SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Fiscal Year ended December 31, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 333-18295
COLONIAL HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
VIRGINIA 54-1826807
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
10515 Colonial Downs Parkway
New Kent, VA 23124
(Address of Principal Executive Offices)
(804) 966-7223
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class on Which Registered Name of Each Exchange
Class A Common Stock, par value $0.01 per share Over the counter bulletin board
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 reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes[ ] No[X]
Number of Shares of Class A Common Stock outstanding as of March 27, 2001 -
5,025,239
Number of Shares of Class B Common Stock outstanding as of March 27, 2001 -
2,242,500
DOCUMENTS INCORPORATED BY REFERENCE - None
PART I
ITEM 1. BUSINESS
GENERAL
Colonial Holdings, Inc., (the "Company") formerly Colonial Downs Holdings,
Inc., a Virginia Corporation, was incorporated in 1996. The Company owns and
operates, through its wholly-owned subsidiaries, Colonial Downs Racetrack (the
"Track") in New Kent, Virginia, which primarily conducts pari-mutuel wagering on
thoroughbred and standardbred horse racing. The Company also owns and operates
four satellite wagering facilities ("Racing Centers"), which provide simulcast
pari-mutuel wagering on thoroughbred and standardbred horse racing from selected
racetracks throughout the United States. In addition, in February 2001, the
Company, through its wholly owned subsidiary, Colonial Holdings Management,
began managing certain truckstops in Louisiana that were acquired by an
affiliate of the Company's principal shareholder.
The Company sends its live race signal from the Track to out-of-state
satellite wagering facilities and receives race signals from out-of-state
racetracks. Under Virginia law, the majority portion of the pooled wagers is
paid out as winnings, a portion is paid to the applicable local governments and
the Commonwealth of Virginia, a portion is paid to the Virginia Breeders' Fund,
a portion is distributed to the Track's horsemen in the form of "purses", a
portion is paid to the racetrack from which the signal originates and the
remainder is retained by the Company.
The Company's revenues are comprised of (i) pari-mutuel commissions from
wagering on races broadcast from out-of-state racetracks to the Company's Racing
Centers and the Track using import simulcasting; (ii) wagering at the Track and
the Company's Racing Centers on its live races; (iii) admission fees, program
and racing form sales, and certain other ancillary activities; (iv) commissions
from food and beverage sales and concessions; (v) fees from wagering at
out-of-state locations on races run at the Track using export simulcasting and
(vi) starting in 2001, management fees from truckstops in Louisiana.
STRATEGY
The Company intends to be a leading participant in the industry by
capitalizing upon its unique dirt and turf track capabilities for live racing,
expansion of its Racing Center network, and its alliance with Maryland Jockey
Club to provide experienced management for the Track and Racing Centers.
Track - The Track's one and a quarter mile dirt track is one of the largest
tracks in the United States and its 180 foot wide mile turf track is the largest
turf track in North America. These unique configurations have and are expected
to continue to attract quality horses to the Track. The Track was host to the
1998 Breeders Crown, one of the premier North American standardbred racing
events, in November 1998. The Virginia Derby, a race for three-year old
thoroughbreds, was held in October 1998, 1999 and 2000 on the Company's turf
track. The Company intends to continue to develop the Virginia Derby as a
graded stakes race as a warm up to the Breeders' Cup. The Company believes that
by hosting and creating marquee racing events, the Company will be able to
improve its market visibility, attract additional patrons to the Track and its
Racing Centers, and enhance its ancillary revenues from export simulcasting,
corporate sponsorships, group sales events, and food and beverage sales.
The track facility was designed to provide patrons with a pleasant
atmosphere to enjoy quality horse racing. The outside grandstand area located
on the first floor of the track facility has an occupancy capacity of
approximately 4,000 patrons. Also located on the first floor of the track
facility are two simulcast/TV amphitheaters, two covered patio-seating areas,
four bars, a large concession food court, gift shop, and wagering locations with
approximately sixty tellers. The Jockey Club, which is in the main grandstand
area located on the third floor of the track facility, includes a full-service
dining area with a seating capacity of 548 patrons, two separate lounge areas,
and additional wagering locations with 24 tellers. The Turf Club, a private
club, as well as 10 luxury suites with skybox seating, are located on the fourth
floor of the track facility.
Racing Centers - By state law, the Company can operate up to six Racing
Centers in Virginia. The Company currently operates four Racing Centers located
in Richmond, Chesapeake, Hampton, and Alberta, Virginia. These Racing Centers
employ state-of-the-art audio/visual technology for maintaining quality import
simulcast thoroughbred and standardbred races from nationally known racetracks.
The Racing Centers are structured to accommodate the needs of various patrons
from the seasoned handicapper to the novice wagerer. The Racing Centers provide
patrons with a comfortable upscale environment including a full bar and a range
of restaurant services. In addition, self-serve automated wagering equipment is
available to patrons in order to make wagering more user-friendly to the novice
and more efficient for the expert. This automated wagering equipment with
touch-screen interactive terminals and personalized portable wagering terminals,
provide patrons with current odds information and enable them to place wagers
and credit winning tickets to their accounts without waiting in line. Under
current law, before the Company can open its last two Racing Centers, it is
required to win approval through a local referendum process in the municipality
in which the facility will be located.
Strategic Alliance - The Company entered into a Management and Consulting
Agreement (the "Agreement") with Maryland-Virginia Racing Circuit, Inc. an
affiliate of the Maryland Jockey Club ("MJC"), to provide experienced management
for the Track and Racing Centers and to create a Virginia-Maryland thoroughbred
racing circuit. Under the Agreement, MJC agreed to suspend live racing at their
racetracks, Laurel Park and Pimlico Race Course, during the Company's live
thoroughbred meets. Parties to the Agreement also agreed to exchange simulcast
signals for their live meets at no cost to either party. An amendment to the
Agreement (the "Amended Agreement") was signed by both parties on January 15,
1999, which restructured among other terms, MJC's responsibilities as manager
and the management fee paid to MJC. On July 1, 1999, MJC assumed operating
responsibilities for the Company's Racing Centers as well as the live
standardbred and thoroughbred meets. Prior to the Amended Agreement, MJC agreed
to manage the Company's thoroughbred meet, and the Company agreed to reimburse
MJC for the personnel it provided to manage such meet. Under the amended
agreement, MJC is no longer reimbursed for expenses incurred while acting as
manager of these operations. Also, under the Amended Agreement, the management
fees were reduced from 2% of amounts wagered at the Company's facilities (other
than on live standardbred meets conducted at the Track) to 1.0% of the first $75
million of the aggregate gross amounts wagered in any calendar year in the
Commonwealth of Virginia excluding certain conditions specified in the Amended
Agreement ("Handle") and 2.0% of all Handle in excess of $75 million per
calendar year. Management fees relating to the Company's new Racing Centers, if
any, will be either 2% or 3.25% of Handle depending upon their location and the
amount of Handle.
PURSE STRUCTURE
The Company contributes to the thoroughbred and standardbred purse
accounts, respectively, a certain percentage of all thoroughbred and
standardbred wagers at its Racing Centers and the Track. The purse structure is
negotiated with the respective horsemen's groups, the Virginia Horsemen's
Benevolent and Protective Association ("VaHBPA") for thoroughbred horsemen and
the Virginia Harness Horse Association ("VHHA") for standardbred horsemen. The
current agreements with both the VaHBPA and the VHHA expire December 31, 2001;
however, the VaHBPA agreement is subject to a three year renewal term at either
party's election and subject to the Virginia Racing Commission's approval.
The Company's purses have been competitive with purses at racetracks in the
mid-Atlantic market that conduct meets concurrently with the Company's meets,
with the possible exception of Delaware Park, which has video lottery terminals
("VLTs") or slot machines. Revenues from VLTs have enabled Delaware Park to
increase the purses offered. The racetrack in Charlestown, West Virginia
operates slot machines and the purses it offers are competitive with those
offered by the Company but are expected to continue to increase.
COMPETITION
The Company competes with racetracks located outside Virginia (including
several in Delaware, Maryland, New Jersey, New York, Pennsylvania, and West
Virginia) and other forms of gaming, such as land-based casinos, including those
in Atlantic City, and statewide lotteries in Virginia and neighboring states.
The Company also faces competition from a wide range of entertainment options,
including live and televised sporting events and other recreational activities
such as theme parks (Kings Dominion to the northwest and Busch Gardens to the
southeast) and more recently internet based pari-mutuel wagering and account
wagering on horse racing that operates from Pennsylvania.
The possible legalization of other forms of gaming in Virginia, such as
Indian and riverboat casinos could have an adverse effect on the Company's
performance. Although bills for the creation of riverboat casinos have failed
in the Virginia legislature, proponents of riverboat gaming in Virginia may
continue to seek legislative approval. It is not possible, at this time, to
determine if or when additional forms of gaming will be permitted in Virginia or
neighboring states and, if so, the impact, if any, on the Company.
The Company competes and will compete for wagering dollars and simulcast
fees with live racing and races simulcast from racetracks in other states,
particularly racetracks in neighboring states such as Charles Town in West
Virginia, Pimlico Race Course, Laurel Park, and Rosecroft Raceway in Maryland,
and Delaware Park in Delaware. The Company believes that the Management
Agreement with MJC will continue to promote coordination of thoroughbred events
between Maryland and Virginia. However, if the Virginia or Maryland Racing
Commissions do not approve the party's proposed racing days, or if the
Virginia-Maryland thoroughbred racing circuit is otherwise unsuccessful, the
Track may compete directly with Pimlico Race Course and Laurel Park in Maryland.
The Company anticipates that it will experience adverse effects from the
continued legalization of VLTs and slot machines in neighboring states such as
Delaware and West Virginia. Racetracks with VLTs and/or slot machines generally
are required to devote a significant portion of VLT and/or slot machine revenues
to the purses for which horses race. As a result, such racetracks may be able
to offer higher purses, which can make it difficult for the Company to attract
horsemen to race at the Track. The Company also is encountering competition
with patrons in Virginia that are participating in account wagering operated in
Pennsylvania through the ability to watch live horse racing via home satellite
television. Although illegal in Virginia, patrons are establishing accounts
with operators in Pennsylvania and placing wagers over the telephone while
watching races at home via satellite.
REGULATION
The Company's success is dependent upon continued government and public
acceptance of horse racing as a form of legalized gaming. Although the Company
believes that pari-mutuel wagering on horse racing will continue to be legal in
Virginia, gaming has come under increasing scrutiny nationally and locally. The
National Gaming Commission (the "NGC") conducted a comprehensive legal and
factual study of gambling in the United States and existing federal, state, and
local policies and practices with respect to the legalization or prohibition of
gambling activities. The NGC published its findings and recommendations in
1999. It is not possible to predict the future impact of any of these
recommendations on the Company and its operations; however, adoption of these
recommendations could have a material adverse effect on the Company's business.
Opposition to the Virginia Racing Act has been unsuccessfully introduced in the
Virginia legislature in the past, but additional legislative opposition may
arise in the future. If the Virginia Racing Act was repealed or materially
amended, such action could have a material adverse effect on the Company's
business of pari-mutuel wagering.
Virginia Racing Act - Under the Virginia Racing Act, the Virginia Racing
Commission is vested with control over all aspects of horse racing with
pari-mutuel wagering and the power to prescribe regulations and conditions under
which such racing and wagering are conducted. The Virginia Racing Commission is
responsible for, among other things, (i) conducting a review annually of the
Company's Track and Racing Center licenses, (ii) annually approving the
Company's proposed schedule of racing days, (iii) approving new or modified
types of pari-mutuel wagering pools requested by the Company, (iv) issuing
permits to all officers, directors, racing officials, and other employees of the
Company, and (v) approving simulcast schedules at the Track and at the Racing
Centers. The Virginia Racing Commission also has the authority to promulgate
regulations pertaining to the Company's Track facilities, equipment, safety and
security measures, and controls the issuing of licenses and permits for
participants in pari-mutuel racing, including Company employees at the Track and
at the Racing Centers. In addition, the Virginia Racing Commission must approve
any acquisition or continuing ownership of a 5% or greater interest in the
Company. Action by the Virginia Racing Commission that is inconsistent with the
Company's business plan could have a material adverse effect on the Company.
During the 2000 session of the Virginia General Assembly, an amendment to
the Racing Act was passed that requires the Company to enter into contracts with
each representative horsemen group and provides for the Company to contribute a
minimum of 5% of the first $75 million of simulcast Handle, 6% of the next $75
million and 7% of all Handle over $150 million to the purse account of the
respective breed. The existing contracts with the VaHBPA and VHHA were not
affected by the change. The amendment also provides for the breakage generated
by pari-mutuel wagering to be allocated 70% to capital expenditures and 30% to
backstretch benevolent activities. Prior to this amendment, the Company received
all breakage. Finally, the amendment empowers the Commission to summarily
suspend the Company's licenses if it believes the Racing Act or the regulations
have been violated.
The licenses issued by the Virginia Racing Commission to the Company are
for a period of not less than 20 years, but are subject to annual review by the
Virginia Racing Commission. It is possible that such licenses will not be
renewed or that such licenses could be suspended or revoked by the Virginia
Racing Commission for violations of the Virginia Racing Act or Virginia Racing
Commission rules.
Other State and Local Regulation - The Company, the Track, and the Racing
Centers are also subject to a variety of other laws and regulations, including
zoning, construction, and land-use laws and the regulations of the Virginia
Alcoholic Beverage Control Board. Such laws and regulations may affect the
selection of Racing Center sites because of parking, traffic flow, and other
similar considerations. Any interruption or termination of the Company's
ability, or that of its concessionaires, to serve alcoholic beverages could have
a material adverse effect on the Company.
Federal Regulation - The Company's interstate simulcast operations are
subject to the provisions of the Federal Interstate Horse Racing Act, which
regulates interstate off-track wagering. In order to conduct wagering on import
simulcasting at the Track or any Racing Center, the Interstate Horse Racing Act
requires the Company to obtain the consent of the Virginia Racing Commission,
the consent of the racing commission of the state where the horse racing meet
originates and the consent of the representative horsemen groups in the
origination state. To conduct export simulcasting, the Company must obtain the
consent of the Virginia Horseman's Benevolent and Protective Association or the
Virginia Harness Horse Association, and the Virginia Racing Commission. Also,
in the case of off-track wagering to be conducted at any of the Company's Racing
Centers, the Interstate Horse Racing Act requires the Company to obtain the
approval of all currently operating horse racetracks within sixty miles of the
Racing Centers or if there are no currently operating tracks within sixty miles,
the approval of the closest operating horse racetrack, if any, in an adjoining
state. Significant delay in obtaining such consents and approvals or failure to
obtain such consents or approvals could have a material adverse effect on the
Company.
Future Regulation - The Company's operations may become subject to additional
regulation from any of the foregoing or from other governmental bodies. Such
additional regulation could have a material adverse effect on the Company.
TAXATION
The Company is subject to a number of federal, state, and local taxes and
fees. These include fees to support the Virginia Breeders' Fund, taxes payable
to the Commonwealth of Virginia, taxes and admission charges payable to New Kent
County where the Track is located, and taxes payable to localities in which
Racing Centers are located based upon the amount of monies wagered both at the
Track and at the Company's Racing Centers. The Company believes that the public
acceptance of pari-mutuel wagering on horse races, as well as other forms of
gaming, is based, in part, on the governmental revenues it generates from taxes
and fees on such activities. It is possible that gaming activities, including
horse racing, may become a target for additional federal, state, or local taxes
and fees. A significant increase in such taxes or fees or the creation of
significant additional taxes or fees could have a material adverse effect on the
Company.
EMPLOYEES
As of December 31, 2000, the Company had approximately 92 full-time and 167
part-time employees. During the live meets, the Company employs up to 150
temporary employees. The Company considers its relations with its employees to
be good.
ITEM 2. PROPERTIES
Information regarding the Company's facilities as of December 31, 2000 is
as follows:
Size
Location Use Leased/Owned (Sq. Ft.)
--------- ------ ------------ ---------
Colonial Downs Racetrack
- -------------------------
New Kent, VA (1) Race Track and Owned 152,000
Administrative Offices
Racing Centers
- ---------------
Richmond, VA Satellite Wagering Owned 20,000
Chesapeake, VA Satellite Wagering Leased 15,000
Hampton, VA Satellite Wagering Owned 13,500
Alberta, VA Satellite Wagering Owned 8,000
(1) Colonial Downs Racetrack is located on approximately 345 acres of land with
paved parking to accommodate over 1,825 vehicles. Additional unpaved parking is
available for large and capacity crowds.
ITEM 3. LEGAL PROCEEDINGS
Mechanic's Lien Litigation. In connection with the construction of the
Racetrack, there remained two unresolved mechanic's lien litigation matters as
of December 31, 2000. In Baker Roofing Company v. Colonial Downs Holdings,
--------------------------------------------------
Inc., et al (New Kent County Cir. Ct. Case No. CH98-76), a roofing contractor
- -------------
sought payments of approximately $137,800 and its contractor, in turn, sought
payment of approximately $40,500 in NCI Building Components v. Baker Roofing
----------------------------------------
Company, et al (New Kent County Cir. Ct. Case No. CH98-78). The Company
- ----------------
contested these matters vigorously and ultimately settled these matters in March
2001 for not materially more than previously accrued.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the NASDAQ over the counter
bulletin board as of October 19, 2000 under the symbol "CHLD". The Company's
stock began trading on March 18, 1997. The following table sets forth for the
periods indicated the high and low closing prices per share of the Company's
Common Stock as reported on the NASDAQ Small Cap Market and the over the counter
bulletin board.
2000 - By Quarter 1999 - By Quarter
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
----- ----- ----- ----- ----- ----- ----- -----
High Bid $1.56 $1.22 $0.97 $0.53 $1.69 $2.56 $2.63 $1.50
Low Bid $0.75 $0.75 $0.38 $0.16 $0.63 $1.38 $1.00 $0.81
The closing price as of March 27, 2001 was $0.69 per share of Class A
Common Stock. There were approximately 726 holders of record of Class A Common
Stock on March 27, 2001.
There is no established market for the Class B Common Stock. There are
three holders of record of Class B Common Stock.
Dividend Policy - The Company has not paid any dividends to date and does
not anticipate paying any dividends on any class of its Common Stock in the
foreseeable future and intends to retain earnings to finance the development and
expansion of its operations. The payment of any future dividends will be at the
discretion of the Company's Board of Directors and will depend upon, among other
things, future earnings, operations, capital requirements, the financial
condition of the Company and general business conditions. Current debt
covenants with a lender preclude the Company from declaring and paying
dividends.
On October 19, 2000, the Company received notification from The NASDAQ
Small Cap Market that the Company had failed to meet certain market
capitalization criteria. As a result, the Company's stock was delisted and is
now traded on the over the counter bulletin board.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data derived
from the Company's financial statements and should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Financial Statements and Notes thereto, included elsewhere
herein.
(In thousands)
Years Ended December 31,
2000 1999 1998 1997
------- -------- -------- --------
Income Statement Data:
Total revenues $29,202 $ 29,351 $ 29,447 $ 23,647
Income (loss) from operations (166) 1,701 (3,597) (467)
Net earnings (loss) before income taxes (2,869) (1,139) (5,372) 92
Net earnings (loss) (2,869) (1,139) (5,288) 8
Basic and diluted net earnings (loss)
per share $ (0.39) $ (0.16) $ (0.73) $ 0.01
Balance Sheet Data (at period end):
Working capital (deficiency) $(4,129) $(26,565) $(14,661) $ (9,466)
Total assets 65,853 67,405 68,581 67,875
Current maturities of long-term debt 936 24,774 9,184 1,373
Long-term debt excluding current
maturities 26,898 2,975 15,008 15,390
Stockholders' equity 32,657 35,526 36,634 36,922
Cash Flow Data:
Net cash provided by (used in)
operating activities $ 121 $ 632 $ (2,289) $ 3,053
Net cash used in investing activities (2,249) (1,546) (5,884) (48,851)
Net cash provided by financing activities 1,934 1,072 5,980 47,766
EBITDA (1) $ 1,530 $ 3,540 $ (1,995) $ 188
(1) EBITDA is defined as the sum of the Company's net earnings (loss), net
interest expense, income taxes, depreciation, and amortization. EBITDA is
presented because it is a widely accepted financial indicator of a company's
ability to service and incur debt. EBITDA should not be considered in isolation
from or as a substitute for net income or cash flow measures prepared in
accordance with generally accepted accounting principles or as a measure of a
company's profitability or liquidity.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is an analysis of the financial condition and results of
operations of the Company. This analysis should be read in conjunction with the
Company's Financial Statements and Notes thereto, appearing elsewhere herein.
GENERAL
The Company, through its subsidiaries, holds the only licenses to own and
operate a racetrack and Racing Centers in Virginia. The Company currently
operates Racing Centers in Chesapeake, Richmond, Hampton, and Alberta, Virginia,
and may open two additional Racing Centers if suitable opportunities are
identified.
The Company's revenues are comprised of (i) pari-mutuel commissions from
wagering on races broadcast from out-of-state racetracks to the Company's Racing
Centers and the Track using import simulcasting; (ii) wagering at the Track and
the Company's Racing Centers on its live races; (iii) admission fees, program
and racing form sales, and certain other ancillary activities; (iv) net income
from food and beverage sales and concessions; and (v) fees from wagering at
out-of-state locations on races run at the Track using export simulcasting; and
(vi) commencing in February 2001, management fees for the operation of
truckstops and gaming assets owned by an affiliate of the Company's largest
shareholder.
The Company's revenues are heavily dependent on the operations of its
Racing Centers. Revenues from the Racing Centers help support live racing at the
Track. The amount of revenue the Company earns from each wager depends on where
the race is run and where the wagering takes place. Revenues from import
simulcasting of out-of-state races and from wagering at the Track and at the
Racing Centers on races run at the Track consist of the total amount wagered at
the Company's facilities, less the amount paid as winning wagers. The
percentage of each dollar wagered on horse races that must be returned to the
public as winning wagers (typically about 79%) is legislated by the state in
which a race takes place. Revenues from export simulcasting consists of amounts
payable to the Company by the out-of-state racetracks and their simulcast
facilities with respect to wagering on races run at the Track.
The immediate challenge facing the Company is its liquidity. However, the
Company expects that cash flows from operations and the availability of other
capital and financial resources, primarily through support of its principal
shareholder, will provide sufficient liquidity to meet its normal operating
requirements and capital expenditure plans over the next twelve months.
The following table sets forth certain operating results as a percentage of
total revenues for the periods indicated:
(Percentage of Net Revenues)
Years Ended December 31,
-------------------------
2000 1999 1998
------ ------ ------
Revenues:
Pari-mutuel and simulcasting commissions 93.7% 93.0% 90.8%
Other 6.3% 7.0% 9.2%
------ ------ ------
Total revenues 100.0% 100.0% 100.0%
Direct operating expenses:
Purses, fees, and pari-mutuel taxes 40.3% 32.6% 39.1%
Simulcast and other direct expenses 40.9% 38.9% 46.8%
------ ------ ------
Total direct operating expenses 81.2% 71.5% 85.9%
Selling, general, and administrative expenses 13.6% 16.4% 20.9%
Depreciation and amortization 5.8% 6.3% 5.4%
------ ------ ------
Income (loss) from operations (0.6)% 5.8% (12.2)%
Interest expense, net (9.2)% (9.7)% (6.0)%
------ ------ ------
Earnings (loss) before taxes (9.8)% (3.9)% (18.2)%
====== ====== ======
COMPARISON OF FISCAL YEARS 2000 AND 1999
Total Revenues. Total revenues in 2000 were $29.2 million, a decrease of
$.1 million from 1999 revenues of $29.3 million. Total revenue reflects a
decrease of $.1 million in live harness meet revenue and a $.4 million decrease
in revenues from the Racing Centers, offset by an increase of $.4 million in
thoroughbred meet revenue. The decrease in live harness meet revenues was
primarily due to a decrease in attendance despite an increase in the number of
race days (from 30 in 1999 to 40 in 2000). Attendance appears to have been
adversely affected by changing the harness meet from May through August in 1999
to October through December in 2000. The increase in live thoroughbred meet
revenue was primarily due to an increase in the number of race days (from 25 in
1999 to 32 in 2000). Revenues at the Hampton and Brunswick Racing Centers
increased $.3 million and $.1 million, respectively, while revenues at the
Richmond and Chesapeake Racing Centers decreased by $.6 million and $.2 million,
respectively compared to 1999. Current year revenues have been adversely
affected by passage of legislation sponsored by the Virginia Racing Commission
in April 2000 requiring the Company to remit 30% of breakage revenue to
horseman's benevolent associations. Prior to enactment of this law, the Company
was entitled to retain all breakage. The reduction in breakage revenue in 2000
due to this change was approximately $.1 million.
Direct Operating Expenses. As a percentage of revenues, direct operating
expenses increased 9.7%, or $2.7 million from the prior year. The increase in
operating expenses was principally attributed to increases in purse expense,
fees, and simulcast and other direct expenses. Purse expense increased to $5.7
million for 2000 from $3.5 million for 1999 due to the new agreements with the
VaHBPA and the VHHA.
Selling, General and Administrative Expenses ("SG&A"). As a percentage of
revenues, SG&A decreased approximately 2.8% from 1999. The decrease in SG&A as
a percentage of revenues was due primarily to reductions in professional,
consulting and legal fees of approximately $.9 million. This reduction was due
to the termination of the consulting agreement with Premier Development Company,
the settlement of the Norglass litigation and the non recurring expenses in 1999
related to the Company's unsuccessful effort to obtain a racetrack license in
Dumfries, Virginia. Other Racing Center and corporate SG&A costs increased $.1
million attributable primarily to increased insurance costs offsetting
reductions in other areas.
Interest Expense, Net. Interest expense, net of interest income, decreased
$.1 million to $2.7 million in 2000 from $2.8 million in 1999. The decrease in
net interest expense is due to the nonrecurring $.3 million interest provision
related to the Norglass arbitration award recorded in June 1999, cessation of
guarantee fees in August 2000 due to the refinancing of the Company's debt, and
an increase in interest income offset by a slight increase in debt and a slight
rise in interest rates.
Net Loss. Net loss increased to $2.9 million in 2000 from $1.1 million in
1999. The increase in net loss was a result of the factors discussed above.
COMPARISON OF FISCAL YEARS 1999 AND 1998
Total Revenues. Total revenues in 1999 were $29.3 million, a decrease of
$.1 million from 1998 revenues of $29.4 million. Total revenue reflects a
decrease of $1.2 million in live harness meet revenue and a $.3 million decrease
in live thoroughbred meet revenue, offset by an increase of $1.4 million at the
Racing Centers. The decrease in live harness meet revenues was primarily due to
the reduction in the number of race days (from 46 in 1998 to 30 in 1999). The
decrease in live thoroughbred meet revenue was affected by a decrease in
attendance. In an effort to maximize export simulcasting revenue, the Company
scheduled the thoroughbred meet with a mid afternoon post time of 3:00. In
doing so, attendance was negatively affected. Through effective advertising
campaigns, the Company was able to increase revenue at the Racing Centers even
though the Brunswick Racing Center was only opened five days per week in 1999.
From January until late April 1998, Brunswick Racing Center was opened seven
days per week.
Direct Operating Expenses. As a percentage of revenues, direct operating
expenses decreased 14.4%, or $4.3 million from the prior year. The decrease in
operating expenses was principally attributed to decreases in purse expense,
fees, and simulcast and other direct expenses. Purse expense decreased to $3.5
million for 1999 from $6.1 million for 1998 due to the new thoroughbred and
amended harness horsemen's contracts. This purse expense reduction was offset
by an increase in the fees due to MJC of $.6 million. The decrease in simulcast
and other direct expenses was primarily a result of the changes in Track
operations (approximately $2.0 million of the decrease in direct operating
expenses) due to the reduction in live race days, a reduction in the
thoroughbred meet management costs due to the revised and amended MJC agreement
and the implementation of cost saving measures, and improvements in operating
efficiencies. Signal fees and pari-mutuel taxes increased $.4 million at the
Racing Centers due to the increase in revenue. Cost saving measures in the
Racing Centers reduced other direct operating expenses by $.7 million.
Selling, General and Administrative Expenses ("SG&A"). As a percentage of
revenues, SG&A decreased 4.5% from 1998. The decrease in SG&A as a percentage
of revenues was primarily attributed to efforts to reduce personnel and other
expenses and resulted in net cost savings of $1.3 million from 1998. These
savings were achieved in spite of non-recurring legal and consulting fees
relating to the Norglass arbitration of approximately $.7 million and costs
relating to the Dumfries project, an unsuccessful effort to develop a new
racetrack and simulcast wagering center in Dumfries, Virginia, of $.3 million.
Interest Expense, Net. Interest expense, net of interest income, increased
$1.1 million from 1998 to $2.8 million for 1999. The increase in interest
expense was primarily a result of an increase in debt from $24.2 million at
December 31, 1998 to $27.7 million at December 31, 1999, the provision for
interest of $.3 million relating to the Norglass arbitration award and $.4
million loan guarantee fee to a shareholder which had been waived in 1998. The
increase in debt is largely attributable to the issuance of $1.8 million note to
Norglass in settlement of an award ordered by the American Arbitration
Association and the issuance of notes payable of $.9 million and $.6 million for
1999 thoroughbred purses to an affiliate of a shareholder and the Maryland
Jockey Club, respectively. The Company also received loans aggregating $.9
million from an affiliate of a shareholder and converted $.2 million of accounts
payable to a note.
Net Loss. Net loss decreased to $1.1 million in 1999 from $5.3 million in
1998. The decrease in net loss was a result of the factors discussed above.
Effect of Hurricane Floyd. The Company's operations were suspended for two
days in September 1999 due to treacherous weather conditions caused by Hurricane
Floyd. The loss of revenues is estimated to be $181,000. As a good portion of
the Company's costs are fixed, the loss of revenues' impact on net income was
severe. The impact of the loss on net income net of insurance recoveries was
approximately $162,000.
LIQUIDITY AND CAPITAL RESOURCES
During 2000, 1999 and 1998, the Company incurred aggregate net losses of
approximately $9.3 million and has a working capital deficit of $4.1 million at
December 31, 2000. The Company's continued existence is dependent upon its
ability to obtain adequate working capital to support its operations until they
become profitable. The Company has been and continues to be largely dependent
on the financial support of its principal stockholder, who through affiliated
entities and related parties is the holder of $25.7 million of debt from the
Company as of December 31, 2000. The Company is seeking continued financial
support from this stockholder.
Cash Flows. After adjusting the net loss of $2.9 million for non-cash
items such as depreciation and amortization, $1.1 million in cash was used. The
increase in accounts payable and other operating liabilities and the decreases
in accounts receivable and other assets and horsemen's deposits and purses
provided $1.2 million of cash resulting in net cash provided by operating
activities of $.1 million. Investing activities utilized approximately $2.2
million of cash, with $1.8 million consisting of payments on prior year
construction related liabilities and $.4 million of capital expenditures.
Financing activities provided approximately $1.9 million of cash primarily from
the refinancing of the debt.
In June 1999, the Company entered into a three-year contract with the
Virginia Horsemen's Benevolent and Protective Association ("the VaHBPA") to
provide for thoroughbred purses. Under the contract, $3,125,000 was guaranteed
to be available for purses for the 1999 thoroughbred meet. Of this amount,
$1,500,000 was considered to be an advance of purse money due in years 2000 and
2001. In 2000, the Company paid 5 1/4% of the Handle generated on simulcast
thoroughbred racing to the thoroughbred purse account. Then the VaHBPA repaid
$750,000 of the advance plus interest at approximately the prime rate back to
the Company, effectively reducing the Company's 2000 purse expense. The
remaining $750,000 balance of the advance plus interest at approximately the
prime rate will be repaid by the VaHBPA in 2001 from the 5 1/4% contributed by
the Company to the purse account.
EBITDA is a widely accepted financial indicator of a company's ability to
service and incur debt. The Company's EBITDA for 2000 and 1999 was approximately
$1.5 million and $3.5 million, respectively. The decrease in EBITDA is
primarily due to lower income before interest and income taxes due to the
changes in revenues, operating expenses and selling, general and administrative
expenses discussed in "Results of Operations" above. EBITDA should not be
considered in isolation from or as a substitute for net income or cash flow
measures prepared in accordance with generally accepted accounting principles or
as a measure of a company's profitability or liquidity. EBITDA is defined as
the sum of income before interest, income taxes, and depreciation and
amortization.
EFFECT OF INFLATION
The impact of inflation on the Company's operations has not been
significant in recent years. There can be no assurance, however, that a high
rate of inflation in the future will not have an adverse effect on the Company's
operating results.
SEASONALITY AND THE EFFECT OF INCLEMENT WEATHER
Revenues and expenses relating to the Track may be higher during scheduled
live racing than at other times of the year. In addition, weather conditions
such as those from Hurricane Floyd, sometimes cause cancellation of outdoor
horse races or curtail attendance, both of which reduce wagering. Attendance and
wagering at both outdoor races and indoor Racing Centers also may be adversely
affected by certain holidays and professional and college sports seasons as well
as other recreational activities. Conversely, attendance and wagering may be
favorably affected by special racing events which stimulate interest in horse
racing, such as the Triple Crown races in May and June and the Breeders' Cup in
November. As a result, the Company's revenues and net income may fluctuate from
quarter to quarter. Given that a substantial portion of the Company's Track
expenses are fixed, the loss of scheduled racing days could have a material
adverse affect on the Company's profitability. The Company believes that
simulcasting diminishes the effect of inclement weather on wagering.
GOING PRIVATE TRANSACTION
On March 1, 2001, the Company announced that its Board of Directors
received an offer from Jeffrey P. Jacobs, Chairman of the Board, Chief Executive
Officer, and the Company's largest shareholder, to acquire the Company. Upon
receipt of the offer, the Company formed a Special Committee to evaluate the
proposal.
Mr. Jacobs indirectly owns approximately 43.5% of the stock of the Company.
He proposed a transaction to purchase all of the remaining shares for a cash
price of $1.00 per share. U.S. Bancorp Libra, a division of U.S. Bancorp
Investments, Inc. is acting as advisor to Mr. Jacobs. The Special Committee
intends to employ independent legal counsel and a financial advisor to assist it
in analyzing the offer and negotiating with Mr. Jacobs.
Consummation of the transaction is subject to various conditions, including
the negotiation and execution of definitive agreements, approval by the
Company's Board of Directors and shareholders, the obtaining of various
regulatory approvals, and Mr. Jacobs' ability to obtain financing necessary
for the transaction. If a transaction with Mr. Jacobs occurs, it is anticipated
that it would close in mid to late summer of 2001.
MANAGEMENT AGREEMENT WITH JALOU
The Company's subsidiary, Colonial Holdings Management, Inc., has signed a
management contract with Jalou, an affiliate of Mr. Jacobs, the Chairman and CEO
of the Company, to manage two truckstops that Jalou recently acquired in
Louisiana and to manage the rights to a portion of the gaming revenues from a
third truckstop. Under the management contract, the Company will oversee all
aspects of the operations of the truckstops acquired. The management agreement
calls for the Company to provide these services in return for a fee of 3% of the
truckstops' revenue and 5% of the truckstops' EBITDA. Each truckstop offers
fueling, convenience store and restaurant facilities as well as 50 video poker
gaming devices.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments" ("SFAS 133"). SFAS 133, as amended by SFAS 137 and 138, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
SFAS 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair market value. Presently, the Company does not use
derivative instruments either in hedging activities or as investments.
Accordingly, the Company's adoption of SFAS 133, as amended, did not have a
material impact on its financial position or results of operations.
The Securities and Exchange Commission ("SEC") has issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 is effective in the fourth quarter of fiscal years
beginning after December 15, 1999. SAB 101 summarizes appropriate criteria to
be considered in determining recognition of revenue. Adoption of SAB 101 did
not have a material impact on the Company's financial position or results
of operations.
In March 2000, the FASB issued interpretation No. 44 ("FIN 44"), Accounting
For Certain Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25. FIN 44 clarifies the application of applying APB No. 25 for (a)
the definition of employee for purposes of applying APB 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequences of various modifications to a previously fixed stock
option or award and (d) the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 became effective July 2, 2000, but
certain conclusions cover specific events that occur after either December 15,
1998 or January 12, 2000. Adoption of FIN 44 did not have a material effect on
the Company's financial position or results of operations.
FORWARD LOOKING INFORMATION
The statements contained in this report which are not historical facts,
including, but not limited to, statements found under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" above,
are forward looking statements that involve a number of risks and uncertainties.
The actual results of the future events described in such forward looking
statements in this report could differ materially from those contemplated by
such forward looking statements. Among the factors that could cause actual
results to differ materially are the risks and uncertainties discussed in the
report, including without limitations the portions of such statements under the
caption referenced above, and the uncertainties set forth from time to time in
the Company's other public reports, filings and public statements. Such risks
include but are not limited to acts by parties outside the control of the
Company, including the Maryland Jockey Club, horsemen associations, the Virginia
Racing Commission, political trends, the effects of adverse general economic
conditions, the approval of future Racing Centers by referenda and/or the
Commission and governmental regulation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Most of the Company's debt obligations at December 31, 2000 were either
fixed rate obligations or variable rate obligations with its majority
shareholder, which provide the Company various options in determining the rate
of interest. Management therefore does not believe that the Company has any
material market risk from its debt obligations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
------
Report of Independent Certified Public Accountants 18
Consolidated Balance Sheets at year end 2000 and 1999 19
Consolidated Statements of Operations for years 2000, 1999 and 1998 20
Consolidated Statements of Changes in Stockholders' Equity for years
2000, 1999 and 1998 21
Consolidated Statements of Cash Flows for years 2000, 1999 and 1998 22
Notes to Consolidated Financial Statements 23-38
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Colonial Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Colonial
Holdings, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Colonial Holdings,
Inc. and subsidiaries at December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States of America.
The Company has been and continues to be largely dependent on the financial
support of its principal stockholder, who through an affiliated entity is the
holder of $25.7 million of debt from the Company as of December 31, 2000. In
addition, on March 1, 2001, the Company's Board of Directors received an offer
from its principal stockholder, who beneficially owns approximately 43% of the
Company's outstanding shares, to acquire all of the remaining shares for a cash
price of $1.00 per share. The Company has formed a special committee to
evaluate the proposal.
/s/ BDO Seidman, LLP
Richmond, Virginia
March 23, 2001
COLONIAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Data)
December 31, December 31,
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,119 $ 1,313
Horsemen's deposits 602 659
Accounts receivable 351 253
Prepaid expenses and other assets 97 114
------------ -----------
Total current assets 2,169 2,339
Property, plant and equipment
Land and improvements 15,640 15,554
Buildings and improvements 48,586 48,472
Equipment, furnishings, and fixtures 2,972 2,853
Leasehold improvements 1,124 1,124
----------- -----------
68,322 68,003
Less accumulated depreciation and amortization 5,433 3,817
----------- -----------
Property, plant and equipment, net 62,889 64,186
Licensing costs, net of accumulated amortization of $337
and $311, respectively 703 729
Other assets 92 151
----------- -----------
Total assets $ 65,853 $67,405
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,967 $ 2,764
Purses due horsemen 306 182
Accrued liabilities and other 2,089 1,184
Current maturities of long-term debt, and capital lease obligations 936 15,974
Current maturities of long-term debt - related parties - 8,800
----------- -----------
Total current liabilities 6,298 28,904
Long-term debt and capital lease obligations 1,160 1,750
Notes payable - related parties 25,738 1,225
----------- -----------
Total liabilities 33,196 31,879
Commitments and contingencies
Stockholders' equity
Class A, common stock, $0.01 par value; 12,000 shares authorized;
5,025 shares issued and outstanding 50 50
Class B, common stock, $0.01 par value; 3,000 shares authorized;
2,242 shares issued and outstanding 23 23
Additional paid-in capital 42,873 42,873
Accumulated deficit (10,289) (7,420)
----------- -----------
Total stockholders' equity 32,657 35,526
----------- -----------
Total liabilities and stockholders' equity $ 65,853 $67,405
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
COLONIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
Years Ended December 31,
-----------------------------------------
2000 1999 1998
-------- -------- ---------
Revenues
Pari-mutuel and simulcasting commissions $27,366 $27,285 $26,737
Other 1,836 2,066 2,710
-------- -------- ---------
Total revenues 29,202 29,351 29,447
Operating expenses
Direct operating expenses
Purses, fees, and pari-mutuel taxes 11,767 9,564 11,509
Simulcast and other direct expenses 11,936 11,418 13,791
-------- -------- ---------
Total direct operating expenses 23,703 20,982 25,300
Selling, general, and administrative expenses 3,969 4,829 6,142
Depreciation and amortization 1,696 1,839 1,602
-------- -------- ---------
Total operating expenses 29,368 27,650 33,044
======== ======== ========
Income (loss) from operations (166) 1,701 (3,597)
Interest expense (2,826) (2,905) (1,825)
Interest income 123 65 50
-------- -------- ---------
Loss before income taxes (2,869) (1,139) (5,372)
Provision for (benefit from) income taxes - - (84)
-------- -------- ---------
Net Loss $(2,869) $(1,139) $(5,288)
======== ======== ========
Loss per share data:
Basic and diluted loss per share $ (0.39) $ (0.16) $ (0.73)
Weighted average number of shares outstanding 7,267 7,260 7,250
The accompanying notes are an integral part of the consolidated financial
statements.
COLONIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
Common Stock Additional Total
-----------------------------------
Class A Class B Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital (Deficit) Equity
------ ------ ------ ------ ------- -------- ------
Balance at December 31,
1997 5,000 $50 2,250 $23 $37,842 $ (993) $36,922
Conversion of Class B 8 - (8) - - - -
Land contribution - - - - 5,000 - 5,000
Net loss - - - - - (5,288) (5,288)
------ ------ ------ ------ ------- -------- -------
Balance at December 31,
1998 5,008 50 2,242 23 42,842 (6,281) 36,634
Stock in lieu of
directors' fees 17 - - - 31 - 31
Net loss - - - - - (1,139) (1,139)
------ ----- ------ ------ ------- -------- --------
Balance at December 31,
1999 5,025 50 2,242 23 42,873 (7,420) 35,526
Net loss - - - - - (2,869) (2,869)
------ ----- ------ ------ ------- -------- --------
Balance at December 31,
2000 5,025 $50 2,242 $23 $42,873 $(10,289) $32,657
====== ===== ====== ====== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
COLONIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Years Ended
-------------------------------------------
December 31, December 31, December 31,
2000 1999 1998
------------ ------------ ------------
OPERATING ACTIVITIES
Net loss $(2,869) $(1,139) $(5,288)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization 1,696 1,680 1,602
Amortization of finance costs 28 159 -
Deferred income taxes and other 1 31 (78)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable and other assets (23) 44 470
Increase (decrease) in trade accounts payable and
accrued liabilities 1,107 342 (51)
Decrease (increase) in horsemen's deposits and purses 181 (485) 1,056
----------- ----------- -------------
Net cash provided by (used in) operating activities 121 632 (2,289)
----------- ----------- -------------
INVESTING ACTIVITIES:
Capital expenditures (399) (500) (5,884)
Decrease in construction payables (1,850) (1,046) -
----------- ----------- -------------
Net cash used in investing activities (2,249) (1,546) (5,884)
----------- ----------- -------------
FINANCING ACTIVITIES:
Proceeds from long-term debt and capital leases 25,932 2,375 6,398
Payments on long-term debt and capital leases (23,998) (1,303) (418)
----------- ----------- -------------
Net cash provided by financing activities 1,934 1,072 5,980
----------- ----------- -------------
Net change in cash and cash equivalents (194) 158 (2,193)
Cash and cash equivalents, beginning of year 1,313 1,155 3,348
----------- ----------- -------------
Cash and cash equivalents, end of year $1,119 $1,313 $1,155
=========== ========== =============
Supplemental Cash Flow Information:
Supplemental disclosure of noncash investing and
financing activities
Land contribution $ - $ - $5,000
Cash paid for interest 2,320 2,083 1,915
Conversion of accounts payable to long-term debt - 2,485 1,450
The accompanying notes are an integral part of the consolidated financial
statements.
COLONIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Colonial Holdings, Inc., ("Colonial") formerly Colonial Downs Holdings,
Inc., a Virginia corporation, was incorporated in 1996. Colonial owns and
operates, through its wholly-owned subsidiaries, Colonial Downs Racetrack (the
"Track") in New Kent, Virginia, which primarily conducts pari-mutuel wagering on
thoroughbred and standardbred horse racing. Colonial also owns and operates
four Racing Centers which provide simulcast pari-mutuel wagering on thoroughbred
and standardbred horse racing from selected racetracks throughout the United
States.
The Company owns, directly, or through its wholly-owned subsidiaries, the
operating licenses for the racetrack and the Chesapeake, Richmond, Hampton, and
Brunswick Racing Centers; the property for the Richmond, Hampton, and Brunswick
Racing Centers; the rights to apply for licenses to own and operate up to two
additional Racing Centers in Virginia; the 345 acres on which the racetrack
exists; and the racetrack facilities and certain related infrastructure.
Principles of Consolidation
The consolidated financial statements include Colonial and its
subsidiaries, Colonial Downs, L.P. ("Partnership") and Stansley Racing Corp.
("SRC" and collectively with Colonial and the Partnership, the "Company"). All
significant intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all demand deposits and time deposits with original
maturities of three months or less to be cash equivalents.
Capitalized Interest
Interest in the amount of $146,000 was capitalized during 1998, in
connection with the construction of the Track and development of the Racing
Centers. No interest was capitalized during 1999 and 2000.
COLONIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost. Depreciation
is computed using the straight-line method based on the estimated useful lives
of the related assets. Estimated useful lives used are as follows:
Land improvements 20 to 40 years
Building and improvements 5 to 40 years
Equipment, furnishings, and fixtures 2 to 20 years
Leasehold improvements 7 to 40 years
Depreciation expense was $1,666,000, $1,631,000 and $1,541,000 for fiscal
years 2000, 1999 and 1998, respectively.
Costs of betterments, renewals, and major replacements are capitalized.
Maintenance, repairs and minor replacements are expensed as incurred. Gains and
losses from dispositions are included in the results from operations.
Licensing Costs and Amortization
Licensing costs, which are being amortized over the twenty-year license
period, consist primarily of professional fees associated with the application
for the racetrack licenses and related licensing fees for the Racing Centers.
Revenue
The Company primarily derives revenue from import simulcasting, which is
the Company's share of wagering at its Racing Centers on races simulcasted from
other racetracks. Revenue also is derived from live racing at the Track as well
as export simulcasting of its live racing to other racetracks.
Horsemen's Purse and Awards
Amounts due under agreements with the Virginia Horsemen's Benevolent and
Protective Association, Inc. and the Virginia Harness Horse Association (Note 9)
are accrued based on the terms of the agreements. Funds for purses for future
live race meets are held in restricted cash accounts. As of December 31, 2000
and 1999 approximately $602,000 and $659,000, respectively, were held in the
restricted cash accounts. The Company deposits 30% of breakage revenue into a
Benevolent Fund account, as required by law. As of December 31, 2000,
approximately $63,000 was included in restricted cash accounts.
COLONIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Long-Lived Assets
The carrying values of long-lived assets, principally identifiable
intangibles, property, plant and equipment, are reviewed for potential
impairment when events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable, as determined based on the
undiscounted cash flows over the remaining amortization periods. In the
evidence of impairment, the carrying value of the related assets would be
reduced by the estimated shortfall of discounted cash flows.
Fair Value of Financial Instruments
The following methods and assumptions are used to estimate the fair value
of each class of financial instruments for which it is practical to estimate.
Cash and Cash Equivalents - The carrying amount approximates the fair value
due to the short maturity of the cash equivalents.
Long-Term Debt and Capital Lease Obligations - The fair value of the
Company's long-term debt and capital lease obligations is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. The carrying
amount approximates fair value since the Company's interest rates approximate
current interest rates.
Reclassifications
Certain reclassifications have been made in the prior years' financial
statements in order to conform to the December 31, 2000 presentation.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to credit risk
consist of cash equivalents, including horsemen's deposits, and accounts
receivable. The Company's policy is to limit the amount of credit exposure to
any one financial institution and place funds with financial institutions
evaluated as being creditworthy. At December 31, 2000 the Company had cash
deposits which exceeded federally insured limits by approximately $1,244,000.
COLONIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments" ("SFAS 133"). SFAS 133, as amended by SFAS 137 and 138, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
SFAS 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair market value. Presently, the Company does not use
derivative instruments either in hedging activities or as investments.
Accordingly, the adoption of SFAS 133, as amended, did not have an impact on the
Company's financial position or results of operations.
The Securities and Exchange Commission ("SEC") has issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101").
SAB 101 is effective in the fourth quarter of fiscal years beginning after
December 15, 1999. SAB 101 summarizes appropriate criteria to be considered in
determining recognition of revenue. Adoption of SAB 101 did not have a material
impact on the Company's financial position or results of operations.
In March 2000, the FASB issued interpretation No. 44 ("FIN 44"), Accounting
For Certain Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25. FIN 44 clarifies the application of applying APB No. 25 for (a)
the definition of employee for purposes of applying APB 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequences of various modifications to a previously fixed stock
option or award and (d) the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 became effective July 2, 2000, but
certain conclusions cover specific events that occur after either December 15,
1998 or January 12, 2000.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilutive
effect of securities (which can consist of stock options and warrants) that
could share in earnings of an entity. The Company had no securities which had a
dilutive effect on earnings per share for years ended December 31, 2000, 1999
and 1998.
2. MANAGEMENT AND CONSULTING AGREEMENT
The Company entered into a Management and Consulting Agreement (the
"Agreement") with Maryland-Virginia Racing Circuit, Inc., an affiliate of the
Maryland Jockey Club ("MJC"), to provide experienced management for the Track
and Racing Centers and to create a Virginia-Maryland thoroughbred racing
circuit. Under the Agreement, Maryland Jockey Club agreed to suspend live
racing at their racetracks, Laurel Park and Pimlico Race Course, during the
Company's live thoroughbred meets. Parties to the Agreement also agreed to
exchange simulcast signals for their live meets at no cost to either party. An
amendment to the Agreement (the "Amended Agreement") was signed by both
COLONIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. MANAGEMENT AND CONSULTING AGREEMENT- (CONTINUED)
parties on January 15, 1999, which restructured among other terms MJC's
responsibilities as manager and the management fee paid to MJC. Effective July
1, 1999, MJC became responsible for the Company's Racing Centers as well as the
live standardbred and thoroughbred meets. MJC no longer is reimbursed for
expenses incurred while acting as manager of these operations. Under the
Amended Agreement, the management fees were reduced from 2% of amounts wagered
at the Company's facilities (other than on live standardbred meets conducted at
the Track), to 1.0% of the first $75 million of the aggregate gross amounts
wagered in any calendar year in the Commonwealth of Virginia excluding certain
conditions specified in the Amended Agreement ("Handle") and 2.0% of all amounts
wagered in excess of $75 million per calendar year. Management fees relating to
the Company's new Racing Centers will be either 2% or 3.25% of Handle depending
upon their location and the amount of Handle.
The Agreement will remain in effect for as long as the Company owns,
controls or operates the Track, not to exceed a term of 50 years. At the
Company's option, the Company may terminate the agreement any time after 25
years upon payment of a fee equal to 17 times the average management fee paid
during the three years immediately preceding such termination.
Management fees incurred in 2000, 1999 and 1998 were approximately $1.7
million, $1.7 million and $1.1 million, respectively.
3. LAND CONVEYANCE
Delmarva Properties, Inc. and Chesapeake Forest Products Company
(collectively "Delmarva") and the Company entered into an agreement in which
Delmarva, at no cost to the Company, conveyed the land required to build the
racetrack and facilities in New Kent County. The original agreement contained
certain land use restrictions and a reconveyance provision. On January 14,
1999, Delmarva and the Company entered into an agreement pursuant to which
Delmarva agreed to relinquish their rights to require reconveyance of the
property and to execute a deed of release to such effect. Delmarva also agreed
to the following additional potential uses for the land and facilities: i)
performing arts center; ii) athletic training facility; or iii) hotel conference
center. Additional uses for the facilities are allowed upon approval by all
parties. As of December 31, 1998, the $5.0 million estimated value of the land
was recorded by the Company as a contribution to equity.
4. LONG-TERM DEBT, NOTES PAYABLE-RELATED PARTIES, AND CAPITAL LEASES
Long-Term Debt, Notes Payable-Related Parties, and Capital Leases,
consisted of the following:
December 31, December 31,
2000 1999
------------- -------------
Credit facility payable to CD Entertainment, Ltd., maturing
June 2005, with monthly interest payments at 9.96% and
principal payments of $1 million each due June 30, 2002,
2003 and 2004, with all unpaid principal and interest due
2005, collateralized by substantially all assets of
the Company $25,737,937 $ -
Note payable to Maryland Jockey Club, maturing December
2005, bearing interest at a rate of 7.75% payable quarterly for
the first two years and equal installments of interest and
principal to be paid quarterly over the remaining five year
term of the note, beginning in the first quarter of 2001 1,450,000 1,450,000
Note payable to Maryland Jockey Club, bearing interest at
the prime rate (9.5% at December 31, 2000), payable in two
equal installments during the years 2000 and 2001 300,308 600,000
Note payable to a bank, maturing October 2001, bearing
interest at prime plus 1.0% (10.5% at December 31, 2000),
with monthly principal payment of $15,000, collateralized
by certain fixed assets 300,000 480,000
Notes payable to an insurance company, maturing January 2001,
and April 2001, bearing interest at 8.70% and 7.52%,
respectively 45,398 -
Note payable to a bank maturing June 2000, bearing
interest at a variable rate, collateralized by
substantially all assets, except the Racing Centers,
of the Company and guaranteed by certain
shareholders and related parties - 10,000,000
Note payable under the revolving credit facility with a bank,
bearing interest at a variable rate, due June 30, 2000,
collateralized by substantially all assets,
except the Racing Centers, of the Company and
guaranteed by certain shareholders and related parties - 5,000,000
Convertible subordinated note payable to CD Entertainment,
Ltd., maturing September 2000, with interest payable quarterly
at a rate of 7.25%, collateralized by a second deed of
trust on the racetrack facility - 5,500,000
Convertible subordinated note payable to CD Entertainment,
Ltd., maturing August 2000, with an interest rate of 8.5%,
collateralized by the Hampton Racing Center - 1,000,000
Note payable to Norglass, Inc. maturing September 24, 2000,
monthly interest payment at a rate of 6% until maturity - 1,850,000
Note payable to CD Entertainment, Ltd., bearing interest
at the prime rate, payable in two equal installments during
the years 2000 and 2001 - 900,000
Note payable to CD Entertainment, Ltd., maturing August 2001,
with monthly interest payment at the Lender's cost of funds
plus one-half percent - 300,000
Note payable to CD Entertainment, Ltd., maturing September
2001, with monthly interest payment at the Lender's cost of
funds plus one-half percent - 475,000
Installment loans and capitalized leases collateralized by
certain vehicles, machinery and equipment, maturing at
various dates through September 2000, at interest rates
ranging from 8.125% to 10.5% - 51,543
Note payable to Ryan Incorporated Central, bearing monthly
interest at 10%, payable in six equal monthly payments
commencing January 1, 2000 - 142,735
----------- -----------
27,833,643 27,749,278
Less current maturities 935,706 15,974,278
Current maturities - related parties - 8,800,000
----------- -----------
26,897,937 2,975,000
Less long-term debt - related parties 25,737,937 1,225,000
----------- -----------
Long-term debt, including capital lease obligations $ 1,160,000 $ 1,750,000
=========== ===========
COLONIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. LONG-TERM DEBT, NOTES PAYABLE-RELATED PARTIES, AND CAPITAL LEASES -
(CONTINUED)
In August 2000, the Company entered into an agreement with CD Entertainment
Ltd. ("CD Entertainment"), an affiliate of the Chairman and CEO of the Company,
to refinance the $15 million in loans from PNC Bank ("PNC") that came due on
June 30, 2000. The refinanced former PNC debt and the Company's existing debt
to related parties was consolidated into a $25.7 million credit facility with a
term of five years and an interest rate of LIBOR on the date funds are drawn,
plus 3%. The Company drew on the credit facility's available balance to payoff
the $1.85 million Norglass, Inc. debt. The credit facility's remaining
available balance of approximately $.7 million was drawn in October 2000 to meet
short-term working capital obligations. Under the terms of the Credit facility,
principal payments of $1 million each are due on June 30, 2002, 2003 and 2004
with the balance due on June 30, 2005. In addition, the Company has agreed to
make an additional annual principal payment commencing in 2002 contingent upon
the Company's annual cash flow. The Company's racetrack property and the Racing
Center located in Hampton serve as collateral for the loan. Additionally, the
Company has pledged its limited partnership interest in Colonial Downs, L.P. and
its shares of Stansley Racing Corp., both of which are subsidiaries of the
Company, to CD Entertainment. This collateral package is identical to that
provided to PNC for the PNC Credit Facility with the additional deeds of trust
on the Racing Centers. The maturities of long-term debt reflect the terms of
the new agreement with CD Entertainment.
Scheduled maturities of notes payable and capital lease obligations are as
follows:
2001 $ 935,706
2002 1,290,000
2003 1,290,000
2004 1,290,000
2005 23,027,937
-----------
27,833,643
===========
5. INCOME TAXES
Significant components of the provision for (benefit from) income taxes are
as follows:
(In Thousands)
Years Ended December 31,
2000 1999 1998
-----------------------
Current:
Federal $- $- $ -
State - - -
-----------------------
- - -
Deferred:
Federal - - (57)
State - - (27)
-----------------------
- - (84)
-----------------------
Total $- $- $(84)
=======================
COLONIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. INCOME TAXES - (CONTINUED)
Deferred income tax assets (liabilities) consist of the following:
(In Thousands)
December 31,
2000 1999 1998
----------------------------
Assets
Net operating loss $ 5,131 $ 3,795 $ 2,828
Liabilities
Depreciation and amortization (1,374) (848) (276)
-------- -------- --------
Net deferred tax asset 3,757 2,947 2,552
Valuation allowance (3,757) (2,947) (2,552)
-------- -------- --------
Deferred tax asset $ - $ - $ -
======== ======== ========
Income tax expense (benefit) as reported differs from the amounts computed
by applying the statutory federal income tax rate to pre-tax income as follows:
Year Ended December 31,
2000 1999 1998
---------------------------
Income taxes at statutory rate $(975) $(386) $(1,798)
Increases (decreases) resulting from state taxes,
net of federal income tax benefit (113) (45) (209)
Other 278 36 -
Valuation allowance 810 395 1,923
------ ------ --------
$ - $ - $ (84)
====== ====== ========
At December 31, 2000, the Company has net operating loss carryforwards of
approximately $13.5 million for income tax purposes that expire in years 2012
through 2020. A valuation allowance has been recognized to reduce the deferred
tax assets by the entire amount.
6. EMPLOYEE BENEFIT PLANS
In June 1998, the Company implemented a 401(k) Plan in which all full time
and part time employees are eligible to participate after six months of
employment. Employees may elect to make pre-tax contributions up to 15% of
their annual salary or the applicable statutory maximum limits to the 401(k)
Plan. The Company makes discretionary matching contributions (subject to
statutory limits) in an amount equal to 20% of the first 6% of the employee's
contribution. Company contributions are fully vested after three years of
employment.
The Company's contributions to the 401(k) Plan were approximately $9,100,
$10,400 and $2,400 for 2000, 1999 and 1998, respectively.
COLONIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. RELATED PARTY TRANSACTIONS
Upon consummation of the Initial Public Offering, ("IPO"), in 1997, the
Company entered into a five year consulting agreement at $75,000 per year with
the Vice Chairman of the Board of Directors. Total expense under the agreement
was $75,000 for each of the years ended December 31, 2000, 1999 and 1998.
Virginia Concessions, L.L.C., ("VAC"), an affiliate of a shareholder, has
an agreement with the Company to manage the food and beverage concessions at the
Company's Racing Centers. The amended agreement states that the Company
receives 100% of VAC's net income or loss. VAC had net income of approximately
$70,000 (unaudited) and $141,000 (unaudited) in 2000 and 1999, respectively and
incurred a loss of approximately $7,000 (unaudited) in 1998. Accounts
receivable from VAC related to these agreements amounted to approximately
$243,000, $245,000 and $181,000 at December 31, 2000, 1999 and 1998,
respectively.
The Company filed an arbitration claim against Norglass, the general
contractor engaged to manage the construction of the Track and an affiliate of a
shareholder, in which Norglass counterclaimed. In August 1999, the American
Arbitration Association rendered a decision favorable to Norglass. Colonial
Downs, L.P. was ordered to pay Norglass $1,965,000 in the arbitration. In
addition, Colonial Downs, L.P. was ordered to pay interest of approximately
$285,000 and arbitration costs of approximately $98,000.
The Company settled with Norglass, in September 1999 for a total of
$2,325,000, of which $475,000 was paid in October 1999 and the remaining balance
of $1,850,000 plus interest at 6% was paid in September 2000 in satisfaction of
a note accepted by Norglass.
On October 1, 1997, the Company entered into an agreement with Premier
Development Co. ("Premier"), an affiliate of a shareholder, to pay annual
consulting fees in the amount of $226,000 through September 30, 1999. The
Company paid $225,000 and $226,000 under the agreement for the years ended
December 31, 1999 and 1998, respectively. The provisions under the agreement
continued until December 31, 1999 on a month-to-month basis. No fees were
incurred during the year ended December 31, 2000.
Pursuant to an agreement to provide credit support to the Company,
Diversified Opportunities Group Ltd. ("Diversified"), an affiliate of a
shareholder, will receive an annual fee equal to 3% of the amount of any
letters of credit or guarantees provided to the Company (subject, in the case of
a letter of credit, to a minimum annual fee of $50,000). The 1998 fee of
$450,000 is not payable until such time that the Company has successfully opened
two satellite wagering facilities in Northern Virginia. If such events do
not occur by January 1, 2007, the fee will be waived in its entirety.
Costs incurred under this agreement were $450,000 in 1999 and $300,000 in 2000.
This agreement was terminated in connection with the refinancing of the
Company's long term debt in August 2000.
In August 2000 the Company entered into an agreement with CD Entertainment,
Ltd. ("CD Entertainment"), an affiliate of the Chairman and CEO of the
Corporation, to refinance the $15 million in loans from PNC Bank that came due
on June 30, 2000. The refinanced former PNC debt and the Company's existing
debt to related parties was consolidated into a $25.7 million credit facility
with a
COLONIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. RELATED PARTY TRANSACTIONS - (CONTINUED)
term of five (5) years and an interest rate of LIBOR on the date funds are
drawn, plus 3%. Under the terms of the Credit facility, principal payments of
$1 million each are due on June 30, 2002, 2003 and 2004, with the balance due on
June 30, 2005. In addition, the Company has agreed to make an additional annual
principal payment commencing in 2002 contingent upon the Company's annual cash
flow. The Company's racetrack property and the Racing Center located in Hampton
serve as collateral for the loan. Additionally, the Company has pledged its
limited partnership interest in Colonial Downs, L.P. and its shares of Stansley
Racing Corp., both of which are subsidiaries of the Company, to CD
Entertainment. This collateral package is identical to that provided to PNC for
the PNC Credit Facility with the additional deeds of trust on the Racing
Centers.
8. COMMITMENTS AND CONTINGENCIES
The Company has entered into an agreement with a totalisator company which
provides wagering services and designs, programs, and manufactures totalisator
systems for use in wagering applications. The basic terms of the agreement state
that the totalisator company shall provide totalisator services to the Company
for all wagering held at the Company's facilities through 2001. In addition,
the Company agreed to use certain equipment provided by the totalisator company.
The Company has entered into agreements with a company which provides
broadcasting and simulcasting equipment and services. These agreements expire
at various times through 2002. Total expense incurred for totalisator, and
broadcasting and simulcasting equipment was approximately $1,755,000, $1,604,000
and $1,821,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.
The Company leases automobiles, building space, and certain equipment under
operating leases expiring at various dates. Total rental expense under these
non-cancelable leases was approximately $243,200, $230,000 and $207,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.
The following are the future estimated minimum commitment relating to
non-cancelable operating agreements and leases:
Broadcasting
Simulcasting
and
Year ended December 31, Totalisator Other Total
- ----------------------- ------------ --------- ----------
2001 $1,240,000 $185,000 $1,425,000
2002 689,000 179,000 868,000
2003 - 155,000 155,000
2004 - 112,000 112,000
2005 - 57,000 57,000
------------ ---------- ----------
$ 1,929,000 $ 688,000 $2,617,000
============ ========== ==========
COLONIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
In 2000, the Company entered into an agreement to manage truckstops in
Louisiana owned by an affiliate of the Company's principal shareholder. The
agreement may be terminated on 60 days written notice from the affiliate of the
principal shareholder.
Under the terms of a $700,000 Community Development Block Grant received in
1996 from New Kent County, the Company must take affirmative steps to employ a
minimum number of low and moderate income persons based on HUD Section 8 Income
Limits. If a good faith effort has not been made to honor its commitment to
take such affirmative steps, the Company may repay all or a portion of any local
or grant funds already expended to the locality. In 2001, the Company was
deemed to have complied with the terms of this agreement.
In connection with the Norglass dispute, two subcontractors of Norglass
have filed mechanics liens against the Track seeking payments aggregating
approximately $178,000. The Company is contesting these claims. At December
31, 2000, approximately $60,000 has been accrued related to these claims. An
agreement was reached to settle these claims in March 2001 for not materially
more than previously accrued.
9. HORSEMEN'S AGREEMENT
Purse agreements are negotiated with the respective horsemen's groups, the
Virginia Horsemen's Benevolent and Protective Association ("VaHBPA") for
thoroughbred and the Virginia Harness Horse Association ("VHHA") for
standardbred.
The Corporation entered into a new agreement with the VHHA as of August 1,
2000 relating to standardbred racing at the Racetrack and simulcast standardbred
racing at the Corporation's satellite racing facilities. Pursuant to the
agreement, and in compliance with a law passed during the 2000 session of the
Virginia General Assembly, the Corporation contributes five percent (5%) of the
first $75 million of simulcast Handle, six percent (6%) of the next $75 million
of simulcast Handle, and seven percent (7%) of all Handle in excess of $150
million to the purse account of the VHHA. Simulcast standardbred Handle has not
exceeded $75 million in the four-year operation of the satellite wagering
facilities. The agreement with the VHHA automatically renews year to year
unless notice is given prior to November 1 of a party's election not to renew
the agreement. In accordance with the Virginia Racing Act, the Company deposits
approximately 8.5% of the Handle generated by live standardbred racing at the
Track. Standardbred purse expense for 2000, 1999 and 1998 was approximately
$1.6 million, $.9 million and $1.6 million, respectively.
The Company entered into a three year agreement with the VaHBPA, effective
January 1, 1999, that set a minimum payment of $3.125 million for 1999 purses,
with 25 days of live racing with average daily purses of no less than $125,000.
Of the total $3.125 million guaranteed payments, $1.5 million was considered to
be an advance of purse money due in years 2000 and 2001. In 2000, the Company
paid 5 1/4% of the Handle generated on simulcast thoroughbred racing to the
thoroughbred purse account and will continue to do so in 2001. In 2000, the
VaHBPA repaid $750,000 of the advance plus interest thereon back to the Company,
effectively reducing the Company's 2000 purse expense.
COLONIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. HORSEMEN'S AGREEMENT - (CONTINUED)
In addition, in accordance with the Virginia Racing Act, the Company must
continue to deposit approximately 8.5% of the Handle generated by live
thoroughbred racing conducted at the Track. Thoroughbred purse expense for
2000, 1999 and 1998 was approximately $4.2 million, $2.6 million and $4.6
million, respectively. Prior to 1999, the Company contributed to the
thoroughbred purse accounts a certain percentage of all thoroughbred wagers at
its Racing Centers.
10. STOCK OPTIONS
The Company implemented a stock option plan on March 31, 1997. Options
granted under the plan may be either Incentive Stock Options or Non-qualified
Stock Options, based on the discretion of the Board of Directors. The maximum
aggregate number of shares which may be optioned and sold under the plan is
395,000 shares of Class A Common Stock. The exercise price per share for
Incentive Options will be no less than the fair value of the stock at the grant
date. The exercise of Non-qualified Options is determined by the Board of
Directors on the grant date. The term of the plan is ten years. On June 14,
1999, 20,000 granted and outstanding options were repriced from $10.45 to
$1.7875 per share. On December 15, 1998, 195,000 granted and outstanding
options were repriced from $9.50 per share to $1.00 per share. The following
tables summarize activity of the Stock Option Plan and the stock options
outstanding at December 31, 2000:
Weighted
Average
Exercise Available Options
Price for Grant Outstanding
-------- --------- -----------
Balance at December 31, 1997 $ 9.86 108,000 192,000
Granted 1.00 (79,000) 79,000
Forfeited 1.00 26,000 (26,000)
-------- --------- -----------
Balance at December 31, 1998 $ 2.93 55,000 245,000
Granted 1.50 (15,000) 15,000
Forfeited 1.00 21,200 (21,200)
Shares added to plan - 95,000 -
-------- -------- -----------
Balance at December 31, 1999 $ 2.28 156,200 238,800
Granted 1.06 (2,500) 2,500
Forfeited 1.00 3,200 (3,200)
-------- -------- ----------
Balance at December 31, 2000 $ 2.29 156,900 238,100
======== ======== ==========
Options Outstanding Options Exercisable
--------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Number Contractual Price Per Number Price Per
Range of Exercise Prices of Shares Life (years) Share of Shares Share
-------- ----------- -------- -------- ------
1.00 - 1.79 208,100 6.99 $ 1.11 122,300 $ 1.10
10.45 30,000 6.26 10.45 30,000 10.45
-------- ----------- -------- -------- ------
238,100 6.97 $ 2.29 152,300 $ 2.94
COLONIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. STOCK OPTIONS - (CONTINUED)
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). SFAS 123 establishes alternative methods of
accounting and disclosure for employee stock-based compensation arrangements.
The Company has elected to use the intrinsic value method of accounting as
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations, for stock options granted to
the Company's employees. This method does not result in the recognition of
compensation expense when employee stock options are granted if the exercise
price of the option equals or exceeds the fair market value of the stock at the
date of grant.
If the accounting provisions of SFAS 123 had been adopted, the effect on
2000, 1999 and 1998 loss would have been as follows (In Thousands, Except Per
Share Data):
2000 1999 1998
-------- -------- --------
Net loss:
Reported $(2,869) $(1,139) $(5,288)
Proforma (2,871) (1,148) (5,299)
Basic and diluted loss per share:
Reported $ (0.39) $ (0.16) $ (0.73)
Proforma (0.39) (0.16) (0.73)
For purposes of computing the proforma amounts indicated above, the fair
value of each option on the date of grant is estimated using the Black-Scholes
option pricing model with the following assumptions for the years ended December
31, 2000, 1999 and 1998, respectively: no dividend yield, expected volatility of
70%, 50% and 50%, risk-free interest rate of 6.62%, 6.08% and 5.04%, and
expected lives of seven, two to ten, and three to ten years. Substantially all
options become vested and exercisable evenly over a five-year period. The
weighted average fair value of options granted during the years ended December
31, 2000, 1999 and 1998 are $.76, $1.38 and $1.47 per share, respectively.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
Condensed quarterly consolidated financial data, in thousands (except per
share data), is shown as follows:
2000 quarterly information:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Net revenue $6,900 $6,975 $7,656 $ 7,671
Gross profit 1,727 1,560 1,425 787
Net loss (186) (328) (832) (1,523)
Loss per share (0.03) (0.05) (0.11) (0.20)
1999 quarterly information:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Net revenue $7,024 $7,233 $7,781 $7,313
Gross profit 2,680 1,712 1,852 2,125
Net loss 515 (1,031) (647) 24
Loss per share 0.07 (0.14) (0.09) -
12. SUBSEQUENT EVENTS
On March 1, 2001, the Company announced that its Board of Directors
received an offer from Jeffrey P. Jacobs, Chairman of the Board, Chief Executive
Officer, and the Company's largest shareholder, to acquire the Company. Upon
receipt of the offer, the Company formed a Special Committee to evaluate the
proposal.
Mr. Jacobs indirectly owns approximately 43.5% of the stock of the Company.
He proposed a transaction to purchase all of the remaining shares for a cash
price of $1.00 per share. U.S. Bancorp Libra, a division of U.S. Bancorp
Investments, Inc., is acting as advisor to Mr. Jacobs. The Special Committee
intends to employ independent legal counsel and a financial advisor to assist it
in analyzing the offer and negotiating with Mr. Jacobs.
Consummation of the transaction is subject to various conditions, including
the negotiation and execution of definitive agreements, approval by the
Company's Board of Directors and shareholders, the obtaining of various
regulatory approvals, and Mr. Jacobs' ability to obtain financing necessary for
the transaction. If a transaction with Mr. Jacobs occurs, it is anticipated
that it would close in mid to late summer of 2001.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name of Director Age Position with the Company
- ---------------- ---- --------------------------
Arnold W. Stansley 68 Mr. Stansley is an owner and has been an executive
officer of Raceway Park, a standardbred racetrack
Toledo, Ohio, for the last ten years. From 1993
to 1997, he served as President of Stansley
Management Corp., Colonial Downs, L.P.'s managing
general partner prior to the reorganization of the
Company in connection with its initial public
offering of stock. He also served as President of
Stansley Racing prior to the reorganization, from
1994 to 1997. Mr. Stansley has been a director of
the Company since March 1997. Mr. Stansley's term
as a director of the Company expires in 2002.
Stephen Peskoff 58 Mr. Peskoff has acted as a consultant to Friedman,
Billings, Ramsey & Co. for the last five years and
served as President of Underhill Investment Corp.
since 1976. Mr. Peskoff was active in the
thoroughbred horse industry from 1978 to 1992
during which time he won two Eclipse Awards (1983
and 1991) and was the breeder of the 1991 horse of
the year (Black Tie Affair). Mr. Peskoff was a
director of the Company from March 1997 until his
resignation on September 18, 2000. He was
reappointed to the Board in March 2001. His term
as director expires in 2002.
Patrick J. McKinley 46 Mr. McKinley has served as Executive Vice President
of Jacobs Investment, Inc. for more than twenty
years and is responsible for that company's day-
to-day operations. Mr. McKinley has over twenty
years' experience in restaurant operations and real
estate development and management. Mr. McKinley has
been a director of the Company since March 1997. Mr.
McKinley's term as a director expires in 2001.
Jeffrey P. Jacobs 47 Mr. Jacobs serves as Chairman of the Board and
Chief Executive Officer of the Company. From 1995 to
1995 to the present, he has served as Chairman and
Chief Executive Officer of Jacobs Entertainment Ltd.,
a company based in Cleveland, Ohio that has
investments in other gaming companies and ventures,
including Black Hawk Gaming and Development Company,
Inc. based in Black Hawk, Colorado. From 1975
to present he also has served as President and CEO
of Jacobs Investments, Inc., a company engaged in the
development, construction and operation of residential
and commercial real estate and entertainment projects
in Ohio. Mr. Jacobs also served in the Ohio House of
Representatives from 1982 until 1986. Mr. Jacobs'
term as a director of the Company expires in 2003.
Robert H. Hughes 60 Mr. Hughes served as Chief Financial Officer of
Jacobs Investments, Inc. from 1993 until May 1999. Mr.
Hughes is a director of Black Hawk Gaming and Development
Co., Inc. Mr. Hughes was partner in charge of the audit
department of the Cleveland office of the accounting firm
of Deloitte & Touche LLP until his retirement in 1991.
Mr. Hughes is a certified public accountant (retired).
Mr. Hughes' term as a director of the Company expires
in 2003.
David C. Grunenwald 47 Mr. Grunenwald has served as Vice President of
Development and Leasing for Jacobs Investments, Inc.
Inc. since 1988 and directs such company's development,
construction, and leasing operations. Prior to joining
Jacobs Investments, Inc., Mr. Grunenwald worked for Weston,
Inc. (1987-88) in syndication and property management and
Touche Ross & Company from 1981 to 1987 as a tax consultant.
Mr. Grunenwald's term as a director expires in 2003.
The executive officers, in addition to Mr. Jacobs, of the Corporation are:
Name of Officer Age Position with the Company
- --------------- --- -------------------------
Ian M. Stewart 46 Mr. Stewart has served as President since November
1998 and Chief Financial Officer since June 1997.
From January 1998 through November 1998, Mr. Stewart
served as Chief Operating Officer of the Company.
Prior to that time, Mr. Stewart was CFO for Barber
Martin & Associates from March 1997 to June 1997.
From October 1994 to March 1997, Mr. Stewart served
as a consultant and a temporary CFO for several Virginia
based businesses. From December 1989 to September
1994, Mr. Stewart was Vice President and CFO of Hat
Brands, Inc. Mr. Stewart is a certified public
accountant.
Jerry M. Monahan 61 Mr. Monahan has served as Vice President - Racing
Operations since June 1997. Prior to that time, Mr.
Monahan was Vice President and General Manager of
the Lexington Trots Breeder Association. Prior to
that, Mr. Monahan was Vice President and General
Manager of Buffalo Raceway.
There are no family relationships between any of the directors and executive
officers. No director or executive officer has been subject to any material
legal proceedings in the past five years.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - (CONTINUED)
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Company's
executive officers and directors and persons who own more than ten percent of
the Company's Common Stock file reports of ownership and changes in ownership of
the Company's Common Stock and any other equity securities of the Company with
the Securities and Exchange Commission (SEC) and The NASDAQ Small Cap Market.
Executive officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of Forms 3, 4 and 5 furnished to
the Company, or written representations from certain reporting persons that no
such forms were required to be filed by such persons, the Company believes that
all its executive officers, directors and greater than 10% shareholders complied
with all filing requirements applicable to them during 2000.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation paid or
accrued by the Company for services rendered for the last three fiscal years to
the Company's Chief Executive Officer and each executive officer whose aggregate
cash compensation in 2000 exceeded $100,000:
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payouts
Restricted Options/ LTIP All
Name and Other Stock SARs Payouts Other
Principal Position Year Salary Bonus Compensation Awards (#)(3) ($) Compensation
- ------------------ ---- -------- ------ ------------- ------- ------- --- -------------
Jeffrey P. Jacobs 2000 $120,000 (1) (2) (1) (1) (1) (1)
Chief Executive 1999 120,000 (1) (2) (1) (1) (1) (1)
Officer 1998 120,000 (1) (2) (1) (1) (1) (1)
Ian M. Stewart 2000 $150,000 (1) (2) (1) (1) (1) (1)
President 1999 135,584 (1) (2) (1) 10,000 (1) (1)
1998 120,000 (1) (2) (1) 10,000 (1) (1)
(1) No compensation of this type received.
(2) Other Annual Compensation for executive officers is not reported as it
is less than the required reporting threshold of the Securities and Exchange
Commission.
(3) Number of shares of Common Stock issuable upon exercise of options
granted during 1998, 1999 and 2000. The Company did not grant any Stock
Appreciation Rights during 1998, 1999 and 2000.
ITEM 11. EXECUTIVE COMPENSATION - (CONTINUED)
EMPLOYEE GRANTS OF STOCK OPTIONS IN 2000
None
NON-EMPLOYEE GRANTS OF STOCK OPTIONS IN 2000
EXERCISE OF STOCK OPTIONS IN 2000
Potential Realizable
Number of Percentage of Total Value
Securities Options at Assumed Annual
Underlying Granted to Non- Exercise Rates of Stock Price
Option Employees Prices Expiration Appreciation
Recipient Granted in Fiscal Year Per Share Date Per Option Term1
- ----------- ------- -------------- --------- ---------- -----------------
5% 10%
John Mooney 2,500 100% $1.06 3/10/05 - $1,550
1 In accordance with Securities and Exchange Commission rules, these columns
showed gains that might exist for the respective options, assuming that the
market price of Colonial Holdings' common stock appreciates from the date of
grant over a period of ten years at the annualized rates of 5% and 10%,
respectively. If the stock price does not increase above the exercise price at
the time of exercise, realized value to the individual employee from these
options will be zero.
OTHER MATTERS
The Company entered into a two-year employment agreement with Mr. Ian M.
Stewart in June 1999. This agreement contains customary terms and conditions and
provides minimum base salary of $150,000 each year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of March 10, 2001, by (i)
each person known to the Company to own beneficially more than five percent of
the Company's outstanding Common Stock, (ii) each director, (iii) the chief
executive officer and each of the four other most highly compensated executive
officers of the Company whose salaries and bonuses were in excess of $100,000,
and (iv) all of the executive officers and directors of the Company as a group.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP OF COMMON STOCK
Voting Power
Percent of Common Outstanding as Percent of
Common Stock
Name of Beneficial Owner Class A Class B Class A Class B All Outstanding(1)
- ------------------------- ---------- ------------- ---------- -------- ----- --------------
CD Entertainment Ltd. (2)
1231 Main Avenue
Cleveland, OH 44113 26,106,456(3) 2,010,000 86.4% 89.6% 86.6% 87.3%
Jeffrey P. Jacobs (4) 26,126,456 2,010,000 86.5% 89.6% 86.7% 87.3%
Arnold W. Stansley 478,879 --- 1.6% --- 1.5% 1.2%
James M. Leadbetter
110 Arco Drive
Toledo, Ohio 43607 216,581 225,000 * 10.0% 1.4% 3.2%
Stephen Peskoff (5) 67,518 --- * --- * *
Ian M. Stewart (6) 30,000 --- * --- * *
David C. Grunenwald (6) 13,088 --- * --- * *
Robert H. Hughes (6) 13,088 --- * --- * *
Patrick J. McKinley (6) 13,150 --- * --- * *
All executive officers
and directors as a group
(8 persons) (7) 26,757,179 2,010,000 88.6% 89.6% 88.6% 88.8%
* Represents less than 1%
(1) Except for votes on (i) a merger, (ii) a sale of substantially all of
the assets of the Company, (iii) an amendment to the Articles of Incorporation
or Bylaws of the Company, in which case the voting power of the Company's
officers and directors will be equal to their total respective percentage
ownership of Common Stock outstanding, as set forth herein.
(2) CD Entertainment Ltd. is beneficially owned by Jeffrey P. Jacobs, and
Richard E. Jacobs Revocable Trust.
(3) Includes 24,951,456 shares of Class A Common Stock issuable upon the
conversion of an Amended and Restated Convertible Term Note and Credit Line
Convertible Note held by CD Entertainment. The percentage calculation assumes
that the issued and outstanding Class A Common Stock of the Company is
29,976,695. However, the aggregate number of shares of Class A Common Stock
which the Company currently has authority to issue is 12,000,000. The Company
will make efforts to authorize additional shares for such conversion rights.
(4) Represents the shares owned by CD Entertainment Ltd. and options for
20,000 shares held pursuant to the Stock Option Plan.
(5) Represents 2,518 shares owned, 15,000 shares owned by Underhill
Investment Corp., an affiliate of Mr. Peskoff, options for 50,000 shares granted
under the Stock Option Plan.
(6) Includes stock options granted.
(7) Includes (i) all shares owned directly or indirectly, (ii) all options
held, except those to purchase shares issued to another officer or director.
The address of all directors and employees is c/o Colonial Downs, 10515 Colonial
Downs Parkway, New Kent, Virginia 23124.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Colonial Gifts & Sportswear. The Corporation entered into an agreement
with Colonial Gifts & Sportswear, Inc., a Virginia corporation ("Sportswear"),
in 1997 for the sale of gifts and apparel. Pursuant to the Agreement, the
Corporation provides space at the Racetrack and Racing Centers to Sportswear in
exchange for a royalty based on Sportswear's gross sales. Although the
Corporation received less than $10,000 in 2000 under the agreement, the expected
value of the contract may be in excess of $60,000. Sportswear is wholly owned
by the wife and daughter of Mr. Arnold Stansley, a director.
Virginia Concessions, L.L.C. Virginia Concessions, L.L.C. has an agreement with
the Corporation to provide food and beverage concessions at the Corporation's
Racing Centers. Under the agreement, the Corporation is responsible for the
management and administration of Virginia Concessions in exchange for all
earnings (or losses) from food and beverage sales. Virginia Concessions, L.L.C.
is beneficially owned by Mr. Jeffrey P. Jacobs, Chairman and a director.
CD Entertainment Ltd. In August 2000 the Corporation entered into an
agreement with CD Entertainment Ltd. ("CD Entertainment"), an affiliate of the
Chairman and CEO of the Corporation, to refinance the $15 million in loans from
PNC Bank that came due on June 30, 2000. The refinanced former PNC debt and the
Corporation's existing debt to related parties was consolidated into a $25.7
million credit facility with a term of five (5) years and an interest rate of
LIBOR on the date funds are drawn, plus 3%. Under the terms of the Credit
facility, principal payments of $1 million each are due on June 30, 2002, 2003,
and 2004, with the balance due on June 30, 2005. In addition, the Corporation
has agreed to make an additional annual principal payment commencing in 2002
contingent upon the Corporation's annual cash flow. The Corporation's Racetrack
property and the Racing Center located in Hampton serve as collateral for the
loan. Additionally, the Corporation has pledged its limited partnership
interest in Colonial Downs, L.P. and its shares of Stansley Racing Corp., both
of which are subsidiaries of the Corporation, to CD Entertainment. This
collateral package is identical to that provided to PNC for the PNC Credit
Facility with the additional deeds of trust on the Racing Centers.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Included in Part II of this report:
Report of Independent Auditors
Consolidated Balance Sheets at year end 2000 and 1999
Consolidated Statements of Operations for years 2000, 1999 and 1998
Consolidated Statements of Changes in Stockholder's Equity for years 2000,
1999 and 1998
Consolidated Statements of Cash Flows for years 2000, 1999 and 1998
Notes to Consolidated Financial Statements
2. All required schedules are omitted because of the absence of
conditions under which they are required or because the required information is
given in the financial statements or notes thereto.
3. Exhibits
2.1 Agreement and Plan of Reorganization (1)
3.1 Amended and Restated Articles of Incorporation of Colonial
Downs Holdings, Inc. (1)
3.2 Amended and Restated By-laws of Colonial Downs Holdings, Inc.(1)
4.1 Stock Certificate representing Colonial Downs Holdings, Inc.
Common Stock (1)
10.1 Management and Consulting Agreement (1)
10.2 Amended and Restated Performance Guarantee Agreement (1)
10.3 Form of Deed for Track site (1)
10.4 Construction Agreement (1)
10.5 Development Agreement (1)
10.6 Hubbing Agreement (1)
10.7 VHHA Simulcast Wagering Agreement (1)
10.8 VaHBPA Simulcast Wagering Agreement (1)
10.9 Form of Convertible Subordinated Note (1)
10.10 Forms of Employment Agreements (1)
10.11 Form of Stansley Racing Agreement (1)
10.12 Amended and Restated Promissory Note to CD Entertainment Ltd. (1)
10.13 Agreement for Interim Financing (1)
10.14 Registration Rights Agreement (1)
10.15 Not used (1)
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K - (CONTINUED)
10.16 Form of 1997 Stock Option Plan (1)
10.17 Agreement for Provision of Credit (1)
10.18 Management Agreement between Colonial Downs, L.P. and
Virginia Concessions, L.L.C. (2)
10.19 Construction Loan Agreement between Colonial Downs, L.P. and PNC
Bank, N.A. (2)
10.20 Revolving Line of Credit Agreement (2)
10.21 Deed of Trust Note (2)
10.22 Revolving Line of Credit Note (2)
10.23 Deed of Trust and Security Agreement (2)
10.24 Assignment of Leases and Rents (2)
10.25 Agreement of Guaranty and Suretyship (Completion) between
Stansley Racing Corp. and PNC Bank, N.A. (2)
10.26 Agreement of Guaranty and Suretyship (Completion) between
Colonial Downs, Holdings, Inc. and PNC Bank, N.A.
10.27 Agreement of Guaranty and Suretyship (Payment), between Stansley
Racing Corp. and PNC Bank, N.A. (2)
10.28 Agreement of Guaranty and Suretyship (Payment), between Colonial
Downs Holdings, Inc. and PNC Bank, N.A. (2)
10.29 Promissory Note payable to Citizens and Farmers Bank (3)
10.30 Business Loan Agreement between the Company, the Partnership, and
Citizens and Farmers Bank (3)
10.31 Commercial Security Agreement among the Company, the Partnership,
and Citizens and Farmers Bank (3)
10.32 Subordinated Agreement (Lighting) among the Company, CD
Entertainment, the Partnership, and David F. Belkowitz
and James W. Theobold (3)
10.33 Employment Agreement dated June 23, 1997 between the Company and
Ian M. Stewart (3)
10.34 Souvenir and Gift Concessions Agreement dated August 1, 1997, by
and between the Partnership, and Stansley Racing Corp., and
Colonial Gifts and Sportswear, Inc. (4)
10.35 First Amendment to Deed of Trust Note and Construction Loan
Agreement dated as of February 27, 1998, between Colonial Downs,
L.P., and PNC Bank, N.A. (5)
10.36 Convertible Subordinated Note, dated August 26, 1998 in the
principal amount of $1.0 million issued to CD Entertainment
Ltd. (6)
10.37 Deed of Trust, Assignment of Rents and Leases, and Security
Agreement and Assignment thereto to CD Entertainment Ltd. (6)
10.38 Amended and Restated Management and Consulting Agreement and
Addendum between the Company and Maryland-Virginia Racing
Circuit, Inc., dated January 15, 1999
10.39 Agreement between Delmarva Properties, Inc. and the Company dated
January 15, 1999
10.40 Forbearance Agreement dated January 11, 1999 between the Company
and PNC Bank, N.A.
10.41 Second Amendment to Standardbred Horsemen's Agreement (1)
10.42 Thoroughbred Horsemen's Agreement (8)
10.43 Promissory note payable to Norglass, Inc. dated September 24,
1999 (9)
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K - (CONTINUED)
10.44 Promissory note payable to CD Entertainment, Ltd., dated
September 30, 1999 (9)
10.45 Promissory note payable to CD Entertainment, Ltd., dated August
31, 1999 (9)
10.46 Promissory note payable to CD Entertainment, Ltd., dated August
15, 1999 (9)
10.47 Employment Agreement, dated as of June 23, 1999, between Ian M.
Stewart and the Company
10.48 Assignment, dated as of August 30, 2000, between PNC Bank,
National Association, and CD Entertainment, Ltd.
10.49 Amended and Restated Loan Agreement dated as of August 30, 2000
between Colonial Downs, L.P., the Company, and CD
Entertainment, Ltd.
10.50 Amended and Restated Convertible Term Note dated as of August 30,
2000 between PNC Bank, National Association and Colonial
Downs, L.P.
10.51 Credit Line Convertible Note dated as of August 30, 2000 between
the Company and CD Entertainment, Ltd.
10.52 Amendment to Second Deed of Trust dated August 30, 2000 between
the Company and CD Entertainment, Ltd.
21.1 Subsidiaries of the Registrant (1)
24.1 Power of Attorney (1)
(1) Incorporated by reference to the Exhibits filed with Colonial Downs
Holdings, Inc.'s Registration Statement on Form S-1 (Registration
No. 333-18295).
(2) Incorporated by reference to the Exhibits filed with Colonial Downs
Holdings, Inc.'s10-Q, dated August 14, 1997.
(3) Incorporated by reference to the Exhibits filed with Colonial Downs
Holdings, Inc.'s 10-Q, dated September 14, 1997.
(4) Incorporated by reference to the Exhibits filed with Colonial Downs
Holdings, Inc.'s 10-K, dated March 30, 1998.
(5) Incorporated by reference to the Exhibits filed with Colonial Downs
Holdings, Inc.'s 10-Q, dated May 15, 1998.
(6) Incorporated by reference to the Exhibits filed with Colonial Downs
Holdings, Inc.'s 10-Q, dated November 16, 1997.
(7) Incorporated by reference to the Exhibits filed with Colonial Downs
Holdings, Inc.'s 10-Q, dated May 4, 1999.
(8) Incorporated by reference to the Exhibits filed with Colonial Downs
Holdings, Inc.'s 10-Q, dated August 16, 1999.
(9) Incorporated by reference to the Exhibits filed with Colonial Downs
Holdings, Inc.'s 10-Q, dated November 15, 1999.
(10) Incorporated by reference to the Exhibits filed with Colonial Downs
Holdings, Inc.'s 10-Q, dated May 3, 2000.
(11) Incorporated by reference to the Exhibits filed with Colonial Holdings,
Inc.'s 10-Q,, dated August 14, 2000.
(12) Incorporated by reference to the Exhibits filed with Colonial Holdings,
Inc.'s 10-Q, dated November 14, 2000.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K - (CONTINUED)
(b) Reports on Form 8-K - The Company filed a Current Report on Form 8-K
during the three months ended December 31, 2000 relating to the transfer of the
listing of its securities from the NASDAQ Small Cap Market to the NASDAQ OTC
Bulletin Board. The Company filed a Current Report on Form 8-K during the three
months ended June 30, 2000 relating to long-term refinancing of its current debt
maturities. The Company filed Current Reports on Form 8-K during the three
months ended September 30, 2000 relating to the resignation of a member from the
Board of Directors and announcing a proposed management contract with an
affiliate of the Chairman and CEO.
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
COLONIAL HOLDINGS, INC.
By: /s/ Ian M. Stewart
---------------------------
Ian M. Stewart, President
and Chief Financial Officer
March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
is signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ Jeffrey P. Jacobs /s/ Robert H. Hughes
- --------------------------- --------------------------
Jeffrey P. Jacobs, Chief Executive Officer, Robert H. Hughes,
Chairman of the Board, Director Director
March 30, 2001 March 30, 2001
/s/ Arnold W. Stansley /s/ David C. Grunenwald
- ---------------------------- ---------------------------
Arnold W. Stansley, David C. Grunenwald,
Director Director
March 30, 2001 March 30, 2001
/s/ Stephen D. Peskoff /s/ Patrick J. McKinley
- ---------------------------- ---------------------------
Stephen D. Peskoff, Patrick J. McKinley,
Director Director
March 30, 2001 March 30, 2001