
illegal horse betting. ECMC and THE CONFEDERACION will also seek enforcement of
such legislation.
EIGHTEEN: Financing: ECMC will increase, to $2,000,000 the financing for
--------- ----------
eligible Horse Owners, to buy imported and native Thoroughbred horses.
NINETEEN: Impresos: Effective on the date of the signing of this contract, ECMC
--------- --------
agrees to share with THE CONFEDERACION, on a 50/50, basis the revenue and/or
monies received from the "Impresos" service charge. THE CONFEDERACION / Horse
Owners further agree that in exchange for these monies THE CONFEDERACION will;
a) Immediately submit a request to the Racing Board and the Racing
Administrator to schedule a minimum of forty (40) live races per race week (or 8
live races per race day) and,
b) Guarantee to ECMC a minimum of at least eight (8) horses in each
race, for a maximum of seven (7) of the eight (8) live races per race day. The
guarantee will be subject to Acts of God, such as Hurricanes or horse flu
epidemics. The guarantee will not apply when the races are officially cancelled
due to acts of God or for any other reason, or when the cause for non-compliance
is due to the fault of the Operating Company, or when the races cannot be
celebrated because of a labor strike, war or any other justifiable emergency,
that impedes the celebration of the races at El Comandante.
50
<PAGE>
c) To ensure this guarantee, THE CONFEDERACION agrees that for each
race over the One (l) race allowed per race day that contains less than eight
(8) horses, ECMC will be permitted to reduce by four hundred dollars ($400.00)
the amount of the "Impresos" service charge payable for that day to THE
CONFEDERACION/Horse Owners, up to a maximum of $1,200.00 per each racing day.
(There will be no deficit carryover from one racing day to the next.) This
guarantee will end on June 30, 2004 and at that moment the deductions will
cease. Stakes and Handicap races will be exempted from the guarantee.
TWENTY: Simulcasting: THE CONFEDERACION and Horse Owners represented by THE
------ -------------
CONFEDERACION will consent to the Simulcasting of races held at El Comandante
Racetrack to the jurisdiction accorded to with ECMC, under the following terms
and conditions:
a. Non-commingled Simulcast Races - ECMC will distribute to THE
--------------------------------
CONFEDERACION as purses from non-commingled simulcast a minimum of 50% of the
simulcast fee negotiated with the receiving jurisdiction. The Racing Industry
Standard in the United States for non-commingled simulcast races will be used as
the guideline for negotiating the simulcast fee.
51
<PAGE>
b. Commingled Simulcast Races(related party facilities where Equus,
----------------------------
ECMC or any related entity has an ownership interest): ECMC will distribute to
THE CONFEDERACION as purses on Commingled Simulcast Races, an amount equal to
50% of the following, minimum simulcast fees, received from the receiving
jurisdiction:
Pick 6 and Pick 3 8.0%
Trifecta*, Quiniela, Exacta 6.0%
Win/Place 3.0%
* in Panama 8.0%
c. Commingled Simulcast Races - (non-related party facilities wherein
-------------------------------
Equus, ECMC or any related entity has no ownership interest): - ECMC will
distribute to THE CONFEDERACION as purses from the commingled simulcast races to
non-related party facilities a minimum of 50% of the simulcast fee negotiated
with the receiving jurisdiction.
If at a minimum, the above percentages in a, b and/or c above, are adhered
to, then THE CONFEDERACION will not withhold its consent to the Simulcasting in
question. Both parties know and understand that there are other factors that
are of essence to Simulcasting.TWENTY-A: Receiving Simulcast Races From Other
-------- ------------------------------------
Race Tracks:
-------------
52
<PAGE>
a) THE CONFEDERACION and ECMC agree that El Comandante Race Track will
receive three simulcast races from tracks located in the United States or any
other previously accorded jurisdiction, only on official racing days as defined
by The Horse Racing Law, its Regulation and the Racing Plan (Plan de Carreras).
b) The three simulcast races will constitute part of the official race
program and will form a part of and be published in the program in accordance
with The Horse Racing Law and its Regulation and also in accordance with any
disposition applicable in The Racing Plan (Plan de Carreras). The past
performances for the horses running in said races should be made available to
the public at the same time that the past performances for the local races.
c) The Tri-Party Committee, as hereinafter defined, will determine the
positioning of said three races in the official program but these races will not
constitute part of any pick 3 or pick 6 unless previously approved in writing by
both parties;
53
<PAGE>
d) ECMC will pay to THE CONFEDERACION/ Horse Owners, as purses, 50% of the
"Take" after the negotiated Host Simulcast Fee (fee received by track where race
was actually raced or the Host Track's Agent) has been deducted for the Host
Track where the race was actually raced. No satellite cost will be in any way
allocated to THE CONFEDERACION/HORSEOWNERS.
e) ECMC and THE CONFEDERACION will jointly request the approval from the
Racing Board to accept simulcasting of Triple Crown events in the United States
as well as the Breeders' Cup program.
TWENTY - B: Principles Applicable to All Simulcastings.
------------ ----------------------------------------------
(i) For all kinds of simulcasting, ECMC grants The Confederation the right
-----------------------------
to audit the Totalisator system (at the sole cost of CONFEDERACION) in order to
verify the total amounts wagered, and to verify any other information
CONFEDERACION deems necessary and/or pertinent to protect its interests. The
audits must be requested in writing during normal business operating hours and
may not interfere with daily operations. This audit will be performed by THE
CONFEDERACION CPA firm, at its own cost.
(ii) ECMC will provide any and all detailed breakdown of the bets in any
jurisdiction, and any and all detailed information deemed necessary and/or
pertinent by CONFEDERACION to determine if the amounts paid to CONFEDERACION by
ECMC are correct and in accordance with the corresponding Simulcast Agreement.
54
<PAGE>
(iii) THE CONFEDERACION will notify, in writing, to ECMC of any suspected
violations/errors in simulcasting related to the total amount of reported wagers
and/or payments due to THE CONFEDERACION relative to any simulcast agreement.
ECMC will then have thirty (30) days from the date of receipt of notification to
explain and/or correct any violation and/or errors. In the case of an actual
violation of the simulcasting contract which is not corrected within the thirty
(30) days grace period, then THE CONFEDERACION will have the right to withdraw
its approval to the actual simulcast contract in question, and ECMC agrees not
to contend in any way THE CONFEDERACION'S withdrawal of approval, including but
not limited to, actions before The Junta Hippie and State and Federal Courts of
all levels.
(iv) Each Simulcasting agreement will be separate from this contract and
will contain a commencement and termination date, and a copy of the Contract
between ECMC and the receiving or transmitting entity will be immediately
delivered to THE CONFEDERACION.
(v) Every Simulcasting Agreement will have a duration term of one (1) year
and both parties now and here agree to perform said contracts for their entire
period, unless both parties agree to an earlier termination.
55
<PAGE>
(vi) Each simulcasting agreement will be renewed automatically for similar
one (1) year terms. For each individual contract, THE CONFEDERACION will have
the right to inform and notify ECMC, in writing, its intention to withdraw its
approval to the contract in question for just cause. Said notice should be
given to ECMC in writing at least 180 before the termination of the simulcast
contract in question.
(vii) All simulcast fees will be calculated based on the total actual
amount wagered (less voids, refunds and/or cancellations) in each receiving
jurisdiction on races simulcasted from Puerto Rico including, but not limited
to, the cost of service of the "impresos" and the "impresos" themselves, where
ECMC or a related party is the recipient in whole or in part of said services or
costs. When applicable, the calculations will be based on the daily currency
exchange rate based on U.S. dollars according to the local Governmental Bank or
Authority.
(viii) ECMC agrees that it will cover all the expenses, including the use
of any and all satellites, for the simulcasting of races in/out of Puerto Rico.
No satellite cost will be in any way allocated to THE CONFEDERACION and/or Horse
Owners.
56
<PAGE>
(ix) When commingled simulcast wagering and non-commingled simulcast
wagering are conducted on Puerto Rico races at the same facility and at the same
time, then the wagering format for the non-commingled simulcast wagers shall not
be identical to the wagering format of the commingled simulcast wagers.
TWENTY ONE: Creation of Syndicates: THE CONFEDERACION will support the creation
----------- ----------------------
of syndicates to buy imported and native Thoroughbred horses. ECMC and THE
CONFEDERACION will request from the Racing Administrator to license the
syndicate as long as the General Manager of the syndicate fulfils all the
requirements to be licensed and there are no adverse reports on the integrity of
all the other syndicate members.
TWENTY TWO: Twilight Racing: THE CONFEDERACION and ECMC together will request
----------- -----------------
from the Racing Administrator changes in post times to allow for at least one
(1) race day per week of twilight racing at El Comandante. The first race on a
twilight race day will start between 4:00 P. M. and 6:00 P. M.
57
<PAGE>
TWENTY THREE: Daily Racing Program: The Racing program at El Comandante is the
------------- --------------------
basis for attracting and keeping fans. The fundamental objective of a race is
to have as many horses of equal ability in each race. Therefore, the Racing
Plan, Daily Racing Program and Condition Book should be prepared and approved by
a tri-party committee composed by horsemen, the track management, and the racing
administration office, with the primary objective of meeting the public's
expectations. If the Racing Commission and/or Racing Administrator does not set
up the aforementioned tri-party committee for scheduling and planning races
(Conditions Book, Daily Racing Program, Racing Plan), THE CONFEDERACION/Horse
Owners will support El Comandante in a petition to the Legislature for the
development of a law which implements the tri-party approach for the development
of the Racing Plan and Daily Racing Program.
TWENTY FOUR: Entertainment Center: THE CONFEDERACION will endorse ECMC's actions
----------- --------------------
to transform the El Comandante site into an entertainment center, including but
not limited to the approval of other types of gaming in the premises, such as,
slots machines, bingo and/or Keno. If slot machines are approved for the
Operating Company at the race track and the slot machine operation is operated
by the Operating Company, then fifteen percent (15%) or the Racing Industry
58
<PAGE>
Standard percentage, whichever is greater, of the "Gross Gaming Win" (total
wagers less payback to winners and net of any government taxes on Win), or 50%
of the commissions received by the Operating Company from a third party operator
of said slot operations, will be distributed as purses to the Horse Owners. The
balance of the "Gross Gaming Win" will be retained by the Operating Company (if
slot machine operations are operated by the Operating Company) for the cost of
the capital investment and the ongoing operating costs of the slot operations.
THE CONFEDERACION agrees to approach positively any governmental agencies
to support the establishment of an entertainment center at the El Comandante
premises.
TWENTY FIVE: Auditing: ECMC will permit the Accountant or CPA Firm of THE
------------ ---------
CONFEDERACION to review/audit any and all documents related directly to the
amount of wagering, "Take" and their methods of calculation. The request to
conduct such review / audit must be made at least fifteen (15) days in advance,
be in writing, explain the purpose and / or intent of such review / audit, be
conducted during normal business days and during normal hours of operation,
state specifically the period in time ( the specific race days) and be for the
59
<PAGE>
current and / or most recent calendar year completed. Any such audits / reviews
will be conducted at the premises and in the offices of El Comandante and in
such a manner so as not to interfere with day-to-day operations. ECMC will
cooperate with providing copies of any/all directly related documentation.
Originals will not be permitted to be removed from the premises.
TWENTY SIX: Incomplete Racing Programs: If for any reason less than a full
----------- ----------------------------
racing program shall be run during any scheduled racing day, only the purse
scheduled for each race which shall actually have been run shall be paid; and
the purse for each race or races not actually run on such day shall be paid when
such race or races (or substitute races thereof) are run on another race day,
either as added races or as part of a separate race day; and when such suspended
race or races (or race or races substituted) are so held, then the originally
scheduled racing day shall be deemed to have been completed for the purposes of
this contract.
TWENTY SEVEN: Stalls and Barns
------------- ------------------
(a) The occupancy of all stalls at "El Comandante", including the
allotment, re-allotment, and use thereof, shall be controlled exclusively by
ECMC under such rules as it may promulgate from time to time in its own
exclusive discretion. ECMC agrees that in the event of a controversy with
respect to allotment of any such stalls, no decision with respect thereto will
be implemented by it without providing THE CONFEDERACION with prior notification
concerning the same.
60
<PAGE>
(b) Any changes, additions, or improvements in the stalls hereof shall be
made only with the written consent of ECMC and at the cost and expense of the
horse owners occupying the same. It is acknowledged that the stalls and all
improvements made or to be made thereto by anyone whatsoever are and shall be
the property of ECMC.
(c) All stalls at "El Comandante" and the interior of the barns shall be
maintained by the horse owners and/or the person to whom it was assigned
occupying the same in good and sanitary conditions at their cost and expense,
except structural or major repairs whose cost shall be borne by ECMC, (unless
made necessary by the fault or negligence of the horse owner), and every horse
owner shall be responsible for the facilities contained in the barn area
occupied by him.
TWENTY EIGHT: Racing Strips: ECMC shall continue to maintain the main racing
------------- --------------
strip as well as the training track at "El Comandante" in the best possible
condition.
61
<PAGE>
At least every two (2) years the parties will contract a track expert to
evaluate and make recommendations concerning the conditions of the track, if
any. The parties will agree on the course of action to be taken and El
Comandante will correct any deficiencies, if any, at its own cost. The fees for
the expert will be paid by both parties on a 50-50 basis.
TWENTY NINE: Office Space: Office space presently utilized by THE CONFEDERACION
----------- -------------
in the barn area at "El Comandante" shall continue to be made available, free of
charge, during the term of this Contract. All interior partitions, furnishings,
and all interior care and maintenance and the telephones shall be provided by
THE CONFEDERACION at its cost and expense. Plumbing and electrical lines,
toilet facilities, air conditioning, water and electric power shall continue to
be provided by ECMC, free of cost to CONFEDERACION.
THIRTY: HORSE POOL AND AMBULANCE: It is further agreed that ECMC shall
------- ----------------------------
provide a horse pool and maintenance thereof; and will also provide a horse
ambulance for use in case of injury to any horse.
62
<PAGE>
THIRTY ONE: Owner's Room: ECMC shall continue to make available a room at El
------------ -------------
Comandante for the private use of the horse owners, which room shall be kept by
THE CONFEDERACION in proper condition. Furnishing for said room shall be
provided by THE CONFEDERACION, at its cost and expense, except T.V. monitor,
internal telephone service, betting machine and security guard that shall be
provided by ECMC to CONFEDERACION free of any charge.
THIRTY TWO: Additional Consideration: THE CONFEDERACION pledges its full
----------- -------------------------
cooperation for itself and all of its members, and each of the individual horse
owners who are or who may become parties to this contract, to assure adequate
runners both as to number and quality in each race held at El Comandante".
THIRTY THREE: Non-Discrimination Policy: THE CONFEDERACION expressly represents
------------ -------------------------
and agrees that all horse owners presently or hereafter licensed as such by
appropriate governmental authority are and shall be eligible to be and to remain
members in good standing of THE CONFEDERACION without discrimination by THE
CONFEDERACION as between any such horse owners similarly situated; and that no
discrimination of any kind will be exercised, practised, or directed by THE
CONFEDERACION against any horse owner with respect to his or its present or
future membership in THE CONFEDERACION.
63
<PAGE>
THIRTY FOUR: Agreement not to Stop Races: THE CONFEDERACION each and all of its
----------- ---------------------------
members, jointly and severally, undertake and agree that neither THE
CONFEDERACION nor any of its members will hereafter engage in, participate in,
instigate, encourage, or tolerate any stoppage or interruption of racing, or
business or activities of ECMC, for any cause or reason whatsoever, directly or
indirectly, during the term of this Contract.
THIRTY FIVE: Authority to Execute Contract: THE CONFEDERACION represents that
------------ -----------------------------
it is executing and delivering this Contract on behalf of itself and each of its
members pursuant to authority duly granted by its Board of Directors and its
members. ECMC represents that it is executing and delivering this Contract
pursuant to authority duly granted by its Board of Directors and/or partners as
may be the case.
THIRTY SIX: If any clause in this contract is declared or becomes invalid,
------------
null or unconstitutional for any reason, all the other clauses will remain in
full force and be binding upon the parties.
THIRTY SEVEN: Jurisdiction: ECMC and THE CONFEDERACION recognize and agree that
------------ ------------
their relationship and the terms of this contract are subject to the Interstate
Horse Racing Act, specifically in matters related to simulcasting. It is also
understood that they are subject to all other applicable Federal and/or State
laws and regulations, and specifically subject to the Horse Racing Act (Ley
Hipica) and its regulations.
64
<PAGE>
THIRTY EIGHT: This contract and the provisions thereof shall be binding upon
-------------
and shall inure to the benefit of ECMC, its successors and assigns; and shall be
binding upon and inure to the benefit of THE CONFEDERACION, its successors and
assigns and each and all of its members and each of their respective heirs,
successors and assigns.
Upon the termination of this contract, if a new contract has not been
agreed to and duly executed by the parties, then this contract will continue to
be in full force and be binding to ECMC and THE CONFEDERACION until a new
contract is negotiated, agreed to and executed.
The failure of either party hereto to insist on strict compliance with any
provision hereof by the other party, shall not be construed as a waiver of such
provision.
This contract may not be amended or modified, except by an instrument
agreed to by both parties in writing. However, no further change in the
economic provisions of this Contract or in any of the other provisions hereof
will be sought or requested by THE CONFEDERACION or its members during the term
of this Contract, to the end that the assurance and stability so essential for
the effective operation of ECMC and so vital to the continuity and growth of the
racing sport and the racing industry in Puerto Rico may be protected and
promoted.
65
<PAGE>
THIRTY NINE: ARBITRATION. Any controversy, dispute or claim arising out
------------- -----------
of or relating to this Agreement, or the breach thereof, except those that are
of the Jurisdiction of the Racing Board or Racing Administration shall be
settled by arbitration in the City of San Juan, Puerto Rico, in accordance with
the Commercial Rules of the American Arbitration Association (AAA), and judgment
upon the award may be entered in any court having jurisdiction thereof. The
"AAA" will not manage or administrate the proceedings.
If the parties hereto are unable, after good faith negotiations, which each
hereby covenants to undertake, to resolve any dispute in respect to this
Agreement, any party may commence arbitration by sending a written demand for
arbitration to the other party. Such demand shall set forth with particularity
and supporting detail or documentation the dispute or matter to be resolved by
arbitration.
66
<PAGE>
There shall be one arbitrator. If the parties shall fail to select a
mutually acceptable arbitrator within fourteen (14) days after the demand for
arbitration is mailed, the single arbitrator shall be appointed as in accordance
with the rules of the American Arbitration Association, pursuant to the usual
procedure of said Association in such cases. The fee payable to the arbitrator
shall be based upon the time spent and the complexity of the matter in
arbitration and shall be paid one half ( ) by each party hereto.
Arbitration shall take place in San Juan, Puerto Rico, unless the parties
otherwise agree. In arriving at his decision, the arbitrator shall restrict
himself to the express language of this Agreement. Within fourteen (14) days
after the arbitrator is appointed, or as soon thereafter as shall be reasonably
possible and if necessary, a hearing with respect to the dispute or matter to be
resolved shall be conducted by the arbitrator. Each party may make written
submissions to the arbitrator as each party may deem appropriate, with copies to
the other party and a reasonable procedure for rebuttal, subject to the fourteen
(14) day limit. As soon as reasonably possible, but not later than fourteen (14)
days after the hearing is completed, the arbitrator shall arrive at a final
decision, which shall be reduced to writing, signed by the arbitrator and mailed
to each of the parties.
67
<PAGE>
All decisions of the arbitrator shall be final, binding and conclusive on
all parties, and shall constitute the only method of resolving disputes or
matters subject to arbitration pursuant to this Agreement, and judgment may be
entered upon such decision in accordance with applicable law in any court having
jurisdiction thereof.
This arbitration clause should not be interpreted to deprive the Racing
Board and/or the Racing Administrator of their jurisdiction.
FORTY: NOTICES. All notices, certificates, requests, consents, demands,
------ -------
directions, agreements or other instruments or communications between THE
CONFEDERACION and ECMC required to be given hereunder shall be given in writing
given by (i) first class mail, registered or certified, return receipt
requested, or (ii) private courier service, next day delivery, or (iii) telefax
or other similar form of rapid transmission, or (iv) personally delivered to the
receiving party of, if not an individual, to an officer of the receiving party.
All such communications shall be mailed, sent or delivered addressed as follows:
68
<PAGE>
If to ECMC: El Comandante Management Company
PO Box 1675
Route 3, Km. 15.3
Convenes, PR 00729
Attention: Mr. Gerald Wiemann
President & COO
Telephone: 787/641-6060
Telefax: 787/876-5170
If to THE CONFEDERACION: Confederacion Hipica de
Puerto Rico, Inc.
PO Box 4460
Carolina, PR 00984
Attention: President
Telephone: 787/876-3944
Telefax: 787-256-5700
FORTY ONE: AGREEMENT SUPERSEDES PRIOR AGREEMENTS. This Agreement supersedes
---------- ----------------------------------------
any other prior agreements or understandings, written or oral, between the
parties with respect to the subject matter hereof.
FORTY TWO: The approval on or before June 30, 2000 of P. of the S. 2587, P. de
-----------
la C. 3488 and/or any other similar legislation that affects the "Take" will
invalidate this Agreement.
69
<PAGE>
FORTY THREE: The present contract has been signed on the date herein stated by
------------
CONFEDERACION HIPICA DE PUERTO RICO, INC., EL COMANDANTE MANAGEMENT COMPANY,
LLC, HOUSING DEVELOPMENT ASSOCIATES, S. E., EQUUS ENTERTAINMENT CORPORATION and
INTERSTATE BUSINESS CORPORATION. Nevertheless, this contract as well as all
transactions (the "Other Transactions") contemplated thereby or resulting as a
consequence thereof (including but not limited to, motions to desist in the
following cases: Civil No. KLRA 9900625 before the Commonwealth of Puerto Rico's
Appeals Court, Region 1, San Juan, and Civil No. FDP-2000-0036 (402) before the
Superior Court of Carolina, Commonwealth of Puerto Rico; and all releases,
stipulations, etc., relative thereto) will never become valid, executable or
oblige the parties in any way unless ratified and/or approved by a General
Assembly of the members of CONFEDERACION HIPICA DE PUERTO RICO, INC. If the
contract as herein signed is not approved by a General Assembly of the
CONFEDERACION, it and the Other Transactions will be considered to have never
existed and must be considered not to have been executed by the parties.
IN TESTIMONY WHEREOF, the parties affix their signature at Convenes, Puerto
Rico, the day and year first above written.
CONFEDERACION HIPICA EQUUS ENTERTAINMENT
DE PUERTO RICO, INC. CORPORATION
_____________________________ _____________________________
RUBEN VALDES RICHARD C. VOORIES
PRESIDENT VICE PRESIDENT/DIRECTOR
OF OPERATIONS
70
<PAGE>
EL COMANDANTE MANAGEMENT
COMPANY, LLC
_____________________________
GERALD WIEMANN
INTERSTATE BUSINESS HOUSING DEVELOPMENT
CORPORATION ASSOCIATES, S. E.
_____________________________ _____________________________
RICHARD C. VOORIES
VICE PRESIDENT/DIRECTOR
OF OPERATIONS
AFFIDAVIT NO. _________
Sworn and subscribed to before me by:
1. Rub n Valdez, of legal age, married, resident of Guaynabo, Puerto Rico, as
President of Confederacion H pica de Puerto Rico, Inc.
2. Richard C. Voories, of legal age, married, resident of the State of
Florida, on behalf of Equus Entertainment Corporation, who has been duly
authorized by the partnership to appear in this act and execute this contract.
3. Gerald Wiemann, of legal age, married, resident of the State of
Pennsylvania, as President of El Comandante Management Company, LLC.
4. Richard C. Voories, of legal age, married, resident of the State of
Florida, on behalf of Interstate Business Corporation, who has been duly
authorized by the Board of Directors of the corporation to appear in this act
and execute this contract.
71
<PAGE>
5. Richard C. Voories, of legal age, married, resident of Florida, on behalf
of Housing Development Associates, S. E., who has been duly authorized by the
partnership to appear in this act and execute this contract.
Of the personal circumstances herein expressed, all of whom are personally known
to me.
In San Juan, Puerto Rico, on July 14, 2000.
___________________________________
NOTARY PUBLIC
72
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
BASE YEAR BUDGET
----------------
FOR: VETERINARY CLINIC EXPENSES
DESCRIPTION AMOUNT ($)
---------------------------------------------------- -----------
<S> <C>
Salaries: For 2 Veterinarians. . . . . . . . . . . . $ 177,538
FICA . . . . . . . . . . . . . . . . . . . . . . . 13,582
Disability . . . . . . . . . . . . . . . . . . . . 1,050
State Unemployment . . . . . . . . . . . . . . . . 1,350
Federal Unemployment . . . . . . . . . . . . . . . 1,420
Vacation Expense . . . . . . . . . . . . . . . . . 11,096
Sick Leave Expense . . . . . . . . . . . . . . . . 4,251
X-Mas Bonus. . . . . . . . . . . . . . . . . . . . 14,795
Medical Plan . . . . . . . . . . . . . . . . . . . 8,767
Professional Services - Other Veterinarians. . . . . 9,135
Insurance Expense - Liability, Malpractice, Property 28,437
Repairs and Maintenance. . . . . . . . . . . . . . . 2,801
Rental of Equipment. . . . . . . . . . . . . . . . . 1,403
Telephone. . . . . . . . . . . . . . . . . . . . . . 2,500
Interest Expense - Equipment Leasing . . . . . . . . 4,300
Administrative Expenses - Office Supplies/Employees. 60,000
Other Clinic Uses. . . . . . . . . . . . . . . . . . 12,509
Salaries - Lab Technicians . . . . . . . . . . . . . 23,328
FICA . . . . . . . . . . . . . . . . . . . . . . . 2,052
State Unemployment . . . . . . . . . . . . . . . . 159
Federal Unemployment . . . . . . . . . . . . . . . 64
Vacations. . . . . . . . . . . . . . . . . . . . . 1,750
X-Mas Bonus. . . . . . . . . . . . . . . . . . . . 1,886
Medical Plan . . . . . . . . . . . . . . . . . . . 442
Equipment Leasing/Rental . . . . . . . . . . . . . . 40,020
Lab References . . . . . . . . . . . . . . . . . . . 7,500
Lab Supplies . . . . . . . . . . . . . . . . . . . . 8,488
Seminars - Lab Technicians . . . . . . . . . . . . . 700
Vaccinations . . . . . . . . . . . . . . . . . . . . 9,027
All Other Items/Contingency. . . . . . . . . . . . . 6,806
-----------
Total Base Year Budget Expenses. . . . . . . $ 457,156
===========
</TABLE>
NOTE: This is only the Expense Budget and does not include any offset from
sponsorships and/or funding by third parties that may be received. Directly
related sponsorships and/or any directly related funding by third parties would
be used to offset these expenditures.
73
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT B(I)
-------------
BASE YEAR BUDGET
----------------
FOR: CLASICO DEL CARIBE
-----------------------
(WHEN HELD IN PUERTO RICO)
DESCRIPTION AMOUNT ($)
-------------------------------------- -----------
<S> <C>
Logos, paper and envelopes . . . . . . $ 1,500
Poster . . . . . . . . . . . . . . . . 1,000
Coordinator. . . . . . . . . . . . . . 6,000
Pennants . . . . . . . . . . . . . . . 400
Gifts (ladies, delegates). . . . . . . 1,700
Press Conference . . . . . . . . . . . 3,000
Autos/Buses. . . . . . . . . . . . . . 5,700
Trophies . . . . . . . . . . . . . . . 2,500
Saddle Clothing. . . . . . . . . . . . 850
ID Labor . . . . . . . . . . . . . . . 500
Invitations. . . . . . . . . . . . . . 500
Stewards/Jockey Club/Hotel . . . . . . 4,200
Laboratory . . . . . . . . . . . . . . 1,700
Banner . . . . . . . . . . . . . . . . 300
Horse Feed . . . . . . . . . . . . . . 2,500
Meals/Grooms . . . . . . . . . . . . . 4,000
Bed/Grooms . . . . . . . . . . . . . . 4,000
Tickets. . . . . . . . . . . . . . . . 200
Uniform/Pony Boys. . . . . . . . . . . 120
Security . . . . . . . . . . . . . . . 300
Translators. . . . . . . . . . . . . . 1,500
Master of Ceremony . . . . . . . . . . 500
Music. . . . . . . . . . . . . . . . . 2,000
Radio Calls (communication). . . . . . 200
Ladies Tour. . . . . . . . . . . . . . 600
Meals Delegates - Race Track . . . . . 12,000
Assembly . . . . . . . . . . . . . . . 3,000
Night Activity (Fri.-Sat.) . . . . . . 5,000
Closing Ceremony . . . . . . . . . . . 1,500
Quarantine/doctors . . . . . . . . . . 17,730
Classic Purses . . . . . . . . . . . . 330,000
All Other Items/Contingency. . . . . . 85,000
-----------
Total Base Year Budget Expenses. $ 500,000
===========
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT B(II)
--------------
BASE YEAR BUDGET
----------------
FOR: "CAMARERO AWARDS EXPENSES"
--------------------------------
DESCRIPTION AMOUNT ($)
------------------------------------- -----------
<S> <C>
Local Facility Rent . . . . . . . . . $ 10,192
Dinner - Selection of Valuables . . . 754
Television/Video. . . . . . . . . . . 8,000
Photographer. . . . . . . . . . . . . 275
Flower Arrangements . . . . . . . . . 385
Invitations . . . . . . . . . . . . . 250
Master of Ceremony. . . . . . . . . . 250
Sound Equipment . . . . . . . . . . . 300
Personnel for Handing Out Prizes. . . 100
Trophies. . . . . . . . . . . . . . . 4,725
All Other Items . . . . . . . . . . . 769
-----------
Total Base Year Budget Expenses $ 26,000
===========
</TABLE>
NOTE: This is only the Expense Budget and does not include any offset from
sponsorships and/or funding by third parties that may be received. Directly
related sponsorships and/or any directly related funding by third parties would
be used to offset these expenditures.
75
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT B(III)
---------------
BASE YEAR BUDGET
----------------
FOR: "HORSE RACING HALL OF FAME EXPENSES"
------------------------------------------
DESCRIPTION AMOUNT ($)
------------------------------------- -----------
<S> <C>
Organization of Activity. . . . . . . $ 17,640
Trophies. . . . . . . . . . . . . . . 4,622
Visual Segments . . . . . . . . . . . 7,500
TV Promotion. . . . . . . . . . . . . 500
All Other Items/Contingency . . . . . 2,238
-----------
Total Base Year Budget Expenses $ 32,000
===========
</TABLE>
NOTE: This is only the Expense Budget and does not include any offset from
sponsorships and/or funding by third parties that may be received. Directly
related sponsorships and/or any directly related funding by third parties would
be used to offset these expenditures.
76
<PAGE>
EXHIBIT B(IV)
--------------
BASE YEAR BUDGET
----------------
FOR: "CLASICO DEL CARIBE"
--------------------------
(WHEN RACES ARE HELD OUTSIDE OF PUERTO RICO)
DESCRIPTION AMOUNT ($)
----------- -----------
Cost to cover airfare, meals and hotel expenses of all delegates from Puerto
Rico, including the Confederacion Representative, Track Management
Representative, Racing Board, Racing Administrator, Horse Owner of Puerto Rico
Horse running in race(s) and their spouses.
Cost of Groom to attend to Horse
Cost to Ship Horse from/to Puerto Rico
Cost to Quarantine Horse from Puerto Rico
Total All Costs $60,000
=======
77
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT C
---------
VETERINARY CLINIC EQUIPMENT
---------------------------
PURCHASED FOR THE REMODELING
----------------------------
DESCRIPTION DATE PURCHASED AMOUNT ($)
------------ --------------- ----------
<S> <C> <C> <C>
Vault. . . . . . . . . . . . 08-20-97 $ 209.00
Ultrasound Machine . . . . . 09-03-97 40,500.00
Arthroscopy Machine. . . . . 09-03-97 14,497.25
Electric Car . . . . . . . . 09-25-97 3,000.00
Fluoroscopy Machine. . . . . 10-14-97 43,500.00
X-Rays Cassette. . . . . . . 10-31-97 3,727.52
Refrigerator . . . . . . . . 10-31-97 584.98
Washing Machine. . . . . . . 10-31-97 515.98
Dryer. . . . . . . . . . . . 10-31-97 465.98
Coagulation Analyzer . . . . 10-31-97 1,980.00
Ultrasonic Cleaner . . . . . 10-31-97 1,795.00
Padding Operations Table . . 10-31-97 862.80
Driller and Orthopedic Parts 11-21-97 12,263.95
Battery Ultrasound Equipment 11-21-97 1,169.00
Analyzer System and Stat . . 11-25-97 5,295.00
Printer for Laboratory . . . 07-18-98 319.00
Monitor Operating Room . . . 04-09-98 1,958.31
Battery Laboratory Machine . 09-22-98 1,850.00
---------------
TOTAL: . . . . . $ 134,493.77
============
</TABLE>
ITEMS 2- 6 NONE
78
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
/s/ Equus Gaming Company L.P.
-------------------------------------
(Registrant)
By: Equus Management Company
Managing General Partner
September 20, 2000 /s/ Thomas Wilson
----------------------------------------- Co-Chairman, President,
Chief Executive Officer and Director
September 20, 2000 /s/ Hernan G. Welch
----------------------------------------- Executive Vice President and
Chief Financial Officer
79
<PAGE>
